/
RSS Feed
Is AI really killing B2B SaaS, or is it just subscription software by another name?
In this Hot Take Tuesday, Rob Walling, Einar Vollset, and Tracy Osborn dig into the market panic around SaaS stocks, whether AI models are actually getting better, ChatGPT’s move into advertising (and Anthropic’s spicy response), and the explosion of OpenClaw. They also tackle QSBS and when SaaS acquisitions shift from asset to stock purchases.
Episode Sponsors:
This episode is brought to you by Mercury
Mercury is the banking solution I use across my businesses, from my personal single-member LLC to MicroConf and TinySeed.
Traditional banking forces you to duct-tape tools together and work around slow, clunky processes. Mercury gives me a clean dashboard that shows exactly where each business stands at a glance.
The interface is simple enough for daily banking and paying invoices, but powerful enough to handle multi-step approval workflows for large transfers.
There’s a reason more than 300,000 entrepreneurs have made the switch. It’s free to get started with no in-person visits and no minimum balance.
Apply online in minutes at mercury.com.
Mercury is a fintech company, not an FDIC-insured bank. Banking services provided through Choice Financial Group and Column N.A., Members FDIC.
If you’ve got a strong vision but no technical partner, you need more than a “vibe-coded” MVP, you need a real foundation.
That’s where Designli comes in. Their two-week SolutionLab Prototyping Sprint pairs you with a product owner, designer, and developer to turn your idea into a beautiful, clickable prototype you’ll be proud to show investors or early users.
Right now, Startups for the Rest of Us listeners get $3,800 off their sprint.
👉 Get started at designli.co/fortherestofus
Topics we cover:
- (3:52) – M&A guide for B2B SaaS founders
- (6:35) – QSBS and asset vs. stock purchase thresholds
- (9:25) – Is AI killing B2B SaaS?
- (16:27) – Are AI models noticeably better than a year ago?
- (17:27) – ChatGPT vs. Claude: real-world experiences
- (26:17) – ChatGPT ads and Anthropic’s Super Bowl response
- (29:34) – The opportunity for SaaS founders in new ad networks
- (32:29) – OpenClaw: hype or substance?
Links from the show:
- MicroConf US April 12-14, 2026 · Portland, Oregon
- Discretion Capital’s M&A Guide
- TinySeed SaaS Institute
- AI is Killing B2B SaaS by Namanyay Goel
- OpenClaw is What Apple Intelligence Should Have Been by Jake Quist
- Rob Walling @robwalling | X
- Einar Vollset @einarvollset | X
- Tracy Osborn (tracymakes) | Blue Sky
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes |Spotify
Rob Walling:
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen Mercury accounts from my personal single member LLC to MicroConf, our seven figure global events and education platform to TinySeed, our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send them to mercury.com. It’s free to get started with no in- person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC insured bank. Banking services provided through Choice Financial Group and Column NA Members FDIC. You’re listening to Startups of the Rest of Us. I’m your host, Rob Walling. In this hot take Tuesday episode, my two co-hosts and I dig into topics like is AI killing B2B SaaS, ads hitting ChatGPT, the explosion of OpenClaw and more. I did not intentionally make it an all AI episode, but these are the topics of the day. Before we dive into the episode, I want to let you know that there are two never published episodes of startups with the rest of us. And the only way to get them is to sign up for our email list, head to startupsforthrestofus.com, enter your email to subscribe, and you’ll get an episode titled Eight Things You MustKow When Launching your Startup and 10 Things You Should Know As You Grow and Scale Your SaaS.
These are audio episodes and they are accompanied by a PDF guide for each that summarizes the two episodes. And honestly, whether you’re interested in these episodes or not, we also send out a weekly recap of each episode of Startups for the rest of us. And you’ll be joining several thousand folks on that list who get the show notes and all the links of things we talk about in the episodes. Startupsfortherestofus.com and subscribe to get all of that. And with that, let’s dive into Hot Take Tuesday.
It’s Hot Take Tuesday time again, and I’m welcoming my usual band of Misfits. Kicking us off first is … Tracy Osborne. So Tracy Osborne, what do you do at MicroConf TinySeed?
Tracy Osborn:
I feel like these sessions are actually a really great way for people to see what a dork you actually are. It doesn’t come out. You rest the podcast. Yeah,
Rob Walling:
Totally.
Tracy Osborn:
Hi, I’m Tracy. I am the head of product of TinySeed and of MicroConf.
Rob Walling:
So what do you mean head of product? What do you do?
Tracy Osborn:
I’ll say the thing I said earlier to you. I am the Riker to your Picard. So I run all the day-to-day. You tell me what to do and I make it happen. Let’s put it that way. I
Rob Walling:
Love it.
Tracy Osborn:
Yeah.
Rob Walling:
Oh, that’s
Tracy Osborn:
Great. That’s what I
Rob Walling:
Do. And my other panelist is? It sounds like you’re being announced at a Giants game.
Einar Vollset:
Yes. Finally. It’s less than one Scaramucci until spring training starts. Did you know that?
Rob Walling:
I didn’t, but I do now. And aroll set, what do you do?
Einar Vollset:
I am your co-founder at TinySeed and also the co-founder and, well, founder and managing partner at Discretion Capital.
Rob Walling:
Very nice. And Discretion Capital is a boutique M&A firm that advises SaaS founders from what, two million to 20, 25 million ARR, and you advise them on the sell side if they’re looking to sell. Speaking of that, you and your team have put together a guide, the definitive guide to M&A for B2B SaaS. It is at discretioncapital.com/guide. You want to give us just a brief summary of what’s included?
Einar Vollset:
Yeah. It was actually one of my colleagues over at this question was like, “You should write something because we’ve been doing this since for nearly a decade now, and most people don’t really understand what it goes into.” It goes into M&A for B2B SaaS in this sort of ARR range. So really that’s the goal. The goal really is like … And look, obviously it’s marketing. I want the companies to come to us and we’ll help them make a bunch of money, but not everybody will do that. And so even if you’re going to DIY it, it’s worth understanding what does the market actually look like because it’s actually one of this sort of size range is very difficult. Once you get larger than that, if you’re into like 50 or 100 million dollars, then very quickly it becomes kind of known what the market is and what things cost and who the buyers are.
But between that sort of two and 20 million ARR range, it’s an extremely opaque market. And so what that translates into is like, you can very easily end up in a situation where you as a founder get bad advice, so you end up selling your business for like a third of what it’s worth, which pisses me off. So that’s what’s really the impetus for writing this guide. So we’re putting this together. It’s mostly written. We’re actually launching it publicly and we should have some hopefully physical copies for people at MicroConf in Portland in April, but we’re putting out one chapter a week basically. We just launched the chapter two here going into, on Monday, going into who actually buys these companies, are they? Because people don’t even know that. People don’t even know what is the typical makeup of buyers in the universe.
Rob Walling:
Yeah. That 70% of B2B SaaS acquisitions in this range are private equity.
Einar Vollset:
Yeah, private equity or at least private equity owned. So a lot of people, they don’t know what that means. And a lot of people have a view of, I like to joke, like a private equity is like a Bruce Springsteen movie or a song where it’s like they’re always bad and always pay poorly, but that really is a misunderstanding of really the biggest buyer class for B2B SaaS in this size range.
Rob Walling:
That’s discretioncapital.com/guide. And by the time this episode goes live, I believe you have at least five, maybe six chapters of that will be live because this is a few weeks out. Speaking of that, I actually wanted to ask you a question upfront and it’s in relation to this very podcast, episode 819 where I was asked about QSBS and someone was saying, should we become a C Corp? And I was like, obviously I can’t give you advice, but here’s what I would do. I would do it because I figure I’m going to sell and then I’m going to save on the taxes. And now even after, isn’t it like three years you get 50%, four years you get 75, and five years you get the full thing. And I explained that all on the episode, but the thing that I wasn’t sure about is QSBS means you have to sell the stock.
So you can’t do an asset sale. And I know there’s a mix of asset and stock sales. So my question that I couldn’t answer on there, and I specifically called out and said, “I should ask Einar in a future episode. Here we are at that future episode.” Around what ARR range or … No, it’s probably more like at what purchase price is a better way to ask this. Do you see SaaS acquisitions changing from asset to stock purchase or vice versa?
Einar Vollset:
I mean, you can have an asset purchase pretty much any size. It really depends. Probably 90% of the transactions we do, if not more, are stock transactions. Really, I think around about five million is roughly where it starts. We don’t do a lot or any deals that low, but like certainly once you get past 10, most of them are stock. And actually cover this a little bit in the guide, but it’s sort of a give and take. Usually the buyers want to do an asset purchase for tax reasons because that means they can reappreciate the asset and it’s simpler. So this is the industry, right? So what is an asset purchase versus a stock purchase? Asset purchase just means you’re just buying specific assets. So like you’re buying say the contracts, the website, the thing, the IP, but you’re not buying the rest of the company or any obligations or whatever that they have or have not made over the years.
And so the reason why you typically, typically don’t do a stock purchase is because it becomes a lot more expensive because it becomes just like the legal cost of papering a stock purchase becomes kind of not worth it if your deal isn’t very large. So like my rule of thumb is like around about a million of ARR typically, it starts to become much more common to do stock purchases. But I mean, it does happen, particularly if you have large companies that are LLCs come along and they’re just like, “Yeah, we’re going to structure an asset purchase.” And all things being the same, you’re going to get slightly more money in an asset purchase than you would do in a stock if you’re negotiating correctly. But again, like usually, certainly if you’re a C corp, but even so that there’s usually some tax issues around non-stock purchases that you should be aware of.
Rob Walling:
Cool. So give or take rule of thumb, you think about a million ARR and maybe five million exit price.
Einar Vollset:
Somewhere in there. Yeah.
Rob Walling:
That sounds about right. And I had hinted at that in the episode, but I just wasn’t certain. I’m sure I’d heard you say it at some point. I was kind of just quoting you on it. So with that, let’s dive into our first topic of the day and I’m just going to give a warning to everyone. This is all AI all the time. I went out to look for any topic that would impact us in B2B SaaS and I sifted through all the things and it’s just AI, AI, AI. So that is the episode today. If you don’t like AI, I’ll be back again next Tuesday morning. But first topic is an article that we will link up in the show notes called AI is Killing B2B SaaS. And I think my question, and I’ll kick it to Tracy first is, is AI killing B2B SaaS or will it just be subscription software by another name?
Is the market overreacting? Because as we’re recording this, the stock market is brutalizing some public SaaS companies. What are your thoughts?
Tracy Osborn:
The landscaper down the street is always going to need some sort of software to help them run their business. And so subscription software for businesses is going to stick around, but the way that that software is built and the ability for people to start building solutions for those B2B businesses or excuse me, for those kind of businesses is fundamentally changing. It is so much easier now for someone to be like, “Cool, I just want to build a software for five people on my street that are running these businesses.” So as someone who is supporting folks who are building software for B2B, B2B SaaS is not going to go away, but for those folks building that software, they need to be very aware that it’s going to be a way easier for people to build something to do what they’re doing and they have to figure out some way to make your software unique and defensible against these folks who are vibe coding.
Rob Walling:
One thing I was really surprised by in this piece, which is actually pretty well written, there’s some things I quibble with, but one fact that he was displaying was that HubSpot and Klaviyo are down 30% and analysts are writing notes titled No Reasons to Own Software Stocks. And when I think of how complicated HubSpot and Klaviyo is, it’s like you’re not going to fucking vibe code those. It is probably more powerful than Drip and Drip is complicated as. Anyways, with that in mind, AinR Vollset, what are your thoughts on this topic?
Einar Vollset:
I mean, I’ve been asked this question a fair bit. Obviously, fundraising for fund three by investors and things like that. I’m on record to say that, I mean, I think even public SaaS companies are oversold. I actually personally rotated into some more public SaaS in the last couple of weeks, which may come back to bite me, but fundamentally-
Rob Walling:
When oversold, you mean people have been selling them so they’re going down and you think it’s
Einar Vollset:
Overreaction? Basically, I think it’s a buying opportunity is what I think. And so I bought some. But fundamentally, my thing with it is like this, it’s like, I think the only reason when SaaS will be dead is if we’ve basically invented God. If you’ve invented an AI that is super intelligent to the point that like, okay, we’re ants to it and it can just do anything perfectly straight off the bat when you just ask you to do it, yeah, then I think SaaS is in trouble. But if that’s happening, the least of your problems is like, what’s going on with SaaS. All sorts of problems become a problem then. Instead, where I think we’re at is like, look, I think the models are incrementally getting better, but not as much as fast as they were, relatively speaking, is sort of my view. So it feels a little bit like we’re sort of at the, at least the starting on the top end of an S curve of capability.
I think that’s extremely disruptive to a lot of incumbents. And so I think yes, there is some risk to some large incumbents because it’s sort of one of the situations where like, okay, there’s a lot of change and a lot of uncertainty. And so if they misplay it, I can see that they are disruptable in a way that they weren’t prior to this AI thing. But the flip side of that is like, okay, I think people lose track of the fact that what we’re dealing with here is software. I mean, people sort of anthropomorphize AI in such a way that they think it’s fundamentally different to like, for example, like I have people who will very happily, like they will not give their email to Gemini, the Google AI, even when they turn off like, “Don’t use my data for training.” And I’m like, “Why?
Why? Why do you care?” And they’re like, “Oh, because it’s not secure.” And I’m like, “Google already has your data. What are you talking about? It’s in Gmail. You’re giving the data back to the same company. It doesn’t matter. It’s the same thing.” But I think people have sort of like completely lost that a lot of the time. And so they anthropomorphize and think about it versus like what it is is software. It’s a new software capability. And so applying that to public soft stock is like basically the bet. If you’re betting against SaaS or certainly established public SaaS, if you’re betting against that, what you’re basically arguing is the companies that made billions of dollars deploying software are going to do a bad job deploying software. That’s the bet. That is what you’re betting if you think that SaaS is dead completely, unless you believe this other thing, which is that we’ve built God or are building God, which there are people who do, there are people who are convinced that the world’s going to end within the next three or four years.
Rob Walling:
Yeah. And so here’s the thing, when I say SaaS isn’t dead and I roll my eyes, people say, “Well, of course you say that because everything you have is built on SaaS.” And you know what? That’s not actually true. I mean, I know right now it’s like SaaS and we’re B2B SaaS, but let’s say that agents became the new thing to subscribe to and that in fact, agents had built in databases and business logic and all this stuff. And maybe that happens eventually. Why wouldn’t we just start investing in them? Why wouldn’t I create startups for the rest of us content for them? Why wouldn’t my next book be called The Agentic Playbook by Rob Wallen? These are the same thing. It’s just software by a different name. SaaS used to be downloadable, right? It wasn’t SaaS then, but it was downloadable. Then they were called application service providers.
ASPs was a name for SaaS before SaaS. And then it was like cloud software became a thing for a while and I think only like super enterprise like Fortune 500s call it that now. It’s just something by a different name. So let’s just … I get it’s a headline and I want to get clicks on social media or on YouTube or whatever. But if you are really stuck in SaaS … Now, maybe the reason that these like HubSpot or whatever people think they’re going down is that they can’t be agile enough. They can’t roll with this. They’re not going to implement AI in some Upstart is going to come in and uproot them. But to your point, if HubSpot just implements the AI in their model or in their app, they’re going to do okay. I think the hypothesis, there’s hypothesis that everyone’s going to vibe code their own app.
And to Tracy’s earlier point, it’s like, no, we’re not. I used to write code for a living and I’m not going to vibe code a bunch of crap. I might do a little utility here, a little whatever, but the maintenance of that over time and the hosting, just the patches a lot, like I don’t want … And I get it, it could be lambda, blah, blah, blah, whatever. There’s no way that my super smart PhD wife, there’s no fucking way she’s going to vibe code a thing. She’s going to pay for software and most people will too. And we’re in these bubbles where we’re all techies and we can all roll our own thing in a weekend. That’s fine. Go do that. But that’s not … Tracy, you’ve seen how resistant that I’ve been to even writing, having any code that TinySeed maintains because it’s like, I don’t want to be a software shop.
I know that the headache and maintenance of that. With that, I want to roll to our next topic, which is actually something Einar you brought up already. It’s just a question. There’s no article here, but I had a question for the two of you, and I’d like to start with Tracy again. My question is, are the AI models that you are using today noticeably better than they were six, maybe 12 months ago? We can kind of put a timeframe on it. And so Tracy, maybe talk about any of the models you’re using and what your experience has been like. The reason I’m bringing this up is, sure, it’s anecdotal. It’s an N of three people weighing in, but I do like to hear boots on the ground examples of different use cases because you’re using it for different things than I am.
Tracy Osborn:
Yeah. I feel like I probably represent a lot of folks who are too busy. They see the hype happening, but they’re too busy to really dive into it. And so I’ve been using AI kind of in surface level haven’t gone deep. And so what I’ve been seeing from my work, I’ve been using ChatGPT and then I’ve started using Claude and I started using Claude because ChatGPT has been driving me up the wall twice now. I posted this on the TinySeat Slack, a whole screenshot of asking about a Zapier question and ChatGPT just lost its … And it just went for pages of not understanding and spiraling out. And it’s happened again with other Zapier questions. I don’t know what ChatGPT has with Zapier. So anyways, that’s my experience with ChatGPT of just seeing like, “Oh, hey, this thing is supposed to be evolving to be better.” And I’m running into these cases where I’m just like, “This is awful.
I have to move off of it. ” And so I’ve started using Cloud. So that said, for my use cases, which is generally in and around communication, summarizing information, regurgitating information in a better way that I can use in my processes, I’m not really using it for programming yet. ChatGP is worse, Cloud seems to be better. I haven’t seen enough of a difference in the last six or 12 months to say to definitively like, “Oh, these things are better for me. ” They’re already, I would say, pretty much good enough other than ChatGPT just losing it on certain questions. What shouldn’t be happening? It’s very weird.
Rob Walling:
How about you, AinR? What tools are you using and what are you using them for? And then the question of, are they better?
Einar Vollset:
Yeah. I’m one of those revolting guys who has the Max subscription and everything. So I have Cloud Max, I have ChatGPT, Pro Max, whatever the most expensive ones. So I use both. The one I’m using the most now is CloudCode, specifically CloudCode, not just Claude. I like the style of whatever, the personality, let’s call it that, of Cloud better than ChatGPT at the moment. But I think the big unlock for me was like Claude code. It was the harnessing around it, the fact that it could go on and understand a whole quote unquote code base. None of the stuff I’m doing is a code base. It was always something else. But that harnessing and that structure around it is sort of, if anything for me, that change, which is not like an AI capability change, was a bigger step up and change than I’ve seen from any model change in the last, certainly last year, probably more.
My answer is like, yeah, I think I don’t personally think that there has been such a big … Every time there’s a dot change, like 4.5 to 4.6 or whatever, there’s always like a big thing, oh my God, we turned the corner and like now we’re doing this thing and it’s the end times or the beginning of the beginning of whatever it is. And that I haven’t seen. My impression has been that if I’m perfectly honest, a lot of the time I don’t notice that I’ve been upgraded to version five or 5.1 or 5.2 or whatever, to be perfectly honest with you. I just don’t notice it. And so no, I don’t think that the models have changed. Where I might not pick up on it is like, I can see how potentially some of these updates will allow you to be more quote unquote agentic.
So there’s some like long running things or particularly around coding where I can see like, okay, maybe they trained it in such a way that it can be independent for longer in parallel with a lot of other things that like if you are deep in big, big development projects, yeah, maybe you’re noticing that difference. But for the stuff that I do, like the most advanced stuff I did here was like, I got sick of Squarespace, so I had it port all of the discretion capital Squarespace site over to a static website generator and put it on GitHub. But that’s like, okay, then I got to spank it every 20 minutes because it screwed something up. It’s not like super long running agentic things. That might be the only difference, but personally, no, I haven’t noticed the difference.
Rob Walling:
And for me, I had been using ChatGPT exclusively until Craig Hewitt busted my chops about it. He really doesn’t like ChatGPT and now I see why not. I started using Mannis a little bit, but then Claude became my thing. It feels like a lot of folks are moving to it. And I found Claude to be, it’s more expensive, but I don’t care. ChatGPT is 20 bucks and Claude is … I think I pay 200, I don’t actually need to. I’d probably be fine on the $100 plan, but I’ve been using it to repurpose some audio and video that I’ve recorded and trying to get it to write prose that sounds like me. So I’ve been training it to be like, “Here are my books, here are my blogs. I’ve written hundreds of thousands of words. This shouldn’t be that hard to match how I write to these topics because I’m also speaking them.” It’s me speaking, turn it into writing, right?
And it doesn’t get a full finished job, but man, ChatGPT could not handle that. And Claude, I have trained it and I’ve had to give it iteration after iteration of, oh, it puts something out. I do a full edit of how I want it to be, then spit it back in and it gets better and better and better. So that’s one thing. I don’t know if Claude could have done that a year ago because I didn’t try it that extensively, but I do know that I’m impressed with it. Similar though, when I think back a year or two, it feels generally the same. It’s getting asymptotically better. It’s like a little better. I mean, Einar, you had a theory that resonated with me, which was the first generations of all these LLMs were trained on basically the entire internet or as much of it as they could get.
And so then to get a lot better, you kind of need another entire internet’s worth of material, which doesn’t exist because it’s a whole internet. Am I quoting you correctly here?
Einar Vollset:
Yeah. There’s a couple of different things, right? It’s like people are always saying, “Just train more data and more compute.” And then if you keep 30Xing the compute, you’re going to get whatever, a step up improvement, 50% improvement every time. And there’s two things there. One is like, you’re just going to run out of training data, which is actually why I’m slightly bullish, quite bullish actually on Tesla, despite their enormous thing, because one of the interesting things about Tesla is like, someone told me this, which stat’s probably not correct, but it’s something along the lines of this. It’s like every second Tesla, the network of Tesla cars gets a lifetime’s worth of a driving experience every second or every millisecond or something crazy.
Rob Walling:
Interesting.
Einar Vollset:
But that’s raw data, right? That’s like raw real training data, which like you’re not generating that kind of like textual data, but in and of itself. So there’s a constraint there. You could potentially like synthetic data, but then you have issues with like, “Well, are you really improving yourself improvement?” Yeah, dodgy. So there’s that. And then fundamentally also, it’s just the asymptote stuff just has to do with sort of the increasing cost of compute. I was arguing with someone on Twitter, which I know must shock you guys.
Rob Walling:
What’s the first time for everything?
Einar Vollset:
Yeah. But they were basically saying like, look, they had this graph, it was something along the lines of like, a 50% improvement 30 times in a row is still like an amazing, is like a fundamental change to everything we know about. And I’m like, yeah, but if you assume that say ChatGPT-3 costs $20 million to train in compute budget and you’re having for every step up, you have to 10X the budget, like by time like 23 or something, the compute budget is higher in US dollars than the number of atoms in the observable universe. So like, okay, what are we talking about here? Yeah, I know on paper you can make this work, but that’s just not how it’s going to be. There has to be, I think. And I think most people now, if you talk to like leading edge research and stuff, sort of agree with this.
They’re like, look, there has to be another breakthrough to really start that, to get to the next kind of level, that capability where people start talking about like super intelligence or like something like that. It needs something else. You can’t just throw more synthetic data and compute on it, and I just don’t buy it personally.
Rob Walling:
If you’re a founder with a strong vision, but no technical partner, you need more than a vibe coated MVP. You need a real foundation. That’s where Designly comes in. Their Solution Lab prototyping Sprint is a focused two week collaboration where you work together with a seasoned product owner, a developer, and a designer to define what to build, why it matters, and how it should look, feel, and function. You’ll turn your idea into a beautiful and clickable prototype, something you’ll be proud to show to early users or investors. Designly is the product team you can actually trust with a track record of helping founders move from being ghosted by dev shops to growing real businesses. And right now, Designly is giving my listeners $3,800 off their solution lab prototyping sprint. To get started today, check out designly.co/fortherest of us. That’s D-E-S-I-G-N-L-I.co/for the rest of us. Our next topic is that ChatGPT has started running ads, is going to start running ads.
I actually don’t know. I’ve been, since I pay for it, I don’t see ads, but Anthropic ran a spicy Super Bowl ad pointing out … And it was a little disingenuous, but then Sam Altman got pretty angered by this and tweeted, “I wonder why Anthropic would go for something so clearly dishonest. Our most important principle for ads says we won’t do exactly what they’re showing. We would obviously never run ads in the way they depict them. We are not stupid and we know our users would reject that. ” And then it says, “Anthropic serves an expensive product to rich people. We are glad they do that, but we feel strongly that we need to bring AI to billions of people who can’t pay for subscriptions.” So there’s a lot here. Tracy, I’ll kick it to you first in terms of ads in ChatGPT. What do you think about all of it?
Tracy Osborn:
I was thinking through this before we started talking, I was looking at your notes and it just reminds me that every now and then I pop on a Prime show and now it has the little pop-ups where it’s like, “Hey, this ad has…” Press the button on your remote and you can order the product via your Amazon Prime thing. And my first reaction seeing those was being like, “Oh yeah.” I was like, “I will never do this because I’m a brat and I hate those things.” And I was like, “Why would they do that? ” And then I was like, “Oh, but I’m not the average person. I’m sure that Amazon is only doing this because they see that it works.” And if I apply that over to ChatGPT, if you have the average user in there, and if I saw an ad in ChatGPT, I would just close a tab and move on.
But I have to admit that I’m not the average person and I’m far more aware of, I think, advertising to the average person and more annoyed by it. So on one hand, I can see why ChatGPT is doing this. It’s not something for me, probably it’s for the person. The other part of it is like, “Really, this is your monetization model.” Going back to why I don’t like advertising, I’m like, “Really, is this the best you could do? Just serve up ads.” I don’t know. I don’t know if I have a really concise thing to say here other than my annoyance that the world is moving into this like, “Oh, got to have ads in there.” And then I think I’m not alone in being annoyed by this, which is why Claude brought that up as a way to needle their competition.
Rob Walling:
Ainar, what do you think about this?
Einar Vollset:
It reminds me of Google in the old days. This is how old I am. I think when Google co-founders was like, “Oh, never run ads. It’ll ruin it. ” And then they were like, “Oh, I will run it, but we’ll make it very clear that they’re ads and nobody’s confused.” And now I look at it and I’m like, “Okay, there’s no difference. They’re clearly serving equivalent ads.” I also am reminded of the old Google motto, don’t be evil, which I think that sort of went by the downside a while back too for a lot of stuff. But I mean, on the flip side, I get annoyed at ads, but I’m a little bit more understanding than Tracy. And I’m like, look, it’s the world’s biggest sort of economic model, the business model is advertising. And so yeah, they’re going to do it. Not only are they going to do it, but so is Claude, I guarantee it.
They might figure out something clever and do the thing, but there’s just not a universe unless Claude get bought by Apple or something that Claude aren’t going to have to do advertising if they’re going to be a public company and grow and if that’s their plan, there’s just no way, I don’t think.
Rob Walling:
Yeah. Anytime you’re selling a free product, then the person using it is the product, right? That’s the old adage. And when you’re selling to basically consumer-ish folks, that’s been the monetization model for radio, for television, for all the mass media. So there’s too much money and value to be unlocked here to not do it, I think. In addition, I just want to call out that producer Ron and I were talking right before this call of about putting together a YouTube video on the opportunity here for startup founders because we have B2B SaaS companies that are like, well, Google SEO is getting a little scary and Google AdWords are too expensive and Facebook Meta ads are too expensive. You know when Google AdWords was really cheap right when they started, 2005 and 2006. In fact, Jason Cohen talks about, I think it was IT Watchdog, which is his precursor to WP Engine.
He said he was getting five and 10 cent clicks at that point. And then I built Hittale, grew it from 1,500 bucks to 30 grand a month. It was not exclusively, but a lot of that growth was Facebook ads specifically. And the clicks were in the, I think I was getting 20 cent clicks at the time. It was somewhere in that range, like 15 to 25 cents because it was early. Now, it was the wild fricking West. There was almost no documentation. There were no real books or experts on it. There were no consultants who could do it. And I had to learn the interface myself and I did read like a Kindle book or two and try and err, trial and error to get it. So it’s Wild West, but if I were a startup founder myself, you know that I’d be looking, trying to get in.
Now it’s not even available yet. But if there’s an early access list or something to get on, I’d be looking to do that. And I think it’d be fun, Tracy, even if we ran some just to test, if ads come out like to run ads for SaaS Institute or any other efforts that I think would warrant that. What do you think about the opportunity for SaaS founders? Do you think there’s going to be something coming up to replace what’s happening with SEO and have a new ad network that is cheaper, less expensive?
Tracy Osborn:
I mean, yes, definitely. I guess if I look it through the lens of, I hate ads personally, but man, that is like jumping into this brand new way of work that people or the way of life that’s going on right now. Yes, absolutely. We need to. We at TinySeed need to take advantage of this. The folks that we work with at TinySeed to take advantage of this, it’s very clear that this is where everything is going. And the folks that are going to benefit the most from this are the folks who are going to jump on it early. And I know that so many things have come out around this, like crypto and all those things and people are like, “Oh yeah, jump on it early.” And they kind of, from my perspective, haven’t panned out as much as they have, but AI does feel like this is the true sticking.
Rob Walling:
So a lot of usage.
Tracy Osborn:
A
Rob Walling:
Lot of eyeballs, a lot of attention to get in front of. And our final topic of the day is about OpenClaw, formerly known as Claude Bot. And when that came out, I was like, “Why did they name it that? They’re going to get sued.” And they get C indeed real quick. So is OpenClaw hype or is it substance? Is it here to stay or is it the next clubhouse? And we have two articles, one called Open Claus Changing My Life and another call Open Claw is what Apple Intelligence should have been in our Vollset. Are you a believer in OpenClaw and what it can do? Nodding vehemently, yes.
Einar Vollset:
I love OpenClaw. I think it’s great. CloudBot, it’s amazing. I have it running for me. Looking at the Mac Mini, I bought for it. It’s great. Lots of issues with it, but it feels like … Actually, the title of this article is sort of how I feel about it. This is what Apple should have done. And I still think they might do because really OpenClaw isn’t all that helpful unless you give it access to all your shops, but if you give it access to all your shop, then that’s a giant security risk that you got to manage and all this stuff. It’s like it’s got to access this. Where is the nexus for where all that is securely enabled for me? It’s in my pocket and my phone. Apple is perfectly positioned to do that. And instead, what they have, which is always just complaining about on Twitter, is Apple Series is even suggesting, “Oh, do you want to add this event to your calendar?” And it’s a duplicate of an event that’s already in the calendar.
This is how stupid Siri is. They can’t even look at the calendar, be like, “Oh, maybe I shouldn’t suggest an event that’s already in the calendar.” So yes, fundamentally, I think it’s … Do I think it’s as big a deal as people think? No. There’s an awful lot of noise at the moment and there’s an awful lot of people I started looking at it’s like, “What are you actually doing?” It’s like, “Oh, it’s looking at my email and my calendar and it’s arranging my to- do list.” And I’m like, “Great, but your Tooly-Do list is still kind of the same.” I don’t know how to say difference there. But I do think, this is what I was talking about too, with how CloudCode that harness around has been the biggest change. And I feel like that’s actually where Apple could come in and even without necessarily owning a fantastic foundation model could come in and just be the interface by which normal people interact with AI day in and day out.
For sure, I think that’s true.
Rob Walling:
Tracy makes, what’s your experience or understanding of OpenCloud?
Tracy Osborn:
I’m scared of it because of the security issues and I am someone who … I’m just like, “Oh no.” Even small things that are not even AI, but I started using Superhuman and it was all like, “Oh, we’ll start managing your email for you. ” And I immediately missed a bunch of stuff because the system itself thought was like, “Oh, you don’t need these things.” And I was like, “Wait, I actually do need those things.” And so I imagine that being put into across my entire computer and the little AI agent just being like, “Don’t need that, don’t need that, don’t need that. ” And I’m a type A person who likes to have everything in the right place, for me to categorize myself and fix myself and update myself and all that. So that’s where I am right now. However, I can definitely see myself when a consumer solution comes out that allows me to tie in all my systems in a way where I know that the chances of something going wrong is vastly decreased because right now it looks like the chances are going wrong are nearly guaranteed because it’s early, but it’s going to get to that point.
And when it gets to that point, then that’s the future. That’s what’s going to happen. And I know that that’s something I’ll switch over to. So I’m not there yet, but I’m looking at it and seeing like, okay, I can see where this is going and I’m excited, but I’m going to wait until I’m not scared of it.
Einar Vollset:
But this is what I mean. This is why Apple is the perfect interface because if Apple came along and said, “Hey, here’s the thing, honestly, privacy is secured, blah, blah, blah, blah, blah.” You can just chat to a super capable AI that knows all the context for everything you’ve ever gotten, like who reminds you, “Hey, it’s birthday on next Tuesday or whatever.” That’s helpful.
Tracy Osborn:
You’re talking to the person who has Siri turned off on her phone, so
Einar Vollset:
It’s brain dead. It kept poisoning my calendar with duplicates.
Rob Walling:
Yep. Yeah, it’s bananas. OpenClaw here to stay or the next BeReal. Remember BeReal, that social network that was here for like a week? I have no
Tracy Osborn:
Memory of that. That’s so
Rob Walling:
Funny. How about this one? Is OpenClaw the best idea since Greedo shooting first? This what? No,
Just me. All right, Trace. I got chance. Have you ever seen Star Wars? That’s like an old Kevin Smith joke. All right. So those are … Oh, for me on Open Cloud, yeah, I’m in the same boat as you, Tracy. I’m not at all. I would buy the Mac Mini and I would install it. The technical issue doesn’t concern me. It’s the security of it at this point. And I don’t want to spend all that time and then have Apple or someone else do one. It’s like, “Oh, hey, it’s one click and it’ll do it. ” I’m kind of waiting for that. I don’t need it so badly that I’m so desperate that I’m going out buying Mac Minis. I’m
Einar Vollset:
Pretty sure, I don’t know if you guys are football fans because I’m not. And so the Super Bowl was just happened this weekend. And so you know the big ad was ai.com. Oh, I know.
Tracy Osborn:
Yeah. I heard something about this, but to do.
Einar Vollset:
Yeah. So that’s pretty much, I’m sure that’s what they’re doing. It’s ai.com and it’s like lives in your iMessage kind of thing. And there’s a bunch of startups now that are sort of like, spin this up and let it host and do all the thing. And people are still, there’s still ways that you’re like, you can spin it up as like a cloud front thing, Majiger worker, Cloudflare worker or whatever. And that’s fine, but that doesn’t actually give you what you give why it’s the most capable, which is it has access to your stuff as if it’s sitting in front of a log desk. It’s what I’m saying, you’re almost never going to get 100% security because it’s not helpful unless it sees what I see. And if it doesn’t see what I see, then it’s just like, “Yeah, okay, can you do some web research for me?
” I’m like, “Yeah, so can ChatGPT. Who cares? That’s not interesting.”
Tracy Osborn:
I have to be assured that it’s thinking about things the way I want to think about it. That’s the thing that like, okay, cool. I can have it look at my insecure stuff as long as I know that it’s going to be doing what I want to be doing and not going off and it’s doing its own thing.
Einar Vollset:
Sometimes I’m really glad that it’s not doing what I’m thinking because it’s better.
Rob Walling:
So you want it to be better. Fair enough. Folks want to keep up with Tracy makes Osborne. You are not on Twitter, but you did bet Aina Volls did a thousand dollars and a sushi dinner for me that I just kept on this sushi dinner That Blue Sky would be at 100 million signups, not active users. At some point, it’s like a year and a half, two years from now.
Einar Vollset:
You might as well just pay me now.
Rob Walling:
What is your handle on Blue Sky? Is it Tracyosborne.com?
Tracy Osborn:
It is Tracyosborne.com, yes. I need to get TracyMakes.com at this point. What am I doing? What’s wrong with me?
Rob Walling:
Yeah. Oh, I’m about to go out and register that. And you these days are working on SaaS Institute. We working on several things, but SaaS Institute, which is our premium coaching for seven and eight figure ARR SaaS founders.
Tracy Osborn:
It’s our new program too, so we can work with more founders that are at one million up and want to have a tiny Seedlike experience, but aren’t the right fit for the accelerator. Ainar, share it more. I see you talk about the accelerator a lot. Talk about SaaS Institute.
Einar Vollset:
Okay.
Rob Walling:
All right, publicly calling me out. Calling you up, Polly. You
Einar Vollset:
Pitched the guide and I’ll pitch the institute.
Rob Walling:
Okay. Yes, I already have. Einar things. I don’t like it when mommy and daddy fight. Ainar Vollset on Twitter, E-I-N-A-R-V-O-L-L-S-E-T, tweeting about the giants and AI and Norwegian fiscal policy, it seems.
Einar Vollset:
Fiscal policy and like Epstein stuff now. Apparently the Epstein thing was a big thing for Norway.
Rob Walling:
I know.
Einar Vollset:
No, seriously. Turns out that the Crown Princess was like buddy buddy with Epstein and like a bunch of folks are getting arrested. It’s all good. It’s good times in the Norwegian media. I’ll tell you that much.
Rob Walling:
That’s crazy. Ainar is originally from Norway for those who don’t know. And you’re also working, as we said, discretioncapital.com. And if people want that guide, they can just hit slash guide, get it for free on the internet. Tracy and Einar, thanks again so much for joining me for this week’s episode.
Einar Vollset:
Happy to be here. Thanks for having me.
Rob Walling:
Thanks again to Tracy and Einar for joining me this week and thanks to you for subscribing and rating this show. If you are listening in Spotify or Apple podcasts or whatever app you’re listening, I would appreciate a five star rating or a thumbs up or whatever mechanism your podcaster of choice is using. It helps new folks find the show. Thanks for listening this week and every week. This is Rob Walling signing off for episode 823.
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen Mercury accounts from my personal single member LLC to MicroConf, our seven figure global events and education platform to TinySeed, our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send them to mercury.com. It’s free to get started with no in- person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC insured bank. Banking services provided through Choice Financial Group and Column NA Members FDIC. You’re listening to Startups of the Rest of Us. I’m your host, Rob Walling. In this hot take Tuesday episode, my two co-hosts and I dig into topics like is AI killing B2B SaaS, ads hitting ChatGPT, the explosion of OpenClaw and more. I did not intentionally make it an all AI episode, but these are the topics of the day. Before we dive into the episode, I want to let you know that there are two never published episodes of startups with the rest of us. And the only way to get them is to sign up for our email list, head to startupsforthrestofus.com, enter your email to subscribe, and you’ll get an episode titled Eight Things You MustKow When Launching your Startup and 10 Things You Should Know As You Grow and Scale Your SaaS.
These are audio episodes and they are accompanied by a PDF guide for each that summarizes the two episodes. And honestly, whether you’re interested in these episodes or not, we also send out a weekly recap of each episode of Startups for the rest of us. And you’ll be joining several thousand folks on that list who get the show notes and all the links of things we talk about in the episodes. Startupsfortherestofus.com and subscribe to get all of that. And with that, let’s dive into Hot Take Tuesday.
It’s Hot Take Tuesday time again, and I’m welcoming my usual band of Misfits. Kicking us off first is … Tracy Osborne. So Tracy Osborne, what do you do at MicroConf TinySeed?
Tracy Osborn:
I feel like these sessions are actually a really great way for people to see what a dork you actually are. It doesn’t come out. You rest the podcast. Yeah,
Rob Walling:
Totally.
Tracy Osborn:
Hi, I’m Tracy. I am the head of product of TinySeed and of MicroConf.
Rob Walling:
So what do you mean head of product? What do you do?
Tracy Osborn:
I’ll say the thing I said earlier to you. I am the Riker to your Picard. So I run all the day-to-day. You tell me what to do and I make it happen. Let’s put it that way. I
Rob Walling:
Love it.
Tracy Osborn:
Yeah.
Rob Walling:
Oh, that’s
Tracy Osborn:
Great. That’s what I
Rob Walling:
Do. And my other panelist is? It sounds like you’re being announced at a Giants game.
Einar Vollset:
Yes. Finally. It’s less than one Scaramucci until spring training starts. Did you know that?
Rob Walling:
I didn’t, but I do now. And aroll set, what do you do?
Einar Vollset:
I am your co-founder at TinySeed and also the co-founder and, well, founder and managing partner at Discretion Capital.
Rob Walling:
Very nice. And Discretion Capital is a boutique M&A firm that advises SaaS founders from what, two million to 20, 25 million ARR, and you advise them on the sell side if they’re looking to sell. Speaking of that, you and your team have put together a guide, the definitive guide to M&A for B2B SaaS. It is at discretioncapital.com/guide. You want to give us just a brief summary of what’s included?
Einar Vollset:
Yeah. It was actually one of my colleagues over at this question was like, “You should write something because we’ve been doing this since for nearly a decade now, and most people don’t really understand what it goes into.” It goes into M&A for B2B SaaS in this sort of ARR range. So really that’s the goal. The goal really is like … And look, obviously it’s marketing. I want the companies to come to us and we’ll help them make a bunch of money, but not everybody will do that. And so even if you’re going to DIY it, it’s worth understanding what does the market actually look like because it’s actually one of this sort of size range is very difficult. Once you get larger than that, if you’re into like 50 or 100 million dollars, then very quickly it becomes kind of known what the market is and what things cost and who the buyers are.
But between that sort of two and 20 million ARR range, it’s an extremely opaque market. And so what that translates into is like, you can very easily end up in a situation where you as a founder get bad advice, so you end up selling your business for like a third of what it’s worth, which pisses me off. So that’s what’s really the impetus for writing this guide. So we’re putting this together. It’s mostly written. We’re actually launching it publicly and we should have some hopefully physical copies for people at MicroConf in Portland in April, but we’re putting out one chapter a week basically. We just launched the chapter two here going into, on Monday, going into who actually buys these companies, are they? Because people don’t even know that. People don’t even know what is the typical makeup of buyers in the universe.
Rob Walling:
Yeah. That 70% of B2B SaaS acquisitions in this range are private equity.
Einar Vollset:
Yeah, private equity or at least private equity owned. So a lot of people, they don’t know what that means. And a lot of people have a view of, I like to joke, like a private equity is like a Bruce Springsteen movie or a song where it’s like they’re always bad and always pay poorly, but that really is a misunderstanding of really the biggest buyer class for B2B SaaS in this size range.
Rob Walling:
That’s discretioncapital.com/guide. And by the time this episode goes live, I believe you have at least five, maybe six chapters of that will be live because this is a few weeks out. Speaking of that, I actually wanted to ask you a question upfront and it’s in relation to this very podcast, episode 819 where I was asked about QSBS and someone was saying, should we become a C Corp? And I was like, obviously I can’t give you advice, but here’s what I would do. I would do it because I figure I’m going to sell and then I’m going to save on the taxes. And now even after, isn’t it like three years you get 50%, four years you get 75, and five years you get the full thing. And I explained that all on the episode, but the thing that I wasn’t sure about is QSBS means you have to sell the stock.
So you can’t do an asset sale. And I know there’s a mix of asset and stock sales. So my question that I couldn’t answer on there, and I specifically called out and said, “I should ask Einar in a future episode. Here we are at that future episode.” Around what ARR range or … No, it’s probably more like at what purchase price is a better way to ask this. Do you see SaaS acquisitions changing from asset to stock purchase or vice versa?
Einar Vollset:
I mean, you can have an asset purchase pretty much any size. It really depends. Probably 90% of the transactions we do, if not more, are stock transactions. Really, I think around about five million is roughly where it starts. We don’t do a lot or any deals that low, but like certainly once you get past 10, most of them are stock. And actually cover this a little bit in the guide, but it’s sort of a give and take. Usually the buyers want to do an asset purchase for tax reasons because that means they can reappreciate the asset and it’s simpler. So this is the industry, right? So what is an asset purchase versus a stock purchase? Asset purchase just means you’re just buying specific assets. So like you’re buying say the contracts, the website, the thing, the IP, but you’re not buying the rest of the company or any obligations or whatever that they have or have not made over the years.
And so the reason why you typically, typically don’t do a stock purchase is because it becomes a lot more expensive because it becomes just like the legal cost of papering a stock purchase becomes kind of not worth it if your deal isn’t very large. So like my rule of thumb is like around about a million of ARR typically, it starts to become much more common to do stock purchases. But I mean, it does happen, particularly if you have large companies that are LLCs come along and they’re just like, “Yeah, we’re going to structure an asset purchase.” And all things being the same, you’re going to get slightly more money in an asset purchase than you would do in a stock if you’re negotiating correctly. But again, like usually, certainly if you’re a C corp, but even so that there’s usually some tax issues around non-stock purchases that you should be aware of.
Rob Walling:
Cool. So give or take rule of thumb, you think about a million ARR and maybe five million exit price.
Einar Vollset:
Somewhere in there. Yeah.
Rob Walling:
That sounds about right. And I had hinted at that in the episode, but I just wasn’t certain. I’m sure I’d heard you say it at some point. I was kind of just quoting you on it. So with that, let’s dive into our first topic of the day and I’m just going to give a warning to everyone. This is all AI all the time. I went out to look for any topic that would impact us in B2B SaaS and I sifted through all the things and it’s just AI, AI, AI. So that is the episode today. If you don’t like AI, I’ll be back again next Tuesday morning. But first topic is an article that we will link up in the show notes called AI is Killing B2B SaaS. And I think my question, and I’ll kick it to Tracy first is, is AI killing B2B SaaS or will it just be subscription software by another name?
Is the market overreacting? Because as we’re recording this, the stock market is brutalizing some public SaaS companies. What are your thoughts?
Tracy Osborn:
The landscaper down the street is always going to need some sort of software to help them run their business. And so subscription software for businesses is going to stick around, but the way that that software is built and the ability for people to start building solutions for those B2B businesses or excuse me, for those kind of businesses is fundamentally changing. It is so much easier now for someone to be like, “Cool, I just want to build a software for five people on my street that are running these businesses.” So as someone who is supporting folks who are building software for B2B, B2B SaaS is not going to go away, but for those folks building that software, they need to be very aware that it’s going to be a way easier for people to build something to do what they’re doing and they have to figure out some way to make your software unique and defensible against these folks who are vibe coding.
