It is an interesting idea but I suspect that this type of software is much more about the training and employer engagement than it is about the software itself. Large organisations often have teams of people in HR that manage and train out the feedback and appraisal process, ensuring it is consistently applied and can be used in a positive way to add value to the business.
If you could provide an extensive training element on top of the software solution I think you could find a market.
- get into the detail of how the performance management cycle works so you have a good understanding of the main methodologies organisations use
- work out a way of overcoming the challenges a small business faces with performance management (e.g how do we engage employees to use it without thinking it is a tool to get them fired, how does the organisation deal with feedback without taking it as insult, is the time invested worth it to them etc.)
- talk to some small business owners about whether if we could solve their problems what the business value would be and how much they would pay for it
- based on that I would make a MVP (minimum viable product) and get some beta customers on board