I'd guess by having a quality product with good design. Time tracking is definitely over-saturated, but Freckle is a simple, powerful product with great design. That makes it makes it much easier to stand out.
I make my living exclusively in "over-saturated" or "nobody will pay for that" markets. Which so far has worked out just fantastically.
My first foray into an "over-saturated" market was a Mac news, opinion & tutorial site back in the late 90s. Every single person I talked to said the market was over-saturated, that nobody would read it & more importantly, I wouldn't get any advertisers. They were all wrong.