Rob Walling:
One thing I was really surprised by in this piece, which is actually pretty well written, there’s some things I quibble with, but one fact that he was displaying was that HubSpot and Klaviyo are down 30% and analysts are writing notes titled No Reasons to Own Software Stocks. And when I think of how complicated HubSpot and Klaviyo is, it’s like you’re not going to fucking vibe code those. It is probably more powerful than Drip and Drip is complicated as. Anyways, with that in mind, AinR Vollset, what are your thoughts on this topic?
Einar Vollset:
I mean, I’ve been asked this question a fair bit. Obviously, fundraising for fund three by investors and things like that. I’m on record to say that, I mean, I think even public SaaS companies are oversold. I actually personally rotated into some more public SaaS in the last couple of weeks, which may come back to bite me, but fundamentally-
Rob Walling:
When oversold, you mean people have been selling them so they’re going down and you think it’s
Einar Vollset:
Overreaction? Basically, I think it’s a buying opportunity is what I think. And so I bought some. But fundamentally, my thing with it is like this, it’s like, I think the only reason when SaaS will be dead is if we’ve basically invented God. If you’ve invented an AI that is super intelligent to the point that like, okay, we’re ants to it and it can just do anything perfectly straight off the bat when you just ask you to do it, yeah, then I think SaaS is in trouble. But if that’s happening, the least of your problems is like, what’s going on with SaaS. All sorts of problems become a problem then. Instead, where I think we’re at is like, look, I think the models are incrementally getting better, but not as much as fast as they were, relatively speaking, is sort of my view. So it feels a little bit like we’re sort of at the, at least the starting on the top end of an S curve of capability.
I think that’s extremely disruptive to a lot of incumbents. And so I think yes, there is some risk to some large incumbents because it’s sort of one of the situations where like, okay, there’s a lot of change and a lot of uncertainty. And so if they misplay it, I can see that they are disruptable in a way that they weren’t prior to this AI thing. But the flip side of that is like, okay, I think people lose track of the fact that what we’re dealing with here is software. I mean, people sort of anthropomorphize AI in such a way that they think it’s fundamentally different to like, for example, like I have people who will very happily, like they will not give their email to Gemini, the Google AI, even when they turn off like, “Don’t use my data for training.” And I’m like, “Why?
Why? Why do you care?” And they’re like, “Oh, because it’s not secure.” And I’m like, “Google already has your data. What are you talking about? It’s in Gmail. You’re giving the data back to the same company. It doesn’t matter. It’s the same thing.” But I think people have sort of like completely lost that a lot of the time. And so they anthropomorphize and think about it versus like what it is is software. It’s a new software capability. And so applying that to public soft stock is like basically the bet. If you’re betting against SaaS or certainly established public SaaS, if you’re betting against that, what you’re basically arguing is the companies that made billions of dollars deploying software are going to do a bad job deploying software. That’s the bet. That is what you’re betting if you think that SaaS is dead completely, unless you believe this other thing, which is that we’ve built God or are building God, which there are people who do, there are people who are convinced that the world’s going to end within the next three or four years.
Rob Walling:
Yeah. And so here’s the thing, when I say SaaS isn’t dead and I roll my eyes, people say, “Well, of course you say that because everything you have is built on SaaS.” And you know what? That’s not actually true. I mean, I know right now it’s like SaaS and we’re B2B SaaS, but let’s say that agents became the new thing to subscribe to and that in fact, agents had built in databases and business logic and all this stuff. And maybe that happens eventually. Why wouldn’t we just start investing in them? Why wouldn’t I create startups for the rest of us content for them? Why wouldn’t my next book be called The Agentic Playbook by Rob Wallen? These are the same thing. It’s just software by a different name. SaaS used to be downloadable, right? It wasn’t SaaS then, but it was downloadable. Then they were called application service providers.
ASPs was a name for SaaS before SaaS. And then it was like cloud software became a thing for a while and I think only like super enterprise like Fortune 500s call it that now. It’s just something by a different name. So let’s just … I get it’s a headline and I want to get clicks on social media or on YouTube or whatever. But if you are really stuck in SaaS … Now, maybe the reason that these like HubSpot or whatever people think they’re going down is that they can’t be agile enough. They can’t roll with this. They’re not going to implement AI in some Upstart is going to come in and uproot them. But to your point, if HubSpot just implements the AI in their model or in their app, they’re going to do okay. I think the hypothesis, there’s hypothesis that everyone’s going to vibe code their own app.
And to Tracy’s earlier point, it’s like, no, we’re not. I used to write code for a living and I’m not going to vibe code a bunch of crap. I might do a little utility here, a little whatever, but the maintenance of that over time and the hosting, just the patches a lot, like I don’t want … And I get it, it could be lambda, blah, blah, blah, whatever. There’s no way that my super smart PhD wife, there’s no fucking way she’s going to vibe code a thing. She’s going to pay for software and most people will too. And we’re in these bubbles where we’re all techies and we can all roll our own thing in a weekend. That’s fine. Go do that. But that’s not … Tracy, you’ve seen how resistant that I’ve been to even writing, having any code that TinySeed maintains because it’s like, I don’t want to be a software shop.
I know that the headache and maintenance of that. With that, I want to roll to our next topic, which is actually something Einar you brought up already. It’s just a question. There’s no article here, but I had a question for the two of you, and I’d like to start with Tracy again. My question is, are the AI models that you are using today noticeably better than they were six, maybe 12 months ago? We can kind of put a timeframe on it. And so Tracy, maybe talk about any of the models you’re using and what your experience has been like. The reason I’m bringing this up is, sure, it’s anecdotal. It’s an N of three people weighing in, but I do like to hear boots on the ground examples of different use cases because you’re using it for different things than I am.
Tracy Osborn:
Yeah. I feel like I probably represent a lot of folks who are too busy. They see the hype happening, but they’re too busy to really dive into it. And so I’ve been using AI kind of in surface level haven’t gone deep. And so what I’ve been seeing from my work, I’ve been using ChatGPT and then I’ve started using Claude and I started using Claude because ChatGPT has been driving me up the wall twice now. I posted this on the TinySeat Slack, a whole screenshot of asking about a Zapier question and ChatGPT just lost its … And it just went for pages of not understanding and spiraling out. And it’s happened again with other Zapier questions. I don’t know what ChatGPT has with Zapier. So anyways, that’s my experience with ChatGPT of just seeing like, “Oh, hey, this thing is supposed to be evolving to be better.” And I’m running into these cases where I’m just like, “This is awful.
I have to move off of it. ” And so I’ve started using Cloud. So that said, for my use cases, which is generally in and around communication, summarizing information, regurgitating information in a better way that I can use in my processes, I’m not really using it for programming yet. ChatGP is worse, Cloud seems to be better. I haven’t seen enough of a difference in the last six or 12 months to say to definitively like, “Oh, these things are better for me. ” They’re already, I would say, pretty much good enough other than ChatGPT just losing it on certain questions. What shouldn’t be happening? It’s very weird.
Rob Walling:
How about you, AinR? What tools are you using and what are you using them for? And then the question of, are they better?
Einar Vollset:
Yeah. I’m one of those revolting guys who has the Max subscription and everything. So I have Cloud Max, I have ChatGPT, Pro Max, whatever the most expensive ones. So I use both. The one I’m using the most now is CloudCode, specifically CloudCode, not just Claude. I like the style of whatever, the personality, let’s call it that, of Cloud better than ChatGPT at the moment. But I think the big unlock for me was like Claude code. It was the harnessing around it, the fact that it could go on and understand a whole quote unquote code base. None of the stuff I’m doing is a code base. It was always something else. But that harnessing and that structure around it is sort of, if anything for me, that change, which is not like an AI capability change, was a bigger step up and change than I’ve seen from any model change in the last, certainly last year, probably more.
My answer is like, yeah, I think I don’t personally think that there has been such a big … Every time there’s a dot change, like 4.5 to 4.6 or whatever, there’s always like a big thing, oh my God, we turned the corner and like now we’re doing this thing and it’s the end times or the beginning of the beginning of whatever it is. And that I haven’t seen. My impression has been that if I’m perfectly honest, a lot of the time I don’t notice that I’ve been upgraded to version five or 5.1 or 5.2 or whatever, to be perfectly honest with you. I just don’t notice it. And so no, I don’t think that the models have changed. Where I might not pick up on it is like, I can see how potentially some of these updates will allow you to be more quote unquote agentic.
So there’s some like long running things or particularly around coding where I can see like, okay, maybe they trained it in such a way that it can be independent for longer in parallel with a lot of other things that like if you are deep in big, big development projects, yeah, maybe you’re noticing that difference. But for the stuff that I do, like the most advanced stuff I did here was like, I got sick of Squarespace, so I had it port all of the discretion capital Squarespace site over to a static website generator and put it on GitHub. But that’s like, okay, then I got to spank it every 20 minutes because it screwed something up. It’s not like super long running agentic things. That might be the only difference, but personally, no, I haven’t noticed the difference.
Rob Walling:
And for me, I had been using ChatGPT exclusively until Craig Hewitt busted my chops about it. He really doesn’t like ChatGPT and now I see why not. I started using Mannis a little bit, but then Claude became my thing. It feels like a lot of folks are moving to it. And I found Claude to be, it’s more expensive, but I don’t care. ChatGPT is 20 bucks and Claude is … I think I pay 200, I don’t actually need to. I’d probably be fine on the $100 plan, but I’ve been using it to repurpose some audio and video that I’ve recorded and trying to get it to write prose that sounds like me. So I’ve been training it to be like, “Here are my books, here are my blogs. I’ve written hundreds of thousands of words. This shouldn’t be that hard to match how I write to these topics because I’m also speaking them.” It’s me speaking, turn it into writing, right?
And it doesn’t get a full finished job, but man, ChatGPT could not handle that. And Claude, I have trained it and I’ve had to give it iteration after iteration of, oh, it puts something out. I do a full edit of how I want it to be, then spit it back in and it gets better and better and better. So that’s one thing. I don’t know if Claude could have done that a year ago because I didn’t try it that extensively, but I do know that I’m impressed with it. Similar though, when I think back a year or two, it feels generally the same. It’s getting asymptotically better. It’s like a little better. I mean, Einar, you had a theory that resonated with me, which was the first generations of all these LLMs were trained on basically the entire internet or as much of it as they could get.
And so then to get a lot better, you kind of need another entire internet’s worth of material, which doesn’t exist because it’s a whole internet. Am I quoting you correctly here?
Einar Vollset:
Yeah. There’s a couple of different things, right? It’s like people are always saying, “Just train more data and more compute.” And then if you keep 30Xing the compute, you’re going to get whatever, a step up improvement, 50% improvement every time. And there’s two things there. One is like, you’re just going to run out of training data, which is actually why I’m slightly bullish, quite bullish actually on Tesla, despite their enormous thing, because one of the interesting things about Tesla is like, someone told me this, which stat’s probably not correct, but it’s something along the lines of this. It’s like every second Tesla, the network of Tesla cars gets a lifetime’s worth of a driving experience every second or every millisecond or something crazy.
Rob Walling:
Interesting.
Einar Vollset:
But that’s raw data, right? That’s like raw real training data, which like you’re not generating that kind of like textual data, but in and of itself. So there’s a constraint there. You could potentially like synthetic data, but then you have issues with like, “Well, are you really improving yourself improvement?” Yeah, dodgy. So there’s that. And then fundamentally also, it’s just the asymptote stuff just has to do with sort of the increasing cost of compute. I was arguing with someone on Twitter, which I know must shock you guys.
Rob Walling:
What’s the first time for everything?
Einar Vollset:
Yeah. But they were basically saying like, look, they had this graph, it was something along the lines of like, a 50% improvement 30 times in a row is still like an amazing, is like a fundamental change to everything we know about. And I’m like, yeah, but if you assume that say ChatGPT-3 costs $20 million to train in compute budget and you’re having for every step up, you have to 10X the budget, like by time like 23 or something, the compute budget is higher in US dollars than the number of atoms in the observable universe. So like, okay, what are we talking about here? Yeah, I know on paper you can make this work, but that’s just not how it’s going to be. There has to be, I think. And I think most people now, if you talk to like leading edge research and stuff, sort of agree with this.
They’re like, look, there has to be another breakthrough to really start that, to get to the next kind of level, that capability where people start talking about like super intelligence or like something like that. It needs something else. You can’t just throw more synthetic data and compute on it, and I just don’t buy it personally.
Rob Walling:
If you’re a founder with a strong vision, but no technical partner, you need more than a vibe coated MVP. You need a real foundation. That’s where Designly comes in. Their Solution Lab prototyping Sprint is a focused two week collaboration where you work together with a seasoned product owner, a developer, and a designer to define what to build, why it matters, and how it should look, feel, and function. You’ll turn your idea into a beautiful and clickable prototype, something you’ll be proud to show to early users or investors. Designly is the product team you can actually trust with a track record of helping founders move from being ghosted by dev shops to growing real businesses. And right now, Designly is giving my listeners $3,800 off their solution lab prototyping sprint. To get started today, check out designly.co/fortherest of us. That’s D-E-S-I-G-N-L-I.co/for the rest of us. Our next topic is that ChatGPT has started running ads, is going to start running ads.
I actually don’t know. I’ve been, since I pay for it, I don’t see ads, but Anthropic ran a spicy Super Bowl ad pointing out … And it was a little disingenuous, but then Sam Altman got pretty angered by this and tweeted, “I wonder why Anthropic would go for something so clearly dishonest. Our most important principle for ads says we won’t do exactly what they’re showing. We would obviously never run ads in the way they depict them. We are not stupid and we know our users would reject that. ” And then it says, “Anthropic serves an expensive product to rich people. We are glad they do that, but we feel strongly that we need to bring AI to billions of people who can’t pay for subscriptions.” So there’s a lot here. Tracy, I’ll kick it to you first in terms of ads in ChatGPT. What do you think about all of it?
Tracy Osborn:
I was thinking through this before we started talking, I was looking at your notes and it just reminds me that every now and then I pop on a Prime show and now it has the little pop-ups where it’s like, “Hey, this ad has…” Press the button on your remote and you can order the product via your Amazon Prime thing. And my first reaction seeing those was being like, “Oh yeah.” I was like, “I will never do this because I’m a brat and I hate those things.” And I was like, “Why would they do that? ” And then I was like, “Oh, but I’m not the average person. I’m sure that Amazon is only doing this because they see that it works.” And if I apply that over to ChatGPT, if you have the average user in there, and if I saw an ad in ChatGPT, I would just close a tab and move on.
But I have to admit that I’m not the average person and I’m far more aware of, I think, advertising to the average person and more annoyed by it. So on one hand, I can see why ChatGPT is doing this. It’s not something for me, probably it’s for the person. The other part of it is like, “Really, this is your monetization model.” Going back to why I don’t like advertising, I’m like, “Really, is this the best you could do? Just serve up ads.” I don’t know. I don’t know if I have a really concise thing to say here other than my annoyance that the world is moving into this like, “Oh, got to have ads in there.” And then I think I’m not alone in being annoyed by this, which is why Claude brought that up as a way to needle their competition.
Rob Walling:
Ainar, what do you think about this?
Einar Vollset:
It reminds me of Google in the old days. This is how old I am. I think when Google co-founders was like, “Oh, never run ads. It’ll ruin it. ” And then they were like, “Oh, I will run it, but we’ll make it very clear that they’re ads and nobody’s confused.” And now I look at it and I’m like, “Okay, there’s no difference. They’re clearly serving equivalent ads.” I also am reminded of the old Google motto, don’t be evil, which I think that sort of went by the downside a while back too for a lot of stuff. But I mean, on the flip side, I get annoyed at ads, but I’m a little bit more understanding than Tracy. And I’m like, look, it’s the world’s biggest sort of economic model, the business model is advertising. And so yeah, they’re going to do it. Not only are they going to do it, but so is Claude, I guarantee it.
They might figure out something clever and do the thing, but there’s just not a universe unless Claude get bought by Apple or something that Claude aren’t going to have to do advertising if they’re going to be a public company and grow and if that’s their plan, there’s just no way, I don’t think.
Rob Walling:
Yeah. Anytime you’re selling a free product, then the person using it is the product, right? That’s the old adage. And when you’re selling to basically consumer-ish folks, that’s been the monetization model for radio, for television, for all the mass media. So there’s too much money and value to be unlocked here to not do it, I think. In addition, I just want to call out that producer Ron and I were talking right before this call of about putting together a YouTube video on the opportunity here for startup founders because we have B2B SaaS companies that are like, well, Google SEO is getting a little scary and Google AdWords are too expensive and Facebook Meta ads are too expensive. You know when Google AdWords was really cheap right when they started, 2005 and 2006. In fact, Jason Cohen talks about, I think it was IT Watchdog, which is his precursor to WP Engine.
He said he was getting five and 10 cent clicks at that point. And then I built Hittale, grew it from 1,500 bucks to 30 grand a month. It was not exclusively, but a lot of that growth was Facebook ads specifically. And the clicks were in the, I think I was getting 20 cent clicks at the time. It was somewhere in that range, like 15 to 25 cents because it was early. Now, it was the wild fricking West. There was almost no documentation. There were no real books or experts on it. There were no consultants who could do it. And I had to learn the interface myself and I did read like a Kindle book or two and try and err, trial and error to get it. So it’s Wild West, but if I were a startup founder myself, you know that I’d be looking, trying to get in.
Now it’s not even available yet. But if there’s an early access list or something to get on, I’d be looking to do that. And I think it’d be fun, Tracy, even if we ran some just to test, if ads come out like to run ads for SaaS Institute or any other efforts that I think would warrant that. What do you think about the opportunity for SaaS founders? Do you think there’s going to be something coming up to replace what’s happening with SEO and have a new ad network that is cheaper, less expensive?
Tracy Osborn:
I mean, yes, definitely. I guess if I look it through the lens of, I hate ads personally, but man, that is like jumping into this brand new way of work that people or the way of life that’s going on right now. Yes, absolutely. We need to. We at TinySeed need to take advantage of this. The folks that we work with at TinySeed to take advantage of this, it’s very clear that this is where everything is going. And the folks that are going to benefit the most from this are the folks who are going to jump on it early. And I know that so many things have come out around this, like crypto and all those things and people are like, “Oh yeah, jump on it early.” And they kind of, from my perspective, haven’t panned out as much as they have, but AI does feel like this is the true sticking.
Rob Walling:
So a lot of usage.
Tracy Osborn:
A
Rob Walling:
Lot of eyeballs, a lot of attention to get in front of. And our final topic of the day is about OpenClaw, formerly known as Claude Bot. And when that came out, I was like, “Why did they name it that? They’re going to get sued.” And they get C indeed real quick. So is OpenClaw hype or is it substance? Is it here to stay or is it the next clubhouse? And we have two articles, one called Open Claus Changing My Life and another call Open Claw is what Apple Intelligence should have been in our Vollset. Are you a believer in OpenClaw and what it can do? Nodding vehemently, yes.
Einar Vollset:
I love OpenClaw. I think it’s great. CloudBot, it’s amazing. I have it running for me. Looking at the Mac Mini, I bought for it. It’s great. Lots of issues with it, but it feels like … Actually, the title of this article is sort of how I feel about it. This is what Apple should have done. And I still think they might do because really OpenClaw isn’t all that helpful unless you give it access to all your shops, but if you give it access to all your shop, then that’s a giant security risk that you got to manage and all this stuff. It’s like it’s got to access this. Where is the nexus for where all that is securely enabled for me? It’s in my pocket and my phone. Apple is perfectly positioned to do that. And instead, what they have, which is always just complaining about on Twitter, is Apple Series is even suggesting, “Oh, do you want to add this event to your calendar?” And it’s a duplicate of an event that’s already in the calendar.
This is how stupid Siri is. They can’t even look at the calendar, be like, “Oh, maybe I shouldn’t suggest an event that’s already in the calendar.” So yes, fundamentally, I think it’s … Do I think it’s as big a deal as people think? No. There’s an awful lot of noise at the moment and there’s an awful lot of people I started looking at it’s like, “What are you actually doing?” It’s like, “Oh, it’s looking at my email and my calendar and it’s arranging my to- do list.” And I’m like, “Great, but your Tooly-Do list is still kind of the same.” I don’t know how to say difference there. But I do think, this is what I was talking about too, with how CloudCode that harness around has been the biggest change. And I feel like that’s actually where Apple could come in and even without necessarily owning a fantastic foundation model could come in and just be the interface by which normal people interact with AI day in and day out.
For sure, I think that’s true.
Rob Walling:
Tracy makes, what’s your experience or understanding of OpenCloud?
Tracy Osborn:
I’m scared of it because of the security issues and I am someone who … I’m just like, “Oh no.” Even small things that are not even AI, but I started using Superhuman and it was all like, “Oh, we’ll start managing your email for you. ” And I immediately missed a bunch of stuff because the system itself thought was like, “Oh, you don’t need these things.” And I was like, “Wait, I actually do need those things.” And so I imagine that being put into across my entire computer and the little AI agent just being like, “Don’t need that, don’t need that, don’t need that. ” And I’m a type A person who likes to have everything in the right place, for me to categorize myself and fix myself and update myself and all that. So that’s where I am right now. However, I can definitely see myself when a consumer solution comes out that allows me to tie in all my systems in a way where I know that the chances of something going wrong is vastly decreased because right now it looks like the chances are going wrong are nearly guaranteed because it’s early, but it’s going to get to that point.
And when it gets to that point, then that’s the future. That’s what’s going to happen. And I know that that’s something I’ll switch over to. So I’m not there yet, but I’m looking at it and seeing like, okay, I can see where this is going and I’m excited, but I’m going to wait until I’m not scared of it.
Einar Vollset:
But this is what I mean. This is why Apple is the perfect interface because if Apple came along and said, “Hey, here’s the thing, honestly, privacy is secured, blah, blah, blah, blah, blah.” You can just chat to a super capable AI that knows all the context for everything you’ve ever gotten, like who reminds you, “Hey, it’s birthday on next Tuesday or whatever.” That’s helpful.
Tracy Osborn:
You’re talking to the person who has Siri turned off on her phone, so
Einar Vollset:
It’s brain dead. It kept poisoning my calendar with duplicates.
Rob Walling:
Yep. Yeah, it’s bananas. OpenClaw here to stay or the next BeReal. Remember BeReal, that social network that was here for like a week? I have no
Tracy Osborn:
Memory of that. That’s so
Rob Walling:
Funny. How about this one? Is OpenClaw the best idea since Greedo shooting first? This what? No,
Just me. All right, Trace. I got chance. Have you ever seen Star Wars? That’s like an old Kevin Smith joke. All right. So those are … Oh, for me on Open Cloud, yeah, I’m in the same boat as you, Tracy. I’m not at all. I would buy the Mac Mini and I would install it. The technical issue doesn’t concern me. It’s the security of it at this point. And I don’t want to spend all that time and then have Apple or someone else do one. It’s like, “Oh, hey, it’s one click and it’ll do it. ” I’m kind of waiting for that. I don’t need it so badly that I’m so desperate that I’m going out buying Mac Minis. I’m
Einar Vollset:
Pretty sure, I don’t know if you guys are football fans because I’m not. And so the Super Bowl was just happened this weekend. And so you know the big ad was ai.com. Oh, I know.
Tracy Osborn:
Yeah. I heard something about this, but to do.
Einar Vollset:
Yeah. So that’s pretty much, I’m sure that’s what they’re doing. It’s ai.com and it’s like lives in your iMessage kind of thing. And there’s a bunch of startups now that are sort of like, spin this up and let it host and do all the thing. And people are still, there’s still ways that you’re like, you can spin it up as like a cloud front thing, Majiger worker, Cloudflare worker or whatever. And that’s fine, but that doesn’t actually give you what you give why it’s the most capable, which is it has access to your stuff as if it’s sitting in front of a log desk. It’s what I’m saying, you’re almost never going to get 100% security because it’s not helpful unless it sees what I see. And if it doesn’t see what I see, then it’s just like, “Yeah, okay, can you do some web research for me?
” I’m like, “Yeah, so can ChatGPT. Who cares? That’s not interesting.”
Tracy Osborn:
I have to be assured that it’s thinking about things the way I want to think about it. That’s the thing that like, okay, cool. I can have it look at my insecure stuff as long as I know that it’s going to be doing what I want to be doing and not going off and it’s doing its own thing.
Einar Vollset:
Sometimes I’m really glad that it’s not doing what I’m thinking because it’s better.
Rob Walling:
So you want it to be better. Fair enough. Folks want to keep up with Tracy makes Osborne. You are not on Twitter, but you did bet Aina Volls did a thousand dollars and a sushi dinner for me that I just kept on this sushi dinner That Blue Sky would be at 100 million signups, not active users. At some point, it’s like a year and a half, two years from now.
Einar Vollset:
You might as well just pay me now.
Rob Walling:
What is your handle on Blue Sky? Is it Tracyosborne.com?
Tracy Osborn:
It is Tracyosborne.com, yes. I need to get TracyMakes.com at this point. What am I doing? What’s wrong with me?
Rob Walling:
Yeah. Oh, I’m about to go out and register that. And you these days are working on SaaS Institute. We working on several things, but SaaS Institute, which is our premium coaching for seven and eight figure ARR SaaS founders.
Tracy Osborn:
It’s our new program too, so we can work with more founders that are at one million up and want to have a tiny Seedlike experience, but aren’t the right fit for the accelerator. Ainar, share it more. I see you talk about the accelerator a lot. Talk about SaaS Institute.
Einar Vollset:
Okay.
Rob Walling:
All right, publicly calling me out. Calling you up, Polly. You
Einar Vollset:
Pitched the guide and I’ll pitch the institute.
Rob Walling:
Okay. Yes, I already have. Einar things. I don’t like it when mommy and daddy fight. Ainar Vollset on Twitter, E-I-N-A-R-V-O-L-L-S-E-T, tweeting about the giants and AI and Norwegian fiscal policy, it seems.
Einar Vollset:
Fiscal policy and like Epstein stuff now. Apparently the Epstein thing was a big thing for Norway.
Rob Walling:
I know.
Einar Vollset:
No, seriously. Turns out that the Crown Princess was like buddy buddy with Epstein and like a bunch of folks are getting arrested. It’s all good. It’s good times in the Norwegian media. I’ll tell you that much.
Rob Walling:
That’s crazy. Ainar is originally from Norway for those who don’t know. And you’re also working, as we said, discretioncapital.com. And if people want that guide, they can just hit slash guide, get it for free on the internet. Tracy and Einar, thanks again so much for joining me for this week’s episode.
Einar Vollset:
Happy to be here. Thanks for having me.
Rob Walling:
Thanks again to Tracy and Einar for joining me this week and thanks to you for subscribing and rating this show. If you are listening in Spotify or Apple podcasts or whatever app you’re listening, I would appreciate a five star rating or a thumbs up or whatever mechanism your podcaster of choice is using. It helps new folks find the show. Thanks for listening this week and every week. This is Rob Walling signing off for episode 823.
Episode 822 | No-code vs. A.I. Coding, SaaS Margins in the A.I. Age, and More Listener Questions (with Derrick Reimer)
/
RSS Feed
Should you build your SaaS with no-code tools, or is AI coding the better path forward?
In this episode, Rob is joined by fan favorite Derrick Reimer to tackle listener questions on no-code vs. AI vibe coding, when to take small funding early vs. pure bootstrapping, whether SaaS margins will compress as AI makes building cheaper, and how to get truly useful feedback from your customers.
Want to get your question answered? Submit it here for a future episode.
Episode Sponsor:
Hiring engineers right now is kinda broken. AI resumes, fake profiles, people who look senior on paper but can’t ship anything real.
G2i cuts through all of that. They’ve pre-vetted over 8,000 engineers- not “we glanced at their GitHub” vetted, actually tested with live technical interviews. Contract or full-time- just tell them what you need and within days you’re reviewing real candidates.
And you get a risk-free trial. If it’s not a fit, they’ll replace the dev in 24 hours.
G2i is trusted by companies like Meta, 1Password, and countless bootstrapped founders who need to move fast without making expensive mistakes.
👉 Get a 7-day free trial and $1,500 off when you mention Startups for the Rest of Us at https://www.g2i.co/rob
🎟️ Want to attend their AI Miami in April? Use promo code Rob50Off
Topics we cover:
- (2:18) – No-code vs. AI vibe coding for SaaS
- (7:55) – What Rob would do as a non-developer today
- (11:10) – Will you have to rewrite AI or no-code apps later?
- (17:08) – Taking small funding early vs. bootstrapping
- (21:29) – De-risking before taking funding
- (27:42) – Will AI compress SaaS margins?
- (31:32) – Why brand and positioning still win
- (37:38) – Expanding your value chain with AI
- (39:47) – Getting actionable feedback from customers
Links from the show:
- MicroConf Europe 2026 – Join us in Reykjavík, Iceland (Sept 21–23)
- Discretion Capital – M&A Advisory for B2B SaaS with $2-25m ARR
- SavvyCal
- SavvyCal Appointments
- TinySeed
- Derrick Reimer (@derrickreimer) | X
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling :
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G two I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork, just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at g2.co/robb. Get a seven day free trial and $1,500 off when you mention startups. For the Rest Of Us, that’s G2 i.co/rob. It’s another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I sit down with fan favorite Derek Rimer and we answer your listener questions.
Topics range from comparing building SaaS with no code versus ai, vibe coding, how to think about taking a small amount of funding in the early days, whether SaaS margins might be compressed in the AI age of software and more, and you’ll have to tune in to hear the final question before I dive into my conversation with Derek MicroConf Europe is coming to Iceland September 21st through the 23rd. Prices for tickets are going up on March 1st. I would love to see you in Iceland along with 160 ish of your favorite bootstrapped founder. Friends, you have a great speaker lineup. Iceland is amazing. If you haven’t been to Quebec, you’re going to want to come. That’s MicroComp europe.com to grab your ticket and I hope to see you there. With that, let’s dive into listener questions. Derek Rimer back for your 22nd, 23rd appearance on the shift.
Derrick Reimer:
I’ve truly lost count at this point. That’s
Rob Walling :
Fine. I’ll ask chat g PTE again later. It’s great to have you back, man, and it’s always by yeah,
Derrick Reimer:
To be back.
Rob Walling :
Popular demand. Yeah. Whenever we mention you on X Twitter that you’re coming on, people are like, yeah, yeah, these are some of my favorite episodes, so it’s great to have you. Here we are digging into listener questions. First question comes from CIA Hope. I just know I’m mispronouncing. That name question is about no code versus ai, vibe coding, and I would say even versus AI coding in general, right? I wouldn’t call you a vibe coder. You’re a senior engineer using AI to augment and move faster and write better code quicker. Then there are folks, you and I have a friend or two who are just vibe coding and that’s one’s like, yeah, they’re not a developer and they’re just doing the best they can. So let’s get into this email. Hi Rob. I’ve been listening to you for years and I’ve gained a lot of insight, wisdom, direction, encouragement, motivation, et cetera.
Wow, that’s awesome. That’s a lot of stuff. While I’m not a developer, I’ve run a small agency building e-commerce solutions and done custom development for years. I’ve always wanted to develop a product but never had the skills. I’m a solo founder and I’ve spent much time learning bubble and have launched a SaaS product that has subscribers. It’s been hard, tiring, and at times slow. That’s SaaS. It sucks, but it’s like, oh, yeah, been there, done that. That sounds like you’re right on track. Now I have the skills and I’m building two other products. I haven’t hit revenue goals yet, but I’m determined this has been a very time consuming side hustle. I get customers, I implement, I listen, I iterate. I improve the product, and I ship fast, but it still takes time testing and effort. Then I see folks online using AI tools to prompt and launch very fast, and it’s scary.
I’ve played with these tools and they look cool, but I feel like they don’t compare to building slower and having control of your app and understanding the whole thing. I’m using AI, but to build and run features within the app. But as you’ve mentioned on the show, I am scared of being left behind, becoming obsolete or missing this opportunity because I’m not moving faster. Then I also hear of cases where people are developing products and making X amount of dollars in a very short time, and I think, am I going about this the wrong way? I’d love to hear your thoughts on no code options compared to ai, vibe coding, and he specifically mentions Rep lit, but you know what? N eight N and lovable and all these other options, or I even imagine I could go ask Tropi your Claude code today, build me something in an English sentence and have it spit it out. So there’s a lot here, but I really do appreciate this question. I want to kick it to you first. What are your thoughts here?
Derrick Reimer:
Yeah, yeah. I think for better or worse, this is going to be probably the epicenter of where a lot of questions are going to come from over the next year at least. I think as we enter this kind of new era, the industry’s shifting and I think this feeling that he’s describing, he or she’s describing is the fear of being left behind, the fear of not moving fast enough. Oh my gosh, it looks like everyone’s moving so fast now is very real. I think that’s being felt at a universal level. I certainly feel it from time to time and have to remind myself that it’s not necessarily always rational to get all riled up about it because certain things have changed and some things haven’t. So I guess I would say don’t sell yourself short on the progress you’ve made on building products to delivering to customers and the work you’re describing of iterating, listening, improving, and it’s been agonizingly slow.
We were kind of joking about upfront that is SaaS, even with AI tooling that allows developers who know how to write code to move even faster. It doesn’t make all parts of the process faster. It doesn’t mean you’re able to listen to customers faster or to figure out the right things to build necessarily that much faster. So yes, it’s giving some people a leg up in the actual implementation phase and in the strategizing using it as a thought partner and which you certainly have access to that as well. So it’s making certain parts of the process faster, but other parts are just, you can’t shortcut them. So I think the trajectory you’ve been on is preparing you to still do well. Even as we enter this new era where there’s a bunch of new AI tooling, you’ve got kind of the foundational pieces down, which honestly the fundamentals of business are still the same.
Nailing the problem to be solved, finding customers, retaining customers, keeping them happy, supporting them, all those things are going to remain the same. So if I were you, I’d be thinking of this as your tech stack, and that’s something that developers have been thinking about for a long time when they’re starting startups is like, what tech stack am I going to use? And the general answer is, it kind of doesn’t really matter. Go with what and don’t let that be an impediment to making progress on solving business problems that you can charge money for. And so I kind of see that the same way Bubble. I am not super familiar with Bubble. I haven’t really used it myself, but I was looking at it ahead of this recording and it looks like they’re moving more and more in the direction of putting more AI tooling into their tooling to let you build stuff. So it’s like you’re getting to draft off of that as well. I’m imagining you’re going to get to move faster using Bubble as Bubble keeps putting more AI stuff into their platform. So I think rising tides, lifting all boats, that kind of thing. Yeah, I guess to conclude my thoughts, there’s a ton of noise out there. The algorithms are really geared towards rewarding the braggy, fomo inducing posts, and you just got to try to tune that stuff out and stay heads down, focus on your customers.
Rob Walling :
Yeah, I think that’s a great summary of it. When I read this, I asked myself what would I do in his shoes? I haven’t written production code since you revoked my credentials to get, I know you didn’t, but I haven’t put code on a production server since 2013, maybe somewhere in there 14 with Hit Tail. I didn’t write a line of code on Drip, so it’s been a while. I can still go back and hack stuff. I’ve written non-production code. I started teaching myself Python after I left Drip just because if I wanted to do something and so I was asking myself what would I do if I wanted to build an app today? And I personally, aside from hiring someone to do it, let’s put that aside. If I really wanted to do it myself, I personally would learn to use AI to do it, and I would pick maybe a stack that I’d probably, for me, it’d be like Ruby on Rails or Python Jango or something that I’m at least kind of familiar with.
I don’t know either of those languages, but I know there’s tons of resources. The ecosystem’s ample, right? I do know PHPI probably wouldn’t go back and try to build something in PHP or Laravel today. No shade on it. It’s just to me it just feels like an older, I know it. I started coding it in 2001, and so it’s like that just feels like there’s better things that I would choose these days. But the problem with that is I used to be a developer, so what I would do versus what I think he should do is actually different. Then I asked myself the question of what if Producer Ron, who’s on the MicroConf TinySeed team came to me and said, I want to build an internal line of business app. This isn’t even for external customers, it’s just for three of us to use or five of us to help produce the podcast to be a workflow management.
The pings, I set a status to ready to edit and it hits our editor and blah, blah, blah. And the reason I bring this example up is because we actually have three or four of those that Ron has built and they’re all in Airtable. So Pat is podcast Airtable, VAT is video Airtable. We have lat, which is LinkedIn, Airtable, we don’t use it anymore. We don’t do LinkedIn production, but then we have an one for ad reads as well, and these are all just basic workflows and they’re built in Airtable. So when I’m imagining Thought Experiment, Ron built those in Airtable as a non-developer and did a great job and we use them. I mean I’m in them every day and we’ve used them now for years. So what if Ron came to me and said, I’m going to build it in Airtable, this system, or I’m going to Vibe code or I’m going to build it in Rept or Lovable or one of these other tools, or I’m just going to vibe code it in Claude code and I’m going to deploy it to a production server somewhere, and I started asking myself, which of these would I want?
And it’s really obvious that I want the no-code. I do not want vibe coded solutions that I’m using, and there’s a bunch of reasons. I think you and I have talked through ’em before. There’s scalability, performance and maintainability and just all the management, the complexity of having service, blah, blah, blah. We could talk 10 reasons why I don’t want that. Now, we could also talk reasons of why no-code has platform risk and why there may be reasons not to do no-code, but for me, if I was working with a non-technical, like a guy who’s not a developer, I would prefer no-code today. That might change over time, as you like to say, and I appreciate this. Today is February of 2026 and it might change by March or April depending on eight. You know what I mean? These things change very quickly, so there are trade offs to this.
I love that you brought up that bubble. That was going to be my next thing is, well, can you do no-code and use AI to move faster? And it sounds like they need to build it into the tools, but that’s I think maybe a place where I would lean. The last thing I want to say that I thought about is the question in my mind is how long until I have to rewrite this till I have to have someone rewrite it? Because it’s not if, but well, you get any success if you never have customers. You only have two, three customers, maybe you never need to rewrite it, but every company that I’ve invested in or otherwise had visibility into that has been no code or has been poorly coded. I will say, I’m just going to assume that AI vibe coding is poorly coded and hard to maintain long-term. That may or may not be correct, but when I see apps that are poorly coded, inevitably they need to be rewritten, and so that’s what I’m wondering. Maybe both of these need to be rewritten. The TinySeed no-code apps, there’s only I think three of them. I think they’ve all in the process of being rewritten or they will be, but they have thousands or tens of thousands in revenue in MRR, so it got ’em to the point where they needed to. I don’t know. You have any other thoughts based on what I said?
Derrick Reimer:
Yeah, it’s tough because it’s hard to imagine being able to go run forever on a no-code built thing, but in the spirit of lean startup principles or whatever, this is the right path to validate something to get something initially built. But I guess that does, I mean thinking of it from the other side, Claude code is getting increasingly good. I know you and I both know multiple people in our sphere that are non-technical building new products from scratch just in cloud code, and I don’t totally know how I feel about that. I think just for their own sake, is this the wise route to go not being a developer and using these tools, but I guess part of me assumes that something like Bubble will help put more guardrails up so that you don’t have security vulnerabilities potentially that or permissions logic that gets missed as Claude is trying to bite off a huge chunk and just, oh, that was an oversight, which I find it doing quite often in my own projects. So I guess I’m assuming that some of these no-code platforms have more guardrails that prevents you from making those types of mistakes, but maybe that’s a faulty assumption. I’m not really sure
Rob Walling :
I’m making that assumption too.
Derrick Reimer:
So I don’t know. We might be getting closer to the place where just using Claude and having it build something from scratch might be approaching the level of quality, I guess, of something built in no code for the purpose of producing an MVP. So I don’t know. I don’t know where I totally fall on that this day. February the fifth, 2026.
Rob Walling :
No, it, it’s a tricky question and I hear what he’s saying of I’m painstakingly building this stuff and then someone just basically vibe codes it and they get to market fast. I mean, I guess the one other thing he had the question of you also hear when people are developing products and making X amount in a quick time and you think, am I going about this the wrong way? So there’s a couple things I think there. Number one, social media is a bunch of bullshit, so don’t believe most of what you read. The other second thing is likely they just got really lucky if it’s actually true, and then there’s maybe this small niche of people who it is true and they didn’t get lucky. I don’t know how many people that actually is. So
Derrick Reimer:
It’s often the people with the big networks like the Peter levels of the world where it’s like I built an AI thing that my 500,000 followers on Twitter really like to engage with and whatever. It’s a totally different way of going about
Rob Walling :
It. It is, and comparison is the thief of joy. While I’m not saying, oh, you’re doing everything and you shouldn’t change what you’re doing, I think you’re being smart and prudent to be looking around at other approaches, but I think it can be really easy to look at social media and see people’s highlight reel, let’s just say a hundred thousand people who are trying to do this. The number’s probably not that big, but oh man, I saw five people last week with all this success. It’s like those numbers are not great. So don’t think that everybody’s doing that because they’re not. There’s so many more failing or so many more that are moving slower than you are.
Derrick Reimer:
Yeah, I think the other thing to keep in mind too, we’re in a bit of an echo chamber being adjacent to all this technology being developed and the people who are making use of it in our kind of Twitter sphere. So everyone’s kind of rushing to try out the new tools, use them, see a bunch of performance gains from them, but the reality is most industries, it’s not like you’re going to lose out because someone else is vibe coating a solution way faster and they’re going to take your market. Most of the world is moving at a slower pace, so the need for you to necessarily move faster, that might not actually be true in order to keep your market, especially if you’re serving a niche that’s like if you’re out there trying to build a agentic coating harness, well then yeah, that is like breakneck speed, but if you’re building some line of business application for a niche, the odds that there’s a bunch of vibe coated competitors moving faster or whatever is probably pretty low,
Rob Walling :
And it sounds like maybe he’s less worried about that and more becoming unmotivated, taking so long and motivation is a real, I call it emotional runway. It’s like there’s financial runway and there’s emotional runway and you need both of those as a bootstrapper really, the financial runway you don’t worry about because you’re not spending more than what you have, but your emotional runways what eventually runs out funded companies fail when they run out of money. Bootstrap companies fail when they run out of motivation. And so I think it’s a good question and when we obviously don’t have an unequivocal answer on, but I really appreciate you sending it in. I hope that was helpful. Our next question is on taking small funding early versus pure bootstrapping.
Speaker 3:
Hey Rob, this is Gavin Beach. I’m a veterinarian and working on my first SaaS startup called Scribe ed, which summarizes and organizes large veterinary medical records for veterinary professionals. I’m new to the world of SaaS and startups and I have been deep diving into startups For the Rest Of Us over the past year, and I just recently attended my first MicroConf remote event and both have been a huge help to me so far. Scribe at is in the stage of alpha testing our MVP and getting close to hopefully taking on some first customers, which is both exciting and terrifying. My question for you today, centers around money and funding, we are pre-revenue, so everything has come out of our own pockets so far. We have started getting some interest though from some individuals in my network about independent funding. I think this would into friends and family slash angel investments.
I’ve heard you talk a fair bit about the different levels of funding and your 1 9 90 rule in regards to venture indie funding and pure bootstrapping. You have also talked about how funding can buy you years of time in your business. We know that we are not looking at venture capital. We want to stay independent and in control, but my co-founder and I both work full-time and have been building what we have on nights and weekends and it’s been slow taking some funding could let me scale back on my full-time job and focus more on scribe that and could give me the resources to hire some contract work to push things forward a little faster. What I don’t know is whether that is what dictates me being in the 9% rather than the 90. It seems like everyone would be in that same boat in that a few hundred thousand dollars would let them focus on their SaaS and give them the best chance possible to get it off the ground. I know you can’t tell me specifically as to whether I should take some funding or not, but in general, what factors do you think influenced the decision to take some independent funding to get things started and gain traction versus purely bootstrapping all the way? Thanks for your help, Rob. I don’t think I could have even made it this far without you.
Rob Walling :
What are your thoughts on this, Derek? As someone who has been involved in bootstrapping has worked for a venture funded company after we acquired and who raised effectively this indie funding that Gavin’s talking about for your current effort savvy, what’s your sentiment?
Derrick Reimer:
Yeah, I mean I think he’s really thinking about this the right way, bringing up your kind of framework, the 1 9 90 rule, which is kind of a helpful lens to think about this. So I guess in my mind the central question is always have I de-risked the business enough to feel confident it’ll work? And that’s something that I personally want to see before taking funding. I think it’s different for someone on the venture capital track where it’s like those often start out with early funding before any kind of validation and that’s just sort of how the Silicon Valley VC track works. But I think when we’re thinking about angel funding for more of the TinySeed scale type of businesses, it’s a much more prudent thing to be trying to de-risk it a bit more. And I think that’s probably where you can speak to this, but that’s probably where the kind of TinySeed we look for at least some early MRR to prove that you’re onto something or to give evidence that you’re onto something before it makes sense for TinySeed to invest.
And so I think that’s just a helpful way for someone who’s thinking about taking funding to also apply that to themselves. So I think he’s got some things playing in his favor, deep domain expertise, being a veterinarian, identifying a problem building for that space. It’s a vertical play as a co-founder. So these are all positives I would be thinking about. Do you have a sense for where and how to find customers repeatedly? Have you gone down that road yet or is it still really early in alpha? Are you picking up signals from your early testers? Have you had those conversations around willingness to pay and is this something that you find useful enough to actually lay down real money for? And so these are some things where I’m not sure if he’s quite there yet, and if not, I would be wondering, can you keep forging head on the nights and weekends things until you have that at least a few thousand dollars MRR? Because I think that helps in a lot of ways for you to justify your valuation to people who are giving you money, prove that you’re onto something, you’ll feel better about it. People giving you money will feel better about it if you have clarity about your scale of ambitions. All of this is easier once you have a little bit of early traction.
Rob Walling :
Yeah, I like the way you’re thinking about it. I also liked the way Gavin said specifically, this is what we’d spend the money on always. My first question is, great, so you’re going to raise 2 5500, whatcha going to do with it? And he said it could let me scale back my full-time job and put more time in, describe or it could allow us to hire contractors and move a little faster. And I think those are both good things, but to your point, do these things get you traction? Meaning do they get you customers? Because most people stay pre-revenue for too long and if I’m going to raise this money, you’re right, I would want some traction before I did. That doesn’t mean everyone needs some traction before they do. I do know some folks who raise pre-revenue and that’s okay if you raise it from your network, but I would want to put that money not towards building the fricking product.
