The problem is people in small niche businesses often don't have the money to pay what amounts to a sustainable amount relative to what a software developer capable of striking out on their own could make with nearly zero risk by working for one of those behemoths (or really anyplace where tech is a competitive enabler or differentiator).

How is that a problem? The developer that wants that can go work on one of those behemoths, and those that value the small niche businesses can work there.

Plus, I don't see Basecamp or Panic or Bare Bones or whatever paying less to their devs. And less compared to what?

Behemoths are usually in SV or a few constrained places, and have the usual SV culture (including ageism etc).

Small niche business are anywhere, in places with much smaller costs of living, better work-life balance, and more kid-friendly environments. Heck, Procreate (frequently top of the App Store and Award Winning) is in Tazmania.

The problem is that it's insanely difficult to build a sustainable business in software targeting niche small businesses.

I think Basecamp is not targeting niche small businesses; they're a general purpose project management/team collaboration software, used by many businesses. It happens to be used by some small niche businesses, but in the same way a business checking account is used by many small niche businesses.

To me, niche small business software evokes more "software to automate inventory in a small machine shop", "landscape sprinkler system installation planning software", "antique shop inventory management software", "beekeeper scheduling software", etc.