Well, to be fair, some (or even most) small niche ideas won't be that profitable (if they are profitable at all). That is the reason why I feel that the market for those small investments will never really flourish. The downside is the same, you lose all your investment. The upside is completely underwhelming, you recoup your investment after 4 or 5 years after which hopefully you see a profit.

This is traditionally the space for friends-and-family investment or bank loans. If I was an investor then I don't think it is a space I would get into.

It also explains why the article I mentioned is focused on established and profitable SaaS businesses. That means the filter for crash-and-burn has already taken place allowing investors to change their ROI calculation enough to make it viable.

Isn't it harder to compete on established and profitable SaaS business? What can a small dev shop, or an indie developer do to compete in a space like this?

To be clear, the article isn't advocating for investing in companies competing against established/profitable SaaS businesses. It is advocating investing in the existing companies that have already achieved profitability.