I would want to put it towards sales and marketing. And one of those ways could be buying out your day job time so that you work halftime or whatever, and that gives you 20 hours a week or 20 hours during the day plus another 10 to 20 hours nights and weekends to then sell and market this. So if Gavin were to say, we have friends and family or my network who are willing to invest at this stage, as long as it’s not some crazy low valuation, it’s like you don’t want to raise money at a 250 or $500,000 valuation, then you’d never raise again. You sell too much to the company as long as you can raise at a reasonable valuation and you have let them know, hey, this is going to be a great mostly bootstrap business that sounds like your objective and that if success might look like a $10 million, $20 million, $30 million exit, if everyone’s on board with that, you’re not on the venture track.
And I think it’s fine, but there is a danger. And both Eric and I have seen folks who raise before product-market fit and burn through all the money and then they’re just starting to get product-market fit and they have no more money left. So then they have to let staff go and then they’re left to just kind of like, well, I don’t really have any resources to grow this now and I can’t raise money because I’ve kind of plateaued at four KA month or something, so no one’s going to give me any more money and I miss my shot. So that’s the thing I’ve tried to be really careful of here, but if you’re being really capital efficient and you’re listening to this podcast and you’re hearing the guests, the folks like Derek or the people that I interview and you hear how none of us blow through a bunch of money, even Jordan gal has raised a ton of money.
He’ll come on the podcast. He didn’t blow through it though. He’s very frugal and prudent with it. Jason Cohen was on here a couple of weeks ago. I saw that guy raise, I think like he said, his series A was 1.2 million or something like that. It was such a small amount, but man, was he capital efficient with that even though he did eventually go on the venture track, he didn’t blow through it. And I don’t think Gavin’s going to either, if he’s taking lessons from our type of founder, we’ll get back to the pod in a minute. But if you’re running a SaaS company doing between two and 25 million and a RR, you’ve almost certainly got an inbound acquisition interest. Maybe a private equity firm reached out, maybe a competitor made some noise about acquiring you. And here’s the thing, how do you know if the number they throw out is any good?
This is why I tell people to talk to Discretion Capital. Nick Davies, a longtime MicroConf attendee, worked with discretion to sell dentally. Nick said the team was pivotal in increasing his deal value by over 60% and they improved the terms on top of that 60%. Think about that for a second. Einar Vollset runs discretion. He’s my co-founder at TinySeed and they’ve done more than 40 of these deals. If you want to understand what your company might actually be worth, go to discretion capital.com and book a call and then to figure out a valuation, can you raise that valuation when you’re pre-revenue, that doesn’t hamper future. That means you don’t sell too much, right? And it’s a balance man, because let’s say you raise at a million dollar valuation, it depends on how much you want to sell. Then if you, I’m sorry, it depends on how much you want to raise because if you want to raise 500 K, you don’t want to sell 50% of your company to investors, so that’s not going to work.
But let’s say you like, all right, so we’re going to do a safe at 4 million, which is a lot. It’s a lot for if you’re not going to go venture track, if you’re going to be a mostly bootstrap B2B SaaS company who wants to sell for, well then you don’t want to sell for 10 million because that’s only two and a half X to those investors. Nobody wants that. So now you’re like, well, my minimum that I really want to sell for to do right by them is probably 20, 30 million, but 50 is better, 40 is better. So 10 x. So then if you raise it 4 million and you sell, you do a $400,000 raise, you sell 10% challenge there is you have raised ahead of your valuation. So if you then get some traction and you apply for TinySeed and let’s say you’re doing five KA month by the time you apply and we’re like, we want to fund you, we have seen companies in that position where their prior investors are like, we’re not going to let TinySeed invest because we don’t do 4 million valuations.
We do 10 to 12% for, what is it, 120 to usually two 20. So the valuation, I think that’s one to 2 million or one to two and a half million. You get it. And the two and a half million, 3 million valuations we’ve done, someone had a hundred K of MRR when they applied. That’s the top, top end. So then they come in and we’re like, cool, we’re going to invest at you at 1.5 million or 1.7 or whatever, and we will do that and the founders want to do it, but their prior investors. So that’s where it’s like there’s a balance here. And I’m not saying either one of these is the right call. You do want to think about this, that if you raise a head of valuation, you have to then get back to that before you raise your next round. And this is a lot of what happened to companies in 2021 when the valuations were insane.
People were raising at, I don’t know, 50 x revenue or something as a venture valuation or 30 to 30 to a hundred. It was crazy. And then it’s like PO funding dries up now it was more reasonable. It’s like 10 to 20 is now the valuation. It’s like Uhoh. You needed to grow a lot to be able to raise that next round. And that’s venture funded companies. That’s not where we’re, that’s not any funded and mostly bootstrapped, but that’s the way I’d be thinking about it. Our next question comes from Vance and it’s about SaaS margins in the AI age of software.
Speaker 4:
Hey Rob, it’s Vance with budget sheet.com. I have a question about AI software development and SaaS pricing, SaaS margins specifically about if you think in the future with a lot of new software being developed with AI being developed faster with smaller teams, if it’s going to put pressure on the typical margins that we see in SaaS companies and how that will impact the, I guess the traditional advice you hear of charge more, raise your prices kind of thing, if there can be more entrants that develop their software quicker with smaller teams and specifically how you might advise a portfolio company on that, maybe in that position they have an existing SaaS and they have competitors entering their space that are developing their products much faster and cheaper and then charging less, maybe putting pressure on them. How would you think about that and how might you advise your portfolio companies? Thanks,
Rob Walling :
Rob. So I found this question interesting. I definitely think people no code and AI coding is going to help more people build things faster. So I do think it’ll be more crowded in general, but what do you think about how he’s talking about it, that it’s going to, he brought up smaller teams a lot and build it faster and therefore will it drive prices down that you won’t be able to have pricing power? What are your thoughts there?
Derrick Reimer:
Yeah, it’s interesting because I feel like SaaS has always been sort of high margin because the value delivered, there’s such a gap between what the value able to capture is and what it costs to do it, and the costs are going to go down quite a bit I think because of ai. And just in terms of the product on the product side of things, does that fundamentally change how much value is being provided? I mean, I guess there’s competitive pressure potentially, and there’s going to be some, I think I’ve talked about this before. I think there’s going to be certainly some subcategories of the industry that are just going to get subsumed by the AI models. Certain things, opportunities will just sort of vanish because now we just turn to Claude or chat chip T to do that thing that we used to pay an external service for.
So that’s going to happen to some degree, but then in the areas where it’s not directly within the scope of what the foundational models can subsume, I don’t know. I think increased competition for sure could always drive down margins, but I don’t think I tend to take the more optimistic side of this. I mean a lot of people are reporting that SaaS is dead and this has been going on for a long time though, and I think we’re pretty far away from the SaaS business model dying. And I think there’s potential for even higher margins. I think there’s a case to be made for that at least for a little while. And then again, put the time marker on this because things might shift faster than I expect, but that’s at least my kind of initial take.
Rob Walling :
Yeah, part of the point I think he was making is that it’s like you said, it’s cheaper to build because you’re going to do it with smaller teams, you’re going to do it faster, so it’s cheaper. So then will the price be lower? And I was the same thing. It’s like SaaS shouldn’t be and has never been priced based on the cost to do it unless you had a cost heavy thing. Obviously if you’re sending SMS, you need to charge for that, blah, blah, blah, but generally it doesn’t cost Basecamp, whatever. I dunno what they charge. I don’t use Basecamp, but it’s 99 bucks a month or whatever. It doesn’t charge not based on that, it’s based on the value. It’s what you said. But I don’t think that’s his whole question. I do think the big thing is will prices go down if a bunch of competitors come on the scene?
And I’ve seen markets where a bunch of competitors have come on the scene. We’ve seen CRMs, we’ve seen email service providers. What are the most crowded horizontal markets that we know of? ERPs, we could name them and have prices come down a little bit because think of when we launched Drip that it was a bunch of kind of enterprisey software plays and then there was the cheaper value players like MailChimp and AWeber who didn’t have automations at the time, but there were a bunch of people charging a bunch of money for marketing automation. And we did come in and undercut them because we could and we changed the sales model and that was an advantage that we had. But I haven’t seen it go to zero. I haven’t seen it just keep getting cheaper and cheaper and there are, I don’t know, 500 ESPs probably there might be more.
So I don’t know that a bunch of AI coded stuff is going to change it just based on how we’ve watched all these other markets already play out with that. I think that when we do look at these markets, the pattern we see is that it is like it’s not winner take all, but it’s a handful of brands that own most of this space. So in CRM, who is it? Salesforce, HubSpot, and there’s a third that, again, I don’t use a CRM and maybe it’s just those two have a huge percentage, but maybe there’s a third. And if we were to say ESPs like market share got to be MailChimp, and who do we think is number two? That’s an interesting question. Kit is big, but it’s not. I mean MailChimp is a hundred times bigger or something like that. I don’t know who number two would be. It might be someone like Constant Contact or someone who’s just started so long ago and has Momentum
Derrick Reimer:
And then upscale. There’s, well, HubSpot, there’s Pardot, those types of guys,
Rob Walling :
The enterprise ones enterprise and there are hundreds and hundreds of them, but it shows, I think that having a brand still has pricing power. MailChimp hasn’t lowered their prices ever that I know about. And I mean I used to monitor their prices, we competed with them, never saw them lower them. Salesforce certainly hasn’t, and there’s hundreds of competitors. So I don’t know the answer to this honestly. It might impact it, but in the markets that we’ve seen, I guess if someone came in and built something and open sourced it, that’s going to hurt you. If people came in and built, they built a business and they’re like, we’re going to charge, everybody else is charging a hundred to a thousand and we’re going to charge nine bucks a month for it. They would get a lot of customers, but that’s a business, so how long are they going to stick around?
We know that. You know what I mean? It’s just like nobody wants to race to the bottom unless you don’t know any better. And if you don’t know any better, I don’t know that you’re going to last that long. So it makes me feel like it can’t go to zero. We see a little impact because more competitive pressure to what you and I are saying. Yeah, but I don’t feel like similarly, like SaaS isn’t dead and I don’t think all SaaS is going to be free or so cheap. And because it’s not commoditized, SaaS is some SaaS is commoditized
Derrick Reimer:
Today and we’re going to have to put increasing emphasis on the service part of SaaS because yes, the technology is cheaper than ever to create writing the code that puts the data in and out of the database is getting easier and easier and cheaper and cheaper. But companies still pay for SaaS because they don’t want to own all of that themselves. They don’t want to have someone inside of their organization create this thing from scratch. Then they have to own the hosting of it. They have to own the uptime and all of the service that comes with buying off the shelf SaaS. And I think that’s where most of the value is. And as long as you’re continuing to provide that, there’s some kind of value captured to be had. I also think about, I think there’s going to be probably increasing pressure on horizontal general purpose products.
Those are always kind of the most vulnerable probably to the kind of competitive pressure in the race to the bottom dynamics. But I think about in my own space, savvy Cal is pretty horizontal, pretty general purpose. And there are players who are relatively new that are focusing on a specific corner of the market and have just continued to raise their prices and go up and up and up because they’re honing in on say, the sales use case and then continuing to branch out around that and being able to say that they’re helping drive revenue. And there’s just a different story to tell than just like we provide scheduling. It’s like we drive revenue for your business and then we start to charge accordingly. So I think positioning has a lot to do with it too and having some restraint in where you niche and how you’re describing the value that you’re delivering.
Rob Walling :
Yeah, I think that’s dead on positioning as a premium product and being worth it and not being a commodity continues to be super important. I mean, that carries over into marketing as well, right? It’s like as much as I don’t want people, I don’t want founders to feel like they have to get on camera and be a personal brand to promote it, that does help. Founder-led marketing is a thing that I think more people are going to do. I still think you’ll be able to succeed without it though. Just like I think as more AI players, AI bill players come in the product. I mean, we see this all the time on X Twitter, someone saying, look, it got easier to build SaaS. When Ruby on Rails came out, it got way faster, it got easier to build it when no code happened. It’s gotten easier to build it when any of these frameworks have happened.
It’s only gotten easier and faster as these coding ecosystems specifically designed to build web apps have made it so much easier. When I used to hand code a P two or P one, I remember active server pages and PP back 25 years ago, dude, it took us forever to build a shopping cart and now you could build that in Ruby on Rails in a weekend, probably this stuff we used to build. But that doesn’t mean that it’s all gone to zero still. It’s distribution, it’s marketing, it’s positioning, it’s brand. That’s what we’re saying. So I don’t think it’ll have zero effect, but I don’t think it’ll have near the effect that a lot of people think.
Derrick Reimer:
Yeah, that’s something that just popped in my mind too, that it’s going to become easier for companies to sort of expand where they are in the value chain. So when it was more expensive pre AI to build stuff, it was generally wise to kind of stay in your more narrow lane and focus in on the part of the value chain that you’re good at. But now that we can build a lot faster, theoretically, it’s easier to kind of expand your scope and think about what comes before and after the part of the value chain where my product offers and customers often love a good bundle that one bill, and they can knock off multiple parts that they were maybe paying independently for before. So this is something I’m starting to pick up on with Avial appointments as I’m talking to SaaS platforms that are wanting to provide scheduling to their customers because thinking about how do I make my product more valuable? How do I offer more things to my customers in addition to my core offering? And now with ai, it’s more feasible to do that if they have a dev team and they like, we can bite off more now and so we can become more valuable by offering more things in our bundle. And I think that’s a trend I’m starting to see happen.
Rob Walling :
I like that Savvy Cal appointments. So if someone runs a SaaS app and they want to integrate SAVI Cal appointments in scheduling into their application, what should they do? Derek?
Derrick Reimer:
They should reach out to me for sure. Head to savvy cal.com/appointments. We have a little landing page describing the product there. But yeah, hit me up, derek@avial.com. Would love to chat. We’re gradually coming out of stealth mode on this product and starting to fill the sales pipeline a bit. So yeah, reach out for sure. Stealth
Rob Walling :
Mode, my favorite. Don’t do what Derek’s doing. Don’t do stealth mode. No, it’s fine. I know what you’re doing and why you’re doing it. So thanks for that question, Vance. I hope our vamping was helpful. Next question comes from Nick about asking the best question to get feedback from customers.
Speaker 5:
Hey Rob, my name’s Nick. I’m in the B2B SaaS space marketing to enterprise customers. I’ve been listening to startups For the Rest Of Us for pretty much exactly a year now, and I can’t tell you how much your podcasts have helped me. Really, every single question query problem that I have, I’ve literally searched the back log and found something to listen to that has been helpful. So thank you so much for what you do in this space. My question today is around gathering feedback from users. I have a feedback function on my platform and I’m struggling with negative feedback, not that there’s lots of it, but when I get negative feedback, the reason for the feedback is sometimes quite questionable. The question that I will put to the user is how well do you feel we supported you today? Now if somebody feels that unsupported or when they used our software, things didn’t go the way that they wanted to, that is usually due to an external factor that I have no control over whatsoever.
I can’t go into too much detail, but basically it could be that a text message wasn’t delivered or it wasn’t interacted with or a link wasn’t followed, all sorts of things like that which are out with my control and out with the control of the user. So fully dependent on a third party. So when that happens, I’ll get a negative feedback ping and it’ll say something like, the mobile phone is turned off. So the message never actually got delivered again, not my fault, not my user’s fault. And I was wondering what is the best way to ask for feedback? What’s the best question? Really interested in your thoughts on this because I’d really like to make some progress and get valuable feedback to make actionable decisions on. Thank you so much. Again, take care of yourselves.
Rob Walling :
So the first thing I want to say is A, I don’t know if there’s a best question, but I will say that getting negative feedback that you can’t fix or remedy, that’s just going to happen no matter what you do. And I would just shake that off and be deleted. Or maybe it’s like you can respond and explain, Hey, this is up to them. It’s not something we can control. Sorry, it was a bummer, blah, blah, blah, or you do nothing with it. That would be my take on it. But beyond that, the way he’s asking the question is, how well did we support you today? What do you think? It’s a good question. I think there’s a better way to ask that.
Derrick Reimer:
Yeah, I don’t know. I’m not entirely clear where this question is surfacing in their current flow. He said it’s in their platform, so I don’t know if it’s just a little intercom type popup or something like that. But I don’t know. I had a little bit of different insight come to mind when I was reading this because in my experience, you generally only hear negative things, unfortunately, but there’s often some kind of deeper insight to gather from it. So in his example, I think he’s talking about someone blaming their platform for some message that was sent where the recipient had their phone off. It’s like, well, we couldn’t control that. We couldn’t make them have their phone be on, and maybe this is not applicable in this specific case, but I think just more generally when I hear that type of feedback where it’s like the intended action didn’t happen due to some external factor, it’s often worth trying to dig a little deeper and think about, okay, maybe they’re just venting to you and wanting someone to blame and they’re just blaming you, but maybe there’s also something they have in mind where if you had just done X, Y or Z, this would’ve been better for me.
Handling a failure mode that’s external to what you have. So I would probably mean depending on how, if the person’s just being a jerk, maybe you don’t want to engage, but if they’re truly, it often comes initially as complaining about something that is seemingly out of your hands, and if you dig deeper, there might be something there on like, oh, maybe instead of a text message, this should also be an email or some other delivery mechanism where it’s more likely to be received, or maybe there should be some kind of loop back where if the person doesn’t confirm their receipt of it, we notify the sender to let them know like, Hey, there maybe is something you can still do to make your product solve the job to be done better. I think about this in Savvy Cal. We have a lot of integrations that you can have hooked up your calendars, your Zoom, your CRMs, there’s all kinds of stuff, and any one of these could fail at any time.
And we’ve gone through a bunch of iterations over the years on continuing to refine how we let you, as the savvy Cal account holder, know that certain things are failing, right? And we always send an email if an integration breaks, but sometimes people miss that email and then they get mad at us because this thing was broken and I didn’t know. And we could just say, well, we sent you an email too bad. But also that gives us an insight that maybe we need to send more emails, maybe we need to do some other mitigation to try to make the experience better. So I just think often masked behind these pieces of negative feedback that are seemingly out of your control. There’s often a kernel there that you can maybe work with.
Rob Walling :
That’s such a good answer. I have nothing to add. I like it. Yeah, I think we’ve done a good job today of hearing a variety of questions and coming up with our best answers.
Derrick Reimer:
Yeah, it’s fun.
Rob Walling :
Yeah. Thanks for joining me and if folks want to keep up with you on X Twitter, you are at Derek Rimer and of course the best scheduling link on the internet. They can find you@savvycal.com. Thanks again, man.
Derrick Reimer:
Thank you.
Rob Walling :
Thanks so much to Derek for coming on the show. And a reminder, if you’re looking to build scheduling functionality into your web application or SaaS app, you should reach out to Derek. Go to savvy cal.com/appointments to find out more about that functionality. Thanks for listening this week and every week. This is Rob Walling signing off from episode 822.
If you’ve made it this far, you’ve made it to the hidden track where I ambush my good friend, my sweet summer intern, good friend with trivia questions. In the past, we’ve done d and d, that reality show that you watch that I can’t remember the name of Making Latte or Espresso. What else? What else have I grilled? John, maybe that’s it. Yeah. Today, given my top secret informant, oh boy, have a mole, have a spy. For folks who don’t know, I have Derek’s wife. I have her phone number, and so I texted her and she just gives me all the deets, and so, oh boy. I’m to be asking you five trivia questions on baking sourdough.
Derrick Reimer:
Ooh, okay. Alright, I’m ready.
Rob Walling :
All right. Can we do this?
Derrick Reimer:
I feel ready.
Rob Walling :
They’re going to get increasingly difficult.
Derrick Reimer:
Okay.
Rob Walling :
What is the main reason? Sourdough dough is usually mixed and needed less aggressively than yeasted dough
Derrick Reimer:
Because it goes through a natural fermentation process that helps develop the gluten so you don’t have to force the process with kneading.
Rob Walling :
There it is. Ding, ding, ding. One for one. What is ly? A-U-T-O-L-Y-S-E. And why is it used in sourdough baking?
Derrick Reimer:
I don’t think I’ve ever heard of that before.
Rob Walling :
Wow. I wonder if it’s not used in sourdough baking and Jet GPT hallucinated.
Derrick Reimer:
It probably is. I thought you were going to say, wow. And you call yourself a sourdough bread baker.
Rob Walling :
Oh, my freshly hatched amigo.
Derrick Reimer:
What does chat GPT say about it?
Rob Walling :
Lye is resting flour and water before adding starter and salt. It improves gluten development and dough extensibility.
Derrick Reimer:
Okay. I do that.
Rob Walling :
Yes.
Derrick Reimer:
But you didn’t know it was called. I just didn’t know that was the term for it.
Rob Walling :
Interesting. See, these are tough for me where it’s like, technically you didn’t get it, but it’s like, come on man. Maybe I just didn’t know the name of the thing.
Derrick Reimer:
Yep, yep.
Rob Walling :
How does temperature influence the balance of lactic acid versus acetic acid in sourdough fermentation?
Derrick Reimer:
Well, I’m going to say that sourdough generally in my experience, goes through two fermentation phases. Your bulk fermentation where it’s countertop or room temp or a little bit more, and a cold fermentation phase, which is like put it in the fridge overnight and let it go for eight to 12 hours. One probably influence a certain type of process. And the other, another one, but I don’t know which is which
Rob Walling :
I am totally giving you credit for this. Warmer temperatures favor lactic acid, cooler temperatures favor acetic acid. There we
Derrick Reimer:
Go.
Rob Walling :
Got it. You got it on instinct on that one. Yeah. Nice job. Alright, the two hardest questions are coming up. These are difficulty nine and 10. So I said on a scale of one to 10, start at a three and give me a bunch of questions. And these are nine and 10. Why does adding salt after auto lyse matter in sourdough dough
Derrick Reimer:
Development? My understanding, which may not come from anything other than intuition, is that the salt retards, the yeast activation, you want to give the yeast a chance to get revved up before you introduce salt, which can kill it.
Rob Walling :
Here’s what Chad Tippee says, salt tightens gluten and slows fermentation. So delaying it allows better gluten formation first.
Derrick Reimer:
Okay, I buy that.
Rob Walling :
Yeah, and that’s different than what you said.
Derrick Reimer:
Yeah. I think I’m taking that from your classic baking recipes where they say, don’t dump the salt right on the yeast. And I just always assume that was because it might kill the yeast, but probably has more to do with that.
Rob Walling :
All right. Well,
Derrick Reimer:
I’m going to trust your friend on that.
Rob Walling :
Yeah, I think chat might’ve been at this. I think you’re two and two. Technically, if we don’t give you the autolyzed ones, so, all right. This is tough. These are tough. These are nines and tens. What is the most common technical cause of a sourdough loaf that spreads outward instead of springing upward in the oven
Derrick Reimer:
Over proofing?
Rob Walling :
Boom. Geez, that was the 10 and you nailed it over Proofing, which weakens gluten structure and reduces oven spring. Dude, you really know this stuff. When you do stuff, when you have hobbies, you really nerd out on them. Let me just say this.
Derrick Reimer:
Yeah, I try to
Rob Walling :
Aspire to that. I aspire to that level of knowledge, stupid shit that I do in the kitchen. That’s awesome.
Derrick Reimer:
That’s good. It’s fun. It’s a fun hobby.
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G two I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork, just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at g2.co/robb. Get a seven day free trial and $1,500 off when you mention startups. For the Rest Of Us, that’s G2 i.co/rob. It’s another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I sit down with fan favorite Derek Rimer and we answer your listener questions.
Topics range from comparing building SaaS with no code versus ai, vibe coding, how to think about taking a small amount of funding in the early days, whether SaaS margins might be compressed in the AI age of software and more, and you’ll have to tune in to hear the final question before I dive into my conversation with Derek MicroConf Europe is coming to Iceland September 21st through the 23rd. Prices for tickets are going up on March 1st. I would love to see you in Iceland along with 160 ish of your favorite bootstrapped founder. Friends, you have a great speaker lineup. Iceland is amazing. If you haven’t been to Quebec, you’re going to want to come. That’s MicroComp europe.com to grab your ticket and I hope to see you there. With that, let’s dive into listener questions. Derek Rimer back for your 22nd, 23rd appearance on the shift.
Derrick Reimer:
I’ve truly lost count at this point. That’s
Rob Walling :
Fine. I’ll ask chat g PTE again later. It’s great to have you back, man, and it’s always by yeah,
Derrick Reimer:
To be back.
Rob Walling :
Popular demand. Yeah. Whenever we mention you on X Twitter that you’re coming on, people are like, yeah, yeah, these are some of my favorite episodes, so it’s great to have you. Here we are digging into listener questions. First question comes from CIA Hope. I just know I’m mispronouncing. That name question is about no code versus ai, vibe coding, and I would say even versus AI coding in general, right? I wouldn’t call you a vibe coder. You’re a senior engineer using AI to augment and move faster and write better code quicker. Then there are folks, you and I have a friend or two who are just vibe coding and that’s one’s like, yeah, they’re not a developer and they’re just doing the best they can. So let’s get into this email. Hi Rob. I’ve been listening to you for years and I’ve gained a lot of insight, wisdom, direction, encouragement, motivation, et cetera.
Wow, that’s awesome. That’s a lot of stuff. While I’m not a developer, I’ve run a small agency building e-commerce solutions and done custom development for years. I’ve always wanted to develop a product but never had the skills. I’m a solo founder and I’ve spent much time learning bubble and have launched a SaaS product that has subscribers. It’s been hard, tiring, and at times slow. That’s SaaS. It sucks, but it’s like, oh, yeah, been there, done that. That sounds like you’re right on track. Now I have the skills and I’m building two other products. I haven’t hit revenue goals yet, but I’m determined this has been a very time consuming side hustle. I get customers, I implement, I listen, I iterate. I improve the product, and I ship fast, but it still takes time testing and effort. Then I see folks online using AI tools to prompt and launch very fast, and it’s scary.
I’ve played with these tools and they look cool, but I feel like they don’t compare to building slower and having control of your app and understanding the whole thing. I’m using AI, but to build and run features within the app. But as you’ve mentioned on the show, I am scared of being left behind, becoming obsolete or missing this opportunity because I’m not moving faster. Then I also hear of cases where people are developing products and making X amount of dollars in a very short time, and I think, am I going about this the wrong way? I’d love to hear your thoughts on no code options compared to ai, vibe coding, and he specifically mentions Rep lit, but you know what? N eight N and lovable and all these other options, or I even imagine I could go ask Tropi your Claude code today, build me something in an English sentence and have it spit it out. So there’s a lot here, but I really do appreciate this question. I want to kick it to you first. What are your thoughts here?
Derrick Reimer:
Yeah, yeah. I think for better or worse, this is going to be probably the epicenter of where a lot of questions are going to come from over the next year at least. I think as we enter this kind of new era, the industry’s shifting and I think this feeling that he’s describing, he or she’s describing is the fear of being left behind, the fear of not moving fast enough. Oh my gosh, it looks like everyone’s moving so fast now is very real. I think that’s being felt at a universal level. I certainly feel it from time to time and have to remind myself that it’s not necessarily always rational to get all riled up about it because certain things have changed and some things haven’t. So I guess I would say don’t sell yourself short on the progress you’ve made on building products to delivering to customers and the work you’re describing of iterating, listening, improving, and it’s been agonizingly slow.
We were kind of joking about upfront that is SaaS, even with AI tooling that allows developers who know how to write code to move even faster. It doesn’t make all parts of the process faster. It doesn’t mean you’re able to listen to customers faster or to figure out the right things to build necessarily that much faster. So yes, it’s giving some people a leg up in the actual implementation phase and in the strategizing using it as a thought partner and which you certainly have access to that as well. So it’s making certain parts of the process faster, but other parts are just, you can’t shortcut them. So I think the trajectory you’ve been on is preparing you to still do well. Even as we enter this new era where there’s a bunch of new AI tooling, you’ve got kind of the foundational pieces down, which honestly the fundamentals of business are still the same.
Nailing the problem to be solved, finding customers, retaining customers, keeping them happy, supporting them, all those things are going to remain the same. So if I were you, I’d be thinking of this as your tech stack, and that’s something that developers have been thinking about for a long time when they’re starting startups is like, what tech stack am I going to use? And the general answer is, it kind of doesn’t really matter. Go with what and don’t let that be an impediment to making progress on solving business problems that you can charge money for. And so I kind of see that the same way Bubble. I am not super familiar with Bubble. I haven’t really used it myself, but I was looking at it ahead of this recording and it looks like they’re moving more and more in the direction of putting more AI tooling into their tooling to let you build stuff. So it’s like you’re getting to draft off of that as well. I’m imagining you’re going to get to move faster using Bubble as Bubble keeps putting more AI stuff into their platform. So I think rising tides, lifting all boats, that kind of thing. Yeah, I guess to conclude my thoughts, there’s a ton of noise out there. The algorithms are really geared towards rewarding the braggy, fomo inducing posts, and you just got to try to tune that stuff out and stay heads down, focus on your customers.
Rob Walling :
Yeah, I think that’s a great summary of it. When I read this, I asked myself what would I do in his shoes? I haven’t written production code since you revoked my credentials to get, I know you didn’t, but I haven’t put code on a production server since 2013, maybe somewhere in there 14 with Hit Tail. I didn’t write a line of code on Drip, so it’s been a while. I can still go back and hack stuff. I’ve written non-production code. I started teaching myself Python after I left Drip just because if I wanted to do something and so I was asking myself what would I do if I wanted to build an app today? And I personally, aside from hiring someone to do it, let’s put that aside. If I really wanted to do it myself, I personally would learn to use AI to do it, and I would pick maybe a stack that I’d probably, for me, it’d be like Ruby on Rails or Python Jango or something that I’m at least kind of familiar with.
I don’t know either of those languages, but I know there’s tons of resources. The ecosystem’s ample, right? I do know PHPI probably wouldn’t go back and try to build something in PHP or Laravel today. No shade on it. It’s just to me it just feels like an older, I know it. I started coding it in 2001, and so it’s like that just feels like there’s better things that I would choose these days. But the problem with that is I used to be a developer, so what I would do versus what I think he should do is actually different. Then I asked myself the question of what if Producer Ron, who’s on the MicroConf TinySeed team came to me and said, I want to build an internal line of business app. This isn’t even for external customers, it’s just for three of us to use or five of us to help produce the podcast to be a workflow management.
The pings, I set a status to ready to edit and it hits our editor and blah, blah, blah. And the reason I bring this example up is because we actually have three or four of those that Ron has built and they’re all in Airtable. So Pat is podcast Airtable, VAT is video Airtable. We have lat, which is LinkedIn, Airtable, we don’t use it anymore. We don’t do LinkedIn production, but then we have an one for ad reads as well, and these are all just basic workflows and they’re built in Airtable. So when I’m imagining Thought Experiment, Ron built those in Airtable as a non-developer and did a great job and we use them. I mean I’m in them every day and we’ve used them now for years. So what if Ron came to me and said, I’m going to build it in Airtable, this system, or I’m going to Vibe code or I’m going to build it in Rept or Lovable or one of these other tools, or I’m just going to vibe code it in Claude code and I’m going to deploy it to a production server somewhere, and I started asking myself, which of these would I want?
And it’s really obvious that I want the no-code. I do not want vibe coded solutions that I’m using, and there’s a bunch of reasons. I think you and I have talked through ’em before. There’s scalability, performance and maintainability and just all the management, the complexity of having service, blah, blah, blah. We could talk 10 reasons why I don’t want that. Now, we could also talk reasons of why no-code has platform risk and why there may be reasons not to do no-code, but for me, if I was working with a non-technical, like a guy who’s not a developer, I would prefer no-code today. That might change over time, as you like to say, and I appreciate this. Today is February of 2026 and it might change by March or April depending on eight. You know what I mean? These things change very quickly, so there are trade offs to this.
I love that you brought up that bubble. That was going to be my next thing is, well, can you do no-code and use AI to move faster? And it sounds like they need to build it into the tools, but that’s I think maybe a place where I would lean. The last thing I want to say that I thought about is the question in my mind is how long until I have to rewrite this till I have to have someone rewrite it? Because it’s not if, but well, you get any success if you never have customers. You only have two, three customers, maybe you never need to rewrite it, but every company that I’ve invested in or otherwise had visibility into that has been no code or has been poorly coded. I will say, I’m just going to assume that AI vibe coding is poorly coded and hard to maintain long-term. That may or may not be correct, but when I see apps that are poorly coded, inevitably they need to be rewritten, and so that’s what I’m wondering. Maybe both of these need to be rewritten. The TinySeed no-code apps, there’s only I think three of them. I think they’ve all in the process of being rewritten or they will be, but they have thousands or tens of thousands in revenue in MRR, so it got ’em to the point where they needed to. I don’t know. You have any other thoughts based on what I said?
Derrick Reimer:
Yeah, it’s tough because it’s hard to imagine being able to go run forever on a no-code built thing, but in the spirit of lean startup principles or whatever, this is the right path to validate something to get something initially built. But I guess that does, I mean thinking of it from the other side, Claude code is getting increasingly good. I know you and I both know multiple people in our sphere that are non-technical building new products from scratch just in cloud code, and I don’t totally know how I feel about that. I think just for their own sake, is this the wise route to go not being a developer and using these tools, but I guess part of me assumes that something like Bubble will help put more guardrails up so that you don’t have security vulnerabilities potentially that or permissions logic that gets missed as Claude is trying to bite off a huge chunk and just, oh, that was an oversight, which I find it doing quite often in my own projects. So I guess I’m assuming that some of these no-code platforms have more guardrails that prevents you from making those types of mistakes, but maybe that’s a faulty assumption. I’m not really sure
Rob Walling :
I’m making that assumption too.
Derrick Reimer:
So I don’t know. We might be getting closer to the place where just using Claude and having it build something from scratch might be approaching the level of quality, I guess, of something built in no code for the purpose of producing an MVP. So I don’t know. I don’t know where I totally fall on that this day. February the fifth, 2026.
Rob Walling :
No, it, it’s a tricky question and I hear what he’s saying of I’m painstakingly building this stuff and then someone just basically vibe codes it and they get to market fast. I mean, I guess the one other thing he had the question of you also hear when people are developing products and making X amount in a quick time and you think, am I going about this the wrong way? So there’s a couple things I think there. Number one, social media is a bunch of bullshit, so don’t believe most of what you read. The other second thing is likely they just got really lucky if it’s actually true, and then there’s maybe this small niche of people who it is true and they didn’t get lucky. I don’t know how many people that actually is. So
Derrick Reimer:
It’s often the people with the big networks like the Peter levels of the world where it’s like I built an AI thing that my 500,000 followers on Twitter really like to engage with and whatever. It’s a totally different way of going about
Rob Walling :
It. It is, and comparison is the thief of joy. While I’m not saying, oh, you’re doing everything and you shouldn’t change what you’re doing, I think you’re being smart and prudent to be looking around at other approaches, but I think it can be really easy to look at social media and see people’s highlight reel, let’s just say a hundred thousand people who are trying to do this. The number’s probably not that big, but oh man, I saw five people last week with all this success. It’s like those numbers are not great. So don’t think that everybody’s doing that because they’re not. There’s so many more failing or so many more that are moving slower than you are.
Derrick Reimer:
Yeah, I think the other thing to keep in mind too, we’re in a bit of an echo chamber being adjacent to all this technology being developed and the people who are making use of it in our kind of Twitter sphere. So everyone’s kind of rushing to try out the new tools, use them, see a bunch of performance gains from them, but the reality is most industries, it’s not like you’re going to lose out because someone else is vibe coating a solution way faster and they’re going to take your market. Most of the world is moving at a slower pace, so the need for you to necessarily move faster, that might not actually be true in order to keep your market, especially if you’re serving a niche that’s like if you’re out there trying to build a agentic coating harness, well then yeah, that is like breakneck speed, but if you’re building some line of business application for a niche, the odds that there’s a bunch of vibe coated competitors moving faster or whatever is probably pretty low,
Rob Walling :
And it sounds like maybe he’s less worried about that and more becoming unmotivated, taking so long and motivation is a real, I call it emotional runway. It’s like there’s financial runway and there’s emotional runway and you need both of those as a bootstrapper really, the financial runway you don’t worry about because you’re not spending more than what you have, but your emotional runways what eventually runs out funded companies fail when they run out of money. Bootstrap companies fail when they run out of motivation. And so I think it’s a good question and when we obviously don’t have an unequivocal answer on, but I really appreciate you sending it in. I hope that was helpful. Our next question is on taking small funding early versus pure bootstrapping.
Speaker 3:
Hey Rob, this is Gavin Beach. I’m a veterinarian and working on my first SaaS startup called Scribe ed, which summarizes and organizes large veterinary medical records for veterinary professionals. I’m new to the world of SaaS and startups and I have been deep diving into startups For the Rest Of Us over the past year, and I just recently attended my first MicroConf remote event and both have been a huge help to me so far. Scribe at is in the stage of alpha testing our MVP and getting close to hopefully taking on some first customers, which is both exciting and terrifying. My question for you today, centers around money and funding, we are pre-revenue, so everything has come out of our own pockets so far. We have started getting some interest though from some individuals in my network about independent funding. I think this would into friends and family slash angel investments.
I’ve heard you talk a fair bit about the different levels of funding and your 1 9 90 rule in regards to venture indie funding and pure bootstrapping. You have also talked about how funding can buy you years of time in your business. We know that we are not looking at venture capital. We want to stay independent and in control, but my co-founder and I both work full-time and have been building what we have on nights and weekends and it’s been slow taking some funding could let me scale back on my full-time job and focus more on scribe that and could give me the resources to hire some contract work to push things forward a little faster. What I don’t know is whether that is what dictates me being in the 9% rather than the 90. It seems like everyone would be in that same boat in that a few hundred thousand dollars would let them focus on their SaaS and give them the best chance possible to get it off the ground. I know you can’t tell me specifically as to whether I should take some funding or not, but in general, what factors do you think influenced the decision to take some independent funding to get things started and gain traction versus purely bootstrapping all the way? Thanks for your help, Rob. I don’t think I could have even made it this far without you.
Rob Walling :
What are your thoughts on this, Derek? As someone who has been involved in bootstrapping has worked for a venture funded company after we acquired and who raised effectively this indie funding that Gavin’s talking about for your current effort savvy, what’s your sentiment?
Derrick Reimer:
Yeah, I mean I think he’s really thinking about this the right way, bringing up your kind of framework, the 1 9 90 rule, which is kind of a helpful lens to think about this. So I guess in my mind the central question is always have I de-risked the business enough to feel confident it’ll work? And that’s something that I personally want to see before taking funding. I think it’s different for someone on the venture capital track where it’s like those often start out with early funding before any kind of validation and that’s just sort of how the Silicon Valley VC track works. But I think when we’re thinking about angel funding for more of the TinySeed scale type of businesses, it’s a much more prudent thing to be trying to de-risk it a bit more. And I think that’s probably where you can speak to this, but that’s probably where the kind of TinySeed we look for at least some early MRR to prove that you’re onto something or to give evidence that you’re onto something before it makes sense for TinySeed to invest.
And so I think that’s just a helpful way for someone who’s thinking about taking funding to also apply that to themselves. So I think he’s got some things playing in his favor, deep domain expertise, being a veterinarian, identifying a problem building for that space. It’s a vertical play as a co-founder. So these are all positives I would be thinking about. Do you have a sense for where and how to find customers repeatedly? Have you gone down that road yet or is it still really early in alpha? Are you picking up signals from your early testers? Have you had those conversations around willingness to pay and is this something that you find useful enough to actually lay down real money for? And so these are some things where I’m not sure if he’s quite there yet, and if not, I would be wondering, can you keep forging head on the nights and weekends things until you have that at least a few thousand dollars MRR? Because I think that helps in a lot of ways for you to justify your valuation to people who are giving you money, prove that you’re onto something, you’ll feel better about it. People giving you money will feel better about it if you have clarity about your scale of ambitions. All of this is easier once you have a little bit of early traction.
Rob Walling :
Yeah, I like the way you’re thinking about it. I also liked the way Gavin said specifically, this is what we’d spend the money on always. My first question is, great, so you’re going to raise 2 5500, whatcha going to do with it? And he said it could let me scale back my full-time job and put more time in, describe or it could allow us to hire contractors and move a little faster. And I think those are both good things, but to your point, do these things get you traction? Meaning do they get you customers? Because most people stay pre-revenue for too long and if I’m going to raise this money, you’re right, I would want some traction before I did. That doesn’t mean everyone needs some traction before they do. I do know some folks who raise pre-revenue and that’s okay if you raise it from your network, but I would want to put that money not towards building the fricking product.
I would want to put it towards sales and marketing. And one of those ways could be buying out your day job time so that you work halftime or whatever, and that gives you 20 hours a week or 20 hours during the day plus another 10 to 20 hours nights and weekends to then sell and market this. So if Gavin were to say, we have friends and family or my network who are willing to invest at this stage, as long as it’s not some crazy low valuation, it’s like you don’t want to raise money at a 250 or $500,000 valuation, then you’d never raise again. You sell too much to the company as long as you can raise at a reasonable valuation and you have let them know, hey, this is going to be a great mostly bootstrap business that sounds like your objective and that if success might look like a $10 million, $20 million, $30 million exit, if everyone’s on board with that, you’re not on the venture track.
And I think it’s fine, but there is a danger. And both Eric and I have seen folks who raise before product-market fit and burn through all the money and then they’re just starting to get product-market fit and they have no more money left. So then they have to let staff go and then they’re left to just kind of like, well, I don’t really have any resources to grow this now and I can’t raise money because I’ve kind of plateaued at four KA month or something, so no one’s going to give me any more money and I miss my shot. So that’s the thing I’ve tried to be really careful of here, but if you’re being really capital efficient and you’re listening to this podcast and you’re hearing the guests, the folks like Derek or the people that I interview and you hear how none of us blow through a bunch of money, even Jordan gal has raised a ton of money.
He’ll come on the podcast. He didn’t blow through it though. He’s very frugal and prudent with it. Jason Cohen was on here a couple of weeks ago. I saw that guy raise, I think like he said, his series A was 1.2 million or something like that. It was such a small amount, but man, was he capital efficient with that even though he did eventually go on the venture track, he didn’t blow through it. And I don’t think Gavin’s going to either, if he’s taking lessons from our type of founder, we’ll get back to the pod in a minute. But if you’re running a SaaS company doing between two and 25 million and a RR, you’ve almost certainly got an inbound acquisition interest. Maybe a private equity firm reached out, maybe a competitor made some noise about acquiring you. And here’s the thing, how do you know if the number they throw out is any good?
This is why I tell people to talk to Discretion Capital. Nick Davies, a longtime MicroConf attendee, worked with discretion to sell dentally. Nick said the team was pivotal in increasing his deal value by over 60% and they improved the terms on top of that 60%. Think about that for a second. Einar Vollset runs discretion. He’s my co-founder at TinySeed and they’ve done more than 40 of these deals. If you want to understand what your company might actually be worth, go to discretion capital.com and book a call and then to figure out a valuation, can you raise that valuation when you’re pre-revenue, that doesn’t hamper future. That means you don’t sell too much, right? And it’s a balance man, because let’s say you raise at a million dollar valuation, it depends on how much you want to sell. Then if you, I’m sorry, it depends on how much you want to raise because if you want to raise 500 K, you don’t want to sell 50% of your company to investors, so that’s not going to work.
But let’s say you like, all right, so we’re going to do a safe at 4 million, which is a lot. It’s a lot for if you’re not going to go venture track, if you’re going to be a mostly bootstrap B2B SaaS company who wants to sell for, well then you don’t want to sell for 10 million because that’s only two and a half X to those investors. Nobody wants that. So now you’re like, well, my minimum that I really want to sell for to do right by them is probably 20, 30 million, but 50 is better, 40 is better. So 10 x. So then if you raise it 4 million and you sell, you do a $400,000 raise, you sell 10% challenge there is you have raised ahead of your valuation. So if you then get some traction and you apply for TinySeed and let’s say you’re doing five KA month by the time you apply and we’re like, we want to fund you, we have seen companies in that position where their prior investors are like, we’re not going to let TinySeed invest because we don’t do 4 million valuations.
We do 10 to 12% for, what is it, 120 to usually two 20. So the valuation, I think that’s one to 2 million or one to two and a half million. You get it. And the two and a half million, 3 million valuations we’ve done, someone had a hundred K of MRR when they applied. That’s the top, top end. So then they come in and we’re like, cool, we’re going to invest at you at 1.5 million or 1.7 or whatever, and we will do that and the founders want to do it, but their prior investors. So that’s where it’s like there’s a balance here. And I’m not saying either one of these is the right call. You do want to think about this, that if you raise a head of valuation, you have to then get back to that before you raise your next round. And this is a lot of what happened to companies in 2021 when the valuations were insane.
People were raising at, I don’t know, 50 x revenue or something as a venture valuation or 30 to 30 to a hundred. It was crazy. And then it’s like PO funding dries up now it was more reasonable. It’s like 10 to 20 is now the valuation. It’s like Uhoh. You needed to grow a lot to be able to raise that next round. And that’s venture funded companies. That’s not where we’re, that’s not any funded and mostly bootstrapped, but that’s the way I’d be thinking about it. Our next question comes from Vance and it’s about SaaS margins in the AI age of software.
Speaker 4:
Hey Rob, it’s Vance with budget sheet.com. I have a question about AI software development and SaaS pricing, SaaS margins specifically about if you think in the future with a lot of new software being developed with AI being developed faster with smaller teams, if it’s going to put pressure on the typical margins that we see in SaaS companies and how that will impact the, I guess the traditional advice you hear of charge more, raise your prices kind of thing, if there can be more entrants that develop their software quicker with smaller teams and specifically how you might advise a portfolio company on that, maybe in that position they have an existing SaaS and they have competitors entering their space that are developing their products much faster and cheaper and then charging less, maybe putting pressure on them. How would you think about that and how might you advise your portfolio companies? Thanks,
Rob Walling :
Rob. So I found this question interesting. I definitely think people no code and AI coding is going to help more people build things faster. So I do think it’ll be more crowded in general, but what do you think about how he’s talking about it, that it’s going to, he brought up smaller teams a lot and build it faster and therefore will it drive prices down that you won’t be able to have pricing power? What are your thoughts there?
Derrick Reimer:
Yeah, it’s interesting because I feel like SaaS has always been sort of high margin because the value delivered, there’s such a gap between what the value able to capture is and what it costs to do it, and the costs are going to go down quite a bit I think because of ai. And just in terms of the product on the product side of things, does that fundamentally change how much value is being provided? I mean, I guess there’s competitive pressure potentially, and there’s going to be some, I think I’ve talked about this before. I think there’s going to be certainly some subcategories of the industry that are just going to get subsumed by the AI models. Certain things, opportunities will just sort of vanish because now we just turn to Claude or chat chip T to do that thing that we used to pay an external service for.
So that’s going to happen to some degree, but then in the areas where it’s not directly within the scope of what the foundational models can subsume, I don’t know. I think increased competition for sure could always drive down margins, but I don’t think I tend to take the more optimistic side of this. I mean a lot of people are reporting that SaaS is dead and this has been going on for a long time though, and I think we’re pretty far away from the SaaS business model dying. And I think there’s potential for even higher margins. I think there’s a case to be made for that at least for a little while. And then again, put the time marker on this because things might shift faster than I expect, but that’s at least my kind of initial take.
Rob Walling :
Yeah, part of the point I think he was making is that it’s like you said, it’s cheaper to build because you’re going to do it with smaller teams, you’re going to do it faster, so it’s cheaper. So then will the price be lower? And I was the same thing. It’s like SaaS shouldn’t be and has never been priced based on the cost to do it unless you had a cost heavy thing. Obviously if you’re sending SMS, you need to charge for that, blah, blah, blah, but generally it doesn’t cost Basecamp, whatever. I dunno what they charge. I don’t use Basecamp, but it’s 99 bucks a month or whatever. It doesn’t charge not based on that, it’s based on the value. It’s what you said. But I don’t think that’s his whole question. I do think the big thing is will prices go down if a bunch of competitors come on the scene?
And I’ve seen markets where a bunch of competitors have come on the scene. We’ve seen CRMs, we’ve seen email service providers. What are the most crowded horizontal markets that we know of? ERPs, we could name them and have prices come down a little bit because think of when we launched Drip that it was a bunch of kind of enterprisey software plays and then there was the cheaper value players like MailChimp and AWeber who didn’t have automations at the time, but there were a bunch of people charging a bunch of money for marketing automation. And we did come in and undercut them because we could and we changed the sales model and that was an advantage that we had. But I haven’t seen it go to zero. I haven’t seen it just keep getting cheaper and cheaper and there are, I don’t know, 500 ESPs probably there might be more.
So I don’t know that a bunch of AI coded stuff is going to change it just based on how we’ve watched all these other markets already play out with that. I think that when we do look at these markets, the pattern we see is that it is like it’s not winner take all, but it’s a handful of brands that own most of this space. So in CRM, who is it? Salesforce, HubSpot, and there’s a third that, again, I don’t use a CRM and maybe it’s just those two have a huge percentage, but maybe there’s a third. And if we were to say ESPs like market share got to be MailChimp, and who do we think is number two? That’s an interesting question. Kit is big, but it’s not. I mean MailChimp is a hundred times bigger or something like that. I don’t know who number two would be. It might be someone like Constant Contact or someone who’s just started so long ago and has Momentum
Derrick Reimer:
And then upscale. There’s, well, HubSpot, there’s Pardot, those types of guys,
Rob Walling :
The enterprise ones enterprise and there are hundreds and hundreds of them, but it shows, I think that having a brand still has pricing power. MailChimp hasn’t lowered their prices ever that I know about. And I mean I used to monitor their prices, we competed with them, never saw them lower them. Salesforce certainly hasn’t, and there’s hundreds of competitors. So I don’t know the answer to this honestly. It might impact it, but in the markets that we’ve seen, I guess if someone came in and built something and open sourced it, that’s going to hurt you. If people came in and built, they built a business and they’re like, we’re going to charge, everybody else is charging a hundred to a thousand and we’re going to charge nine bucks a month for it. They would get a lot of customers, but that’s a business, so how long are they going to stick around?
We know that. You know what I mean? It’s just like nobody wants to race to the bottom unless you don’t know any better. And if you don’t know any better, I don’t know that you’re going to last that long. So it makes me feel like it can’t go to zero. We see a little impact because more competitive pressure to what you and I are saying. Yeah, but I don’t feel like similarly, like SaaS isn’t dead and I don’t think all SaaS is going to be free or so cheap. And because it’s not commoditized, SaaS is some SaaS is commoditized
Derrick Reimer:
Today and we’re going to have to put increasing emphasis on the service part of SaaS because yes, the technology is cheaper than ever to create writing the code that puts the data in and out of the database is getting easier and easier and cheaper and cheaper. But companies still pay for SaaS because they don’t want to own all of that themselves. They don’t want to have someone inside of their organization create this thing from scratch. Then they have to own the hosting of it. They have to own the uptime and all of the service that comes with buying off the shelf SaaS. And I think that’s where most of the value is. And as long as you’re continuing to provide that, there’s some kind of value captured to be had. I also think about, I think there’s going to be probably increasing pressure on horizontal general purpose products.
Those are always kind of the most vulnerable probably to the kind of competitive pressure in the race to the bottom dynamics. But I think about in my own space, savvy Cal is pretty horizontal, pretty general purpose. And there are players who are relatively new that are focusing on a specific corner of the market and have just continued to raise their prices and go up and up and up because they’re honing in on say, the sales use case and then continuing to branch out around that and being able to say that they’re helping drive revenue. And there’s just a different story to tell than just like we provide scheduling. It’s like we drive revenue for your business and then we start to charge accordingly. So I think positioning has a lot to do with it too and having some restraint in where you niche and how you’re describing the value that you’re delivering.
Rob Walling :
Yeah, I think that’s dead on positioning as a premium product and being worth it and not being a commodity continues to be super important. I mean, that carries over into marketing as well, right? It’s like as much as I don’t want people, I don’t want founders to feel like they have to get on camera and be a personal brand to promote it, that does help. Founder-led marketing is a thing that I think more people are going to do. I still think you’ll be able to succeed without it though. Just like I think as more AI players, AI bill players come in the product. I mean, we see this all the time on X Twitter, someone saying, look, it got easier to build SaaS. When Ruby on Rails came out, it got way faster, it got easier to build it when no code happened. It’s gotten easier to build it when any of these frameworks have happened.
It’s only gotten easier and faster as these coding ecosystems specifically designed to build web apps have made it so much easier. When I used to hand code a P two or P one, I remember active server pages and PP back 25 years ago, dude, it took us forever to build a shopping cart and now you could build that in Ruby on Rails in a weekend, probably this stuff we used to build. But that doesn’t mean that it’s all gone to zero still. It’s distribution, it’s marketing, it’s positioning, it’s brand. That’s what we’re saying. So I don’t think it’ll have zero effect, but I don’t think it’ll have near the effect that a lot of people think.
Derrick Reimer:
Yeah, that’s something that just popped in my mind too, that it’s going to become easier for companies to sort of expand where they are in the value chain. So when it was more expensive pre AI to build stuff, it was generally wise to kind of stay in your more narrow lane and focus in on the part of the value chain that you’re good at. But now that we can build a lot faster, theoretically, it’s easier to kind of expand your scope and think about what comes before and after the part of the value chain where my product offers and customers often love a good bundle that one bill, and they can knock off multiple parts that they were maybe paying independently for before. So this is something I’m starting to pick up on with Avial appointments as I’m talking to SaaS platforms that are wanting to provide scheduling to their customers because thinking about how do I make my product more valuable? How do I offer more things to my customers in addition to my core offering? And now with ai, it’s more feasible to do that if they have a dev team and they like, we can bite off more now and so we can become more valuable by offering more things in our bundle. And I think that’s a trend I’m starting to see happen.
Rob Walling :
I like that Savvy Cal appointments. So if someone runs a SaaS app and they want to integrate SAVI Cal appointments in scheduling into their application, what should they do? Derek?
Derrick Reimer:
They should reach out to me for sure. Head to savvy cal.com/appointments. We have a little landing page describing the product there. But yeah, hit me up, derek@avial.com. Would love to chat. We’re gradually coming out of stealth mode on this product and starting to fill the sales pipeline a bit. So yeah, reach out for sure. Stealth
Rob Walling :
Mode, my favorite. Don’t do what Derek’s doing. Don’t do stealth mode. No, it’s fine. I know what you’re doing and why you’re doing it. So thanks for that question, Vance. I hope our vamping was helpful. Next question comes from Nick about asking the best question to get feedback from customers.
Speaker 5:
Hey Rob, my name’s Nick. I’m in the B2B SaaS space marketing to enterprise customers. I’ve been listening to startups For the Rest Of Us for pretty much exactly a year now, and I can’t tell you how much your podcasts have helped me. Really, every single question query problem that I have, I’ve literally searched the back log and found something to listen to that has been helpful. So thank you so much for what you do in this space. My question today is around gathering feedback from users. I have a feedback function on my platform and I’m struggling with negative feedback, not that there’s lots of it, but when I get negative feedback, the reason for the feedback is sometimes quite questionable. The question that I will put to the user is how well do you feel we supported you today? Now if somebody feels that unsupported or when they used our software, things didn’t go the way that they wanted to, that is usually due to an external factor that I have no control over whatsoever.
I can’t go into too much detail, but basically it could be that a text message wasn’t delivered or it wasn’t interacted with or a link wasn’t followed, all sorts of things like that which are out with my control and out with the control of the user. So fully dependent on a third party. So when that happens, I’ll get a negative feedback ping and it’ll say something like, the mobile phone is turned off. So the message never actually got delivered again, not my fault, not my user’s fault. And I was wondering what is the best way to ask for feedback? What’s the best question? Really interested in your thoughts on this because I’d really like to make some progress and get valuable feedback to make actionable decisions on. Thank you so much. Again, take care of yourselves.
Rob Walling :
So the first thing I want to say is A, I don’t know if there’s a best question, but I will say that getting negative feedback that you can’t fix or remedy, that’s just going to happen no matter what you do. And I would just shake that off and be deleted. Or maybe it’s like you can respond and explain, Hey, this is up to them. It’s not something we can control. Sorry, it was a bummer, blah, blah, blah, or you do nothing with it. That would be my take on it. But beyond that, the way he’s asking the question is, how well did we support you today? What do you think? It’s a good question. I think there’s a better way to ask that.
Derrick Reimer:
Yeah, I don’t know. I’m not entirely clear where this question is surfacing in their current flow. He said it’s in their platform, so I don’t know if it’s just a little intercom type popup or something like that. But I don’t know. I had a little bit of different insight come to mind when I was reading this because in my experience, you generally only hear negative things, unfortunately, but there’s often some kind of deeper insight to gather from it. So in his example, I think he’s talking about someone blaming their platform for some message that was sent where the recipient had their phone off. It’s like, well, we couldn’t control that. We couldn’t make them have their phone be on, and maybe this is not applicable in this specific case, but I think just more generally when I hear that type of feedback where it’s like the intended action didn’t happen due to some external factor, it’s often worth trying to dig a little deeper and think about, okay, maybe they’re just venting to you and wanting someone to blame and they’re just blaming you, but maybe there’s also something they have in mind where if you had just done X, Y or Z, this would’ve been better for me.
Handling a failure mode that’s external to what you have. So I would probably mean depending on how, if the person’s just being a jerk, maybe you don’t want to engage, but if they’re truly, it often comes initially as complaining about something that is seemingly out of your hands, and if you dig deeper, there might be something there on like, oh, maybe instead of a text message, this should also be an email or some other delivery mechanism where it’s more likely to be received, or maybe there should be some kind of loop back where if the person doesn’t confirm their receipt of it, we notify the sender to let them know like, Hey, there maybe is something you can still do to make your product solve the job to be done better. I think about this in Savvy Cal. We have a lot of integrations that you can have hooked up your calendars, your Zoom, your CRMs, there’s all kinds of stuff, and any one of these could fail at any time.
And we’ve gone through a bunch of iterations over the years on continuing to refine how we let you, as the savvy Cal account holder, know that certain things are failing, right? And we always send an email if an integration breaks, but sometimes people miss that email and then they get mad at us because this thing was broken and I didn’t know. And we could just say, well, we sent you an email too bad. But also that gives us an insight that maybe we need to send more emails, maybe we need to do some other mitigation to try to make the experience better. So I just think often masked behind these pieces of negative feedback that are seemingly out of your control. There’s often a kernel there that you can maybe work with.
Rob Walling :
That’s such a good answer. I have nothing to add. I like it. Yeah, I think we’ve done a good job today of hearing a variety of questions and coming up with our best answers.
Derrick Reimer:
Yeah, it’s fun.
Rob Walling :
Yeah. Thanks for joining me and if folks want to keep up with you on X Twitter, you are at Derek Rimer and of course the best scheduling link on the internet. They can find you@savvycal.com. Thanks again, man.
Derrick Reimer:
Thank you.
Rob Walling :
Thanks so much to Derek for coming on the show. And a reminder, if you’re looking to build scheduling functionality into your web application or SaaS app, you should reach out to Derek. Go to savvy cal.com/appointments to find out more about that functionality. Thanks for listening this week and every week. This is Rob Walling signing off from episode 822.
If you’ve made it this far, you’ve made it to the hidden track where I ambush my good friend, my sweet summer intern, good friend with trivia questions. In the past, we’ve done d and d, that reality show that you watch that I can’t remember the name of Making Latte or Espresso. What else? What else have I grilled? John, maybe that’s it. Yeah. Today, given my top secret informant, oh boy, have a mole, have a spy. For folks who don’t know, I have Derek’s wife. I have her phone number, and so I texted her and she just gives me all the deets, and so, oh boy. I’m to be asking you five trivia questions on baking sourdough.
Derrick Reimer:
Ooh, okay. Alright, I’m ready.
Rob Walling :
All right. Can we do this?
Derrick Reimer:
I feel ready.
Rob Walling :
They’re going to get increasingly difficult.
Derrick Reimer:
Okay.
Rob Walling :
What is the main reason? Sourdough dough is usually mixed and needed less aggressively than yeasted dough
Derrick Reimer:
Because it goes through a natural fermentation process that helps develop the gluten so you don’t have to force the process with kneading.
Rob Walling :
There it is. Ding, ding, ding. One for one. What is ly? A-U-T-O-L-Y-S-E. And why is it used in sourdough baking?
Derrick Reimer:
I don’t think I’ve ever heard of that before.
Rob Walling :
Wow. I wonder if it’s not used in sourdough baking and Jet GPT hallucinated.
Derrick Reimer:
It probably is. I thought you were going to say, wow. And you call yourself a sourdough bread baker.
Rob Walling :
Oh, my freshly hatched amigo.
Derrick Reimer:
What does chat GPT say about it?
Rob Walling :
Lye is resting flour and water before adding starter and salt. It improves gluten development and dough extensibility.
Derrick Reimer:
Okay. I do that.
Rob Walling :
Yes.
Derrick Reimer:
But you didn’t know it was called. I just didn’t know that was the term for it.
Rob Walling :
Interesting. See, these are tough for me where it’s like, technically you didn’t get it, but it’s like, come on man. Maybe I just didn’t know the name of the thing.
Derrick Reimer:
Yep, yep.
Rob Walling :
How does temperature influence the balance of lactic acid versus acetic acid in sourdough fermentation?
Derrick Reimer:
Well, I’m going to say that sourdough generally in my experience, goes through two fermentation phases. Your bulk fermentation where it’s countertop or room temp or a little bit more, and a cold fermentation phase, which is like put it in the fridge overnight and let it go for eight to 12 hours. One probably influence a certain type of process. And the other, another one, but I don’t know which is which
Rob Walling :
I am totally giving you credit for this. Warmer temperatures favor lactic acid, cooler temperatures favor acetic acid. There we
Derrick Reimer:
Go.
Rob Walling :
Got it. You got it on instinct on that one. Yeah. Nice job. Alright, the two hardest questions are coming up. These are difficulty nine and 10. So I said on a scale of one to 10, start at a three and give me a bunch of questions. And these are nine and 10. Why does adding salt after auto lyse matter in sourdough dough
Derrick Reimer:
Development? My understanding, which may not come from anything other than intuition, is that the salt retards, the yeast activation, you want to give the yeast a chance to get revved up before you introduce salt, which can kill it.
Rob Walling :
Here’s what Chad Tippee says, salt tightens gluten and slows fermentation. So delaying it allows better gluten formation first.
Derrick Reimer:
Okay, I buy that.
Rob Walling :
Yeah, and that’s different than what you said.
Derrick Reimer:
Yeah. I think I’m taking that from your classic baking recipes where they say, don’t dump the salt right on the yeast. And I just always assume that was because it might kill the yeast, but probably has more to do with that.
Rob Walling :
All right. Well,
Derrick Reimer:
I’m going to trust your friend on that.
Rob Walling :
Yeah, I think chat might’ve been at this. I think you’re two and two. Technically, if we don’t give you the autolyzed ones, so, all right. This is tough. These are tough. These are nines and tens. What is the most common technical cause of a sourdough loaf that spreads outward instead of springing upward in the oven
Derrick Reimer:
Over proofing?
Rob Walling :
Boom. Geez, that was the 10 and you nailed it over Proofing, which weakens gluten structure and reduces oven spring. Dude, you really know this stuff. When you do stuff, when you have hobbies, you really nerd out on them. Let me just say this.
Derrick Reimer:
Yeah, I try to
Rob Walling :
Aspire to that. I aspire to that level of knowledge, stupid shit that I do in the kitchen. That’s awesome.
Derrick Reimer:
That’s good. It’s fun. It’s a fun hobby.
Episode 821 | How to Do Founder-Led Marketing (with Jay Clouse)
/
RSS Feed
Is founder-led marketing right for your SaaS, or just a distraction?
In this episode, Rob Walling sits down with Jay Clouse, founder of Creator Science, to explore founder-led marketing. They dig into how Jay overcame his own limiting beliefs about creativity, why most SaaS founders probably shouldn’t pursue content creation, and how to evaluate whether building an audience makes sense for your specific business.
This is part one of a two-part conversation. Head to the Creator Science podcast to hear Jay interview Rob about SaaS, being a creator, and how he prioritizes his time.
Episode Sponsors:
This episode is brought to you by Mercury
Mercury is the banking solution I use across my businesses, from my personal single-member LLC to MicroConf and TinySeed.
Traditional banking forces you to duct-tape tools together and work around slow, clunky processes. Mercury gives me a clean dashboard that shows exactly where each business stands at a glance.
The interface is simple enough for daily banking and paying invoices, but powerful enough to handle multi-step approval workflows for large transfers.
There’s a reason more than 300,000 entrepreneurs have made the switch. It’s free to get started with no in-person visits and no minimum balance.
Apply online in minutes at mercury.com.
Mercury is a fintech company, not an FDIC-insured bank. Banking services provided through Choice Financial Group and Column N.A., Members FDIC.
Need to ship faster without expanding your team?
Gearheart is an AI-powered product studio that helps startups build B2B SaaS apps and AI agents, fast. Their team ships at twice the speed of traditional dev shops and understands how to work within startup constraints.
Whether you need a fractional CTO or experienced engineers to accelerate development, Gearheart plugs directly into your workflow and delivers. They’ve built 70+ products, including SmartSuite, which raised $38M and is used by companies like Capital One.
As a listener, you get the first 20 hours of development free when you mention the podcast.
Topics we cover:
- (3:17) – What is Creator Science and who it serves
- (6:49) – “I’m not creative”: Jay’s mindset shift + advice for founders
- (11:38) – Examples of ultra-niche creator businesses
- (13:54) – Why founders should create content for customers (not other founders)
- (19:02) – Discovery vs. relationship channels: where attention actually comes from
- (20:10) – Who Should Pursue Founder-Led Marketing?
- (24:17) – Picking platforms based on where your customers already are
- (31:43) – Founder-involved vs. founder-led marketing
Links from the Show:
- MicroConf Europe┃Reykjavik, Iceland · Sept 21-23
- Creator Science
- Creator Science Podcast (Part two of this conversation)
- Jay Clouse┃LinkedIn
- Jay Clouse (@jayclouse)┃X
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling :
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen Mercury accounts from my personal single member, LLC to MicroConf, our seven figure global events and education platform to TinySeed our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send ’em to mercury.com. It’s free to get started with no in-person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC, insured bank banking services provided through Choice Financial Group and column NA members FDIC. Welcome to another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I sit down with the founder of Creator Science. His name is Jay Klaus, and he spent more time thinking about being a creator and educating an audience on a particular topic than most people I know he’s built an entire business around helping folks do that. So I wanted to bring him on because he’s such a deep thinker about this topic of what I’m saying, founder-led marketing, but it’s really, it’s going out as a human and helping educate folks, creating content for them and getting people to pay attention in an age where attention is very valuable. And this is actually a two part episode.
So the first part you’ll hear on this feed and then on Jay’s podcast called Creator Science, which you can hit in any podcast catcher. He interviews me about SaaS and being a creator, how I prioritize things, what my week looks like. We talked through a bunch of super interesting topics, so you’re going to want to check that out on the Creator Science Podcast. Before I dive into my conversation with Jay MicroComp, Europe is in Iceland, September 21st through the 23rd. That’s 2026, and this event will sell out. We have sold out our events for the past, I think three years. So if you want a ticket, you’re going to want to go buy one now. In fact, early bird tickets may have already sold out, but you’re going to want to go to MicroConf europe.com if you want to see me in Iceland, along with 150, 160 of your favorite bootstrapped founder, friends MicroConf europe.com. And with that, let’s dive into my conversation with Jay. Jay Klaus, welcome to Startups For the Rest Of Us. Hey, excited to be here. So for people who don’t know who you are, they haven’t seen you on LinkedIn, on YouTube, maybe heard your podcast, what is Creator Science and what are you working on these days?
Jay Clouse:
Creative Science is a media company. It’s an educational media company where it’s a very meta, but I help content creators be better content creators. And I think about the content space as a spectrum with polls of entertainment and education and everyone’s kind of somewhere in that spectrum. I’m much more closer to the education side where the folks in my audience tend to be teachers to their audience. They have some specific outcome or transformation they’re trying to achieve, and my audience are people who have already achieved that and now they’re kind of facing in the direction and saying, here’s how you can do that too.
Rob Walling :
Your audience is a little more Rob Walling, a little less Mr. Beast,
Jay Clouse:
Correct?
Rob Walling :
Yes. And you were in the startup world for a while. Did you start your own company or did you work in the venture backed space?
Jay Clouse:
There was a founder in, he was based in Cincinnati, Ohio, and he had started a ticketing company, kind of a StubHub competitor, and he was going through an accelerator and he brought me in and calls me a co-founder generously. And I will take that and say, sure, because I was basically there from day two. And we built that. We raised some angel funding both from the accelerator and then some angels afterwards. We were acquired about two years after that for a non-life changing sum of money. And it was an awesome experience for the most part. And it was also intense. And I looked at that and I said, I am not going to do that again unless I really love whatever problem that company is solving. So then I took a product management role at a company that had gone through a series C at that point in the healthcare space, and they raised from, this venture firm is called Drive Capital here in Columbus, Ohio.
And they were, I guess technically the second investment out of their first fund. Those guys came from Sequoia and they were unicorn hunting. They were trying to build unicorns and show that you could do that from the Midwest. So there was so much pressure on the founder of that company, and I was in a leadership position where I was close enough to kind of see what his life was like, and I thought, man, that was even worse than my first experience. So it just made me really feel like this is not really the world or the path for me. And I didn’t know what that meant, but at some point it became clear to me when I was working at that company that I needed to go back out on my own and I would figure it out, whatever that meant, I will find a way to make enough money to survive.
And that quickly became facilitating mastermind groups and then learning how the content game was played even though it wasn’t really called content at the time. What I knew was I liked writing, I wanted to be a writer, and I found Seth Godin and I found this guy, Matthew Kimberly and Brian Harris. And what I could figure out was these guys just send emails and that’s basically the backbone of their business and that sounds great. How do I do that? And so it was early sort of info products type of world, and as I am trying to figure out, okay, how does this business model work? I also had the question of what am I going to write about this week? And so I would investigate how does this business model work? And then I’d write about what I was learning. Fast forward far enough. And what you have are people who are also trying to figure out that business model learning from me, and that is creator science today. When was that? Started in 2017.
Rob Walling :
Okay. Now you’ve written about leaving the startup space and you talked about having a limited belief that you didn’t think that you were creative. And a good chunk of this audience is technical founders. It’s not everybody, but say it’s 70%, 80%, somewhere in there. And a lot of them might think the same thing about themselves. That’s not me. I’m not super creative. So if someone does think that their product or their space is conducive to founder led marketing, they kind of have to get over that. So I’m curious, two part question. How did you get past that in yourself and maybe what would you say to a founder who’s convinced they’re just not creative or not a marketing person?
Jay Clouse:
Yeah, I remember this very distinctly. So in January, 2017, I started working with a coach who was here locally and a bunch of my friends had worked with this person. They’re like, Chris really got me unstuck. He helped me get out of my own head and move forward. And I didn’t even really know what outcome I was looking for. I just knew I’m not happy in this job and I feel like I’m probably going to leave it at some point, but I also feel like I’m stuck. So let’s see what this experience is. In one of the early pieces of homework he gave me, he said, go out for a walk. Take a pad and paper with a pen. Do not bring your phone. Do not bring headphones. You just need to go for a walk. And at some point you will start to hear whatever tape is playing in your head, and I want you to write that down.
And that’s what I wrote down. I realized that I had this narrative that I was not an artist, I was not a creative person, and I felt like I didn’t have much to contribute because of that. And the second half of that homework assignment was, okay, what if we instead of believing that was true, what would it look like to believe the opposite? How can we make you believe that you are creative and that you do have something to contribute? And the answer to that was, well, you need to create some evidence. So I decided I like writing. I know that about myself, or at least that’s a story I told about myself and believed. So what do writers do? They write, and I gave myself the challenge to write every day for the next year. And what I knew about myself was I will deliver on any promise I make externally.
So my solution to writing every day was to go on Facebook and tell people, Hey friends, I’m going to start an email newsletter and I’m going to be writing every day. Go here to sign up. And having any number of subscribers, which was very small at the time, was enough positive tension to get me to do that. So I wrote every day for a year, and it’s hard to write every day for a year. What do I have to talk about since yesterday? Well, basically only what I thought about and did in the last 24 hours, which was studying some of these content creators, which we didn’t call ’em at the time, to understand how that worked. And so that became a lot of what I was writing about first year. So to answer your question, if people are listening to this and they’re like, how do I solve that?
I really like the exercise of saying, what if I believed the opposite? What would need to be true for me to believe the opposite? I would probably need to create some evidence to the contrary. What would that look like? Does that look like recording a video? I saw a guy, SaaS founder, I think his tool was something in the video space and he realized, okay, I need to start creating videos if I’m going to have a SaaS company in the video space. And you just started recording videos that he is posting every day on X. First one went really well. The next couple did not go as well, but he kept doing it, kept doing it. So I think it is about creating evidence to support the identity you want to start believing in.
Rob Walling :
Yeah, I like that. And that will automatically force you to do it. And if you do it enough, then you may start to get better at it, right? The idea is repetition
Jay Clouse:
And we go through phases. Last year was a challenging mental health year for me, and what I realized at the end of December, after a very intense December, was I haven’t done any strength training for six months. And so I put together a plan with my friend Claude and Claude created some workout plans for me. And since then I haven’t missed more than one day of working out. And now it’s just automatic. I start to feel itchy if I haven’t worked out that day. And the pendulum can probably swing too far in that direction as well. But by and large, if I’m trying to make a positive lifestyle or identity change, building a string of successful days doing that thing has always served me.
Rob Walling :
So can you give me examples of folks in your community of the niches that they’re selling to? Your audience is creators who want to educate. My audience is B2B SaaS founders. What are three or four others that are some the wall? I mean, I just have to imagine there’s awesome little
Jay Clouse:
Leashes. Yeah, I like going to just our members directory and scrolling. So here’s a guy who teaches people how to learn the fiddle. Here’s a guy who teaches people how to get the most out of every native Apple application on their computer. Here’s a woman who’s a world champion pole dancer who teaches people movement. Here’s a photographer from Iceland. We had another woman who teaches people how to run marathons or how to train for marathons if they’re on plant-based diets. So it’s like super specific. We had a guy who taught high school defensive line coaches how to train their players to be more effective. It can be extremely specific and narrow, but a lot of the times the pathway is these people were known for being good at something and so they started working with people and at some point that became unsustainable because there was just more demand for that time than supply or interest in doing one-on-one consultations. So that became the beginning of content creation.
Rob Walling :
Almost every founder I know has a long list of features to build and bugs to squash, but they just don’t have the time or the team to tackle it. If that sounds familiar, check out today’s sponsor Gerhardt. They’re an AI powered product development studio that builds B2B SaaS products and AI agents at twice the speed of traditional teams founded by serial entrepreneurs, they understand startup constraints and can plug right into your workflow. They’ve launched over 70 products including Smart Suite, which raised $38 million and is used by companies like Capital One, whether you need a fractional CTO or want to to add senior developers without breaking the bank head to gearhart.io. For listeners of this show, they’re offering the first 20 hours of development completely free. Head to gearhart.io and make sure to tell them I set you.
And the reason I wanted to ask you that specific question and have you rattle some of those off, is I want to encourage folks in this audience, SaaS founders who may think that the only people that can make money or that can build an audience in a space, are those teaching other people how to make money online or you know what I mean? It’s like, well, you have to teach other entrepreneurs because a mistake I see is there’s a SaaS founder who starts, let’s pick a random thing like software for gym memberships and fitness studios and blah, blah, blah. And they go on Twitter and they start, I’m going to tell my entrepreneurial journey story and I’m going to go on YouTube and tell my entrepreneurial journey story. And it’s like, guess who cares about that? Other entrepreneurs, that’s not your audience, that’s not your customer base.
You want to create content that gym owners or gym general managers are going to consume. And so by you saying fiddling and defensive linemen, it’s like you can create an audience in any of these spaces. There’s a couple guys that come to MicroConf who started Wash Dry Fold, POS, so it’s for laundromat. So I think they owned a laundromat or two and they wrote software as a POS system. And now I think it’s the entire kind of operating system. If you have a laundromat, they just started a podcast and a YouTube channel within the past month or two. And it is so niche if you watch it because they’re not going after other entrepreneurs don’t do the, oh, I want Indie Hackers to watch this thing. They’re going after laundromat owners or aspiring laundromat owners. And that’s the thing that I think I want to encourage folks to do is, yeah, go. I want to hear your thoughts on this. Yeah,
Jay Clouse:
Yeah, totally agree. And I understand where that perspective of this is just a chain or our friend Dan a tropical MBA called this a self flicking ice cream cone, which I don’t actually know what that analogy means, but it’s an interesting visual. Dan has great metaphors. This idea that online entrepreneurship is teaching online entrepreneurship, we feel that way because we are online entrepreneurs. So guess what content we are seeing people who are trying to target us as online entrepreneurs. But what’s really interesting about this moment in time today, and there’s a strong positive side and a strong negative side here, it’s never been easier to get attention for niche content, but it’s also never been harder to sustain a relationship with that follower over time. And what I mean by that is all these platforms now have gotten so good at connecting high performing content with the right consumers of that content.
They have a hard time understanding an account That changes subjects a lot though. And sometimes that’s just a problem for people who have been internet dinosaurs and have had accounts on a platform for a very long time. For example, my Instagram account is probably since 2009 I want to say. So anytime I publish something, Instagram’s kind of like, is this for your high school friends, your college friends? Is it when you’re selling tickets? Is it when you were doing this or that? Whereas I just last week started a fresh Instagram account because I said, I want an account that’s just for my writing and I want it just to serve people who like this style of writing. And I followed a couple of people, a couple of accounts that I know are that, and all I’ve been doing this week is scrolling Instagram and engaging with accounts like that.
And every day it gets better at showing me only new accounts that fit the dimensions of what I’m trying to reach. And when you start posting, then it’s so much more likely to put you in front of the right audience as people like you as people who frequent the accounts you’re following. So the fear a lot of people have coming into the space is starting from zero because gosh, it’s so hard to start from zero, but it’s kind of counterintuitive today. Starting from zero might actually be the easiest path to reaching the niche specific audience you’re trying to reach. As painful as it is, I think it’s actually going to be net faster for you, but then again, also followers have never meant less because just because someone follows you does not mean they’re going to see your next post. You’re basically auditioning for even your own audience with everything you publish. So it’s a very interesting time in content right now.
Rob Walling :
And that’s where there’s social media. You don’t own the audience because the algorithm owns it. Right? To me it’s podcasts and email lists are where you mostly own the audience. I know podcasts could be debated, but we have 111, maybe 113,000 YouTube subscribers, and we have low tens of thousands podcast subscribers per month, or I’m sorry, not even per month per episode or whatever. And we get more listens to the podcasts than most of our YouTube videos. Now, some of our YouTube videos break out to your point, we have a Jason Cohen video that has a half a million, and I have an ideas video that did 260,000 views. And so we have a bunch in the six figures, but most of them, they get to five or 10 K and then they’re like, even though we have 115,000, so do you agree with that assessment of email and podcasts is more that owned media or how do you think about it?
Jay Clouse:
I split the platforms into two buckets, and I call them discovery platforms and relationship platforms. Discovery platforms are anything with an algorithm where there’s inherent mechanism for connecting new consumers to content, and then relationship platforms, there is no mechanism. It’s decentralized. So on the relationship side, there’s only a few, and I agree with you, it’s email podcasting, SMS and private communities. So to me, the game is using discovery platforms to reduce your dependency on discovery platforms. It’s basically like, I’m going to go over here. I’m going to perform for the algorithm so that I can get people to my email list or so that I can get people to my podcast or private community. And some people do SMS really successfully, especially in the e-com space. But that is kind of the game today is to say, I don’t want to depend on discovery platforms because that can be, it’s certainly going to be changed if not completely eliminated from being useful to you, but the longer that you can leverage it to not need it, the stronger your actual leverage becomes.
Rob Walling :
I like that way of thinking about it, and I think I want to be clear that I think of the startups For the Rest Of Us listener audience who have a SaaS product, I think there is probably only a percentage, maybe it’s 20% that should think about founder-led marketing. Maybe it’s 30, maybe it’s 10, but I don’t think 80% of founders should be doing founder-led marketing. It’s just a personal opinion. I think maybe they don’t have the desire to do it. Maybe they should just focus on SEO and ads. Maybe their customers really aren’t wanting to engage in this way. Right? On social media, I think of less technical folks, and I think that there are other marketing approaches. I mean, I guess across tiny Seeds, 210 companies, there were like 4% of those, maybe five. I think it was just under 5% that had any type of audience or have ever built any type of audience.
And yet we have dozens of companies doing six, I mean, sorry, doing seven and eight figures in revenue. So SaaS is a thing, right? I am not saying it’s different than your space where everyone is creating an audience, right? That’s my framing of it. The reason I want to say that is I’m wondering if you have any mental model of if someone decides, Hey, I kind of do want to do this, and maybe they’re not good at it, how can they maybe evaluate their space or their niche to be like, I’m for laundromats or I’m for gyms, or I’m for software for Congress people or whatever. How would you even think personally about is this viable? Should I try to build an audience and be a content creator as marketer, it’s founder led marketing as a term I’m probably going to use, but how would you think about that?
Jay Clouse:
I have this advice for just creators in general, but I would say it’s even more strongly true for SaaS founders, which is if you’re pulled towards it, if you’re intrinsically interested in doing it, do it. If you’re not, don’t. And I would say for SaaS founders, if you’re not, absolutely don’t. Because you have to be so ingrained, engulfed just in the culture of your people, in the culture of the platform, even to do it successfully or at least to a degree where it’s stronger than the opportunity costs. So I think if you have the energy and enthusiasm, great, follow it and do what gives you energy and enthusiasm in that space. Of course, the common advice is find other people who are doing the same thing for the same audience and see what’s working and build off of that. I can find that a little soul sucking at times.
I struggle with doing that. And ultimately at any point if you’re like, I am not enjoying this, I dunno how to explain it. It just comes through and it just doesn’t work. You have to really be enjoying it or the people on the other side aren’t going to enjoy it either. And then what was the point? It’s just a big opportunity cost. So I really think you have to say, what am I most pulled towards? And I mean that at a platform level too. If you think, okay, I am interested in doing short form vertical video, okay, great, you could do that on TikTok, you could do that on Instagram, you could do that on YouTube shorts, you could even do that on LinkedIn. Each of those platforms could take the same asset. But honestly, the more time goes on, the more these platforms kind of separate in terms of just the culture of the platform.
What you do in short form video is not going to be as effective on LinkedIn as it is on TikTok and vice versa. So you really even have to start with where do I feel like I enjoy consuming the most? Because then you’re naturally going to have the benefit of being more in tune with the culture and the norms and what is working in that space. Over the last couple months, I’ve made my wife my unofficial head of Instagram just because anytime I ask her to make anything for me on Instagram, it’s the best performing content I make on Instagram because she just knows it. She knows what the Instagram vibe is, she knows what the culture is like. She knows what’s trending right now. She knows how to put this stuff together better than I do, and that’s just because she spends time as a consumer of that platform and as a consumer, she is naturally being a student of that platform. So I think you have to follow that energy.
Rob Walling :
I like that. I would also add for SaaS founders is you do have to ask yourself the question, where are my customers? Because if you have software, we have a TinySeed founder who has software for tattoo artists. They’re all on Instagram software for realtors, they’re all on Instagram. They may be on Twitter X unlikely. So Twitter is a very different space than it was a few years ago, and they’re tattoo artists on LinkedIn, probably not. So not that anyone really knows LinkedIn, but I do think that’s an additional question you have to ask in this case because when you’re advising creators, it’s just go where the audience is and go with what. But I think as SaaS founders, we have to specifically, at least the first place I would take a crack at is where are my people? For example, producer Ron and I have talked about potentially doing a TikTok channel, which isn’t even call the shed. I literally don’t have it, don’t have it on my phone. And we’ve looked at it and I’m like, who are the entrepreneurs, the founders, the kind of SaaS people on there that are actually giving good advice and are not just make money online bullshit, and I can’t find any. And so I could be the first, but I don’t think I have it in me.
Jay Clouse:
Yeah, I mean TikTok ISS at a really weird place right now. Literally, I’ve never been active on TikTok, but they recently with the new acquisition change their terms and conditions that you have to agree to. And before agreeing to that, I just deleted the app. I’m like, Nope, because done, it seems like, I dunno, it seemed like there could be surveillance in that, so I was like, eh. Anyway,
Sometimes any platform you’re on, if you feel like you’re the first, maybe that’s true or to your point, maybe it’s because there’s no demand there. And so I think that’s probably especially important in your case as well. I think each of these platforms has their own sort of gravity, and so Instagram seems to be the largest cross section, but it’s not absolutely true. YouTube is in an interesting place from a short form perspective because the short form viewers on YouTube are not the same as long form viewers on YouTube and short form vertical video that performs on Instagram probably won’t perform the same way on YouTube shorts and the viewers of shorts are, like I said, distinct from YouTube long form. So you might find that, okay, my audience is actually, it exists on YouTube, but in long form and then that asset is not super portable elsewhere. You could clip it, you can try to do that, but clipping is a difficult strategy
Rob Walling :
Too. We’ve toyed around with it and we don’t. I mean, the only thing we used to try to repurpose this podcast to YouTube didn’t work, didn’t work at all, and then we tried to repurpose YouTube videos to LinkedIn, didn’t work fail. I think the point that you’re making is for the most part, you have to go after a platform or two and it’s native, even if it’s the same concept you’re communicating, you have to communicate it in more of a native form for that. Is that what you’re saying?
Jay Clouse:
100%. That’s only become more true over time, and I expect it’ll get even more extreme.
Rob Walling :
Yeah. Question. So if a founder is interested in doing this, right, they want to do founder led marketing and they have five hours a week or something and they don’t like being on camera, how should they think about producing content? What is the minimum viable version of building an audience? I brought up video, but I mean there’s written and there’s audio and there’s video. Is video where it’s at these days? How do you think about all this?
Jay Clouse:
I think there’s probably more consumers of video than there are of text. I think that is probably true. So a lot of big numbers would be on your side, but it’s a very competitive game and there are very specific points of leverage within video. You have to be really good at the hook in that video, and there are, I would say, technically three different types of hooks. There’s the visual hook, what I see on screen, there’s what you’re saying, and then there’s even text on screen. So it’s like what you’re reading, it’s what you’re reading, what you’re seeing as the backdrop of that and what’s being said. So there’s just so many points of failure if you’re not really bought into winning that game that it’s going to be hard. I actually think, especially for folks who are building companies and you have a little bit of a budget, if you have a little bit of a budget, probably the fastest way to get results is to go and hire one of the best agencies you can find.
And I’m not big on hiring agencies most of the time because I think the incentives of the business model are misaligned long term, but if you hire the best and they’re going to be expensive, you’re basically hiring them to download a lot of knowledge to you and your team very quickly. You don’t even have to hire them to do the work itself necessarily. You could say, can I hire you to help train my team over the next three months so that you can shortcut the learning cycle and get into it faster, avoid a lot of the long slow learning that happens by doing, but just really try to compress that. I think it’s a smart strategy today. Or if you can hire them to really help produce things and you have the budget for that, that’s great too, but minimum viable audience, it’s so case dependent on, as you said, where your audience is, what platform we’re talking about that it’s hard to really give broader advice than that.
Rob Walling :
Yeah, it would have to be almost like, well, what’s your app? Oh, for gyms? Okay, well, let’s take a peek around and I’d probably look at who are the big creators on YouTube that are catering to gyms, and then I’d go to Insta and then I go to TikTok and I would want to get an idea. I know you said that can be soul sucking to see other people doing it, but if I already know that my audience, my customer base is a certain niche or a certain vertical, I probably already do know who the influencers are in that space.
Jay Clouse:
And I would imagine a lot of the SaaS folks you talk to, one of the playbooks that companies run or you help them run is micro influencers, like going to people who already have an audience within that space and doing some sort of partnership to put your company in a positive light. I think that’s another way that it’s not quite hiring an agency to understand that platform, but I think that would also shortcut your knowledge a little bit. It might just be the strategy anyway instead of a founder led marketing. It’s like, okay, we recognize these platforms are important. Let’s get really good at finding some partners within this space. There’s a company called Ridge, which I think I already mentioned that Marcus Brownley started working with, but before he worked with them, they built a reputation, the creator space as being very creator friendly as a company where they were trying to be the first sponsor on a bunch of channels and trying to give very good terms and work with these companies. And I do think the relationships you build with creators in your space, they probably talk to each other, can be a shortcut. You mentioned build your network as being as important as build your audience and building your network of content creators within your space I think is a big potential part of that
Rob Walling :
A hundred percent. And that may be throwing either time or relationship equity or money at this might be better. A time meeting people is what I mean. Or even going to in-person events where all the creators hang out might be better use of a founder’s time potentially than them building their own audience from scratch. And I do think that’s something people should think about.
Jay Clouse:
I follow a guy, his name is Orin John. His handle is usually Orin meets world, and he mostly works with D two C brands, and when he talks about founder led marketing, he actually more speaks about it kind of being like founder involved marketing, where you don’t have to be the face in every video your company is producing, but if you show up a couple of times over the month, whatever your content calendar is, that can be good, but you can hire someone else in your company to kind of be the face and you can show up from time to time when you do campaigns with other influencers, maybe you show up in that campaign, and that’s a way for you to gauge how receptive their audience is to you specifically, and if there’s opportunity for you to just create more of your own content if you show up in that way.
I think trying stuff like that gives you more data, and I think there’s just a lot of benefit to experimenting in this way and seeing how do I feel about it? Not only how did this go, but did I enjoy it? Do I want to do more of it? Did that feel like a drag? If I see a session on my calendar for this coming up, am I dreading it or am I looking forward to it? That’s the type of thing that really you just need to get some lived experience to say, do I want to do more of this, and is it worthwhile?
Rob Walling :
Yeah, no, I think that’s good advice to close on, if folks want to keep up with you, you are Jay Klaus on X Twitter, J-A-Y-C-L-O-U-S-E, and of course creator science.com.
Jay Clouse:
That’s right. That’s right.
Rob Walling :
Thanks so much for joining me on the show today. Thanks again to Jay for taking the time to come on the show. And as a reminder, this is a two-part conversation and you should head to any podcast catcher of your choice and look for the Creator Science Podcast for the part where Jay interviews me about stuff that I’m passionate about. Thanks so much for listening this week and every week. This is Rob Walling signing off from episode 821.
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen Mercury accounts from my personal single member, LLC to MicroConf, our seven figure global events and education platform to TinySeed our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send ’em to mercury.com. It’s free to get started with no in-person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC, insured bank banking services provided through Choice Financial Group and column NA members FDIC. Welcome to another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I sit down with the founder of Creator Science. His name is Jay Klaus, and he spent more time thinking about being a creator and educating an audience on a particular topic than most people I know he’s built an entire business around helping folks do that. So I wanted to bring him on because he’s such a deep thinker about this topic of what I’m saying, founder-led marketing, but it’s really, it’s going out as a human and helping educate folks, creating content for them and getting people to pay attention in an age where attention is very valuable. And this is actually a two part episode.
So the first part you’ll hear on this feed and then on Jay’s podcast called Creator Science, which you can hit in any podcast catcher. He interviews me about SaaS and being a creator, how I prioritize things, what my week looks like. We talked through a bunch of super interesting topics, so you’re going to want to check that out on the Creator Science Podcast. Before I dive into my conversation with Jay MicroComp, Europe is in Iceland, September 21st through the 23rd. That’s 2026, and this event will sell out. We have sold out our events for the past, I think three years. So if you want a ticket, you’re going to want to go buy one now. In fact, early bird tickets may have already sold out, but you’re going to want to go to MicroConf europe.com if you want to see me in Iceland, along with 150, 160 of your favorite bootstrapped founder, friends MicroConf europe.com. And with that, let’s dive into my conversation with Jay. Jay Klaus, welcome to Startups For the Rest Of Us. Hey, excited to be here. So for people who don’t know who you are, they haven’t seen you on LinkedIn, on YouTube, maybe heard your podcast, what is Creator Science and what are you working on these days?
Jay Clouse:
Creative Science is a media company. It’s an educational media company where it’s a very meta, but I help content creators be better content creators. And I think about the content space as a spectrum with polls of entertainment and education and everyone’s kind of somewhere in that spectrum. I’m much more closer to the education side where the folks in my audience tend to be teachers to their audience. They have some specific outcome or transformation they’re trying to achieve, and my audience are people who have already achieved that and now they’re kind of facing in the direction and saying, here’s how you can do that too.
Rob Walling :
Your audience is a little more Rob Walling, a little less Mr. Beast,
Jay Clouse:
Correct?
Rob Walling :
Yes. And you were in the startup world for a while. Did you start your own company or did you work in the venture backed space?
Jay Clouse:
There was a founder in, he was based in Cincinnati, Ohio, and he had started a ticketing company, kind of a StubHub competitor, and he was going through an accelerator and he brought me in and calls me a co-founder generously. And I will take that and say, sure, because I was basically there from day two. And we built that. We raised some angel funding both from the accelerator and then some angels afterwards. We were acquired about two years after that for a non-life changing sum of money. And it was an awesome experience for the most part. And it was also intense. And I looked at that and I said, I am not going to do that again unless I really love whatever problem that company is solving. So then I took a product management role at a company that had gone through a series C at that point in the healthcare space, and they raised from, this venture firm is called Drive Capital here in Columbus, Ohio.
And they were, I guess technically the second investment out of their first fund. Those guys came from Sequoia and they were unicorn hunting. They were trying to build unicorns and show that you could do that from the Midwest. So there was so much pressure on the founder of that company, and I was in a leadership position where I was close enough to kind of see what his life was like, and I thought, man, that was even worse than my first experience. So it just made me really feel like this is not really the world or the path for me. And I didn’t know what that meant, but at some point it became clear to me when I was working at that company that I needed to go back out on my own and I would figure it out, whatever that meant, I will find a way to make enough money to survive.
And that quickly became facilitating mastermind groups and then learning how the content game was played even though it wasn’t really called content at the time. What I knew was I liked writing, I wanted to be a writer, and I found Seth Godin and I found this guy, Matthew Kimberly and Brian Harris. And what I could figure out was these guys just send emails and that’s basically the backbone of their business and that sounds great. How do I do that? And so it was early sort of info products type of world, and as I am trying to figure out, okay, how does this business model work? I also had the question of what am I going to write about this week? And so I would investigate how does this business model work? And then I’d write about what I was learning. Fast forward far enough. And what you have are people who are also trying to figure out that business model learning from me, and that is creator science today. When was that? Started in 2017.
Rob Walling :
Okay. Now you’ve written about leaving the startup space and you talked about having a limited belief that you didn’t think that you were creative. And a good chunk of this audience is technical founders. It’s not everybody, but say it’s 70%, 80%, somewhere in there. And a lot of them might think the same thing about themselves. That’s not me. I’m not super creative. So if someone does think that their product or their space is conducive to founder led marketing, they kind of have to get over that. So I’m curious, two part question. How did you get past that in yourself and maybe what would you say to a founder who’s convinced they’re just not creative or not a marketing person?
Jay Clouse:
Yeah, I remember this very distinctly. So in January, 2017, I started working with a coach who was here locally and a bunch of my friends had worked with this person. They’re like, Chris really got me unstuck. He helped me get out of my own head and move forward. And I didn’t even really know what outcome I was looking for. I just knew I’m not happy in this job and I feel like I’m probably going to leave it at some point, but I also feel like I’m stuck. So let’s see what this experience is. In one of the early pieces of homework he gave me, he said, go out for a walk. Take a pad and paper with a pen. Do not bring your phone. Do not bring headphones. You just need to go for a walk. And at some point you will start to hear whatever tape is playing in your head, and I want you to write that down.
And that’s what I wrote down. I realized that I had this narrative that I was not an artist, I was not a creative person, and I felt like I didn’t have much to contribute because of that. And the second half of that homework assignment was, okay, what if we instead of believing that was true, what would it look like to believe the opposite? How can we make you believe that you are creative and that you do have something to contribute? And the answer to that was, well, you need to create some evidence. So I decided I like writing. I know that about myself, or at least that’s a story I told about myself and believed. So what do writers do? They write, and I gave myself the challenge to write every day for the next year. And what I knew about myself was I will deliver on any promise I make externally.
So my solution to writing every day was to go on Facebook and tell people, Hey friends, I’m going to start an email newsletter and I’m going to be writing every day. Go here to sign up. And having any number of subscribers, which was very small at the time, was enough positive tension to get me to do that. So I wrote every day for a year, and it’s hard to write every day for a year. What do I have to talk about since yesterday? Well, basically only what I thought about and did in the last 24 hours, which was studying some of these content creators, which we didn’t call ’em at the time, to understand how that worked. And so that became a lot of what I was writing about first year. So to answer your question, if people are listening to this and they’re like, how do I solve that?
I really like the exercise of saying, what if I believed the opposite? What would need to be true for me to believe the opposite? I would probably need to create some evidence to the contrary. What would that look like? Does that look like recording a video? I saw a guy, SaaS founder, I think his tool was something in the video space and he realized, okay, I need to start creating videos if I’m going to have a SaaS company in the video space. And you just started recording videos that he is posting every day on X. First one went really well. The next couple did not go as well, but he kept doing it, kept doing it. So I think it is about creating evidence to support the identity you want to start believing in.
Rob Walling :
Yeah, I like that. And that will automatically force you to do it. And if you do it enough, then you may start to get better at it, right? The idea is repetition
Jay Clouse:
And we go through phases. Last year was a challenging mental health year for me, and what I realized at the end of December, after a very intense December, was I haven’t done any strength training for six months. And so I put together a plan with my friend Claude and Claude created some workout plans for me. And since then I haven’t missed more than one day of working out. And now it’s just automatic. I start to feel itchy if I haven’t worked out that day. And the pendulum can probably swing too far in that direction as well. But by and large, if I’m trying to make a positive lifestyle or identity change, building a string of successful days doing that thing has always served me.
Rob Walling :
So can you give me examples of folks in your community of the niches that they’re selling to? Your audience is creators who want to educate. My audience is B2B SaaS founders. What are three or four others that are some the wall? I mean, I just have to imagine there’s awesome little
Jay Clouse:
Leashes. Yeah, I like going to just our members directory and scrolling. So here’s a guy who teaches people how to learn the fiddle. Here’s a guy who teaches people how to get the most out of every native Apple application on their computer. Here’s a woman who’s a world champion pole dancer who teaches people movement. Here’s a photographer from Iceland. We had another woman who teaches people how to run marathons or how to train for marathons if they’re on plant-based diets. So it’s like super specific. We had a guy who taught high school defensive line coaches how to train their players to be more effective. It can be extremely specific and narrow, but a lot of the times the pathway is these people were known for being good at something and so they started working with people and at some point that became unsustainable because there was just more demand for that time than supply or interest in doing one-on-one consultations. So that became the beginning of content creation.
Rob Walling :
Almost every founder I know has a long list of features to build and bugs to squash, but they just don’t have the time or the team to tackle it. If that sounds familiar, check out today’s sponsor Gerhardt. They’re an AI powered product development studio that builds B2B SaaS products and AI agents at twice the speed of traditional teams founded by serial entrepreneurs, they understand startup constraints and can plug right into your workflow. They’ve launched over 70 products including Smart Suite, which raised $38 million and is used by companies like Capital One, whether you need a fractional CTO or want to to add senior developers without breaking the bank head to gearhart.io. For listeners of this show, they’re offering the first 20 hours of development completely free. Head to gearhart.io and make sure to tell them I set you.
And the reason I wanted to ask you that specific question and have you rattle some of those off, is I want to encourage folks in this audience, SaaS founders who may think that the only people that can make money or that can build an audience in a space, are those teaching other people how to make money online or you know what I mean? It’s like, well, you have to teach other entrepreneurs because a mistake I see is there’s a SaaS founder who starts, let’s pick a random thing like software for gym memberships and fitness studios and blah, blah, blah. And they go on Twitter and they start, I’m going to tell my entrepreneurial journey story and I’m going to go on YouTube and tell my entrepreneurial journey story. And it’s like, guess who cares about that? Other entrepreneurs, that’s not your audience, that’s not your customer base.
You want to create content that gym owners or gym general managers are going to consume. And so by you saying fiddling and defensive linemen, it’s like you can create an audience in any of these spaces. There’s a couple guys that come to MicroConf who started Wash Dry Fold, POS, so it’s for laundromat. So I think they owned a laundromat or two and they wrote software as a POS system. And now I think it’s the entire kind of operating system. If you have a laundromat, they just started a podcast and a YouTube channel within the past month or two. And it is so niche if you watch it because they’re not going after other entrepreneurs don’t do the, oh, I want Indie Hackers to watch this thing. They’re going after laundromat owners or aspiring laundromat owners. And that’s the thing that I think I want to encourage folks to do is, yeah, go. I want to hear your thoughts on this. Yeah,
Jay Clouse:
Yeah, totally agree. And I understand where that perspective of this is just a chain or our friend Dan a tropical MBA called this a self flicking ice cream cone, which I don’t actually know what that analogy means, but it’s an interesting visual. Dan has great metaphors. This idea that online entrepreneurship is teaching online entrepreneurship, we feel that way because we are online entrepreneurs. So guess what content we are seeing people who are trying to target us as online entrepreneurs. But what’s really interesting about this moment in time today, and there’s a strong positive side and a strong negative side here, it’s never been easier to get attention for niche content, but it’s also never been harder to sustain a relationship with that follower over time. And what I mean by that is all these platforms now have gotten so good at connecting high performing content with the right consumers of that content.
They have a hard time understanding an account That changes subjects a lot though. And sometimes that’s just a problem for people who have been internet dinosaurs and have had accounts on a platform for a very long time. For example, my Instagram account is probably since 2009 I want to say. So anytime I publish something, Instagram’s kind of like, is this for your high school friends, your college friends? Is it when you’re selling tickets? Is it when you were doing this or that? Whereas I just last week started a fresh Instagram account because I said, I want an account that’s just for my writing and I want it just to serve people who like this style of writing. And I followed a couple of people, a couple of accounts that I know are that, and all I’ve been doing this week is scrolling Instagram and engaging with accounts like that.
And every day it gets better at showing me only new accounts that fit the dimensions of what I’m trying to reach. And when you start posting, then it’s so much more likely to put you in front of the right audience as people like you as people who frequent the accounts you’re following. So the fear a lot of people have coming into the space is starting from zero because gosh, it’s so hard to start from zero, but it’s kind of counterintuitive today. Starting from zero might actually be the easiest path to reaching the niche specific audience you’re trying to reach. As painful as it is, I think it’s actually going to be net faster for you, but then again, also followers have never meant less because just because someone follows you does not mean they’re going to see your next post. You’re basically auditioning for even your own audience with everything you publish. So it’s a very interesting time in content right now.
Rob Walling :
And that’s where there’s social media. You don’t own the audience because the algorithm owns it. Right? To me it’s podcasts and email lists are where you mostly own the audience. I know podcasts could be debated, but we have 111, maybe 113,000 YouTube subscribers, and we have low tens of thousands podcast subscribers per month, or I’m sorry, not even per month per episode or whatever. And we get more listens to the podcasts than most of our YouTube videos. Now, some of our YouTube videos break out to your point, we have a Jason Cohen video that has a half a million, and I have an ideas video that did 260,000 views. And so we have a bunch in the six figures, but most of them, they get to five or 10 K and then they’re like, even though we have 115,000, so do you agree with that assessment of email and podcasts is more that owned media or how do you think about it?
Jay Clouse:
I split the platforms into two buckets, and I call them discovery platforms and relationship platforms. Discovery platforms are anything with an algorithm where there’s inherent mechanism for connecting new consumers to content, and then relationship platforms, there is no mechanism. It’s decentralized. So on the relationship side, there’s only a few, and I agree with you, it’s email podcasting, SMS and private communities. So to me, the game is using discovery platforms to reduce your dependency on discovery platforms. It’s basically like, I’m going to go over here. I’m going to perform for the algorithm so that I can get people to my email list or so that I can get people to my podcast or private community. And some people do SMS really successfully, especially in the e-com space. But that is kind of the game today is to say, I don’t want to depend on discovery platforms because that can be, it’s certainly going to be changed if not completely eliminated from being useful to you, but the longer that you can leverage it to not need it, the stronger your actual leverage becomes.
Rob Walling :
I like that way of thinking about it, and I think I want to be clear that I think of the startups For the Rest Of Us listener audience who have a SaaS product, I think there is probably only a percentage, maybe it’s 20% that should think about founder-led marketing. Maybe it’s 30, maybe it’s 10, but I don’t think 80% of founders should be doing founder-led marketing. It’s just a personal opinion. I think maybe they don’t have the desire to do it. Maybe they should just focus on SEO and ads. Maybe their customers really aren’t wanting to engage in this way. Right? On social media, I think of less technical folks, and I think that there are other marketing approaches. I mean, I guess across tiny Seeds, 210 companies, there were like 4% of those, maybe five. I think it was just under 5% that had any type of audience or have ever built any type of audience.
And yet we have dozens of companies doing six, I mean, sorry, doing seven and eight figures in revenue. So SaaS is a thing, right? I am not saying it’s different than your space where everyone is creating an audience, right? That’s my framing of it. The reason I want to say that is I’m wondering if you have any mental model of if someone decides, Hey, I kind of do want to do this, and maybe they’re not good at it, how can they maybe evaluate their space or their niche to be like, I’m for laundromats or I’m for gyms, or I’m for software for Congress people or whatever. How would you even think personally about is this viable? Should I try to build an audience and be a content creator as marketer, it’s founder led marketing as a term I’m probably going to use, but how would you think about that?
Jay Clouse:
I have this advice for just creators in general, but I would say it’s even more strongly true for SaaS founders, which is if you’re pulled towards it, if you’re intrinsically interested in doing it, do it. If you’re not, don’t. And I would say for SaaS founders, if you’re not, absolutely don’t. Because you have to be so ingrained, engulfed just in the culture of your people, in the culture of the platform, even to do it successfully or at least to a degree where it’s stronger than the opportunity costs. So I think if you have the energy and enthusiasm, great, follow it and do what gives you energy and enthusiasm in that space. Of course, the common advice is find other people who are doing the same thing for the same audience and see what’s working and build off of that. I can find that a little soul sucking at times.
I struggle with doing that. And ultimately at any point if you’re like, I am not enjoying this, I dunno how to explain it. It just comes through and it just doesn’t work. You have to really be enjoying it or the people on the other side aren’t going to enjoy it either. And then what was the point? It’s just a big opportunity cost. So I really think you have to say, what am I most pulled towards? And I mean that at a platform level too. If you think, okay, I am interested in doing short form vertical video, okay, great, you could do that on TikTok, you could do that on Instagram, you could do that on YouTube shorts, you could even do that on LinkedIn. Each of those platforms could take the same asset. But honestly, the more time goes on, the more these platforms kind of separate in terms of just the culture of the platform.
What you do in short form video is not going to be as effective on LinkedIn as it is on TikTok and vice versa. So you really even have to start with where do I feel like I enjoy consuming the most? Because then you’re naturally going to have the benefit of being more in tune with the culture and the norms and what is working in that space. Over the last couple months, I’ve made my wife my unofficial head of Instagram just because anytime I ask her to make anything for me on Instagram, it’s the best performing content I make on Instagram because she just knows it. She knows what the Instagram vibe is, she knows what the culture is like. She knows what’s trending right now. She knows how to put this stuff together better than I do, and that’s just because she spends time as a consumer of that platform and as a consumer, she is naturally being a student of that platform. So I think you have to follow that energy.
Rob Walling :
I like that. I would also add for SaaS founders is you do have to ask yourself the question, where are my customers? Because if you have software, we have a TinySeed founder who has software for tattoo artists. They’re all on Instagram software for realtors, they’re all on Instagram. They may be on Twitter X unlikely. So Twitter is a very different space than it was a few years ago, and they’re tattoo artists on LinkedIn, probably not. So not that anyone really knows LinkedIn, but I do think that’s an additional question you have to ask in this case because when you’re advising creators, it’s just go where the audience is and go with what. But I think as SaaS founders, we have to specifically, at least the first place I would take a crack at is where are my people? For example, producer Ron and I have talked about potentially doing a TikTok channel, which isn’t even call the shed. I literally don’t have it, don’t have it on my phone. And we’ve looked at it and I’m like, who are the entrepreneurs, the founders, the kind of SaaS people on there that are actually giving good advice and are not just make money online bullshit, and I can’t find any. And so I could be the first, but I don’t think I have it in me.
Jay Clouse:
Yeah, I mean TikTok ISS at a really weird place right now. Literally, I’ve never been active on TikTok, but they recently with the new acquisition change their terms and conditions that you have to agree to. And before agreeing to that, I just deleted the app. I’m like, Nope, because done, it seems like, I dunno, it seemed like there could be surveillance in that, so I was like, eh. Anyway,
Sometimes any platform you’re on, if you feel like you’re the first, maybe that’s true or to your point, maybe it’s because there’s no demand there. And so I think that’s probably especially important in your case as well. I think each of these platforms has their own sort of gravity, and so Instagram seems to be the largest cross section, but it’s not absolutely true. YouTube is in an interesting place from a short form perspective because the short form viewers on YouTube are not the same as long form viewers on YouTube and short form vertical video that performs on Instagram probably won’t perform the same way on YouTube shorts and the viewers of shorts are, like I said, distinct from YouTube long form. So you might find that, okay, my audience is actually, it exists on YouTube, but in long form and then that asset is not super portable elsewhere. You could clip it, you can try to do that, but clipping is a difficult strategy
Rob Walling :
Too. We’ve toyed around with it and we don’t. I mean, the only thing we used to try to repurpose this podcast to YouTube didn’t work, didn’t work at all, and then we tried to repurpose YouTube videos to LinkedIn, didn’t work fail. I think the point that you’re making is for the most part, you have to go after a platform or two and it’s native, even if it’s the same concept you’re communicating, you have to communicate it in more of a native form for that. Is that what you’re saying?
Jay Clouse:
100%. That’s only become more true over time, and I expect it’ll get even more extreme.
Rob Walling :
Yeah. Question. So if a founder is interested in doing this, right, they want to do founder led marketing and they have five hours a week or something and they don’t like being on camera, how should they think about producing content? What is the minimum viable version of building an audience? I brought up video, but I mean there’s written and there’s audio and there’s video. Is video where it’s at these days? How do you think about all this?
Jay Clouse:
I think there’s probably more consumers of video than there are of text. I think that is probably true. So a lot of big numbers would be on your side, but it’s a very competitive game and there are very specific points of leverage within video. You have to be really good at the hook in that video, and there are, I would say, technically three different types of hooks. There’s the visual hook, what I see on screen, there’s what you’re saying, and then there’s even text on screen. So it’s like what you’re reading, it’s what you’re reading, what you’re seeing as the backdrop of that and what’s being said. So there’s just so many points of failure if you’re not really bought into winning that game that it’s going to be hard. I actually think, especially for folks who are building companies and you have a little bit of a budget, if you have a little bit of a budget, probably the fastest way to get results is to go and hire one of the best agencies you can find.
And I’m not big on hiring agencies most of the time because I think the incentives of the business model are misaligned long term, but if you hire the best and they’re going to be expensive, you’re basically hiring them to download a lot of knowledge to you and your team very quickly. You don’t even have to hire them to do the work itself necessarily. You could say, can I hire you to help train my team over the next three months so that you can shortcut the learning cycle and get into it faster, avoid a lot of the long slow learning that happens by doing, but just really try to compress that. I think it’s a smart strategy today. Or if you can hire them to really help produce things and you have the budget for that, that’s great too, but minimum viable audience, it’s so case dependent on, as you said, where your audience is, what platform we’re talking about that it’s hard to really give broader advice than that.
Rob Walling :
Yeah, it would have to be almost like, well, what’s your app? Oh, for gyms? Okay, well, let’s take a peek around and I’d probably look at who are the big creators on YouTube that are catering to gyms, and then I’d go to Insta and then I go to TikTok and I would want to get an idea. I know you said that can be soul sucking to see other people doing it, but if I already know that my audience, my customer base is a certain niche or a certain vertical, I probably already do know who the influencers are in that space.
Jay Clouse:
And I would imagine a lot of the SaaS folks you talk to, one of the playbooks that companies run or you help them run is micro influencers, like going to people who already have an audience within that space and doing some sort of partnership to put your company in a positive light. I think that’s another way that it’s not quite hiring an agency to understand that platform, but I think that would also shortcut your knowledge a little bit. It might just be the strategy anyway instead of a founder led marketing. It’s like, okay, we recognize these platforms are important. Let’s get really good at finding some partners within this space. There’s a company called Ridge, which I think I already mentioned that Marcus Brownley started working with, but before he worked with them, they built a reputation, the creator space as being very creator friendly as a company where they were trying to be the first sponsor on a bunch of channels and trying to give very good terms and work with these companies. And I do think the relationships you build with creators in your space, they probably talk to each other, can be a shortcut. You mentioned build your network as being as important as build your audience and building your network of content creators within your space I think is a big potential part of that
Rob Walling :
A hundred percent. And that may be throwing either time or relationship equity or money at this might be better. A time meeting people is what I mean. Or even going to in-person events where all the creators hang out might be better use of a founder’s time potentially than them building their own audience from scratch. And I do think that’s something people should think about.
Jay Clouse:
I follow a guy, his name is Orin John. His handle is usually Orin meets world, and he mostly works with D two C brands, and when he talks about founder led marketing, he actually more speaks about it kind of being like founder involved marketing, where you don’t have to be the face in every video your company is producing, but if you show up a couple of times over the month, whatever your content calendar is, that can be good, but you can hire someone else in your company to kind of be the face and you can show up from time to time when you do campaigns with other influencers, maybe you show up in that campaign, and that’s a way for you to gauge how receptive their audience is to you specifically, and if there’s opportunity for you to just create more of your own content if you show up in that way.
I think trying stuff like that gives you more data, and I think there’s just a lot of benefit to experimenting in this way and seeing how do I feel about it? Not only how did this go, but did I enjoy it? Do I want to do more of it? Did that feel like a drag? If I see a session on my calendar for this coming up, am I dreading it or am I looking forward to it? That’s the type of thing that really you just need to get some lived experience to say, do I want to do more of this, and is it worthwhile?
Rob Walling :
Yeah, no, I think that’s good advice to close on, if folks want to keep up with you, you are Jay Klaus on X Twitter, J-A-Y-C-L-O-U-S-E, and of course creator science.com.
Jay Clouse:
That’s right. That’s right.
Rob Walling :
Thanks so much for joining me on the show today. Thanks again to Jay for taking the time to come on the show. And as a reminder, this is a two-part conversation and you should head to any podcast catcher of your choice and look for the Creator Science Podcast for the part where Jay interviews me about stuff that I’m passionate about. Thanks so much for listening this week and every week. This is Rob Walling signing off from episode 821.
Episode 820 | When to Quit Your Day Job, A.I. Feasibility Risk, and More Listener Questions (Rob Solo)
/
RSS Feed
When do you finally quit your day job and go all-in on your startup?
In this solo episode, Rob Walling answers listener questions about when it’s worth taking funding to speed up your path to full-time, how to think about equity when a co-founder joins late, and whether A.I. is shifting startup risk from market risk to feasibility risk. He also breaks down how to treat a low-priced, high-churn plan as “cheapium,” when to kill it, and how to test freemium without making a decision you can’t undo.
Want to get your question answered? Drop it here.
Episode Sponsor:
Hiring engineers shouldn’t feel like sorting through AI-polished resumes.
G2i cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with 5+ years of real experience, and they run live, human-led technical interviews to verify actual skills.
No time wasters. No guesswork. Just solid developers who can deliver.
G2i is trusted by companies like Meta, Microsoft, and countless bootstrapped founders who need to move fast without making expensive mistakes.
👉 Get a 7-day free trial and $1,500 off when you mention Startups for the Rest of Us at https://www.g2i.co/rob
Topics we cover:
- (2:48) – When is it time to quit your day job, and should you raise funding to do it faster?
- (4:35) – The “emotional runway” problem (and why bootstrappers burn out)
- (10:06) – Equity splits: when to talk about it, and what actually matters
- (13:57) – Late co-founder vs. business partner: how traction changes the %
- (18:34) – Is A.I. increasing feasibility risk (aka tech risk) for startups?
- (25:01) – Should a cheap, high-churn plan be treated like a marketing channel?
- (26:19) – “Cheapium” pricing: when to keep it, kill it, or test freemium
Links from the Show:
- Apply to TinySeed – Applications are until Feb 17th, 2026
- The SaaS Playbook by Rob Walling
- MicroConf – Community for SaaS Founders
- Slicing Pie by Mike Moyer
- Die With Zero by Bill Perkins
- Dharmesh Shah
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. So if you can nights and weekends for the next couple years and get to the point where you’re supporting both you and your co-founder full-time, or you could sell 10% of your company, 12% of your company now, and you can get there way faster.
And whether that means you’re going to friends and family or to Angels or through an accelerator, I know which bet I would take. I would bet on myself and I’d want to get there faster.
Welcome back to another episode of Startups for the Rest of Us. I’m your host, Rob Walling. In this episode, I answer your listener questions on topics ranging from when do we leave our day jobs for our startup, questions about co-founders and late joining co-founders, how all that works, as well as a question about how AI might be impacting the viability of startups. And of course, I’ll cover another question or two depending on time. Before I dive into that, TinySeed applications close today. As a reminder, TinySeed is one of the best B2B SaaS accelerators in the world. It’s at tinySeed.com/apply if you are a SaaS founder doing at least $500 of MRR. We offer the right amount of funding for mostly bootstrap startups. We have an incredible roster of world-class SaaS mentors. We offer community with 325 other ambitious funded bootstrap SaaS founders, and we offer advice and guidance to get you to that next stage much, much faster.
If you’ve ever felt alone on the journey or like you just don’t have enough resources to move as fast as you’d like, and you’re looking for some guidance in community, head to tinySea.com/apply. And with that, let’s dive into my first listener question.
Speaker 2:
Hey, Rob, I’m Glenn. I’m the founder of 1020.IO. We’re a B2B SaaS that targets first responders. We provide location sharing between agencies. We launched in January. We’re growing quickly. We have 15 police and fire departments across two states currently using our platform. We do have revenue coming in, but it’s not enough for my founder and I to leave our full-time day-to-day jobs, which we’re dying to do. We’re so committed to our new startup that we just want to be doing this full-time right now. But reality is, is we do have families to take care of. We’re thinking about possibly taking on some type of angel investment or some seed round or possibly going through a startup accelerator, and just wanted to get your feedback on it, like we have families to provide for, but we’re also all in on our business. At what point do we just dive in 100% and say, “We’re doing this no matter what.
” Thank you.
Rob Walling:
This is a really good question. Thanks for asking, Glen. This is something that wouldn’t have been an issue 10 years ago because there was no funding for bootstrappers. And if you didn’t want to shoot for billion dollar or 10 billion dollar valuations, then you just ground it out. And these days, I think of it a bit as doing it on hard mode and doing it slowly and meticulously and capital efficiently. I’m really getting a lot of leads in here, but doing it in a capital efficient manner, but moving much slower. And there are obviously benefits to being capital efficient and moving slower, especially slower than say VC backed, right? But there’s an in between. I often say funded companies fail when they run out of money and bootstrap companies fail when they run out of motivation. And it’s true because you have an emotional runway.
We often talk about money, financial. Well, as a bootstrapper, you don’t have runway because you’re not burning anything, right? Maybe you’re taking money from your day job or whatever. But the company, since you’re doing it nights and weekends, you can keep doing this for 10 years financially, but can you do that emotionally? Most people cannot. And that emotional runway is different from person to person. It’s different based on how much traction you’re getting. As you grow, as your company hits these milestones and has successes, your emotional runway replenishes. And this is the thing that so many bootstrap founders don’t realize is some of them will say, “Well, I’m not going to sell because I just want to run this forever.” What they don’t realize is stuff Ruben and I talked about, I don’t know, four months ago, five months ago, about how once you plateau, your emotional runway starts to get drawn down.
And over time, it hits a point where you are unmotivated, uninspired, and it can be hard to keep going. So that’s the case of a company that was growing and plateaued. But in your case, the question that I pose is, how long can you keep doing this nights and weekends? And how long do you want to keep doing this nights and weekends? My guess is the want is no more, right? Like you’re already done and you wish you could have quit your day job months ago, but it’s purely a financial decision at this point. So what you’re trying to do is balance your financial runway and your emotional runway at this point, as well as a third component, which is your risk tolerance. Because if you have an infinite risk tolerance, whether that’s justified because you have wealthy parents who will backstop you or you have a million dollars in the bank, I’m sure if you had that, that you might already be all in on this.
But whether it’s justified or not, if you have infinite risk tolerance, meaning you can take risky bets, then realistically you just do it today, you’d go all in, right? And you might raise a bunch of money and be like, “Well, however it pans out is fine.” But for most of us, we are calculating like, “I have a day job. I have a family and you’re trying to balance your emotional and financial runway with that risk tolerance.” And it’s complex calculus and it’s different for every person. What I would say is if I was in a position like yours where I had early traction, and I mean, gosh, I don’t even know early traction. You have 15 companies paying you, that’s a sign, that’s a signal that something’s working, right? It’s not a guarantee that everything’s going to work and be amazing, but that’s not nothing.
And most SaaS founders that I know don’t get that far, especially with their early efforts. But if I had something that was working and I believed in it and I could raise a bit of funding to get me to focus on it earlier, I absolutely would. The thing that stands in most people’s way is that they don’t have a network. They don’t have anyone who will give them money. This was me. The first time I ever raised money was in 2018 when Ainar and I started TinySeat. Before that, I didn’t really know many people with money. I had no rich relatives. There were no entrepreneurs in the family. There were, they say friends and family around like none of my friends, none of my parents’ friends had any money. We were construction workers. We were a construction family, as you’ve heard on this show before.
And so I didn’t have the opportunity until Drip to be able to potentially raise money, and that would have been the time and decided to sell the company instead. So if you have friends and family who are willing to put in money at a reasonable valuation, do not value this company at 250 or $500,000 because you’re going to screw yourself for raising funds down the line. If you have that opportunity and your risk tolerance handles it, and you can look at if it’s you and a co-founder and you want to raise, I don’t know, 200,000, 300,000 and be like, “Well, if we grow, then this is runway for a couple years feasibly.” That’s a lot of time to make something work, especially if you’ve already done the grind of nights and weekends. So these days, knowing that we only have so many years in our lifetime and knowing how fleeting they are and how quickly they go, I am not going to spend time grinding on things that I can shortcut, that I can skip.
And I think funding is a way, again, if it lines up with your risk tolerance and your emotional runway and all this stuff, I think it’s a way to get there faster. Bill Perkins is the author of Die With Zero, and there’s a great quote from that book. He says, “We have two lives, and the second one begins when we realize we only have one.” So if you can nights and weekends for the next couple years and get to the point where you’re supporting both you and your co-founder full-time, or you could sell 10% of your company, 12% of your company now, and you can get there way faster. And whether that means you’re going to friends and family or to angels or through an accelerator, I know which bet I would take. I would bet on myself and I’d want to get there faster.
I’m not saying there’s no drawbacks to that approach. There are pros and cons to all of this. And I bootstrapped five companies and I’ve raised funding for one. And one of my companies was acquired by a venture back company that had raised $38 million. So I’ve been inside and outside of venture backed organizations and I know the trade offs. And these days, if I were in your shoes personally and I had the ability to raise funding and get there faster, that’s exactly what I’d be doing. So thanks again for that question, Glenn. I hope my thoughts were helpful. My next question comes from X Twitter, username Musings by Anjan. And Enjan asks, “How do founders think about equity and when do they start thinking about it? ” Also, how does this pan out if it’s an existing two year old single founder startup that’s bootstrapped and a co-founder is getting on board?
These are good questions. Founders should start thinking about equity pretty early on, but man, I know that sometimes if it’s just an idea and two people are kind of hashing it out and giving a little chat to it and figuring out if it’s even viable, I get it. At that point, do you want to say, “All right, are we fifty fifty? Are we 60 / 40? What do we each bring?” It’s not because it’s an awkward conversation, because you just don’t have any information. And so it’s this balance of doing it early where in a perfect world, you just decide on day one, but you have so little information that on the other side, you could wait six months or a year and then it becomes something and you’re applying to an accelerator or raising funding and you haven’t talked about equity and you have misaligned expectations of what you were thinking.
“Oh, I thought we were fifty fifty. What do you mean 75, 25?” And the other person says, “Well, I did a bunch more of the work or it was my idea, so I should get more of it. ” And it’s like, “Oof, if you haven’t had that conversation, that’s a tough one.” I know some folks talk about, “Well, if there’s two founders, you split it evenly by default, unless there’s a reason not to. ” And I mean, that’s certainly an easy way to do it, but I also think there needs to be a conversation around who’s bringing what to the company. The idea, I don’t really weigh it that much. I don’t think any idea is really worth equity, but what if someone brings a significant audience or they bring significant financial assets, some cash, or they have an amazing network, or they have something else that they’ve pre-sold it, or they’ve … I was going to say I already built half of it, but realistically, that’s going to happen anyway.
So I don’t know that’s a huge asset. It’s more of these unfair advantages. That’s what I’m thinking about is like, who brings more unfair advantages, if any? And if you’re all on the same playing field in terms of starting with nothing, well, then the default usually is a fifty fifty split. I’m not saying that’s the right way or the smart way, but it is given no other differences, it does feel like the most obvious way to do it. Now, there is a book called Slicing Pie, and it’s written by, I believe he’s a university professor, but it’s a way of, given the amount of work that each founder puts in, they kind of earn into their equity. And it’s not a terrible way to think about it. I think the thing that I struggle with though is what if you have someone who is later in their career and they have expertise and a network and skills that they are bringing that someone’s 45 years old and has built up a huge audience in a network and someone is 25 years old and they have, I mean, they’re full of motivation and they want to, let’s say, write a bunch of code, but the two skill sets aren’t equivalent and that’s where I think it requires conversations.
And in almost all cases, I think it would be helpful to have an unbiased third party, a UB3, as we used to say, an unbiased third party who can help give some guidance because I’ve had founders come to me and one founder will come and say, “Hey, we’re thinking about an equity split.” And usually I have a gut feeling having no dog in the race, usually I have a gut feeling of like, “Well, based on this and that, I think I’d probably go fifty fifty.” Or, “Yeah, you bring more.” It’s probably going to be, I’d say 60 / 40, give or take, a few. There are these ranges that are just kind of pattern matching and I think that’s a way to think about it. The second question on Sean asks is, how does this pan out if it’s an existing two year old single founder startup that’s bootstrapped and a co-founder’s getting on board?
So the two years old, that doesn’t matter much to me. It’s how much traction is there, how much progress has been made. If it’s still a pre-revenue company and you’ve written some code, you’re going to be doing this for years together. Oh, the other thing I forgot to mention actually about what people bring to the startup is like, what if one is able and willing to go full-time and the other is not? That’s another big factor, right? It’s not just about time, but it is about what you bring. So it’s another thing I wanted to throw in. But the idea of if you’re two years in, you’ve done it nights and weekends and you haven’t launched the product, I mean, you still have years and years of that journey ahead. Some are three, four, 10 years could literally be anywhere in there. And so does the two years you’ve spent nights and weekends equate at all to, if the two of you decide, “Hey, we’re going to go full time or whatever as soon as we can, raise funding and do all that still kind of feels fifty fifty-ish.” I guess someone’s put in some time, so maybe you could … I don’t know how you would offset that, but I certainly don’t think that for the rest of the life of the company, it should be some 60 40, 70, 30 split because someone spent nights and weekends building a product.
But with that said, now it depends to me on traction. What if that company, the two year company bootstrapped is doing 10K a month? Well, you’ve significantly de- risked that significantly. So it shouldn’t be anywhere near fifty fifty. And what if it’s doing 25 grand a month? Big difference, right? 50 grand a month. Each of these things, the company is just worth more. It’s just worth a lot more and the de- risking of it has a significant impact. And so there are no rules of thumb for this, but generally I have advised, I’ve had founders who are like, “Hey, I want to bring on a late stage co-founder.” And frankly, they shouldn’t be called a co-founder two years in. They’re not founding anything anymore. They are a business partner that is being added. And you can call them a founding engineer if they’re coming on as an engineer or founding whatever, founding employee, but are they a co-founder?
If you’ve been slogging for two years, that’s not what the term means. So I think be really careful or you can give them a title, right? They could be the director of blah, maybe a C level. I don’t like C level titles this early, but all that said, if I was doing 10K a month and someone wanted to join, oh man, they would need to brand … I mean, that’s a valuable business. Just think of what you could sell for that for through Quietlight Brokerage or acquirer.com. It’s worth hundreds of thousands of dollars. So if you give them whatever percentage that you give them, it’s a lot. So if you’re doing 10K, 20K a month, maybe they get 10 to 20%, 15 to 25, that just kind of feels right. I’m not saying this is like guaranteed that should be the number. If you’re going to become a billion dollar company and that’s the goal, that’s the other thing, I guess this all depends on goals, right?
If you’re going to become a billion dollar company, then you’re really still in the first, first inning, but if you are planning to maybe sell for … When you get to two million, then you’ve done a significant job of de- risking it. So I think there’s no right answer here. I think there’s a lot of this has to be a look at expectations. If you’ve raised funding, you said you’re bootstrap, but let’s say you’ve raised funding and you’re doing 25K a month, 50K a month, that number’s even smaller of what I think a kind of later stage person coming in, it starts to get in that three to 10% range pretty quickly. I think that founders often dismiss how much they de- risk a business by getting to revenue and by getting to, again, even small numbers like 10K, 15K, 20K a month is a signal, especially if churn’s low, like that’s a valuable business.
And you’ve done a lot to … You don’t just do that again, magically snap your fingers and have that again. Every time it’s a big risk to get there. And so I would just be very mindful with your equity. And of course it should always, I think, always vest. And it’s usually over four years with a one-year cliff. Those are just details, but you don’t want someone to come in, be able to work two or three months, get their equity, and then leave and take it all with them because that’s a catastrophic event and can help ensure that you can’t raise future funds, that when you exit, you’ve put a bunch of money in the pocket as someone who really didn’t work much on the product. So thanks for that question, Einjan. I hope my answer was helpful. My next question is also from X Twitter and it is Pablo Fernandez and Pablo was clarifying a question that he asked several episodes ago about feasibility risk and whether AI had changed the calculus of whether a business could be feasible.
And I didn’t fully understand his question and I think I misanswered it in that episode. I think that was with Ruben actually. So Pablo Chime did on Twitter and he said, “Hey, I just heard your answer to my question and start with the rest of us.” I think I didn’t phrase it correctly when I asked though. So maybe for a future podcast, here’s a reframing and I appreciate that. As a techie, so Pablo’s a developer, I get pitched ideas to join startups all the time and I’m seeing a shift. So I think this is where someone comes in and says, “I have an idea and I need a developer to build it. ” Okay. So in the past, they used to have market risk. So like Facebook for dogs, does anyone want this? Will there be any users? Where now I’m hearing a lot of, we’ll use AI to generate free money.
Of course, everyone wants that, but can AI generate free money? So that’s the idea that he’s saying the business idea is like, it’s a promise, like we’re going to use AI to do X, Y, Z. Sometimes these entrepreneurs do validation. I ask 10 people if they want free money and they all said, yes, this is a good example. Thanks Pablo. But that’s not the risky part. The risky part is that AI doesn’t magically solve problems, right? The risky part is, can you build this with AI? So that’s what I meant when I asked about feasibility risk and their validation should start at the lab and not the mom test. Is it just my bubble or is there industry wide shift here? By the way, I’m exaggerating. The problem is that many of those AI gifts for money looks impossible and then blame someone just makes it.
Yeah. So this is a really good question because, so there’s market risk, there’s technology risk and there’s execution risk, right? Those are the three risks in starting a startup. Execution is, can you get this done? Are you going to just stumble all over and not make any progress? Does your team suck or can they get it done if you have a good idea and a good market? So we’ll put that aside. Technology risk, we almost never talk about it on the show. And you’ll hear me mention it now and again, but I always dismiss it. I’m like, look, we’re not building Google. You’re not building an LLM, right? That’s what I’ll say on this show because if you’re listening here, that’s not what you’re thinking because we know you can build a credit app. We know you can build Basecamp. We know you can build drip.
We know you can build MailChimp, right? It might take you a while. These are certain things that will happen. There’s no technology risk, but it’s when you’re in biotech, med tech, you’re building drones, you’re trying to build a submersible that can go down and see the Titanic. You get it, right? That’s where there’s tech risk involved, but that’s not really, this podcast usually doesn’t cover much of that. But what you’re bringing up, Pablo, is that no, in this case, technology risk is a thing because if you promise I’m going to make AI that can replace, it can ingest your website and all of your knowledge base and it can just respond to all your support requests and it can decide what to build next in your product and it can … The question is, can it, does it actually do a good job of that?
And then of course the third risk is market risk and that’s where, am I going to be able to market it, find people? Does anyone want this? Can I find them at a cost that makes the business viable, blah, blah, blah. And market risk is usually the one that everyone trips on and everyone wants to avoid, right?That’s customer development. That’s where I talk about validation, landing pages, and talking to potential customers and all that. And that’s usually the riskiest piece of building a B2B SaaS. But in this case, Pablo, you’re pointing out something that is actually, I think, a very viable conversation and is the overpromising of AI. Acting like AI is magic and just does these things and just works and doesn’t change when they launch a new model that it’s going to work for the next six to 12 months and suddenly they launch a new model and it breaks everything.
So realistically, the idea is that feasibility risk is really a technology risk is what I’ve traditionally referred to it as. And to answer your question, yeah, there is, I wouldn’t say an industry wide shift, but it’s just the propensity to just think that AI can do everything, introduces this. And there’s a lot of disappointment. How many AI tools have you used that have promised something that then don’t deliver on that promise? I’ve experienced several, and I think most people have, and I think there’s maybe not a backlash, but a little bit of wariness around AI over promising for this stuff. And so that’s definitely something I think about. Market risk is still a very real thing. And I think having validation in a network and starting to build a launch list and all the stuff we talk about here is still super viable and something I would be doing.
But yes, if I were to have something I was going to build with AI, I would build a proof of concept in a weekend. Don’t you think you can do that? And if you can’t do it in a weekend, I would just build one before I started launching. These are the two risks that I would be trying to get over. I was talking with the founders of EMS SOAP. It’s a tinySeed company in the newest batch. And Raul, one of the co-founders is a fire chief in Florida, and he had an idea for paramedics using AI that it could transcribe their voices and put things in a medical report for insurance, basically. They have to document things in grim detail. And it would take 15 to 20 minutes after you do an emergency call to remember all the stuff you did and then write it all down and code it correctly.
And his hypothesis is, “I think AI can do this. ” Guess what he did? Did he go find a developer right away? No. He worked with, I believe it was ChatGPT, because you can just talk to ChatGPT and say, “I’m going to train you to do this. ” And you train a single GPT to do this. And that’s how he got this feasibility risk or technology risk out of the way where he was like, “Oh, this is good enough.” He proved it. That’s what a proof of concept, a POC is. And he proved that out as a non-technical founder. And then he went and found a developer to build this, to actually quote unquote build it right as a product. And that’s when he met his co-founder, who at first was just like a contractor or freelancer, and then became his co-founder of the product.
And so that’s what I would say is you’re right, the market is the risky part. And also there is feasibility or technology risk here. And so if I were non-technical, I would want to build this out in just a basic GPT first. And if I was a developer and someone was asking me to come on as a co-founder, I would say, “Have you built this in a GPT first?” And if not, let that be the first thing that we do if I’m going to agree to come on to get that risk out of the way. So thanks for rephrasing that question, Pablo. I hope that discussion was interesting. My last question of the day comes from Jacob about treating high churn plans as a marketing channel.
Speaker 3:
Hey, Rob, loving the podcast. You recommend sometimes dropping the lower priced, higher churn plan and focusing upstream. And you also say freemium products should treat the free users as a marketing channel. So I’m curious what your thoughts are on keeping a lower priced plan, but treating it as a marketing channel. They’re basically qualified leads already willing to pay who can grow into higher tiers. And if you kept it, should a founder track that plan separately from the core metrics, remove it from churn and MRR? Specifically, my software as a service company, DableWriter, is a B2C/prosumer product for novel writing. It’s got three plans from $9 to $29. The $9 plan accounts for only 15% of our subscribers and has the highest churn by one and a half percent. Should I drop it, keep it as a paying marketing channel, or convert it to a freemium plan if it meets the four criteria you and Ruben talk about, or just leave it alone?
How would you think about this idea generally and then specifically for my situation? Thanks. Appreciate it.
Rob Walling:
I like this question, Jacob, and I like the way you’re thinking about it. I do definitely have thoughts. This reminds me of Dharmesh Shah. He’s co-founder of HubSpot, which is what a many billion dollar company, and he gave a talk at business to software years ago and he talked about a cheapium plan. Well, I like that, right? So there’s freemium, which is free and there’s cheapium. And he said, you basically offer it at cost. So he’s like, “We might have a plan that you think about how expensive HubSpot is. ” And he’s like, “We might have a plan that’s $7.” And it basically pays for some very basic stuff. And he’s like, “We don’t make any money on that. We’re not building a great business on that, but you just make it something so there’s some kind of hurdle.” So this reminds me of that, and I always love that word cheapium because it was clever.
Realistically, the question that I’d be asking myself here is, do the people on that $9 plan actually upgrade to other plans? Every time I have advised a founder or at least brought up the idea of them canceling their cheapest plan, I always say, “But make sure people are not upgrading from that plan, that it’s not a funnel up into your more expensive plans, because if it is, then you should consider keeping it. ” That’s it. And I try to caveat … This is the thing with giving advice like this and kind of having rules of thumb is there’s always a caveat, right? When it comes to two-sided marketplaces, what I don’t say is never bootstrap a two-sided marketplace. What I say is don’t bootstrap a two-sided marketplace unless you already have access to one side. That’s actually what the full sentence is, right? It’s like the full quote of money is the root of all evil is actually the love of money is the root of all evil.
And that changes the meaning of it. So in this case, the full quote is, “I consider canceling my lowest plan if it’s high churn, as long as that’s not a feeder up into the other plans.” Now here’s the thing, even if it is a feeder, I still would be curious to see if I canceled it, if people would just bump to my middle plan, right? So that’s something I might want to test. But if you don’t see anyone going from that nine or very, very small amount upwards, then yeah, I would consider just removing it. The problem with having a plan that is high churn is it takes a toll on your support people. It is demoralizing to you as a founder to see your churn that high. And if you go to sell when you go to sell, because everyone sells, or if you were to go to raise money, your metrics will suck and it will negatively impact your valuations.
So sure, if you plan to keep it forever and never sell it, which again, you’re not going to do that, but if that’s your plan, then if you keep this lowest plan, I would absolutely exclude that plan from my churn. I mean, that’s really what you want to be doing because it muddies everything up. You have this 10, 12, 15% churn, but it’s all on the lowest plan. I’m sure it’s super high churn. It doesn’t help you actually see the business as it is, right? So yeah, you could exclude it in whatever reporting you’re using and then only worry about the higher churn. It’s fine. But if no one’s upgrading and it’s only 15% of your revenue, I don’t see why I would want that plan. That shows me that it’s broken. It’s like you could just eliminate that whole plan, eliminate all those churning customers who usually are higher maintenance.
In your case, they may or may not be, but why keep that around? That’s how I would think about it. And then the final part of your question is actually intriguing and it’s to just turn it into a freemium plan to stop charging for that $9. And since it’s only 15% of your revenue anyways, does that freemium plan get momentum and Become larger, and then you have that larger pool of people who can upgrade. My answer there, as you said, the four things that Ruben and I talk about, the biggest risk there is that it’s wrong, that you make it freemium and then you’re like, “Dang it. I would prefer it be $9 again.” Now, have you already downgraded all the people from the $9 plan to free and now you have this free plan with a bunch of people? Or is there a way you can test this just with new signups for now?
And what you do is whatever is in the $9 plan now, you have at least one or two features in that that you don’t put in the freemium plan. And then you add the free plan. That’s the only way I really know to test this stuff other than the rules of thumb we talk about here. So I have actually advised a couple TinySeed founders when they’re talking about this to just say, what would it … Let’s do a thought experiment of what would it look like to downgrade your plan instead of getting rid of it to a freemium plan and talk through it. And usually the answer is, “Oh, I don’t think that’s a good idea or I don’t think it’s worth the experiment.” But from there, it really is just an experiment of thinking about how can I do this in a way that … How do you do it in a way that’s easy to roll back is how I think about this stuff.
And usually grandfathering existing customers and whatever plan they are for now until you have more data is the way that I go. And then if I decide, “Oh, I’m pretty confident that freemium is the way.” Or, “Oof, pretty confident the $9 was the best.” Or, “Boy, freemium didn’t work, $9 didn’t work. I’m just going to cancel this whole thing altogether.” Or then you just remove it on the pricing page and just give yourself some time. You let the people churn out over time. And when that gets low enough, you figure out, do I want to bump people up or do I just let it ride? Just let it ride as it is until everybody churns out. So it’s definitely an interesting question. I like the way you’re thinking about this, Jacob, and I hope my thoughts on it were helpful. Thanks for sticking around through those listener questions.
There were some good questions today. I have a nice little backlog, but if you want your question answered on this very show, head to startupsfortherestofus.com, click ask a question in the top nav and you can record audio or video. It’ll go to the top of the stack. You can record it on your phone, on your computer, or you can send a text question and those go to the bottom of the stack, but I do eventually get to them. I only have about 15 text questions in the backlog right now. And of course, if you ask questions that are not early stage beginner idea stuff, those will also move ahead. If you’re doing 10K or a million a month, those are great questions to send in to the show so that I can keep the topics balanced and not only talk about early stage things. So thanks for joining me this week and every week.
This is Rob Walling signing off from episode 820.
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. So if you can nights and weekends for the next couple years and get to the point where you’re supporting both you and your co-founder full-time, or you could sell 10% of your company, 12% of your company now, and you can get there way faster.
And whether that means you’re going to friends and family or to Angels or through an accelerator, I know which bet I would take. I would bet on myself and I’d want to get there faster.
Welcome back to another episode of Startups for the Rest of Us. I’m your host, Rob Walling. In this episode, I answer your listener questions on topics ranging from when do we leave our day jobs for our startup, questions about co-founders and late joining co-founders, how all that works, as well as a question about how AI might be impacting the viability of startups. And of course, I’ll cover another question or two depending on time. Before I dive into that, TinySeed applications close today. As a reminder, TinySeed is one of the best B2B SaaS accelerators in the world. It’s at tinySeed.com/apply if you are a SaaS founder doing at least $500 of MRR. We offer the right amount of funding for mostly bootstrap startups. We have an incredible roster of world-class SaaS mentors. We offer community with 325 other ambitious funded bootstrap SaaS founders, and we offer advice and guidance to get you to that next stage much, much faster.
If you’ve ever felt alone on the journey or like you just don’t have enough resources to move as fast as you’d like, and you’re looking for some guidance in community, head to tinySea.com/apply. And with that, let’s dive into my first listener question.
Speaker 2:
Hey, Rob, I’m Glenn. I’m the founder of 1020.IO. We’re a B2B SaaS that targets first responders. We provide location sharing between agencies. We launched in January. We’re growing quickly. We have 15 police and fire departments across two states currently using our platform. We do have revenue coming in, but it’s not enough for my founder and I to leave our full-time day-to-day jobs, which we’re dying to do. We’re so committed to our new startup that we just want to be doing this full-time right now. But reality is, is we do have families to take care of. We’re thinking about possibly taking on some type of angel investment or some seed round or possibly going through a startup accelerator, and just wanted to get your feedback on it, like we have families to provide for, but we’re also all in on our business. At what point do we just dive in 100% and say, “We’re doing this no matter what.
” Thank you.
Rob Walling:
This is a really good question. Thanks for asking, Glen. This is something that wouldn’t have been an issue 10 years ago because there was no funding for bootstrappers. And if you didn’t want to shoot for billion dollar or 10 billion dollar valuations, then you just ground it out. And these days, I think of it a bit as doing it on hard mode and doing it slowly and meticulously and capital efficiently. I’m really getting a lot of leads in here, but doing it in a capital efficient manner, but moving much slower. And there are obviously benefits to being capital efficient and moving slower, especially slower than say VC backed, right? But there’s an in between. I often say funded companies fail when they run out of money and bootstrap companies fail when they run out of motivation. And it’s true because you have an emotional runway.
We often talk about money, financial. Well, as a bootstrapper, you don’t have runway because you’re not burning anything, right? Maybe you’re taking money from your day job or whatever. But the company, since you’re doing it nights and weekends, you can keep doing this for 10 years financially, but can you do that emotionally? Most people cannot. And that emotional runway is different from person to person. It’s different based on how much traction you’re getting. As you grow, as your company hits these milestones and has successes, your emotional runway replenishes. And this is the thing that so many bootstrap founders don’t realize is some of them will say, “Well, I’m not going to sell because I just want to run this forever.” What they don’t realize is stuff Ruben and I talked about, I don’t know, four months ago, five months ago, about how once you plateau, your emotional runway starts to get drawn down.
And over time, it hits a point where you are unmotivated, uninspired, and it can be hard to keep going. So that’s the case of a company that was growing and plateaued. But in your case, the question that I pose is, how long can you keep doing this nights and weekends? And how long do you want to keep doing this nights and weekends? My guess is the want is no more, right? Like you’re already done and you wish you could have quit your day job months ago, but it’s purely a financial decision at this point. So what you’re trying to do is balance your financial runway and your emotional runway at this point, as well as a third component, which is your risk tolerance. Because if you have an infinite risk tolerance, whether that’s justified because you have wealthy parents who will backstop you or you have a million dollars in the bank, I’m sure if you had that, that you might already be all in on this.
But whether it’s justified or not, if you have infinite risk tolerance, meaning you can take risky bets, then realistically you just do it today, you’d go all in, right? And you might raise a bunch of money and be like, “Well, however it pans out is fine.” But for most of us, we are calculating like, “I have a day job. I have a family and you’re trying to balance your emotional and financial runway with that risk tolerance.” And it’s complex calculus and it’s different for every person. What I would say is if I was in a position like yours where I had early traction, and I mean, gosh, I don’t even know early traction. You have 15 companies paying you, that’s a sign, that’s a signal that something’s working, right? It’s not a guarantee that everything’s going to work and be amazing, but that’s not nothing.
And most SaaS founders that I know don’t get that far, especially with their early efforts. But if I had something that was working and I believed in it and I could raise a bit of funding to get me to focus on it earlier, I absolutely would. The thing that stands in most people’s way is that they don’t have a network. They don’t have anyone who will give them money. This was me. The first time I ever raised money was in 2018 when Ainar and I started TinySeat. Before that, I didn’t really know many people with money. I had no rich relatives. There were no entrepreneurs in the family. There were, they say friends and family around like none of my friends, none of my parents’ friends had any money. We were construction workers. We were a construction family, as you’ve heard on this show before.
And so I didn’t have the opportunity until Drip to be able to potentially raise money, and that would have been the time and decided to sell the company instead. So if you have friends and family who are willing to put in money at a reasonable valuation, do not value this company at 250 or $500,000 because you’re going to screw yourself for raising funds down the line. If you have that opportunity and your risk tolerance handles it, and you can look at if it’s you and a co-founder and you want to raise, I don’t know, 200,000, 300,000 and be like, “Well, if we grow, then this is runway for a couple years feasibly.” That’s a lot of time to make something work, especially if you’ve already done the grind of nights and weekends. So these days, knowing that we only have so many years in our lifetime and knowing how fleeting they are and how quickly they go, I am not going to spend time grinding on things that I can shortcut, that I can skip.
And I think funding is a way, again, if it lines up with your risk tolerance and your emotional runway and all this stuff, I think it’s a way to get there faster. Bill Perkins is the author of Die With Zero, and there’s a great quote from that book. He says, “We have two lives, and the second one begins when we realize we only have one.” So if you can nights and weekends for the next couple years and get to the point where you’re supporting both you and your co-founder full-time, or you could sell 10% of your company, 12% of your company now, and you can get there way faster. And whether that means you’re going to friends and family or to angels or through an accelerator, I know which bet I would take. I would bet on myself and I’d want to get there faster.
I’m not saying there’s no drawbacks to that approach. There are pros and cons to all of this. And I bootstrapped five companies and I’ve raised funding for one. And one of my companies was acquired by a venture back company that had raised $38 million. So I’ve been inside and outside of venture backed organizations and I know the trade offs. And these days, if I were in your shoes personally and I had the ability to raise funding and get there faster, that’s exactly what I’d be doing. So thanks again for that question, Glenn. I hope my thoughts were helpful. My next question comes from X Twitter, username Musings by Anjan. And Enjan asks, “How do founders think about equity and when do they start thinking about it? ” Also, how does this pan out if it’s an existing two year old single founder startup that’s bootstrapped and a co-founder is getting on board?
These are good questions. Founders should start thinking about equity pretty early on, but man, I know that sometimes if it’s just an idea and two people are kind of hashing it out and giving a little chat to it and figuring out if it’s even viable, I get it. At that point, do you want to say, “All right, are we fifty fifty? Are we 60 / 40? What do we each bring?” It’s not because it’s an awkward conversation, because you just don’t have any information. And so it’s this balance of doing it early where in a perfect world, you just decide on day one, but you have so little information that on the other side, you could wait six months or a year and then it becomes something and you’re applying to an accelerator or raising funding and you haven’t talked about equity and you have misaligned expectations of what you were thinking.
“Oh, I thought we were fifty fifty. What do you mean 75, 25?” And the other person says, “Well, I did a bunch more of the work or it was my idea, so I should get more of it. ” And it’s like, “Oof, if you haven’t had that conversation, that’s a tough one.” I know some folks talk about, “Well, if there’s two founders, you split it evenly by default, unless there’s a reason not to. ” And I mean, that’s certainly an easy way to do it, but I also think there needs to be a conversation around who’s bringing what to the company. The idea, I don’t really weigh it that much. I don’t think any idea is really worth equity, but what if someone brings a significant audience or they bring significant financial assets, some cash, or they have an amazing network, or they have something else that they’ve pre-sold it, or they’ve … I was going to say I already built half of it, but realistically, that’s going to happen anyway.
So I don’t know that’s a huge asset. It’s more of these unfair advantages. That’s what I’m thinking about is like, who brings more unfair advantages, if any? And if you’re all on the same playing field in terms of starting with nothing, well, then the default usually is a fifty fifty split. I’m not saying that’s the right way or the smart way, but it is given no other differences, it does feel like the most obvious way to do it. Now, there is a book called Slicing Pie, and it’s written by, I believe he’s a university professor, but it’s a way of, given the amount of work that each founder puts in, they kind of earn into their equity. And it’s not a terrible way to think about it. I think the thing that I struggle with though is what if you have someone who is later in their career and they have expertise and a network and skills that they are bringing that someone’s 45 years old and has built up a huge audience in a network and someone is 25 years old and they have, I mean, they’re full of motivation and they want to, let’s say, write a bunch of code, but the two skill sets aren’t equivalent and that’s where I think it requires conversations.
And in almost all cases, I think it would be helpful to have an unbiased third party, a UB3, as we used to say, an unbiased third party who can help give some guidance because I’ve had founders come to me and one founder will come and say, “Hey, we’re thinking about an equity split.” And usually I have a gut feeling having no dog in the race, usually I have a gut feeling of like, “Well, based on this and that, I think I’d probably go fifty fifty.” Or, “Yeah, you bring more.” It’s probably going to be, I’d say 60 / 40, give or take, a few. There are these ranges that are just kind of pattern matching and I think that’s a way to think about it. The second question on Sean asks is, how does this pan out if it’s an existing two year old single founder startup that’s bootstrapped and a co-founder’s getting on board?
So the two years old, that doesn’t matter much to me. It’s how much traction is there, how much progress has been made. If it’s still a pre-revenue company and you’ve written some code, you’re going to be doing this for years together. Oh, the other thing I forgot to mention actually about what people bring to the startup is like, what if one is able and willing to go full-time and the other is not? That’s another big factor, right? It’s not just about time, but it is about what you bring. So it’s another thing I wanted to throw in. But the idea of if you’re two years in, you’ve done it nights and weekends and you haven’t launched the product, I mean, you still have years and years of that journey ahead. Some are three, four, 10 years could literally be anywhere in there. And so does the two years you’ve spent nights and weekends equate at all to, if the two of you decide, “Hey, we’re going to go full time or whatever as soon as we can, raise funding and do all that still kind of feels fifty fifty-ish.” I guess someone’s put in some time, so maybe you could … I don’t know how you would offset that, but I certainly don’t think that for the rest of the life of the company, it should be some 60 40, 70, 30 split because someone spent nights and weekends building a product.
But with that said, now it depends to me on traction. What if that company, the two year company bootstrapped is doing 10K a month? Well, you’ve significantly de- risked that significantly. So it shouldn’t be anywhere near fifty fifty. And what if it’s doing 25 grand a month? Big difference, right? 50 grand a month. Each of these things, the company is just worth more. It’s just worth a lot more and the de- risking of it has a significant impact. And so there are no rules of thumb for this, but generally I have advised, I’ve had founders who are like, “Hey, I want to bring on a late stage co-founder.” And frankly, they shouldn’t be called a co-founder two years in. They’re not founding anything anymore. They are a business partner that is being added. And you can call them a founding engineer if they’re coming on as an engineer or founding whatever, founding employee, but are they a co-founder?
If you’ve been slogging for two years, that’s not what the term means. So I think be really careful or you can give them a title, right? They could be the director of blah, maybe a C level. I don’t like C level titles this early, but all that said, if I was doing 10K a month and someone wanted to join, oh man, they would need to brand … I mean, that’s a valuable business. Just think of what you could sell for that for through Quietlight Brokerage or acquirer.com. It’s worth hundreds of thousands of dollars. So if you give them whatever percentage that you give them, it’s a lot. So if you’re doing 10K, 20K a month, maybe they get 10 to 20%, 15 to 25, that just kind of feels right. I’m not saying this is like guaranteed that should be the number. If you’re going to become a billion dollar company and that’s the goal, that’s the other thing, I guess this all depends on goals, right?
If you’re going to become a billion dollar company, then you’re really still in the first, first inning, but if you are planning to maybe sell for … When you get to two million, then you’ve done a significant job of de- risking it. So I think there’s no right answer here. I think there’s a lot of this has to be a look at expectations. If you’ve raised funding, you said you’re bootstrap, but let’s say you’ve raised funding and you’re doing 25K a month, 50K a month, that number’s even smaller of what I think a kind of later stage person coming in, it starts to get in that three to 10% range pretty quickly. I think that founders often dismiss how much they de- risk a business by getting to revenue and by getting to, again, even small numbers like 10K, 15K, 20K a month is a signal, especially if churn’s low, like that’s a valuable business.
And you’ve done a lot to … You don’t just do that again, magically snap your fingers and have that again. Every time it’s a big risk to get there. And so I would just be very mindful with your equity. And of course it should always, I think, always vest. And it’s usually over four years with a one-year cliff. Those are just details, but you don’t want someone to come in, be able to work two or three months, get their equity, and then leave and take it all with them because that’s a catastrophic event and can help ensure that you can’t raise future funds, that when you exit, you’ve put a bunch of money in the pocket as someone who really didn’t work much on the product. So thanks for that question, Einjan. I hope my answer was helpful. My next question is also from X Twitter and it is Pablo Fernandez and Pablo was clarifying a question that he asked several episodes ago about feasibility risk and whether AI had changed the calculus of whether a business could be feasible.
And I didn’t fully understand his question and I think I misanswered it in that episode. I think that was with Ruben actually. So Pablo Chime did on Twitter and he said, “Hey, I just heard your answer to my question and start with the rest of us.” I think I didn’t phrase it correctly when I asked though. So maybe for a future podcast, here’s a reframing and I appreciate that. As a techie, so Pablo’s a developer, I get pitched ideas to join startups all the time and I’m seeing a shift. So I think this is where someone comes in and says, “I have an idea and I need a developer to build it. ” Okay. So in the past, they used to have market risk. So like Facebook for dogs, does anyone want this? Will there be any users? Where now I’m hearing a lot of, we’ll use AI to generate free money.
Of course, everyone wants that, but can AI generate free money? So that’s the idea that he’s saying the business idea is like, it’s a promise, like we’re going to use AI to do X, Y, Z. Sometimes these entrepreneurs do validation. I ask 10 people if they want free money and they all said, yes, this is a good example. Thanks Pablo. But that’s not the risky part. The risky part is that AI doesn’t magically solve problems, right? The risky part is, can you build this with AI? So that’s what I meant when I asked about feasibility risk and their validation should start at the lab and not the mom test. Is it just my bubble or is there industry wide shift here? By the way, I’m exaggerating. The problem is that many of those AI gifts for money looks impossible and then blame someone just makes it.
Yeah. So this is a really good question because, so there’s market risk, there’s technology risk and there’s execution risk, right? Those are the three risks in starting a startup. Execution is, can you get this done? Are you going to just stumble all over and not make any progress? Does your team suck or can they get it done if you have a good idea and a good market? So we’ll put that aside. Technology risk, we almost never talk about it on the show. And you’ll hear me mention it now and again, but I always dismiss it. I’m like, look, we’re not building Google. You’re not building an LLM, right? That’s what I’ll say on this show because if you’re listening here, that’s not what you’re thinking because we know you can build a credit app. We know you can build Basecamp. We know you can build drip.
We know you can build MailChimp, right? It might take you a while. These are certain things that will happen. There’s no technology risk, but it’s when you’re in biotech, med tech, you’re building drones, you’re trying to build a submersible that can go down and see the Titanic. You get it, right? That’s where there’s tech risk involved, but that’s not really, this podcast usually doesn’t cover much of that. But what you’re bringing up, Pablo, is that no, in this case, technology risk is a thing because if you promise I’m going to make AI that can replace, it can ingest your website and all of your knowledge base and it can just respond to all your support requests and it can decide what to build next in your product and it can … The question is, can it, does it actually do a good job of that?
And then of course the third risk is market risk and that’s where, am I going to be able to market it, find people? Does anyone want this? Can I find them at a cost that makes the business viable, blah, blah, blah. And market risk is usually the one that everyone trips on and everyone wants to avoid, right?That’s customer development. That’s where I talk about validation, landing pages, and talking to potential customers and all that. And that’s usually the riskiest piece of building a B2B SaaS. But in this case, Pablo, you’re pointing out something that is actually, I think, a very viable conversation and is the overpromising of AI. Acting like AI is magic and just does these things and just works and doesn’t change when they launch a new model that it’s going to work for the next six to 12 months and suddenly they launch a new model and it breaks everything.
So realistically, the idea is that feasibility risk is really a technology risk is what I’ve traditionally referred to it as. And to answer your question, yeah, there is, I wouldn’t say an industry wide shift, but it’s just the propensity to just think that AI can do everything, introduces this. And there’s a lot of disappointment. How many AI tools have you used that have promised something that then don’t deliver on that promise? I’ve experienced several, and I think most people have, and I think there’s maybe not a backlash, but a little bit of wariness around AI over promising for this stuff. And so that’s definitely something I think about. Market risk is still a very real thing. And I think having validation in a network and starting to build a launch list and all the stuff we talk about here is still super viable and something I would be doing.
But yes, if I were to have something I was going to build with AI, I would build a proof of concept in a weekend. Don’t you think you can do that? And if you can’t do it in a weekend, I would just build one before I started launching. These are the two risks that I would be trying to get over. I was talking with the founders of EMS SOAP. It’s a tinySeed company in the newest batch. And Raul, one of the co-founders is a fire chief in Florida, and he had an idea for paramedics using AI that it could transcribe their voices and put things in a medical report for insurance, basically. They have to document things in grim detail. And it would take 15 to 20 minutes after you do an emergency call to remember all the stuff you did and then write it all down and code it correctly.
And his hypothesis is, “I think AI can do this. ” Guess what he did? Did he go find a developer right away? No. He worked with, I believe it was ChatGPT, because you can just talk to ChatGPT and say, “I’m going to train you to do this. ” And you train a single GPT to do this. And that’s how he got this feasibility risk or technology risk out of the way where he was like, “Oh, this is good enough.” He proved it. That’s what a proof of concept, a POC is. And he proved that out as a non-technical founder. And then he went and found a developer to build this, to actually quote unquote build it right as a product. And that’s when he met his co-founder, who at first was just like a contractor or freelancer, and then became his co-founder of the product.
And so that’s what I would say is you’re right, the market is the risky part. And also there is feasibility or technology risk here. And so if I were non-technical, I would want to build this out in just a basic GPT first. And if I was a developer and someone was asking me to come on as a co-founder, I would say, “Have you built this in a GPT first?” And if not, let that be the first thing that we do if I’m going to agree to come on to get that risk out of the way. So thanks for rephrasing that question, Pablo. I hope that discussion was interesting. My last question of the day comes from Jacob about treating high churn plans as a marketing channel.
Speaker 3:
Hey, Rob, loving the podcast. You recommend sometimes dropping the lower priced, higher churn plan and focusing upstream. And you also say freemium products should treat the free users as a marketing channel. So I’m curious what your thoughts are on keeping a lower priced plan, but treating it as a marketing channel. They’re basically qualified leads already willing to pay who can grow into higher tiers. And if you kept it, should a founder track that plan separately from the core metrics, remove it from churn and MRR? Specifically, my software as a service company, DableWriter, is a B2C/prosumer product for novel writing. It’s got three plans from $9 to $29. The $9 plan accounts for only 15% of our subscribers and has the highest churn by one and a half percent. Should I drop it, keep it as a paying marketing channel, or convert it to a freemium plan if it meets the four criteria you and Ruben talk about, or just leave it alone?
How would you think about this idea generally and then specifically for my situation? Thanks. Appreciate it.
Rob Walling:
I like this question, Jacob, and I like the way you’re thinking about it. I do definitely have thoughts. This reminds me of Dharmesh Shah. He’s co-founder of HubSpot, which is what a many billion dollar company, and he gave a talk at business to software years ago and he talked about a cheapium plan. Well, I like that, right? So there’s freemium, which is free and there’s cheapium. And he said, you basically offer it at cost. So he’s like, “We might have a plan that you think about how expensive HubSpot is. ” And he’s like, “We might have a plan that’s $7.” And it basically pays for some very basic stuff. And he’s like, “We don’t make any money on that. We’re not building a great business on that, but you just make it something so there’s some kind of hurdle.” So this reminds me of that, and I always love that word cheapium because it was clever.
Realistically, the question that I’d be asking myself here is, do the people on that $9 plan actually upgrade to other plans? Every time I have advised a founder or at least brought up the idea of them canceling their cheapest plan, I always say, “But make sure people are not upgrading from that plan, that it’s not a funnel up into your more expensive plans, because if it is, then you should consider keeping it. ” That’s it. And I try to caveat … This is the thing with giving advice like this and kind of having rules of thumb is there’s always a caveat, right? When it comes to two-sided marketplaces, what I don’t say is never bootstrap a two-sided marketplace. What I say is don’t bootstrap a two-sided marketplace unless you already have access to one side. That’s actually what the full sentence is, right? It’s like the full quote of money is the root of all evil is actually the love of money is the root of all evil.
And that changes the meaning of it. So in this case, the full quote is, “I consider canceling my lowest plan if it’s high churn, as long as that’s not a feeder up into the other plans.” Now here’s the thing, even if it is a feeder, I still would be curious to see if I canceled it, if people would just bump to my middle plan, right? So that’s something I might want to test. But if you don’t see anyone going from that nine or very, very small amount upwards, then yeah, I would consider just removing it. The problem with having a plan that is high churn is it takes a toll on your support people. It is demoralizing to you as a founder to see your churn that high. And if you go to sell when you go to sell, because everyone sells, or if you were to go to raise money, your metrics will suck and it will negatively impact your valuations.
So sure, if you plan to keep it forever and never sell it, which again, you’re not going to do that, but if that’s your plan, then if you keep this lowest plan, I would absolutely exclude that plan from my churn. I mean, that’s really what you want to be doing because it muddies everything up. You have this 10, 12, 15% churn, but it’s all on the lowest plan. I’m sure it’s super high churn. It doesn’t help you actually see the business as it is, right? So yeah, you could exclude it in whatever reporting you’re using and then only worry about the higher churn. It’s fine. But if no one’s upgrading and it’s only 15% of your revenue, I don’t see why I would want that plan. That shows me that it’s broken. It’s like you could just eliminate that whole plan, eliminate all those churning customers who usually are higher maintenance.
In your case, they may or may not be, but why keep that around? That’s how I would think about it. And then the final part of your question is actually intriguing and it’s to just turn it into a freemium plan to stop charging for that $9. And since it’s only 15% of your revenue anyways, does that freemium plan get momentum and Become larger, and then you have that larger pool of people who can upgrade. My answer there, as you said, the four things that Ruben and I talk about, the biggest risk there is that it’s wrong, that you make it freemium and then you’re like, “Dang it. I would prefer it be $9 again.” Now, have you already downgraded all the people from the $9 plan to free and now you have this free plan with a bunch of people? Or is there a way you can test this just with new signups for now?
And what you do is whatever is in the $9 plan now, you have at least one or two features in that that you don’t put in the freemium plan. And then you add the free plan. That’s the only way I really know to test this stuff other than the rules of thumb we talk about here. So I have actually advised a couple TinySeed founders when they’re talking about this to just say, what would it … Let’s do a thought experiment of what would it look like to downgrade your plan instead of getting rid of it to a freemium plan and talk through it. And usually the answer is, “Oh, I don’t think that’s a good idea or I don’t think it’s worth the experiment.” But from there, it really is just an experiment of thinking about how can I do this in a way that … How do you do it in a way that’s easy to roll back is how I think about this stuff.
And usually grandfathering existing customers and whatever plan they are for now until you have more data is the way that I go. And then if I decide, “Oh, I’m pretty confident that freemium is the way.” Or, “Oof, pretty confident the $9 was the best.” Or, “Boy, freemium didn’t work, $9 didn’t work. I’m just going to cancel this whole thing altogether.” Or then you just remove it on the pricing page and just give yourself some time. You let the people churn out over time. And when that gets low enough, you figure out, do I want to bump people up or do I just let it ride? Just let it ride as it is until everybody churns out. So it’s definitely an interesting question. I like the way you’re thinking about this, Jacob, and I hope my thoughts on it were helpful. Thanks for sticking around through those listener questions.
There were some good questions today. I have a nice little backlog, but if you want your question answered on this very show, head to startupsfortherestofus.com, click ask a question in the top nav and you can record audio or video. It’ll go to the top of the stack. You can record it on your phone, on your computer, or you can send a text question and those go to the bottom of the stack, but I do eventually get to them. I only have about 15 text questions in the backlog right now. And of course, if you ask questions that are not early stage beginner idea stuff, those will also move ahead. If you’re doing 10K or a million a month, those are great questions to send in to the show so that I can keep the topics balanced and not only talk about early stage things. So thanks for joining me this week and every week.
This is Rob Walling signing off from episode 820.
Episode 819 | QSBS, Exit Multiples, How to Learn Marketing, and More Listener Questions (Rob Solo)
/
RSS Feed
Could your business structure quietly cost you millions when you sell?
In this solo episode, Rob Walling answers listener questions about when QSBS might justify a C Corp (vs. staying an S Corp or LLC), why SaaS exits are often discussed in ARR multiples rather than EBITDA, and how the profitability/growth tradeoff impacts valuation. He also shares thoughts on GMV-based pricing and where developers can learn practical, non-fluffy marketing skills.
Episode Sponsors:
This episode is brought to you by Mercury
Mercury is the banking solution I use across my businesses, from my personal single-member LLC to MicroConf and TinySeed.
Traditional banking forces you to duct-tape tools together and work around slow, clunky processes. Mercury gives me a clean dashboard that shows exactly where each business stands at a glance.
The interface is simple enough for daily banking and paying invoices, but powerful enough to handle multi-step approval workflows for large transfers.
There’s a reason more than 300,000 entrepreneurs have made the switch. It’s free to get started with no in-person visits and no minimum balance.
Apply online in minutes at mercury.com.
Mercury is a fintech company, not an FDIC-insured bank. Banking services provided through Choice Financial Group and Column N.A., Members FDIC.
If you’ve got a strong vision but no technical partner, you need more than a “vibe-coded” MVP, you need a real foundation.
That’s where Designli comes in. Their two-week SolutionLab Prototyping Sprint pairs you with a product owner, designer, and developer to turn your idea into a beautiful, clickable prototype you’ll be proud to show investors or early users.
Right now, Startups for the Rest of Us listeners get $3,800 off their sprint.👉 Get started at designli.co/fortherestofus
Topics we cover:
- (3:30) – How the QSBS tax benefit can save you millions
- (7:40) – C Corp vs. S Corp: which structure makes sense for founders
- (9:39) – Why ARR multiples matter more than EBITDA in SaaS
- (13:13) – Profitability as a drain on growth
- (17:48) – Should co-founders join the same mastermind?
- (19:16) – How to leverage GMV-based pricing in SaaS
- (22:48) – The best way for developers to learn real marketing skills
- (31:28) – Why every founder should master sales and marketing early
Links from the Show:
- TinySeed Applications Live Q&A – February 11th, 10:00 AM EST
- Apply to TinySeed – Applications are until Feb 17th, 2026
- The SaaS Playbook by Rob Walling
- MicroConf – Community for SaaS Founders
- Conversion Factory
- TinySeed Mentors
- Rob Walling on X (@robwalling)
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen mercury accounts from my personal single member, LLC to MicroConf, our seven figure global events and education platform to TinySeed our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send ’em to mercury.com. It’s free to get started with no in-person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC, insured bank banking services provided through Choice Financial Group and column NA members FDIC. And so to take two businesses at the same a RR and say they’re going to be growing the same amount while one is more profitable, the one that’s more profitable could actually be growing faster if you weren’t putting all that money in the bank. Profitability is a drain on growth and since growth is what drives exit multiples, that’s the thing that I personally would be looking at if I wanted an amazing life-changing exit.
Welcome to another episode of Startups For the Rest Of Us, I’m your host, Rob Walling, and in this episode I answer listener questions on topics ranging from A-Q-S-B-S exit multiples when they move from profit to a RR, why people talk about a RR multiples with SaaS, how to learn marketing as a developer and more listener questions before we dive in to that tasty goodness TinySeed applications are open. So I run one of the best startup accelerators in the world for SaaS companies. It’s called TinySeed, and we open applications twice a year. You can add to TinySeed dot com slash apply if you’re interested if you’re a B2B SaaS founder doing at least $500 in MRR. And if you have questions for the TinySeed team, we’re doing a live stream on February 11th, 10:00 AM Eastern. We’ll leave a link in the description of this show so you can get notified when we go live.
And if you want to know what it’s really like to go through the TinySeed Accelerator, you should check out TinySeed Tails season five with Harris Kenny that show aired on this very podcast feed just because it was four months ago, five months ago. If you scroll back, you’ll see the episodes marked with a title and it saw Harris reach half a million dollars in a RR after joining the accelerator. It wasn’t an easy journey, and if you go to TinySeed dot com slash bonus, you can access a private coaching call that I did with him as he was making some really hard growth decisions. So TinySeed dot com slash apply if you’re interested in applying. I hope to see there. And with that, let’s dive into my first listener question.
Speaker 2:
Hey Rob, thanks for all that you do with startups. For the Rest Of Us, it’s meant a lot to me and my business. My question is about business entities. We are looking at changing to an S corp because we have positive revenue and I think it would be financially make a lot of sense, but it makes me wonder whether I should be thinking a lot more about becoming a C Corp for the specific reason of the Qs, bs, the qualified small business stock and the potential tax benefits upon an exit. What is your latest thinking as the background? Our business is entirely bootstrapped and we’re not looking for outside funding. So really it would just be for the QSBS, taking double taxation hit along the way, pencilling it out. I guess there’s a few ways it could go. I’m curious what the latest thinking is that from the bootstrappers perspective. Thanks so much. I look forward to hearing your response.
Rob Walling:
For those who aren’t familiar, QSBS is a US tax benefit that applies to eligible shareholders of a qualified small business. So it’s qualified small business stock, and this is a United States IRS exclusion or whatever, a federal government exclusion from taxes. And I’m not a lawyer nor an accountant. So Google this or ask Chad GBT. But the general idea is if you own shares in a company and that includes founders and you sell for less than a certain amount and you hold those shares for five years or longer, you pay no federal income tax on that sale. And the limit used to be really low, it used to be $10 million and in July of 2025 it was raised to I believe $15 million and you have to hold it for five years or longer. But if you only hold it three years, you get a 50% exclusion.
If you hold it for four years, you get a 75% exclusion five years gives you the a hundred percent. So the idea here is taxes in the US are not great and even long-term capital gains taxes can hit you for 20%. If you sell millions of dollars plus there’s a 3% this and then you have state taxes and you have all this stuff. But to be able to sell a company and to not pay federal capital gains tax is a big deal and it’ll save you money. Now the question is about whether Ryan and his co-founders should go with a C corp or NAS corp because you only get the exclusion if you are a C corp. And the answer really truly is, it depends. Do you think you’re going to hold the company for at least three years because even that 50% exclusion, imagine sell for 10 million bucks and not paying federal tax on 5 million of that.
It’s a huge deal. It’s at least a million dollars in your pocket that would otherwise go to the federal government. And it’s actually more because there’s a 3% affordable Care Act thing. Again, I’m not an accountant, I just know what I’ve seen happen to my money, what I sold and then other founders. So it’s a significant amount of money. The big question is do you think you’ll hold for three years and do you think you’ll sell your stock versus an asset purchase? So when an acquirer buys you, sometimes they buy the stock that gives them the liability they have to take on the liability then of your company. If they only buy the assets, then you retain the liabilities and there’s no hard and fast rule. But I do know generally the smaller the acquisition, the more likely it is to be an asset purchase.
What I don’t know is where I’d say that line is 5 million and below asset purchase probably more common, 8 million, 10 million and below asset purchase. Is it more common? I don’t know. I should probably ask a r vol set. I have seen acquisitions in the eight to 10 million range that were stock purchase agreements, especially when the company was a C corp and they said, I’m only going to sell shares because I get this tax-free status. And so that then is a signal to an acquirer that if you are not willing to buy the stock, you want to buy the assets, then don’t make me an offer because I’m not going to entertain it because of this significant tax savings that I’m going to get if I sell shares. So all that to say today, if I were starting a startup, knowing what I know now, knowing that everyone sells, having seen folks, some folks qualify for QSBS and other folks, not because they started an LLC or an S corp.
I personally would do the C corp and I would take the double tax hit in the short term and I would be looking to sell for assuming I’m looking to sell for 10 to 30 million, 10 to 40 million somewhere in there. That’s kind of seems to be a reasonable target number for a lot of TinySeed folks and that’s the tact I would take. Now, is that the right answer? No, there is no right answer for this one. This is not even a rule of thumb. You know how I give guidance, don’t do B2C two set of marketplaces, they take a percentage of GMB, all that stuff. This is not that. This truly is. If you want to start a lifestyle business and you think you might just take out dividends over the long term or you’re not going to keep it for at least three years or your exit’s going to be small enough that it’s an asset purchase agreement, there’s all these things that could go the other way that will make maintaining a C corp a pain in the ass for you, then you shouldn’t do it.
And that’s I think really what it comes down to. But the majority of companies we back with TinySeed are C corps. And in fact, with our latest fund that we raised that we just closed, that fund only invests in C Corps and there’s a bunch of reasons for that. It actually makes everything simpler for us. We have invested in LLCs and entities from other countries and it is a significant burden financially and time-wise to do that. Now we know why venture capitalists don’t do that, but realistically, if you want to raise additional funding later or if you want to have a significant exit, it’s certainly a decent signal to have that C corp. So thanks for that question Ryan. Hope it was helpful. My next question is from Alan Reed. The subject is exit multiples based on top line revenue. When people talk about exit multiples, they usually focus on top line revenue, especially a RR.
There seems to be much less emphasis on EBITDA or free cashflow. Why is that? All else being equal is a company with higher a RR but lower free cashflow really worth more than a company with lower a RR, but stronger free cashflow. I’ve heard that exit multiples typically range from four to seven XARR. Does that range factor in differences in profitability? This is a good question, Alan. People talk about exit multiples, including me in terms of a RR only when we’re talking about SaaS, because SaaS is the best business model in the world. So you don’t talk about a RR or even just top line revenue exit multiples with e-commerce, with agencies, with content sites, with other types of online businesses because they just don’t sell for that. Those are sold like more traditional businesses. And the reason we talk about it on this show as a RR is because SaaS is one of the only businesses that sells for top line revenue multiples.
Because SaaS is such an incredible recurring business model and especially if you achieve net negative churn, you can really have incredible multiples on that. A RR, when you sell a SaaS company for let’s say it’s around 2 million is where the crossover point is 2 million and up and that used to be lower. It used to be about a million, but then times change. Inflation. It’s inflation and different economic times. If you sell for 2 million and up, you should be, I’ll say thinking in terms of an A RR multiple, even if you’re not growing quickly, let’s say you’re flat or just growing 10% a year or something and you’re at 2 million, I would be looking at a one to two XARR multiple as a loose rule of thumb. And there is no other business type that that’s really a thing. It’s just so often talked about as an EBITDA multiple and if you’re at two or 3 million or 5 million, it doesn’t really matter and you’ve doubled in the last year.
Let’s say you grew a hundred percent, yeah, you’re talking five to 10 x or four to eight x somewhere in that range, and it can be higher than that. I’ve seen a 15 x error or a multiple on a business doing several million because it hadn’t negative return and it just was an intense bidding war. It’s it’s a marketplace that’s an auction, right? So when we give these multiples, think of them like a bell curve and I can say, well, the smallest one I’ve ever seen is a 0.5 XARR and the highest one I’ve ever seen is a 20 XARR. And those are factual statements, but if you look across a hundred sales, the big bell in the middle is probably at five x or something and then it goes out from there and gets smaller on each side to the point where, oh, there’s 10 in the middle and then there’s eight and eight on each side, and then there’s six and six and it just kind of slopes down until you have I seen one that’s sold for 0.5 x and one that’s old for 20.
Sure. That doesn’t mean that that’s the range. I’m not going to say it’s 0.5 x to 20 because that’s not helpful for anyone. It’s just how narrow do you want the part of the bell curve to be? How directed do you want it to be? And so I can say five to 10 or four to eight, but it is somewhere in there. The thing is, is acquirers in that range tend to be strategics or they tend to be private equity, and what they really care about is growth. The top three things they look at are growth, growth and growth, and then churn is the next one and the absolute revenue amount, like if it’s 2 million versus 5 million versus 10 million also matters and intervals that can come on here. And he’s done a whole talk on this topic that’s really good, but growth is what matters and that’s what will drive growth and churn and that’s what will drive that a RR multiple up.
So your question of all else being equal is a company with higher a RR, but lower free cashflow really worth more than a company with lower a RR, but stronger free cashflow. The answer is yeah, it can be for sure because think of it, free cashflow is a short-term thing. Free cashflow is now I want to take out cash out of the business now and if I’m buying a two or $3 million business, a RR SaaS company that has 10% net negative churn and I’m going to pump millions of dollars into growth and I can then grow this thing to 10 or 20 million a RR and I can sell it for a four to eight x multiple. Let’s say I get it to 20 million, doesn’t really matter if it’s profitable. Let’s say I sell for a hundred million at that point, it doesn’t matter that it was profitable.
No, because making the money on the exit and so therefore the profitability doesn’t matter because you are truly looking at the future and what you can get for the business down the line. And even if, let’s say, well, so you’re only looking to sell it. Let’s say you grew it to 20 million a RR and it truly is net negative turn 10%. You could cut back on staff and at scale a SaaS company can have gross margins of 80 to 90% and net margins of let’s say 30 to 50%. And for easy math, let’s just say you can get that $20 million SaaS company to a 50% net margin. You are throwing off 10 million a year at that point in free cash flow. And that’s a number that matters, not the, oh, I’m doing 2 million a year and I’m going to try to crank out 750 grand and profit this year, a million dollars a year.
That sounds like a lot to us. It just doesn’t move the needle of these acquirers. And so no, they don’t care about cashflow in the short term. It doesn’t really matter nearly as much as the fundamentals of the business and how they see they can grow it and growth and momentum and churn or retention. Those are just opposite sides of the same coin. Those are the things that are really intriguing because when you look, what am I going to do with this business in the next three to five years, which is how private equity thinks about it and probably how strategics think about it as well, that’s what matters. So your last question is, I’ve heard exit multiples typically range for four to seven XARR. Does that range factor in differences in profitability? If you’re growing, they don’t care if you’re growing, they don’t care.
And if I were to sell business doing $3 million a year and it was profitable versus 3 million a year and it was breakeven and they were both growing as fast, yeah, I guess maybe the profitable one would get a slight, maybe slight bump. But you know what? If you are profitable, you’re not investing in growth, you’re putting cash in the bank and so you’re not going to be growing as fast almost inevitably. And so to take two businesses at the same a RR and say they’re going to be growing the same amount while one is more profitable, the one that’s more profitable could actually be growing faster if you weren’t putting all that money in the bank. Profitability is a drain on growth and since growth is what drives exit multiples, that’s the thing that I personally would be looking at if I wanted an amazing life-changing exit. So thanks for that question, Alan. I hope it was helpful. My next question is from Andrew Miller on the interaction between co-founders and mastermind groups.
Speaker 3:
Hey Rob, long time listener for about five years now. First time question asker. I am getting way ahead of myself and I’ve been reading your exit strategy book, excellent read. We’re nowhere near Exit, but you mentioned masterminds and Masterminds have been mentioned plenty of times at all stages of the business, and I just wondered what your opinion on when you have co-founders, should you be in the same mastermind group as your co-founders or should you be seeking out separate mastermind groups each? Thanks for all you do. Thanks for the community. It’s
Rob Walling:
Amazing. This is a great question Andrew, and I wanted to answer it really quickly here on the show. I would not want to be in a mastermind with my co-founder because I think it’s a waste of time to have two high functioning co-founders getting the same information and spending that same time in a group. You want a myriad of opinions, you want different inputs, different smart people thinking through the problems that you have. So I have never been in a mastermind with a co-founder and I think that’s a good thing. In addition, what if you start having trouble with your co-founder, you want to talk to your mastermind about it, how you should handle this tricky situation with a co-founder, which definitely happens. I don’t feel like there’s a hundred percent right and wrong answer, but I’m probably 95%. I personally would not want to be in a mastermind with my co-founder, and I think that’s probably the general advice that I would give to founders who ask me this exact question.
Thanks for that question. I hope it was helpful. And my next question is from sebastian@stack.io. Sebastian asks, do you have any thoughts on SaaS that earns additional revenue through transaction fees based on customer GMV or gross merchant value? Do you see this type of revenue the same way as usage-based fees or is it higher or lower quality? This is a really good question. So if I was starting a bootstrapped or mostly bootstrap SaaS today, I would not make it solely based on customer GMV, but Sebastian specifically asked thoughts on a SaaS that earns additional revenue, meaning you are charging a monthly fee just monthly or annual, just like any other SaaS, additional revenue through GMVI think is a great idea. If I had any way to do this that made sense in my SaaS, I would 100% do it. I see the GMV being higher quality than usage-based fees because it tends to be, it depends on the business, but it tends to grow over time in a way that usage can be spiky and not grow as smoothly.
In addition with GMV, as you charge them a percentage, you can also lower your credit card processing fee by switching away from, there are providers that are really easy to get set up on that are 2.9%, but you can find processors that do, I think it’s 1.5 or 1.9, it’s somewhere in there. And so you could still charge a totally reasonable fee. Let’s say it’s 1.9. I don’t actually remember that. The bottom, bottom man that I’ve seen Tiny C Company gets to, but it’s somewhere in the one points. So if you get to 1.9 and you’re charging 2.9, you’re taking a percentage 1% of GMB. If you charge that 3.9, 4.9, which is pretty reasonable in a lot of contexts, you are taking a significant amount of customer revenue, not a significant amount of their revenue, but it adds up across your customer base of a hundred, 500 or a thousand customers.
So do I think this is as good as MRR? Probably slightly less, but man, it really depends on the curve. It depends on how smooth it is and if it’s truly going up over time as your MRR is, I think you can make the argument. You’re certainly going to try to make the argument during an acquisition that this is high, super high quality revenue. I have seen businesses acquired, we have 234 investments I’m in, and I would say there’s at least it’s more than 10% have a GMV component. 20% feels high to me. So let’s just say 15 is going to put you at what, like 35, 38 companies and it’s good revenue usage based is different, right? I see. We have folks who have SMS, they charge for SMS or charge for emails sent or charge for whatever, and you’ll see it’s super spiky even if the trend is that it grows over time, it’s not nearly as smooth as customer GMV. So think about my last SaaS company I did, which was drip email service provider marketing automation. We didn’t process payments, so there was just no real opportunity to do a percentage of GMV and so we didn’t charge it, but if I had the opportunity, the option and it made sense, given my product category a hundred percent, I would have that as a component of my pricing. So thanks for that question. I hope my thoughts were helpful and my last question of the day comes from Sean.
Speaker 4:
Hey Rob, my name’s Sean, and I hear you mentioning that it’s very important to have a founder who does sales and marketing on the team. And I think that sounds like a very reasonable suggestion. If I’m a developer and I want to learn this stuff myself, it’s so hard to learn about marketing because there’s just so much garbage out there. There’s so many self-promoting marketing gurus, it’s 80 to 20 fluff to actual content or sometimes worse. So my question for you is where can a developer who wants to do a single founder bootstrapped SaaS go to learn really basic marketing techniques without all of the fluff? Any pointers you have for me would be greatly appreciated. Thanks so much for the podcast. Keep it up.
Rob Walling:
Thanks for this question, Sean. This is a lot harder than one might think. Back in the day when I was learning marketing, I would read marketing tactic books specifically like SEO for Dummies, literally ad Words for Dummies, idiots Guide to Ad Words to try to learn it or I’d go on, and there was a guy named I think Perry Marshall who it was all info marketing. There was people who talked about copywriting. This is like 2000 6, 7 8. Dan Kennedy had a series of books about marketing. That’s how I learned copywriting and direct response. And then I would go get these subject matter specific books. I remember when I started doing Facebook ads with Hit Tail, I bought every Kindle book, all three of them that had been written about Facebook ads, no joke. And I read all of ’em and just took notes and then tried things.
And so that’s how it was back then. There were no people talking about startup marketing. And that is why I started talking a lot about startup marketing because when I looked around on how to market a startup, it really was a bunch of venture capitalists talking about virality and billboards and brand advertising and banner advertising. And I don’t know, man, it was brutal. And so that’s the thing. Let’s break down marketing really quick. Marketing is strategy, marketing strategy, and then marketing project management, which you don’t really need to learn. It’s just keeping on top of people to get done. And then there’s the marketing tactics. There’s individual things like AdWords and partnerships and integrations and content and SEO and even the cold outreach, which isn’t marketing, it’s more lead gen, but you get the idea. It’s all just getting new people to hear about your product.
So marketing tactics. Once you have an idea of what you should try in what order for those, I will go seek out someone who is talking about them. So I know that Selli FTE and Daniel Ebert, who both are TinySeed mentors actually, they talk about sales and cold outreach, and there are several, honestly, go to TinySeed dot com slash mentors and look for any sales mentors like Ben Hynek, anybody who’s doing sales mentorship for us is going to be extremely well vetted for B2B SaaS. And if they’re on this list, me or someone on my team have personally vetted them. And so if you’re looking for content on sales, just go command F on that page and look for sales. And if they are putting out content, I would say it’s probably quite good. Jen Abel also from jellyfish the sales content. If I was thinking about marketing strategy and growth, I would be looking, trying to follow Heat and Shaw, Mark Thomas, dev Basu.
Again, these are TinySeed mentors, and I’m not saying them to say, oh, push TinySeed mentors on you. It’s the idea is that I hand pick the best people in B2B SaaS to be our mentors. So it’s an instant filtering. It’s a nice filtering for you to say, well, at least these people know what they’re doing now. Then the next question is, is everyone on the mentor list putting out content? And no, a lot of them, so you’ll have to see which of them have a podcast, which of them have a blog, which of them have written a book and give some thought from there. But the idea is thinking about marketing strategy is a lot harder than tactics. And I have an entire chapter in the SaaS playbook if you haven’t read it, and it’s just about marketing, and most of it is talking about how to do marketing strategy, which is like, what should I work on next?
Should I do SEO? Should I do AdWords? Should I do pay-per-click ads? Should I do other things? And I outline a framework there. It’s not the only framework for deciding what to do next. Again, you can follow, I talked about three growth folks earlier, Mark Thomas Heaton and Dev Vasu. You can listen to stuff by Ruben Gomez when he comes on this show. He doesn’t put out content on his own. He’s too busy growing a company, but these are folks that are thinking about growth. Brian Balfour is amazing for high level growth stuff. Now, Brian Balfour is not going to teach you how to click in the AdWords interface, but he’s going to teach you how he thinks about growing companies. And so that’s the first step I’d be thinking about is as a developer, a single founder, how do I think about even how to prioritize marketing approaches?
And that is why the SaaS Playbook has a chapter on it. Again, I’m not saying it’s the only framework, but I have the three factor framework in there for thinking about it. Now, once I’ve picked a marketing approach or two that are my next things that I’m going to experiment with, that’s when I’m going to go deep on a particular topic. And so for Facebook ads, am I going to go look at Growth Ninja, which is run by a longtime friend of mine and someone who ran Facebook ads for Drip and who has recently run them for my wife, Dr. Sherry Walling? If they put out content on Facebook ads, I’m probably going to look at it. And if I’m going to hire somebody to do Facebook ads, it’s probably going to be them. And if I want to do content and SEO, am I probably going to look at the content that Ross Hudgins is putting out.
He runs an agency of, I don’t even know, a hundred, 120 people that is just a content marketing agency. Yeah, I’m going to look at Ross Hudgins. I like Ross Simmons. Why does everyone name Ross? Ross Simmons is great and puts out quite a bit of content for on content marketing and SEO. And of course, I’m going to be looking at anything Asia iRANO puts out and everything that Corey Haynes puts out. Cory Haynes has several sites including swipe file and Conversion Factory, and he is putting out AI skills. Even like last week, he put something out that’s getting popular. And so these are folks that are legitimate. And what it really depends on the challenge is you can say, well, does Rob Walling know SaaS marketing? And I’d be like, yeah, I do. I’m not the number one expert on it, but I generally know how I would market a SaaS.
But if you ask me, okay, so in meta ads, should I use retargeting or should I do the lookalike audience and which button should I click? It’s like, I don’t do that anymore. I did used to, but I haven’t done that in 10 or 12 years. And so it depends on what layer you’re trying to get to. If you really decide, Hey, I’m going to try Facebook or Instagram ads, then you have to go deep. You have to find someone that’s reasonable that you don’t feel like is a bunch of fluff, and then you go deep on that particular topic to learn it well enough to implement it yourself. Or you spend some budget to hire someone who you get a recommendation for or who you believe is reliable and you pay them to run those campaigns for you. So that’s kind of it. I know I’ve thrown out a lot of names here, and some of them are more high level strategy folks and growth folks, and then other people specialize in a particular topic.
But that’s the key, right? That’s why marketing is so complicated, is that you can’t just usually find or hire one person to do all of this stuff. No one knows all of this to the degree that you want. And there’s going to be no single source for all of the content across all the 20 B2B marketing approaches that I include in the SaaS playbook. I don’t know a single individual, including myself, that is actually good at all 20 of those. And so the thing to ask yourself is, well, which ones will reach my customers? Where are my customers? Where do they exist? How can I reach them with marketing? I narrow that list down to the top two, three or four, and I kind of do that in the SaaS playbook. I say, look, these are the big five, the most common five for Bootstrap SaaS.
And then I say, these are the next five, and these are the most common ones that I see across our types of companies. And then you kind of hand pick, well, I know the competitors are doing this, so it probably works. And I know that my folks are actually in Hangouts and SEO is a big channel, and I think they’re on Instagram. If I’m marketing to realtors or artists like tattoo artists, Instagram’s going to be a big deal. And if I’m marketing to hardcore B2B SaaS founders, Instagram is probably not the best place to find them, right? There are better places like LinkedIn or X Twitter. So I totally hear you on this. There are so many people out there. The fluff content bugs the out of me, and it is one of the reasons that I started writing books is I was infuriated by not being able to just find legitimate content on marketing my companies in the 2005 to 2010 range.
It’s why I wrote Start Small, stay Small, and Why So much Emphasis in that book is on marketing, and it’s about changing your mindset as a developer to think more like an entrepreneur and thinking an entrepreneur requires thinking much more about marketing and sales than we typically would as developers. So I hear you and I empathize with your struggle of like, where do I go to learn this? And the answer of course is these days, it depends. Back in the day, it really was like, well, there’s kind of one person talking about this, especially in bootstrapped the bootstrap circles. It’s like Pel was talking about more like word of mouth stuff and content, and Patrick McKenzie was talking just purely about SEO and dabbled in AdWords, and I was doing SEO AdWords and some content marketing, and then we all branched out from there. But that gives you an idea.
The hard part is figuring out, well, which one, two or three approaches do I want to dive into? And then finding reliable sources for each of those. So thanks for that question, Sean. I appreciate it. I hope it was helpful. And that wraps up my listener questions for the day. Thanks so much for joining me today, this week and every week. I am doing okay on listener questions. I wouldn’t say running low, but I could certainly use some more, especially audio video questions, especially questions that are not for beginners that are in. You’ve launched and you have five 10 K of MRR. You have five 10 million of a RR would love questions on those kinds of topics. Thanks for listening this week and spending another 30 minutes with me. If you keep coming back, I’ll keep recording. This is Rob Walling signing off from episode 819.
This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. I manage half a dozen mercury accounts from my personal single member, LLC to MicroConf, our seven figure global events and education platform to TinySeed our venture fund and accelerator. Mercury handles every one of them. Traditional banking forces you to duct tape tools together and work around slow processes. Mercury doesn’t. The dashboard shows me exactly where each business stands at a glance. The interface is simple enough for daily banking and paying invoices, but can also handle the multi-step approval processes we need when wiring large sums of money to the dozens of companies we invest in each year. There’s a reason more than 300,000 entrepreneurs have made the switch. Anytime founders ask me where to set up their accounts, I send ’em to mercury.com. It’s free to get started with no in-person visits and no minimum balance.
Visit mercury.com to apply online in minutes. Mercury is a FinTech company, not an FDIC, insured bank banking services provided through Choice Financial Group and column NA members FDIC. And so to take two businesses at the same a RR and say they’re going to be growing the same amount while one is more profitable, the one that’s more profitable could actually be growing faster if you weren’t putting all that money in the bank. Profitability is a drain on growth and since growth is what drives exit multiples, that’s the thing that I personally would be looking at if I wanted an amazing life-changing exit.
Welcome to another episode of Startups For the Rest Of Us, I’m your host, Rob Walling, and in this episode I answer listener questions on topics ranging from A-Q-S-B-S exit multiples when they move from profit to a RR, why people talk about a RR multiples with SaaS, how to learn marketing as a developer and more listener questions before we dive in to that tasty goodness TinySeed applications are open. So I run one of the best startup accelerators in the world for SaaS companies. It’s called TinySeed, and we open applications twice a year. You can add to TinySeed dot com slash apply if you’re interested if you’re a B2B SaaS founder doing at least $500 in MRR. And if you have questions for the TinySeed team, we’re doing a live stream on February 11th, 10:00 AM Eastern. We’ll leave a link in the description of this show so you can get notified when we go live.
And if you want to know what it’s really like to go through the TinySeed Accelerator, you should check out TinySeed Tails season five with Harris Kenny that show aired on this very podcast feed just because it was four months ago, five months ago. If you scroll back, you’ll see the episodes marked with a title and it saw Harris reach half a million dollars in a RR after joining the accelerator. It wasn’t an easy journey, and if you go to TinySeed dot com slash bonus, you can access a private coaching call that I did with him as he was making some really hard growth decisions. So TinySeed dot com slash apply if you’re interested in applying. I hope to see there. And with that, let’s dive into my first listener question.
Speaker 2:
Hey Rob, thanks for all that you do with startups. For the Rest Of Us, it’s meant a lot to me and my business. My question is about business entities. We are looking at changing to an S corp because we have positive revenue and I think it would be financially make a lot of sense, but it makes me wonder whether I should be thinking a lot more about becoming a C Corp for the specific reason of the Qs, bs, the qualified small business stock and the potential tax benefits upon an exit. What is your latest thinking as the background? Our business is entirely bootstrapped and we’re not looking for outside funding. So really it would just be for the QSBS, taking double taxation hit along the way, pencilling it out. I guess there’s a few ways it could go. I’m curious what the latest thinking is that from the bootstrappers perspective. Thanks so much. I look forward to hearing your response.
Rob Walling:
For those who aren’t familiar, QSBS is a US tax benefit that applies to eligible shareholders of a qualified small business. So it’s qualified small business stock, and this is a United States IRS exclusion or whatever, a federal government exclusion from taxes. And I’m not a lawyer nor an accountant. So Google this or ask Chad GBT. But the general idea is if you own shares in a company and that includes founders and you sell for less than a certain amount and you hold those shares for five years or longer, you pay no federal income tax on that sale. And the limit used to be really low, it used to be $10 million and in July of 2025 it was raised to I believe $15 million and you have to hold it for five years or longer. But if you only hold it three years, you get a 50% exclusion.
If you hold it for four years, you get a 75% exclusion five years gives you the a hundred percent. So the idea here is taxes in the US are not great and even long-term capital gains taxes can hit you for 20%. If you sell millions of dollars plus there’s a 3% this and then you have state taxes and you have all this stuff. But to be able to sell a company and to not pay federal capital gains tax is a big deal and it’ll save you money. Now the question is about whether Ryan and his co-founders should go with a C corp or NAS corp because you only get the exclusion if you are a C corp. And the answer really truly is, it depends. Do you think you’re going to hold the company for at least three years because even that 50% exclusion, imagine sell for 10 million bucks and not paying federal tax on 5 million of that.
It’s a huge deal. It’s at least a million dollars in your pocket that would otherwise go to the federal government. And it’s actually more because there’s a 3% affordable Care Act thing. Again, I’m not an accountant, I just know what I’ve seen happen to my money, what I sold and then other founders. So it’s a significant amount of money. The big question is do you think you’ll hold for three years and do you think you’ll sell your stock versus an asset purchase? So when an acquirer buys you, sometimes they buy the stock that gives them the liability they have to take on the liability then of your company. If they only buy the assets, then you retain the liabilities and there’s no hard and fast rule. But I do know generally the smaller the acquisition, the more likely it is to be an asset purchase.
What I don’t know is where I’d say that line is 5 million and below asset purchase probably more common, 8 million, 10 million and below asset purchase. Is it more common? I don’t know. I should probably ask a r vol set. I have seen acquisitions in the eight to 10 million range that were stock purchase agreements, especially when the company was a C corp and they said, I’m only going to sell shares because I get this tax-free status. And so that then is a signal to an acquirer that if you are not willing to buy the stock, you want to buy the assets, then don’t make me an offer because I’m not going to entertain it because of this significant tax savings that I’m going to get if I sell shares. So all that to say today, if I were starting a startup, knowing what I know now, knowing that everyone sells, having seen folks, some folks qualify for QSBS and other folks, not because they started an LLC or an S corp.
I personally would do the C corp and I would take the double tax hit in the short term and I would be looking to sell for assuming I’m looking to sell for 10 to 30 million, 10 to 40 million somewhere in there. That’s kind of seems to be a reasonable target number for a lot of TinySeed folks and that’s the tact I would take. Now, is that the right answer? No, there is no right answer for this one. This is not even a rule of thumb. You know how I give guidance, don’t do B2C two set of marketplaces, they take a percentage of GMB, all that stuff. This is not that. This truly is. If you want to start a lifestyle business and you think you might just take out dividends over the long term or you’re not going to keep it for at least three years or your exit’s going to be small enough that it’s an asset purchase agreement, there’s all these things that could go the other way that will make maintaining a C corp a pain in the ass for you, then you shouldn’t do it.
And that’s I think really what it comes down to. But the majority of companies we back with TinySeed are C corps. And in fact, with our latest fund that we raised that we just closed, that fund only invests in C Corps and there’s a bunch of reasons for that. It actually makes everything simpler for us. We have invested in LLCs and entities from other countries and it is a significant burden financially and time-wise to do that. Now we know why venture capitalists don’t do that, but realistically, if you want to raise additional funding later or if you want to have a significant exit, it’s certainly a decent signal to have that C corp. So thanks for that question Ryan. Hope it was helpful. My next question is from Alan Reed. The subject is exit multiples based on top line revenue. When people talk about exit multiples, they usually focus on top line revenue, especially a RR.
There seems to be much less emphasis on EBITDA or free cashflow. Why is that? All else being equal is a company with higher a RR but lower free cashflow really worth more than a company with lower a RR, but stronger free cashflow. I’ve heard that exit multiples typically range from four to seven XARR. Does that range factor in differences in profitability? This is a good question, Alan. People talk about exit multiples, including me in terms of a RR only when we’re talking about SaaS, because SaaS is the best business model in the world. So you don’t talk about a RR or even just top line revenue exit multiples with e-commerce, with agencies, with content sites, with other types of online businesses because they just don’t sell for that. Those are sold like more traditional businesses. And the reason we talk about it on this show as a RR is because SaaS is one of the only businesses that sells for top line revenue multiples.
Because SaaS is such an incredible recurring business model and especially if you achieve net negative churn, you can really have incredible multiples on that. A RR, when you sell a SaaS company for let’s say it’s around 2 million is where the crossover point is 2 million and up and that used to be lower. It used to be about a million, but then times change. Inflation. It’s inflation and different economic times. If you sell for 2 million and up, you should be, I’ll say thinking in terms of an A RR multiple, even if you’re not growing quickly, let’s say you’re flat or just growing 10% a year or something and you’re at 2 million, I would be looking at a one to two XARR multiple as a loose rule of thumb. And there is no other business type that that’s really a thing. It’s just so often talked about as an EBITDA multiple and if you’re at two or 3 million or 5 million, it doesn’t really matter and you’ve doubled in the last year.
Let’s say you grew a hundred percent, yeah, you’re talking five to 10 x or four to eight x somewhere in that range, and it can be higher than that. I’ve seen a 15 x error or a multiple on a business doing several million because it hadn’t negative return and it just was an intense bidding war. It’s it’s a marketplace that’s an auction, right? So when we give these multiples, think of them like a bell curve and I can say, well, the smallest one I’ve ever seen is a 0.5 XARR and the highest one I’ve ever seen is a 20 XARR. And those are factual statements, but if you look across a hundred sales, the big bell in the middle is probably at five x or something and then it goes out from there and gets smaller on each side to the point where, oh, there’s 10 in the middle and then there’s eight and eight on each side, and then there’s six and six and it just kind of slopes down until you have I seen one that’s sold for 0.5 x and one that’s old for 20.
Sure. That doesn’t mean that that’s the range. I’m not going to say it’s 0.5 x to 20 because that’s not helpful for anyone. It’s just how narrow do you want the part of the bell curve to be? How directed do you want it to be? And so I can say five to 10 or four to eight, but it is somewhere in there. The thing is, is acquirers in that range tend to be strategics or they tend to be private equity, and what they really care about is growth. The top three things they look at are growth, growth and growth, and then churn is the next one and the absolute revenue amount, like if it’s 2 million versus 5 million versus 10 million also matters and intervals that can come on here. And he’s done a whole talk on this topic that’s really good, but growth is what matters and that’s what will drive growth and churn and that’s what will drive that a RR multiple up.
So your question of all else being equal is a company with higher a RR, but lower free cashflow really worth more than a company with lower a RR, but stronger free cashflow. The answer is yeah, it can be for sure because think of it, free cashflow is a short-term thing. Free cashflow is now I want to take out cash out of the business now and if I’m buying a two or $3 million business, a RR SaaS company that has 10% net negative churn and I’m going to pump millions of dollars into growth and I can then grow this thing to 10 or 20 million a RR and I can sell it for a four to eight x multiple. Let’s say I get it to 20 million, doesn’t really matter if it’s profitable. Let’s say I sell for a hundred million at that point, it doesn’t matter that it was profitable.
No, because making the money on the exit and so therefore the profitability doesn’t matter because you are truly looking at the future and what you can get for the business down the line. And even if, let’s say, well, so you’re only looking to sell it. Let’s say you grew it to 20 million a RR and it truly is net negative turn 10%. You could cut back on staff and at scale a SaaS company can have gross margins of 80 to 90% and net margins of let’s say 30 to 50%. And for easy math, let’s just say you can get that $20 million SaaS company to a 50% net margin. You are throwing off 10 million a year at that point in free cash flow. And that’s a number that matters, not the, oh, I’m doing 2 million a year and I’m going to try to crank out 750 grand and profit this year, a million dollars a year.
That sounds like a lot to us. It just doesn’t move the needle of these acquirers. And so no, they don’t care about cashflow in the short term. It doesn’t really matter nearly as much as the fundamentals of the business and how they see they can grow it and growth and momentum and churn or retention. Those are just opposite sides of the same coin. Those are the things that are really intriguing because when you look, what am I going to do with this business in the next three to five years, which is how private equity thinks about it and probably how strategics think about it as well, that’s what matters. So your last question is, I’ve heard exit multiples typically range for four to seven XARR. Does that range factor in differences in profitability? If you’re growing, they don’t care if you’re growing, they don’t care.
And if I were to sell business doing $3 million a year and it was profitable versus 3 million a year and it was breakeven and they were both growing as fast, yeah, I guess maybe the profitable one would get a slight, maybe slight bump. But you know what? If you are profitable, you’re not investing in growth, you’re putting cash in the bank and so you’re not going to be growing as fast almost inevitably. And so to take two businesses at the same a RR and say they’re going to be growing the same amount while one is more profitable, the one that’s more profitable could actually be growing faster if you weren’t putting all that money in the bank. Profitability is a drain on growth and since growth is what drives exit multiples, that’s the thing that I personally would be looking at if I wanted an amazing life-changing exit. So thanks for that question, Alan. I hope it was helpful. My next question is from Andrew Miller on the interaction between co-founders and mastermind groups.
Speaker 3:
Hey Rob, long time listener for about five years now. First time question asker. I am getting way ahead of myself and I’ve been reading your exit strategy book, excellent read. We’re nowhere near Exit, but you mentioned masterminds and Masterminds have been mentioned plenty of times at all stages of the business, and I just wondered what your opinion on when you have co-founders, should you be in the same mastermind group as your co-founders or should you be seeking out separate mastermind groups each? Thanks for all you do. Thanks for the community. It’s
Rob Walling:
Amazing. This is a great question Andrew, and I wanted to answer it really quickly here on the show. I would not want to be in a mastermind with my co-founder because I think it’s a waste of time to have two high functioning co-founders getting the same information and spending that same time in a group. You want a myriad of opinions, you want different inputs, different smart people thinking through the problems that you have. So I have never been in a mastermind with a co-founder and I think that’s a good thing. In addition, what if you start having trouble with your co-founder, you want to talk to your mastermind about it, how you should handle this tricky situation with a co-founder, which definitely happens. I don’t feel like there’s a hundred percent right and wrong answer, but I’m probably 95%. I personally would not want to be in a mastermind with my co-founder, and I think that’s probably the general advice that I would give to founders who ask me this exact question.
Thanks for that question. I hope it was helpful. And my next question is from sebastian@stack.io. Sebastian asks, do you have any thoughts on SaaS that earns additional revenue through transaction fees based on customer GMV or gross merchant value? Do you see this type of revenue the same way as usage-based fees or is it higher or lower quality? This is a really good question. So if I was starting a bootstrapped or mostly bootstrap SaaS today, I would not make it solely based on customer GMV, but Sebastian specifically asked thoughts on a SaaS that earns additional revenue, meaning you are charging a monthly fee just monthly or annual, just like any other SaaS, additional revenue through GMVI think is a great idea. If I had any way to do this that made sense in my SaaS, I would 100% do it. I see the GMV being higher quality than usage-based fees because it tends to be, it depends on the business, but it tends to grow over time in a way that usage can be spiky and not grow as smoothly.
In addition with GMV, as you charge them a percentage, you can also lower your credit card processing fee by switching away from, there are providers that are really easy to get set up on that are 2.9%, but you can find processors that do, I think it’s 1.5 or 1.9, it’s somewhere in there. And so you could still charge a totally reasonable fee. Let’s say it’s 1.9. I don’t actually remember that. The bottom, bottom man that I’ve seen Tiny C Company gets to, but it’s somewhere in the one points. So if you get to 1.9 and you’re charging 2.9, you’re taking a percentage 1% of GMB. If you charge that 3.9, 4.9, which is pretty reasonable in a lot of contexts, you are taking a significant amount of customer revenue, not a significant amount of their revenue, but it adds up across your customer base of a hundred, 500 or a thousand customers.
So do I think this is as good as MRR? Probably slightly less, but man, it really depends on the curve. It depends on how smooth it is and if it’s truly going up over time as your MRR is, I think you can make the argument. You’re certainly going to try to make the argument during an acquisition that this is high, super high quality revenue. I have seen businesses acquired, we have 234 investments I’m in, and I would say there’s at least it’s more than 10% have a GMV component. 20% feels high to me. So let’s just say 15 is going to put you at what, like 35, 38 companies and it’s good revenue usage based is different, right? I see. We have folks who have SMS, they charge for SMS or charge for emails sent or charge for whatever, and you’ll see it’s super spiky even if the trend is that it grows over time, it’s not nearly as smooth as customer GMV. So think about my last SaaS company I did, which was drip email service provider marketing automation. We didn’t process payments, so there was just no real opportunity to do a percentage of GMV and so we didn’t charge it, but if I had the opportunity, the option and it made sense, given my product category a hundred percent, I would have that as a component of my pricing. So thanks for that question. I hope my thoughts were helpful and my last question of the day comes from Sean.
Speaker 4:
Hey Rob, my name’s Sean, and I hear you mentioning that it’s very important to have a founder who does sales and marketing on the team. And I think that sounds like a very reasonable suggestion. If I’m a developer and I want to learn this stuff myself, it’s so hard to learn about marketing because there’s just so much garbage out there. There’s so many self-promoting marketing gurus, it’s 80 to 20 fluff to actual content or sometimes worse. So my question for you is where can a developer who wants to do a single founder bootstrapped SaaS go to learn really basic marketing techniques without all of the fluff? Any pointers you have for me would be greatly appreciated. Thanks so much for the podcast. Keep it up.
Rob Walling:
Thanks for this question, Sean. This is a lot harder than one might think. Back in the day when I was learning marketing, I would read marketing tactic books specifically like SEO for Dummies, literally ad Words for Dummies, idiots Guide to Ad Words to try to learn it or I’d go on, and there was a guy named I think Perry Marshall who it was all info marketing. There was people who talked about copywriting. This is like 2000 6, 7 8. Dan Kennedy had a series of books about marketing. That’s how I learned copywriting and direct response. And then I would go get these subject matter specific books. I remember when I started doing Facebook ads with Hit Tail, I bought every Kindle book, all three of them that had been written about Facebook ads, no joke. And I read all of ’em and just took notes and then tried things.
And so that’s how it was back then. There were no people talking about startup marketing. And that is why I started talking a lot about startup marketing because when I looked around on how to market a startup, it really was a bunch of venture capitalists talking about virality and billboards and brand advertising and banner advertising. And I don’t know, man, it was brutal. And so that’s the thing. Let’s break down marketing really quick. Marketing is strategy, marketing strategy, and then marketing project management, which you don’t really need to learn. It’s just keeping on top of people to get done. And then there’s the marketing tactics. There’s individual things like AdWords and partnerships and integrations and content and SEO and even the cold outreach, which isn’t marketing, it’s more lead gen, but you get the idea. It’s all just getting new people to hear about your product.
So marketing tactics. Once you have an idea of what you should try in what order for those, I will go seek out someone who is talking about them. So I know that Selli FTE and Daniel Ebert, who both are TinySeed mentors actually, they talk about sales and cold outreach, and there are several, honestly, go to TinySeed dot com slash mentors and look for any sales mentors like Ben Hynek, anybody who’s doing sales mentorship for us is going to be extremely well vetted for B2B SaaS. And if they’re on this list, me or someone on my team have personally vetted them. And so if you’re looking for content on sales, just go command F on that page and look for sales. And if they are putting out content, I would say it’s probably quite good. Jen Abel also from jellyfish the sales content. If I was thinking about marketing strategy and growth, I would be looking, trying to follow Heat and Shaw, Mark Thomas, dev Basu.
Again, these are TinySeed mentors, and I’m not saying them to say, oh, push TinySeed mentors on you. It’s the idea is that I hand pick the best people in B2B SaaS to be our mentors. So it’s an instant filtering. It’s a nice filtering for you to say, well, at least these people know what they’re doing now. Then the next question is, is everyone on the mentor list putting out content? And no, a lot of them, so you’ll have to see which of them have a podcast, which of them have a blog, which of them have written a book and give some thought from there. But the idea is thinking about marketing strategy is a lot harder than tactics. And I have an entire chapter in the SaaS playbook if you haven’t read it, and it’s just about marketing, and most of it is talking about how to do marketing strategy, which is like, what should I work on next?
Should I do SEO? Should I do AdWords? Should I do pay-per-click ads? Should I do other things? And I outline a framework there. It’s not the only framework for deciding what to do next. Again, you can follow, I talked about three growth folks earlier, Mark Thomas Heaton and Dev Vasu. You can listen to stuff by Ruben Gomez when he comes on this show. He doesn’t put out content on his own. He’s too busy growing a company, but these are folks that are thinking about growth. Brian Balfour is amazing for high level growth stuff. Now, Brian Balfour is not going to teach you how to click in the AdWords interface, but he’s going to teach you how he thinks about growing companies. And so that’s the first step I’d be thinking about is as a developer, a single founder, how do I think about even how to prioritize marketing approaches?
And that is why the SaaS Playbook has a chapter on it. Again, I’m not saying it’s the only framework, but I have the three factor framework in there for thinking about it. Now, once I’ve picked a marketing approach or two that are my next things that I’m going to experiment with, that’s when I’m going to go deep on a particular topic. And so for Facebook ads, am I going to go look at Growth Ninja, which is run by a longtime friend of mine and someone who ran Facebook ads for Drip and who has recently run them for my wife, Dr. Sherry Walling? If they put out content on Facebook ads, I’m probably going to look at it. And if I’m going to hire somebody to do Facebook ads, it’s probably going to be them. And if I want to do content and SEO, am I probably going to look at the content that Ross Hudgins is putting out.
He runs an agency of, I don’t even know, a hundred, 120 people that is just a content marketing agency. Yeah, I’m going to look at Ross Hudgins. I like Ross Simmons. Why does everyone name Ross? Ross Simmons is great and puts out quite a bit of content for on content marketing and SEO. And of course, I’m going to be looking at anything Asia iRANO puts out and everything that Corey Haynes puts out. Cory Haynes has several sites including swipe file and Conversion Factory, and he is putting out AI skills. Even like last week, he put something out that’s getting popular. And so these are folks that are legitimate. And what it really depends on the challenge is you can say, well, does Rob Walling know SaaS marketing? And I’d be like, yeah, I do. I’m not the number one expert on it, but I generally know how I would market a SaaS.
But if you ask me, okay, so in meta ads, should I use retargeting or should I do the lookalike audience and which button should I click? It’s like, I don’t do that anymore. I did used to, but I haven’t done that in 10 or 12 years. And so it depends on what layer you’re trying to get to. If you really decide, Hey, I’m going to try Facebook or Instagram ads, then you have to go deep. You have to find someone that’s reasonable that you don’t feel like is a bunch of fluff, and then you go deep on that particular topic to learn it well enough to implement it yourself. Or you spend some budget to hire someone who you get a recommendation for or who you believe is reliable and you pay them to run those campaigns for you. So that’s kind of it. I know I’ve thrown out a lot of names here, and some of them are more high level strategy folks and growth folks, and then other people specialize in a particular topic.
But that’s the key, right? That’s why marketing is so complicated, is that you can’t just usually find or hire one person to do all of this stuff. No one knows all of this to the degree that you want. And there’s going to be no single source for all of the content across all the 20 B2B marketing approaches that I include in the SaaS playbook. I don’t know a single individual, including myself, that is actually good at all 20 of those. And so the thing to ask yourself is, well, which ones will reach my customers? Where are my customers? Where do they exist? How can I reach them with marketing? I narrow that list down to the top two, three or four, and I kind of do that in the SaaS playbook. I say, look, these are the big five, the most common five for Bootstrap SaaS.
And then I say, these are the next five, and these are the most common ones that I see across our types of companies. And then you kind of hand pick, well, I know the competitors are doing this, so it probably works. And I know that my folks are actually in Hangouts and SEO is a big channel, and I think they’re on Instagram. If I’m marketing to realtors or artists like tattoo artists, Instagram’s going to be a big deal. And if I’m marketing to hardcore B2B SaaS founders, Instagram is probably not the best place to find them, right? There are better places like LinkedIn or X Twitter. So I totally hear you on this. There are so many people out there. The fluff content bugs the out of me, and it is one of the reasons that I started writing books is I was infuriated by not being able to just find legitimate content on marketing my companies in the 2005 to 2010 range.
It’s why I wrote Start Small, stay Small, and Why So much Emphasis in that book is on marketing, and it’s about changing your mindset as a developer to think more like an entrepreneur and thinking an entrepreneur requires thinking much more about marketing and sales than we typically would as developers. So I hear you and I empathize with your struggle of like, where do I go to learn this? And the answer of course is these days, it depends. Back in the day, it really was like, well, there’s kind of one person talking about this, especially in bootstrapped the bootstrap circles. It’s like Pel was talking about more like word of mouth stuff and content, and Patrick McKenzie was talking just purely about SEO and dabbled in AdWords, and I was doing SEO AdWords and some content marketing, and then we all branched out from there. But that gives you an idea.
The hard part is figuring out, well, which one, two or three approaches do I want to dive into? And then finding reliable sources for each of those. So thanks for that question, Sean. I appreciate it. I hope it was helpful. And that wraps up my listener questions for the day. Thanks so much for joining me today, this week and every week. I am doing okay on listener questions. I wouldn’t say running low, but I could certainly use some more, especially audio video questions, especially questions that are not for beginners that are in. You’ve launched and you have five 10 K of MRR. You have five 10 million of a RR would love questions on those kinds of topics. Thanks for listening this week and spending another 30 minutes with me. If you keep coming back, I’ll keep recording. This is Rob Walling signing off from episode 819.
Episode 818 | What Does It Take to Be Successful? with Russ Walling
/
RSS Feed
Is perfectionism quietly sabotaging your career or startup dreams?
In this episode, Rob Walling talks with his brother, Russ Walling, about the mindset and habits that shape long-term success from overcoming perfectionism to building resilience and learning to make tough calls without all the answers.
They discuss how growing up with a shared emphasis on hard work, sports, and achievement created both strengths and struggles and how lessons learned in construction, poker, and entrepreneurship still apply to building great companies today.
Episode Sponsor:
Hiring engineers shouldn’t feel like sorting through AI-polished resumes.
G2i cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with 5+ years of real experience, and they run live, human-led technical interviews to verify actual skills.
No time wasters. No guesswork. Just solid developers who can deliver.
G2i is trusted by companies like Meta, Microsoft, and countless bootstrapped founders who need to move fast without making expensive mistakes.
👉 Get a 7-day free trial and $1,500 off when you mention Startups for the Rest of Us at https://www.g2i.co/rob
Topics we cover:
- (04:10) – How early lessons in hard work and sports shaped mindset
- (07:46) – Learning to be comfortable being uncomfortable
- (12:03) – The dark side of perfectionism
- (16:51) – Overcoming fear of failure and learning to take risks
- (19:04) – What poker taught Russ about risk and decision-making
- (21:52) – The Armageddon Beer story
- (28:53) – Why both brothers chose entrepreneurship
- (31:08) – Redefining leadership: collaboration over fear
- (35:24) – The three traits that drive lasting success
- (43:45) – Why hard work is still the ultimate differentiator
Links from the Show:
- Discretion Capital M&A Advisory for SaaS Founders doing $2-25M
- The SaaS Playbook by Rob Walling
- Rob Walling (@robwalling) | X
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G two I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans, checking for real skills. There’s no time wasters, no guesswork, just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at g2.co/robb. Get a seven day free trial and $1,500 off when you mention startups. For the Rest Of Us, that’s G2 i.co/rob. You’re listening to Startups For the Rest Of Us, I’m Rob Walling. In this episode, I have my brother Russ Walling on the show, and I talk about a lot of things.
We talk about mindset, building blocks of success, overcoming pessimism and perfectionism, the two sides of being motivated to achieve and how that’s a good thing until it’s not. And we view it through the lens of two kids to adults now, but kids that were raised in the same household. And so we have these commonalities that have carried through for our whole lives. And my brother is extremely intelligent, he’s very thoughtful, and he’s hardworking and he’s successful. And he and I chat frequently. We do asynchronous voice chats, and we got on this topic of how did we both become successful? Why is that? What did you have to get over to do that? How were we set up to fail? How are we set up to succeed in this? And so this isn’t a walk down memory lane for us. It is more of an examination of mindset and the mental side of dealing with hard things in order to find success.
My brother himself is an entrepreneur. He owns his own company as you’ll hear us talk about in the episode. And if you remember my story about the Armageddon beer that I kind of anonymized and said that it was my friend who that happened to, well, it was my brother, and you’re actually going to hear the firsthand telling of the Armageddon beer story today. I asked him to tell it. I wanted to see how right I actually got it and the things I missed. And it’s definitely fun to hear it. So I hope you enjoy this conversation. Before we dive into that, I want to remind you that if you are doing between two and 20 million a RR and you are considering selling that you should reach out to a R vol set@discretioncapital.com. Discretion is more than a broker. They’re an m and a advisory and they do an incredible job creating incredible outcomes for SaaS founders.
They can help advise you on the best path for your exit and even look, if you’re doing seven figures, you should reach out and it’s probably not the right time to sell yet these days, so many strategics and private equity are waiting until you’re in that two to 20 range. But definitely reach out to a R if you are thinking about exiting in the next year or two because him and his team at Discretion Capital get some of the best outcomes for SaaS founders that I’ve seen. That’s Einar at discretion capital.com. And with that, let’s dive into my conversation with my brother,
Russ Walling:
Russ Walling, welcome to the show. Thank you. It’s good to be here.
Rob Walling:
It is after 800 something episodes over 15 years. I’m kind of surprised that this is the first time I’ve had any family members on, but especially you, right? We’re about three and a half years apart. You’re older than I am, but you and I have kept in touch and are really good friends and still talk a lot. It’s all async these days, right? Async voice messages. But what got me thinking about having you on the show is we were kind of in a conversation around, it was a combination of hard work and achieving results as well as we’ve known tons of people in our lives, whether it’s friends or family acquaintances, some who’ve been successful, some who haven’t, and you start to see patterns around how they think, how they operate. And there’s always been you and I, obviously growing up in the same household, both being athletes in high school and in college, then going on to work construction.
You run an electrical contractor these days in California, and I did it for a couple of years and then said, I want to do tech stuff. But now we both run our own companies and by all measures, by all accounts, I would say we are both successful. And I’ve known people with very similar upbringings to us who maybe are more successful or less and there are patterns. This is what I do in my day-to-day life, is I evaluate people to hire and start a founders to fund through TinySeed. And so as you and I had started talking just an off the cuff thing, I thought this is a really interesting topic. I think that we could dissect a bit on the podcast, especially given just the history that we have growing up. I think I want to start with this idea of growing up as we were both encouraged to get good grades and we were both encouraged heavily. I would almost say a lot of my value as a kid was excelling at sports.
Russ Walling:
Absolutely, yes.
Rob Walling:
Heavy emphasis on that. And so what I guess as you look back at that experience as a kid growing up together and working hard, we were taught hard work is what it takes to get done. I just feel like that was said all the time, right?
Speaker 3:
Yeah,
Rob Walling:
You have the ability, but without hard work, it doesn’t get you. How have you taken that through your life? Do you think that has impacted you as an adult?
Russ Walling:
So it’s real interesting because now we’re kind of in this new era where there’s people talking about not going to college. And for us, college was 100% going to happen. It was not just happening of the athletics, but it was going to happen because of the grades. That was how you got the good job. That’s changed a little bit, even to a point now with the grades. There’s sometimes I hear parents being less focused on the grades with the kids. And for us it was absolutely drilled into us, isn’t fair. It wasn’t that rigid, but it was definitely an understanding that you would get good grades and honor roll was the baseline straight a’s was where you were shooting. I look back and there are things that, there are ways that affected me that were certainly not positive, but overall it gave me a fantastic kind of base to build from.
And the people that I met and the people that I worked with and the amount of collaboration that’s required to get those good grades, those are skills that you learn. I’m incredibly introverted, so I don’t know that I really would have, I wouldn’t have gained those skills as well or as quickly as I did had I not had to get good grades and rely on others and be part of a team to make that happen. With athletics, you are 100% correct. Competition was a huge thing in our house and sport was the way that you really kind of personified that, right? It’s very simple. The grades are empirical, right? I dunno if empirical is the word I want, but the grades are true. You either got an A or you didn’t, right? And sports is the same thing. You either beat the other team or you didn’t.
And that level of competition, being able to compete at constantly higher levels and the amount of hard work that takes is man, it’s very, very hard to take somebody who doesn’t have the experience of working hard and have them finally figure that out later in life. And it wouldn’t have happened for me, let’s put it that way. No judgment on anyone else. If I hadn’t had that base to build off of, both from working hard to get the grades and working hard in sports, I wouldn’t have that work ethic today. The other thing that sports did is they really helped with me figuring out how to get through things when it sucked, when it hurt physically. I mean, there’s a lot of physical pain you go through. I played football, and you’re basically hurt from day one of practices. I think that’s probably true for every sport.
I think that’s true in soccer and baseball, something’s going on where you’re not at peak health. So yeah, it just takes time. It’s putting in the time and taking the time to get good and to get, and then it’s working through those uncomfortable situations. And then even as an athlete, when you’re not in season, you’re lifting weights, you’re running, I hate running. I always did. I hate conditioning, but it’s something that you do so that you can be great on the field. It really teaches you how to be comfortable with being uncomfortable. And I think that’s a huge skill and didn’t, it’s real interesting. I learned that skill as an athlete and as an athlete I was perfectly comfortable being uncomfortable. I didn’t pull that into my career, my family life, my personal life until much later in life. And that was a huge, if I could go back and do something different, that is certainly something I would do different is understanding how that translated the work ethic I had. And I worked really, really hard at work, putting in hours, grinding it out. I’m staying up all night when necessary to make things happen. But if I had partnered that with the being comfortable with being uncomfortable, those really would’ve worked well together and I would’ve gotten where I am much faster, for sure.
Rob Walling:
Yeah, I agree with you on that. When I talk to startup founders, it’s a non-zero amount of time, or not non-zero percentage of time that I can identify someone as, oh, you played a sport when you were younger, didn’t you? Or maybe you were in the military or you did something that taught you to be okay with grinding is kind of what I say as you run your own business, you have to do a bunch of stuff that you don’t want to do. You have to, and even you’ll delegate it eventually. You can hire it out, but especially in the early days, if you’re bootstrapping in our world, it’s like I just have to do, maybe I don’t like marketing, but maybe I just have to do that to be successful. You don’t want to stay up all night estimating a job that you’re going to bid and then not get the job, but you do it anyway because that’s just what you do.
And some folks write into this podcast and they’ll be like, I want to be an entrepreneur, but I have a pretty nice day job and I don’t really feel motivated to do the thing to grind it. And I typically say, I don’t know how to help you. I don’t know that I can change that mindset. Now maybe you can, someone wrote in at one point and said, oh, we did it easy and we did it over several years and probably got a little lucky and did it. And so that happens. But most of the folks I know who have had success as an entrepreneur and whether it’s in tech or any field, I think have done quite a bit of things that they’re just like, well, this is just what it takes, turning it back. So that’s athletics and what that’s taught us. And I think often about all the stuff that running Track taught me, but I also think back to what you and I learned maybe from our parents and what was instilled there, and it was a work ethic and it was an achievement orientation of get good grades, like you said, and win if you’re going to compete in a sport.
But something you said I want to circle back on, which was some of that probably had a detrimental effect on you, and I know it did to me as well, and I spent decades of therapy undoing a lot of that. But what comes up for you when you think about that?
Russ Walling:
The easiest one for me, and this isn’t just an athletics thing, it’s kind of the entire upbringing. The thing that I brought away from our upbringing that I shouldn’t have is rampant perfectionism. And I can remember a time when I was very young taking a test, getting a 96 or a 97 on the test and coming home, being really excited that I got that score and talking to our dad about it and him saying, well, that’s pretty good, but you may need those three points later in me thinking, okay, so 97 isn’t good enough. And that certainly wasn’t what he was trying to do. And this is one of the hard things in life is when people provide you with information or people provide you with guidance, it’s how you take it and what you do with it and what lesson you learn from it.
Because the right lesson to learn there is don’t ever take anything for granted. I mean, that’s the positive lesson I took. Okay, I have to be perfect. And part of it is me. There’s a nature piece in there too. But from those types of interactions, I had rampant perfectionism. And one of the biggest mistakes, or one of the biggest drawbacks to that rampant perfectionism is that I spent a significant amount of time, I call it now, being an exceptionalist. And there’s rules and there’s exceptions, and most of the time if you follow the rules, you’re in good shape, stop focusing on the exceptions. I spent a significant part, especially of my early career trying to perform in such a way that I managed every solution and every situation. So as an example, an interaction with say a customer in which we went out and we talked about, okay, this is how we’re going to perform the work.
This is what the job looks like, this is what I need. I would write an email and I would spend potentially hours writing some type of email back to this customer explaining exactly what was going to happen, but then I’d go through and think about if he says this clause in such a way, he might come back and say that I owe him more than I’ve put into this proposal. So I really struggled with that, and it wasn’t so much the time sucked, right? Because time is certainly the most valuable asset that we have, but I was kind of screwing up relationships too because I was constantly wary with everyone. It took me so because I was spending so long writing that email for that customer, something I could have gotten to ’em that same day. Maybe it’s two, three days later, and then when it comes through, it’s like, Jim Christmas, we walk this and you’re building out 10,000 square feet of space for me.
Why am I reading a novella? And it crushes. So in trying to solve for all of those exceptions, I’d say I was a huge mistake, and I figured that out now, and I go with the rules rather than the exceptions. And that’s what I teach to my team. That’s what I teach to my kids. And there are always people who are naysayers. And that was the other thing that keeps pulling you back into it, is there’s always naysayers. So one of the things, my little mantras is success exists on the other side of fear. That’s part of that being comfortable with being uncomfortable. And then I always get someone who says, well, yeah, that works great, unless that thing that you’re afraid of is a lion. And it’s like, okay, dude, I’m not changing out lights at a zoo, so I’m not going to run into a lion. So why are we talking about this? Yeah. So because of that perfectionism, I became an exceptionalist. And again, the real problem was it was torching relationships. I was hyper stressed in every interaction. I was treating people poorly and not, I was a bad guy. I’ve always been a very collaborative person, but I wasn’t doing it. I was protecting myself so that I could solve for every exception.
Rob Walling:
So I want to say two things. Number one, the guy who said the lion thing is probably posts a lot on Reddit, totally is my first thing. He’s definitely a Reddit or a hacker news commenter, which is similar perfectionism and what you’re saying. I definitely took away the same thing as a negative. The other thing is I wouldn’t take risks in my twenties. I was afraid to fail. So that 97, okay, well, I’m going to get the a hundred then and now I’m going to get straight A’s in high school and I’m going to get to achieve, and I’m going to try to go to the state meet and win and everything. But as I get out and I start a day job, and then I start trying to be a startup founder, I want to own my own time and all that. I was so risk averse because if failed, I took failure very, very, very hard.
Well, in school, but also especially in competition in track, if I lost a meet that I didn’t think I should lose, that ate me up big time. So I think that fear of failure and that because failure made me feel so bad that I was like, I don’t want to feel that anymore. So what I hadn’t realized is it caged me in. It was like, well, then I’m only going to do things that I know that I’m not going to fail at. I’m not going to do things that I’m bad at. So that’s my 2 cents on that. That leads us into this quote that I say very frequently on this podcast. It’s not every episode, but it’s got to be once a month. And I say, being a startup founder is making hard decisions with incomplete information.
I didn’t know how to do that. I graduated with an engineering degree. You and I both did actually, and came out of school. And I was like, well, I have the equation in my head and I know I need all these variables, and then it spits out an answer, and that’s the right answer, and that’s what I should do. And that’s what school taught. And I came out into the real world and started working construction because dad, just so folks know, our dad was an electrician and a project manager for 42 years. You’re now in the, it’s not the family business, it’s not a business he started, but construction is kind of a family business for us.
And I did it for a couple years and then decided to go do code, but I had to learn to deal with uncertainty and to make decisions without all the information that I wanted. And whether you are a foreman on a job, whether you’re an electrician, whether you’re an estimator, whether you’re a project manager, whether you’re a startup founder, you’re just never going to have all the information. And I guess, how did you, I am not even going to say, do you agree with that? I know you do, but I think the question is how did you learn to deal with that? And then how do you teach people? So folks know you run a construction firm, a contractor, so you have foreman and electricians and office staff and a lot of people that you are mentoring, advising or just managing. So you have to have up and comers. You have people twenties, thirties and forties that you’re teaching skills that, and I’m wondering how you dealt with it and then how you communicate this to other people who have that mindset.
Russ Walling:
So I will say absolutely same experience, incredibly risk averse school just reinforces that, especially with an empirical degree, right? Engineering degree. It’s real simple. You either got the answer right or you didn’t. Right? And to be honest, what saved me, I guess, rescued me from that was the poker boom. So when online poker took off, I absolutely fell in love. There were a bunch of us nerds that started playing it together, really, really cool sharp people, some who had engineering degrees, some who were kids living in their parents basements that were absolute geniuses. And the feedback that I constantly got was, you’re too risk averse. And poker is an imperfect game. If you play the game at all, you can make all the right decisions. And then that wrong card comes on the river and everyone, oh, and then it’s a big thing, and all the poker tournaments that somebody sucks out on the river.
And it’s just that kind of concept of being risk averse, having that pounded into me by my peers and them constantly telling me, you’re too risk averse. That is your problem. And then there’s one, without going too far down the poker rabbit hole, there’s a dude named Phil Gfo, a poker player, and he is, I’ve always admired him, always thought he was kind of a nice guy, just kind of a laid back guy. And the World Series of Poker was the big tournament, and the main event is the one you want to win. And Phil Gfo had a run one year where he got out way ahead, and he just had chips stacked up, and it just eroded away. And I watched him the whole time he played, he smiled, and he was smiling and smiling, and I went back with some of my peers and we were kind of analyzing those hands that he had played.
And he was right most of the time. That’s why he was smiling was because he knew he made the right decision. So at that point, having my peers pound that, you’re too risk averse into me, had kind of helped to cure me of it. But that was kind of the nail in the coffin. But that was the big one where I was like, holy cow, this guy’s dream is crumbling in front of him because every poker player, their dream is to win that tournament, and he’s doing it with full confidence and a smile. What a straight up baller. And just he knew. He knew. And I haven’t had a lot of problems with making those decisions since then. And ultimately too, these decisions that we make, they’re difficult and they’re important, but what’s the worst? What’s the worst that can happen when you make this decision if it goes south? I’ll tell you another story. I ran a project that was the biggest project. I was working for a large electrical contractor. It was the biggest project that electrical contractor had ever run.
Rob Walling:
Is this the Armageddon beer story?
Russ Walling:
Yes. This is the Armageddon beer story.
Rob Walling:
Please tell it. Okay, so I have told this on the show before and people love it, and I left you anonymous, and I said, it’s like a friend of mine because it involves a beer, and I didn’t want your name on it, dude, tell the story because I’m certainly, I got facts wrong and I really want to hear this from your mouth. Yeah,
Russ Walling:
It’s pretty straightforward. There was a cat named Dave Shilling who was, and I’ll name him by name. He was 100% of all the people I’ve worked with. If I could keep working with one person, it would be Dave. He retired, rightfully so, great guy. And he had run some big jobs before. This was certainly a huge step up for me to run a job this size. And it was with a national general contractor who it turned out was a fantastic general contractor, but going into it, we thought, holy cow, these guys are going to be rough. So a lot of angst. And I come in one day and we had a fridge in the office there. We had an onsite office, and I opened the fridge, and I’m like, what the, and there’s food in there. I look at him, what the hell is this?
There’s a beer in there. And Dave says, what? And Dave’s typical kind of goofy way that he was, goofy is not the right word. He was just a happy go-lucky guy. And he’s like, what? And I’m like this. I said, we can’t have a beer in here. Safety comes in. They’re going to kick us all off the job. He says, no, he says that that’s the Armageddon beer. And I said, what’s the Armageddon beer? He says, if this really goes south, if goes downhill enough, you and I are going to sit in that office, open that beer, drink it, drive to the office, and then throw our keys on his boss’s desk. I won’t name the bosses, throw our keys on his desk and say, we’re out of here. And I’m like, okay. Yeah, yeah, yeah. And the other thing that was funny was anybody who’d come in, they’d see the bear.
What’s that? And I’d tell the story and they’d, oh, that’s really funny. But here’s the punchline to it, the big one, we had a time on that job. We had multiple times on that job that things went wrong. The biggest one was we had 16 generators that showed up. We got ’em into place, and it turned out that where they had been stubbed up was 100% wrong. And turned out that wasn’t our issue. But at that time, I didn’t know that. So Dave comes in, he sits down, he says, Hey, I want to tell you this. The generators, all the stub ups are wrong. I’m like, what are you talking about? We’re off by a few inches. He’s like, no, they’re on the exact left corner. They need to be on the bottom. And I went white.
Rob Walling:
So this is poured in concrete. These are right, is huge amounts of pipe poured in concrete to run electrical through.
Russ Walling:
I mean, these are millions of dollars of work to undo. I am thinking if we have to undo this, this is going to be big. Maybe not. Yeah, I mean, as big as the job was,
Rob Walling:
It’s all the profit, all the profit on the job, plus you’re upside down, plus you’re literally losing money to work on this thing for a year or two,
Russ Walling:
And it’s cata. So this is an epic failure. And he looks at me, smiles and says, should I grab the Armageddon beer? But what that did was I went from, oh my Lord, we’re done to, should he grab the Armageddon beer? Are we going to drink that thing and throw those keys on his boss’s desk? And I thought, we can intercept them. We’ll have to leave those existing stubs in place. We’re not going to cut ’em out. We can patch wood. So as my mind’s working, I look at ’em and I say, no, no, let’s think about how we’re going to fix this. And that happened half a dozen times on that job. There were times that he could tell I was starting to lose it, and he would just say, should I grab the Armageddon beer? And every time it was a no. And it was huge just to have that level of his insight into people and his insight into me specifically.
That was pretty cool that he knew people that well. So at that point, again, I always think, would I grab the Armageddon beer? So when I’m making a decision, if this goes wrong, would I grab the Armageddon beer? And the answer is always no. And then when it does go wrong, I ask myself again. It’s been no so far. And then as far as how I convey that to my team, I do my best to be really, really positive with them and let them know you’re going to have to become comfortable with being uncomfortable. And there’s different ways that you do that. Construction’s very fast paced. You have people who are difficult people, and it’s about, okay, but how do we work with them still? Then from a decision standpoint, you’re going to get ’em wrong. That’s cool. Don’t make a mountain out of a mistake.
And that was a mentor that you and I both had who used to throw that one out there. If you make a mistake, it’s okay, right? Don’t hide it. If you hide it, then we have a problem. If it happens and you tell me about it, we can figure out a way to fix it. So that’s really it. And then when it does go wrong and someone tells me a decision they made, and I think, how the heck did you come up with that? How was that your plan? I don’t ever say, how was that your plan? Okay, cool, so let’s fix it first, and then once we get past it, create that space. It’s fixed. Everybody’s feeling better. Okay, now let’s talk about how we got here. What did we do wrong here to make this happen?
Rob Walling:
The reason I’ve told that story, the Armageddon beer story on this show is because I was so impacted by it when you said it, and it felt like a lesson encapsulated in a four minute story. I mean, I was already, I think you probably told that to me, if I were to guess maybe 2018, maybe it was six, seven years ago,
And at that point I had sold, drip was unquote successful. I felt like I had my together and felt I’m a grownup now. And that it really impacted the way that I think about everything professionally, especially, and it’s aside from years of therapy and working on myself internally, that mental model of how bad is this really? Of being willing and able to ask that that’s all that does. Is this really that bad? If it is, the worst case is we just do the thing and we chuck our keys and you can just rates quit and shut the company down. And I’ve had that moment. Everything I’ve done since that time, that 2018 time has been higher stakes with more money, should feasibly be more stressful in everything I did before. And I have been less stressed over the past six, seven years. And it’s a combination of things, as I said, like it’s therapy and it’s just becoming older, becoming more confident in my own abilities. But I have asked myself multiple times as things have gone wrong, is it in my head like, huh, is it time to get the beer? I could just shut this entire company down, just burn it to the ground and I’ll be all right. And it’s a weird level set of, I mean, come on. It’s not that bad. It feels like that in my body that it’s that bad, but it’s not that bad. I love it. And I have definitely gotten feedback about it when I’ve told it on the show.
So you and I ended up both running our own companies, and I’ve started several from scratch, and you acquired a company. Why do you think that is?
Russ Walling:
So growing up, that was something we discussed. We had talked about starting our own electrical contracting firm long, long ago to do our own thing.
Rob Walling:
Oh, yeah, you and I did.
Russ Walling:
Yeah, we ended up going separate ways. I stayed here and you ended up moving on to tech, which I tell everyone was the right decision because I am three and a half years older than you, and I’ll be working for quite a while. And that’s the nature of being in a construction firm. I always tell everyone that no one’s retiring early. We don’t get these big life changing payouts, but we do have nice steady income. You get good relationships, you’re able to provide for your family, and when you do retire, you’re able to enjoy that retirement. But back to the business question, to be perfectly honest with you, it was always something that was there. We had talked about it when we were younger. You were more entrepreneurial than I was as we were growing up. You were always looking for ways to make money, and you were looking for ways to make money that were entrepreneurial, whether it be selling comic books or something of that nature.
And we did a little bit of that together too. But I was always looking at the job. I was going to get the job, and then I was going to work my way up through the ranks, and then I was going to be at the top of an organization if we didn’t start our own thing. And then over the years, what happened for me at least, is I realized that I wanted to have the ability to create an organization that was different than any of the organizations that either A, was working for, or B, were out there. And one of the big things that I looked at was how siloed the construction companies were. And that was always very frustrating for me. And to me it was a simple solution. Why don’t we just share KPIs? And every time I brought that up, I kind of got laughed at or side eyed and it’s like, no, we could totally do this.
That person, the way most construction companies work is the pre-comm people. They are their KPI is. How much work did you win? And it’s like, well, you can win a lot of work that’s not very profitable. And I’m not saying their only KPI should be, how did the job do? But let’s look at that more across the board. And whenever a job went bad, that always came up. How was the estimate? But why aren’t we looking at that when a job goes well and kind of celebrating those wins together? So for me, it was being able to kind of create the direction in which the organization was going to go. And that’s fast forwarding to Wide now because I mean, just acquired the organization within the last few years had been buying into it. And it was finding the right person too. It was a person that I worked with who I’ve worked with for quite a while.
And even when I was at a different firm, he and I still kept contact. Tim is his name, and Tim and I still were in contact, and it was a great relationship and which very symbiotic. And then the other piece was just that ability. I tell everyone, the purpose of my organization is to create environments in which everyone can succeed. It doesn’t mean everybody will, and that doesn’t just mean us. That’s everybody. So my vendors, people I buy stuff from, they have to succeed. Certainly the customers have to succeed. Everybody working here can have a good livelihood and can retire and not have to work somewhere else, and they can be done. We all have to work hard to take care of each other to make that happen. That wasn’t how I felt at these other organizations or that wasn’t how I felt at the organization I was at, and certainly not what I was seeing from the other organizations.
It was a lot of non-collaborative, siloed, top down. We’re going to make people afraid to lose their job, and that’s not what I wanted anymore, and that was never how I interacted with others. Yeah, and it’s easy for me to say all of this. I’m a very small electrical contracting firm. Could I scale this to a billion dollars a year in revenue? I don’t know. I don’t know that that’s possible, but I do know that I was able to make it work like this, and we’re doing okay right now, so that’s good. Yeah. So that was ultimately why now that I’m here and I’m doing it, man, it’s great. It’s real interesting because there’s a lot of freedom in it. Not freedom necessarily to do what I want. I still technically have at least the nine to five. It’s certainly more than that. I own the company.
But now it’s what direction do we want to go in? Who do we want to work with? Who do we want? And not just who do we want to work with? Who do we want to help? And instilling in my team, creating symbiosis, right? I always tell everyone we want to work with people who want to work with us, not who have to work with us. So one of the things we don’t do a lot of public works because in public works, you throw out a number, whoever’s lowest and has the scope, they get that job. Those people on that job have to work with you. It doesn’t mean they don’t want to work with you, but that’s not why they chose you. So it’s about going out building those relationships. So I guess a very, very long-winded way of answering your question, and that punchline is because you can make a difference.
You know what I mean? It’s about adding value for people and for the people who work for me and with me, it’s adding value in their personal lives for the customers. I mean, some of them are doing some really cool earth shattering stuff. They’re next level. We’re here in Silicon Valley, it’s next level tech. It’s pushing into the future. And it’s like, I’m not the guy then invented that, or I’m not the guy that made that happen. But had I not been there to help them come up with this creative solution for how they were going to power it with the power distribution system they had, they wouldn’t have gotten it to market that fast. And it’s just being able to add that value is pretty fricking cool.
Rob Walling:
I’m curious if you could name two or three things about yourself, like personality traits that you believe are responsible for your success or that have highly the 80 or 90%, or you can argue and say, no, I think there’s 20, right? But
Russ Walling:
There’s not 20.
Rob Walling:
Yeah, I know, I don’t either. I think there’s two or three, which is why I said it for me. And I’m curious how you think about that for yourself. You could have done all this and not bought a company, or you could have bought a company and run it into the ground, or you could have not had the relationship with Tim to where he wanted to sell you the company or you know what I mean? There’s so many steps along the last 30 years you could have up, and why not though? Why?
Russ Walling:
So if I’m thinking about these, that perfectionism piece and kind of being the perfectionism was fueled by a pessimism as well, and that constantly being worried about what was going to go wrong. And I had somebody tell me one time, it was a superior at the organization I worked at previously who said, yeah, as project managers we’re professional warriors, and that is true when it was what can possibly go wrong in the anxiety? It was a detriment. Once I turned the corner to where I started to realize, man, I’m really, really good at seeing what obstacles are there, I got really good at removing them. So now if I can just get rid of this bull anxiety there, I’ll be really good. And I likened it to, I was talking to somebody one time, I likened it to a running back hitting holes. Those guys, the guys who are really good, everything’s in slow motion and they see the holes.
I was never a good enough athlete to see that, but that’s what happens for ’em. And I was like, I do that in my professional life. Where I add value is I’m able to see those obstacles and I do understand how to either miss them or remove them. And now all I have to do is just stop being so damn wound up about it that I’m telling everybody to be either terrified of it or that I can’t get out of my own way and just do it. So that was a big one. The other thing is being collaborative. And I didn’t tap into this early enough. What I used to do. I was very selective in who I tapped into it with. And I was afraid that I would be collaborative with people who would burn me. And that was why I wrote those emails that took me forever and that were completely taken rightfully so as being non-collaborative, not antagonistic, but being non-collaborative.
And I was always worried that someone was going to screw me over. And this is one of the things with my organization now that may happen, and I tell my people all the time, yeah, we’re exposing ourself here. Someone could screw us over with this. If they do, the damage will be X, and then we just won’t work with them again. And I was always collaborative by nature. When I ran that big data center job at the previous organization, I was at a point where I was really struggling. I was frustrated all the time, a lot of anxiety. And that was when poker was happening too. And I had my peers telling me, look, you’re too risk averse. You got to get yourself out there. And I thought, man, I have this great relationship with you guys and I trust all of you guys, and I don’t even know you.
I haven’t met any of you, so this is really cool. On that big job. I said, you know what? On this one, I’m just leaving it out there. These conversations that we have, I’ll follow ’em up with a one line email that says, yeah, this is what we discuss. This is what we’re going to do. It’s not going to be a novella. And then being able to turn that corner on that job, everybody loved us as an organization. Everybody that I worked with personally, I got along with them really well. It was a great experience. I was like, wow, this is how it could be if I wasn’t so busy protecting myself and trying to stay in my comfort zone, what it was. Because to me, and this is that failure thing, if I had made a commitment to someone or if I had agreed to something and then I came back and got burned by it, then I was wrong.
I should have seen that. And that’s the perfectionism. And once I got past that, I was just in a much better spot. And the whole point of this is what was so frustrating about that is once I did that, I was like, dude, I’ve been collaborative my entire life. I like to connect with people. I like to talk to people despite the fact that I’m an introvert, I still enjoy those connections. Why was I not doing this sooner? So I think that it’s part collaboration, connection. Yeah, I’m not exactly sure that there’s a single word for it, but that is certainly huge. And then there’s a concept of adding value. I had a guy that I worked with another electrician, and his thing was more is just enough. So no matter what you’ve done, you can always do a little bit more. His thing was with production, if you work for seven and a half hours and you got in way more than you should have, you can still do more.
You can do 30 minutes more. I started taking that and challenging myself with how can I add more value on projects and how can I add more value to teams? And not just up to the customer, but across the board, my team, my vendors, my subcontractors, how can I help everybody succeed? And that’s where the concept of creating environments in which everyone can succeed comes from. But how can I add more value? And along the way, I’ve had these different things that I’ve done and it’s just like, okay, well, for instance, when you have a project, let’s say a kitchen is a big one, there will be kitchen equipment, and then there’s a set of electrical drawings.
Rob Walling:
And just so people know these are industrial at huge office building, you don’t do residential. These are maybe the Facebook or the Google campus. If people can imagine a huge office building with a massive kitchen. So go on from there.
Russ Walling:
Absolutely. These kitchens are huge. They have big pieces. It’s all commercial, high commercial grade equipment. There’s always something that doesn’t make it to those electrical drawings. And usually it’s not a power connection. Usually it’s some type of an interconnect. You have a dishwasher that comes, right, and it’s the conveyor type, and it’s got six different limit switches on it. Well, okay, cool. I can look at those drawings once I get the job and say, none of this stuff was picked up and have a big fight. Or I can look at it ahead of time and say, Hey, it doesn’t look like this is picked up. And just add that value then. And I may not, may or may not get the job. That’s not the point. The point is, by adding that value over time, what I’ve found is people want to work with us and they can’t always, but having people want to work with you is significantly better than having people have to work with you.
And we are a commoditized industry, so you always have to be that best value, low price. So that’s part of the nature of our business, but you can still do it while adding value to people and making people’s lives better across the board. So that’s kind of a big piece is that, and once you start to challenge yourself with that, I want to add value, you come up with some really weird ideas. We had one where we ended up mapping out a bunch of, it was basically a bunch of work to support another contractor. I won’t go into all the details of it, and I gave it to the general contractor, and he looked at it, guy’s eyes got huge. He’s like, what the hell is this? And I said, well, I’ve laid out where we need all these walls cut open. It’s like, I’ve never gotten this before. Usually somebody puts tape on the wall and half the tape gets removed and blah, blah, blah. You know what I mean? But it was just that idea that we did that and the value that it added was huge. And then when I made a mistake later on in the job and the drywall guy could have crucified me for it, he’s like, yeah, you’re good. And so it comes back. So I would say that’s a huge part of it.
Rob Walling:
And I think there’s another one that maybe I would put as your zero because you just named three, right? But I think one that maybe Well, A, I agree with you on all those, and I feel like I have learned those lessons as well through my own entrepreneurial journey. But the thing that I don’t think you mentioned is your willingness to grind and work hard. I asked about personality traits, why you’re successful, and I think that’s foundational. In fact, growing up in high school and college and such, I was not the best athlete, just not that physically gifted. But I worked very, very, very hard. And I took pride in that. And there were very few people that I knew that I considered either at or above my willingness to work hard. It was you and Curtis. Listeners won’t know who Curtis is, but he is my best friend for 10 years, lived with him in college and stuff.
Russ Walling:
Curtis was
Rob Walling:
Above both of us,
Russ Walling:
By the way.
Rob Walling:
I think he was too. Yeah, that dude’s work ethic was brutal, but it was a model for me of being around someone. I’m like, man, I feel like I work hard and I’m proud of myself and this mother. I would do twice the stuff I would do. All that said, though, I Do you agree with that assessment about you that without that you could have these other three things you said, but without. You did literally used to pull all-nighters to estimate jobs. And I would be like, dude, I’m super both impressed and sad for you to have to do it, but you would just do it. What? Because that’s what you just had to do it, and then you’d bid the job and not get it sometimes. And sometimes you get it and you were just like, yeah, this is what it takes. Is kind of I think what we were brought up to say.
Russ Walling:
Yes. So I totally agree that is a foundation, a foundational piece. It’s funny I didn’t bring it up because to me it’s just second nature now, and I’ve got people that I work with that show it, and when they show it, when they do it, I’m really, really impressed with them. And when I do it, it’s just like, yeah, that’s what you got to do to get it done. But yeah, you’re totally correct because if you don’t have that, you’re not going to make it through.
Rob Walling:
I do want to say, people hear me talk about this on the podcast, but I haven’t had that every day of my life. It’s waxed and waned. When I had young kids, I wanted to work less. There are times now when it’s like I can’t do the hours that I used to do. I’m not that old, but I’m a little too old to be working as hard as I was personally when in my twenties and thirties, I just don’t have the energy. I don’t have the desire anymore. So it’s not, and there were times I never worked 70 hour weeks. There were months when I worked 60 hour weeks, you worked a lot of long weeks. Kind of like the startup grind people talk about, it’s the hustle culture in Silicon Valley. That was almost, I would say, almost a necessity in your role to be good at it, to run these huge jobs when you’re just kind of understaffed and you just have to put in the time to do it. Well,
Russ Walling:
One of the dad sayings was, you got to make hay when the sun shines. Which is kind of a really neat sounding way of saying, dude, you got to get the work done. When it’s there, you don’t have a choice. And when you’re on that big data center job was the one where it ground me down. It was a lot of long, long weeks. And you’re doing it for the team at that point. You’re doing it for other people and not other people in a negative way, a toxic way. It’s like, dude, if I don’t get this done, the people who are working for me aren’t going to be able to get their stuff done. Or if I don’t get this done, that guy who’s delivering the generator, he’s going to get pinched. You know what I mean? And that’s not cool. I don’t want to be the guy that made that happen. So it’s having everybody’s back.
Rob Walling:
Yep. Alright, well man, appreciate you taking time to come on the show and walk a little bit down memory lane, talk about motivation and all that. Thanks for spending an hour with me today.
Russ Walling:
Yeah, I appreciate you having me, it’ss. Awesome.
Rob Walling:
Thanks again to Russ for taking time out of his busy schedule. And I mean that honestly, he’s got a lot going on to come on the show and share his knowledge. I really appreciated it and I had a good time recording and I hope that you enjoyed the lessons that we tried to pull out of our experiences. Thanks for listening this week and every week. This is Rob Walling signing off from episode 818, listener, if you made it this far, what’s coming? This is the Hidden track in this episode of Startups For the Rest Of Us where I ambush my brother with trivia questions six in total, I’m going to pick three topics, two questions each. The topics today are Blade Runner, the film Made in 1982 by Ridley Scott, the thing made in 1982.
Russ Walling:
And
Rob Walling:
The third topic is Dungeons and Dragons.
Russ Walling:
Okay.
Rob Walling:
How do you feel equipped? Yeah, I handpicked, these are things you and I have in common,
Russ Walling:
Hopefully giving me softballs here. If I fail at these, talk about perfectionism and feeling like a failure. I don’t get these,
Rob Walling:
If you don’t get all six, you’re just like, rage quit. I’m never going on that podcast.
Russ Walling:
Well, and this teaches me I should listen to a podcast before I go on it, right?
Rob Walling:
Yeah. I only do this with people that I know really well.
Speaker 4:
I
Rob Walling:
Don’t ambush like new folks, so I do it like co-founders and stuff. Alright, so let’s kick it off with the Blade Runner in the final cut of Bladerunner, the director’s cut. Okay, so this is one without narration, which subtle visual cue reinforces the implication. And this is a spoiler. If you have not seen a 50-year-old movie or 43-year-old movie, I guess that Deckard is a replicant. So which subtle visual cue reinforces that implication?
Russ Walling:
So I’ll say unicorn. Part of me wanted to go into some big, well, gaff has the, he says, you’ve done a man’s job, these different animals.
Rob Walling:
Yeah.
Russ Walling:
And in the original.
Rob Walling:
Yeah. Yeah. And then I’ve seen things people wouldn’t believe you wanted to do the whole
Russ Walling:
Thing at the Yes. Roy’s monologue,
Rob Walling:
Man. So this is funny, interjection actually, we were talking, I’m hosting some folks at an Airbnb, friends of mine to play DD like weekend or two from now. And they’re like, what movie should we watch? Because when we get tired in the evening, we just put on a movie and we watched the thing, 1982, we watched the DD movie. And this time someone was like, well, let’s watch Blade Runner. And I was like, well, yeah, this is my cannon, right? These are my films. And I said, they said, oh, you like that film? And I said, I’m going to give you a hint. I literally watched it yesterday and I would watch it again, and I just said yes to watching it. That’s how much we enjoy this movie.
Russ Walling:
So not to drag this out, but here’s an interesting thing. In Android, do Android’s Dream of Electric Sheep, there’s like a, which is the Philip k Dick short story.
Rob Walling:
Yep. That the movie’s based on,
Russ Walling:
There’s like a whole bunch of, is Deckard a replicant? It’s really, really driven home. There’s he and I forget who the other guy is, but they’re giving each other vo comf tests and it’s really heavy. Heavy. That was why the director’s cut was cool of that piece. Right,
Rob Walling:
Right. Because he made it. Yeah. He was able to do that. So I’m not going to ask you this. The other, well, I have, I have eight different questions about blade memory, but one of them is, what is the name of the test? Used to identify replicants and you just answered it, so I’m not going to ask you that. No, you get no credit.
Russ Walling:
You give my one dude, give kids. You threaten my threaten people with VoIP comp all the time. Kids have no idea what I’m talking about.
Rob Walling:
Yeah, yeah. What specific model number distinguishes the replicants that come to earth from earlier generations in terms of emotional development? What model number or number? It’s a
Russ Walling:
Number. Nexus six is the Yeah, that’s what it’s, yeah. And that’s what the replicants that the stories about, they’re Nexus six,
Rob Walling:
Right? Correct. That’s it. Yeah. That’s the question I asked for extra hard questions. These are not as hard as chat. GPT thinks.
Russ Walling:
What would get me is if it was things like the actors’ names or stuff like that,
Rob Walling:
That who did
Russ Walling:
The production. I mean, I know Rucker Hower and obviously Harrison Ford. But yeah,
Rob Walling:
Moving on to the thing, 1982,
Russ Walling:
A movie I watched yesterday and would watch again today.
Rob Walling:
Did you really watch? I watched it like three weeks ago. My problem with both of these movies we’ve talked about this is I’ll be like, you know what? I’d love to see that. Just the opening scene of when the dog’s running and I kick it on and then you smash cut to me two hours later being like, man, I still can’t tell. Is McCready not a replicate? Is McCready the thing or not?
Russ Walling:
And getting ready to watch it again. Right? You’re ready to watch it again? Yeah. Oh, I
Rob Walling:
Can watch it.
Russ Walling:
Yeah.
Rob Walling:
Yeah. Alright. Here’s my question. Why does McCready destroy the and vehicles midway through the film? Wait, McCreedy doesn’t Cha Bte? No,
Russ Walling:
No, no. It’s the doctor.
Rob Walling:
Blair. Blair. That’s right. Not, yeah. Re-asking the question, why does Blair destroy the radio and vehicles midway through the film?
Russ Walling:
Because he’s done, he’s going to kill everybody. He doesn’t want the thing to get to population. There’s that whole scene where he’s looking at the computer and it’s talking about how quickly it’ll take over everyone in the world. I think it’s a year if, yeah, it gives a reason to go back and watch it again.
Rob Walling:
I know to go,
Russ Walling:
Aha, that’s a good question. How soon after first contact with population would. Yeah.
Rob Walling:
Yeah. I like that. Alright, second question on the thing. What real world paranoia or historical fear, is the film commonly interpreted as reflecting
Russ Walling:
Xenophobia?
Rob Walling:
I would say yes. Now the Chad GBT says Cold War Paranoia and Fear of Infiltration.
Russ Walling:
That’s a good one,
Rob Walling:
Which makes sense. It was eighties, but I think xenophobia is honestly an acceptable answer. So, so far you’re at a hundred percent, four of four living up to your reputation Nerd Crab baby. It is. And finally, Dungeons and Dragons. Oh yeah. Who co-created the original 1974 DD Box set alongside Gary Ax.
Russ Walling:
Is it Arnison? It is,
Rob Walling:
Yep. Dave Arnison. Dave Arnison. And then just so you get six for six, I’m going to ask this one in Advanced Dungeons and Dragons, what does Theo stand for?
Russ Walling:
Oh my, that’s extra. So interestingly enough, not only can I tell you what Faco means, I can tell you how to calculate it on the fly because we don’t need this current system to hit Armor Class Zero baby. And then it’s just an adjustment from there.
Rob Walling:
Yep. All right. Well done, man. I don’t know that anyone has ever gone a hundred percent on my trivia. So you really have lived up, your reputation has preceded itself to being a complete nerd. It’s
Russ Walling:
Good. It’s good. It’s good in the best way possible.
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G two I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans, checking for real skills. There’s no time wasters, no guesswork, just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at g2.co/robb. Get a seven day free trial and $1,500 off when you mention startups. For the Rest Of Us, that’s G2 i.co/rob. You’re listening to Startups For the Rest Of Us, I’m Rob Walling. In this episode, I have my brother Russ Walling on the show, and I talk about a lot of things.
We talk about mindset, building blocks of success, overcoming pessimism and perfectionism, the two sides of being motivated to achieve and how that’s a good thing until it’s not. And we view it through the lens of two kids to adults now, but kids that were raised in the same household. And so we have these commonalities that have carried through for our whole lives. And my brother is extremely intelligent, he’s very thoughtful, and he’s hardworking and he’s successful. And he and I chat frequently. We do asynchronous voice chats, and we got on this topic of how did we both become successful? Why is that? What did you have to get over to do that? How were we set up to fail? How are we set up to succeed in this? And so this isn’t a walk down memory lane for us. It is more of an examination of mindset and the mental side of dealing with hard things in order to find success.
My brother himself is an entrepreneur. He owns his own company as you’ll hear us talk about in the episode. And if you remember my story about the Armageddon beer that I kind of anonymized and said that it was my friend who that happened to, well, it was my brother, and you’re actually going to hear the firsthand telling of the Armageddon beer story today. I asked him to tell it. I wanted to see how right I actually got it and the things I missed. And it’s definitely fun to hear it. So I hope you enjoy this conversation. Before we dive into that, I want to remind you that if you are doing between two and 20 million a RR and you are considering selling that you should reach out to a R vol set@discretioncapital.com. Discretion is more than a broker. They’re an m and a advisory and they do an incredible job creating incredible outcomes for SaaS founders.
They can help advise you on the best path for your exit and even look, if you’re doing seven figures, you should reach out and it’s probably not the right time to sell yet these days, so many strategics and private equity are waiting until you’re in that two to 20 range. But definitely reach out to a R if you are thinking about exiting in the next year or two because him and his team at Discretion Capital get some of the best outcomes for SaaS founders that I’ve seen. That’s Einar at discretion capital.com. And with that, let’s dive into my conversation with my brother,
Russ Walling:
Russ Walling, welcome to the show. Thank you. It’s good to be here.
Rob Walling:
It is after 800 something episodes over 15 years. I’m kind of surprised that this is the first time I’ve had any family members on, but especially you, right? We’re about three and a half years apart. You’re older than I am, but you and I have kept in touch and are really good friends and still talk a lot. It’s all async these days, right? Async voice messages. But what got me thinking about having you on the show is we were kind of in a conversation around, it was a combination of hard work and achieving results as well as we’ve known tons of people in our lives, whether it’s friends or family acquaintances, some who’ve been successful, some who haven’t, and you start to see patterns around how they think, how they operate. And there’s always been you and I, obviously growing up in the same household, both being athletes in high school and in college, then going on to work construction.
You run an electrical contractor these days in California, and I did it for a couple of years and then said, I want to do tech stuff. But now we both run our own companies and by all measures, by all accounts, I would say we are both successful. And I’ve known people with very similar upbringings to us who maybe are more successful or less and there are patterns. This is what I do in my day-to-day life, is I evaluate people to hire and start a founders to fund through TinySeed. And so as you and I had started talking just an off the cuff thing, I thought this is a really interesting topic. I think that we could dissect a bit on the podcast, especially given just the history that we have growing up. I think I want to start with this idea of growing up as we were both encouraged to get good grades and we were both encouraged heavily. I would almost say a lot of my value as a kid was excelling at sports.
Russ Walling:
Absolutely, yes.
Rob Walling:
Heavy emphasis on that. And so what I guess as you look back at that experience as a kid growing up together and working hard, we were taught hard work is what it takes to get done. I just feel like that was said all the time, right?
Speaker 3:
Yeah,
Rob Walling:
You have the ability, but without hard work, it doesn’t get you. How have you taken that through your life? Do you think that has impacted you as an adult?
Russ Walling:
So it’s real interesting because now we’re kind of in this new era where there’s people talking about not going to college. And for us, college was 100% going to happen. It was not just happening of the athletics, but it was going to happen because of the grades. That was how you got the good job. That’s changed a little bit, even to a point now with the grades. There’s sometimes I hear parents being less focused on the grades with the kids. And for us it was absolutely drilled into us, isn’t fair. It wasn’t that rigid, but it was definitely an understanding that you would get good grades and honor roll was the baseline straight a’s was where you were shooting. I look back and there are things that, there are ways that affected me that were certainly not positive, but overall it gave me a fantastic kind of base to build from.
And the people that I met and the people that I worked with and the amount of collaboration that’s required to get those good grades, those are skills that you learn. I’m incredibly introverted, so I don’t know that I really would have, I wouldn’t have gained those skills as well or as quickly as I did had I not had to get good grades and rely on others and be part of a team to make that happen. With athletics, you are 100% correct. Competition was a huge thing in our house and sport was the way that you really kind of personified that, right? It’s very simple. The grades are empirical, right? I dunno if empirical is the word I want, but the grades are true. You either got an A or you didn’t, right? And sports is the same thing. You either beat the other team or you didn’t.
And that level of competition, being able to compete at constantly higher levels and the amount of hard work that takes is man, it’s very, very hard to take somebody who doesn’t have the experience of working hard and have them finally figure that out later in life. And it wouldn’t have happened for me, let’s put it that way. No judgment on anyone else. If I hadn’t had that base to build off of, both from working hard to get the grades and working hard in sports, I wouldn’t have that work ethic today. The other thing that sports did is they really helped with me figuring out how to get through things when it sucked, when it hurt physically. I mean, there’s a lot of physical pain you go through. I played football, and you’re basically hurt from day one of practices. I think that’s probably true for every sport.
I think that’s true in soccer and baseball, something’s going on where you’re not at peak health. So yeah, it just takes time. It’s putting in the time and taking the time to get good and to get, and then it’s working through those uncomfortable situations. And then even as an athlete, when you’re not in season, you’re lifting weights, you’re running, I hate running. I always did. I hate conditioning, but it’s something that you do so that you can be great on the field. It really teaches you how to be comfortable with being uncomfortable. And I think that’s a huge skill and didn’t, it’s real interesting. I learned that skill as an athlete and as an athlete I was perfectly comfortable being uncomfortable. I didn’t pull that into my career, my family life, my personal life until much later in life. And that was a huge, if I could go back and do something different, that is certainly something I would do different is understanding how that translated the work ethic I had. And I worked really, really hard at work, putting in hours, grinding it out. I’m staying up all night when necessary to make things happen. But if I had partnered that with the being comfortable with being uncomfortable, those really would’ve worked well together and I would’ve gotten where I am much faster, for sure.
Rob Walling:
Yeah, I agree with you on that. When I talk to startup founders, it’s a non-zero amount of time, or not non-zero percentage of time that I can identify someone as, oh, you played a sport when you were younger, didn’t you? Or maybe you were in the military or you did something that taught you to be okay with grinding is kind of what I say as you run your own business, you have to do a bunch of stuff that you don’t want to do. You have to, and even you’ll delegate it eventually. You can hire it out, but especially in the early days, if you’re bootstrapping in our world, it’s like I just have to do, maybe I don’t like marketing, but maybe I just have to do that to be successful. You don’t want to stay up all night estimating a job that you’re going to bid and then not get the job, but you do it anyway because that’s just what you do.
And some folks write into this podcast and they’ll be like, I want to be an entrepreneur, but I have a pretty nice day job and I don’t really feel motivated to do the thing to grind it. And I typically say, I don’t know how to help you. I don’t know that I can change that mindset. Now maybe you can, someone wrote in at one point and said, oh, we did it easy and we did it over several years and probably got a little lucky and did it. And so that happens. But most of the folks I know who have had success as an entrepreneur and whether it’s in tech or any field, I think have done quite a bit of things that they’re just like, well, this is just what it takes, turning it back. So that’s athletics and what that’s taught us. And I think often about all the stuff that running Track taught me, but I also think back to what you and I learned maybe from our parents and what was instilled there, and it was a work ethic and it was an achievement orientation of get good grades, like you said, and win if you’re going to compete in a sport.
But something you said I want to circle back on, which was some of that probably had a detrimental effect on you, and I know it did to me as well, and I spent decades of therapy undoing a lot of that. But what comes up for you when you think about that?
Russ Walling:
The easiest one for me, and this isn’t just an athletics thing, it’s kind of the entire upbringing. The thing that I brought away from our upbringing that I shouldn’t have is rampant perfectionism. And I can remember a time when I was very young taking a test, getting a 96 or a 97 on the test and coming home, being really excited that I got that score and talking to our dad about it and him saying, well, that’s pretty good, but you may need those three points later in me thinking, okay, so 97 isn’t good enough. And that certainly wasn’t what he was trying to do. And this is one of the hard things in life is when people provide you with information or people provide you with guidance, it’s how you take it and what you do with it and what lesson you learn from it.
Because the right lesson to learn there is don’t ever take anything for granted. I mean, that’s the positive lesson I took. Okay, I have to be perfect. And part of it is me. There’s a nature piece in there too. But from those types of interactions, I had rampant perfectionism. And one of the biggest mistakes, or one of the biggest drawbacks to that rampant perfectionism is that I spent a significant amount of time, I call it now, being an exceptionalist. And there’s rules and there’s exceptions, and most of the time if you follow the rules, you’re in good shape, stop focusing on the exceptions. I spent a significant part, especially of my early career trying to perform in such a way that I managed every solution and every situation. So as an example, an interaction with say a customer in which we went out and we talked about, okay, this is how we’re going to perform the work.
This is what the job looks like, this is what I need. I would write an email and I would spend potentially hours writing some type of email back to this customer explaining exactly what was going to happen, but then I’d go through and think about if he says this clause in such a way, he might come back and say that I owe him more than I’ve put into this proposal. So I really struggled with that, and it wasn’t so much the time sucked, right? Because time is certainly the most valuable asset that we have, but I was kind of screwing up relationships too because I was constantly wary with everyone. It took me so because I was spending so long writing that email for that customer, something I could have gotten to ’em that same day. Maybe it’s two, three days later, and then when it comes through, it’s like, Jim Christmas, we walk this and you’re building out 10,000 square feet of space for me.
Why am I reading a novella? And it crushes. So in trying to solve for all of those exceptions, I’d say I was a huge mistake, and I figured that out now, and I go with the rules rather than the exceptions. And that’s what I teach to my team. That’s what I teach to my kids. And there are always people who are naysayers. And that was the other thing that keeps pulling you back into it, is there’s always naysayers. So one of the things, my little mantras is success exists on the other side of fear. That’s part of that being comfortable with being uncomfortable. And then I always get someone who says, well, yeah, that works great, unless that thing that you’re afraid of is a lion. And it’s like, okay, dude, I’m not changing out lights at a zoo, so I’m not going to run into a lion. So why are we talking about this? Yeah. So because of that perfectionism, I became an exceptionalist. And again, the real problem was it was torching relationships. I was hyper stressed in every interaction. I was treating people poorly and not, I was a bad guy. I’ve always been a very collaborative person, but I wasn’t doing it. I was protecting myself so that I could solve for every exception.
Rob Walling:
So I want to say two things. Number one, the guy who said the lion thing is probably posts a lot on Reddit, totally is my first thing. He’s definitely a Reddit or a hacker news commenter, which is similar perfectionism and what you’re saying. I definitely took away the same thing as a negative. The other thing is I wouldn’t take risks in my twenties. I was afraid to fail. So that 97, okay, well, I’m going to get the a hundred then and now I’m going to get straight A’s in high school and I’m going to get to achieve, and I’m going to try to go to the state meet and win and everything. But as I get out and I start a day job, and then I start trying to be a startup founder, I want to own my own time and all that. I was so risk averse because if failed, I took failure very, very, very hard.
Well, in school, but also especially in competition in track, if I lost a meet that I didn’t think I should lose, that ate me up big time. So I think that fear of failure and that because failure made me feel so bad that I was like, I don’t want to feel that anymore. So what I hadn’t realized is it caged me in. It was like, well, then I’m only going to do things that I know that I’m not going to fail at. I’m not going to do things that I’m bad at. So that’s my 2 cents on that. That leads us into this quote that I say very frequently on this podcast. It’s not every episode, but it’s got to be once a month. And I say, being a startup founder is making hard decisions with incomplete information.
I didn’t know how to do that. I graduated with an engineering degree. You and I both did actually, and came out of school. And I was like, well, I have the equation in my head and I know I need all these variables, and then it spits out an answer, and that’s the right answer, and that’s what I should do. And that’s what school taught. And I came out into the real world and started working construction because dad, just so folks know, our dad was an electrician and a project manager for 42 years. You’re now in the, it’s not the family business, it’s not a business he started, but construction is kind of a family business for us.
And I did it for a couple years and then decided to go do code, but I had to learn to deal with uncertainty and to make decisions without all the information that I wanted. And whether you are a foreman on a job, whether you’re an electrician, whether you’re an estimator, whether you’re a project manager, whether you’re a startup founder, you’re just never going to have all the information. And I guess, how did you, I am not even going to say, do you agree with that? I know you do, but I think the question is how did you learn to deal with that? And then how do you teach people? So folks know you run a construction firm, a contractor, so you have foreman and electricians and office staff and a lot of people that you are mentoring, advising or just managing. So you have to have up and comers. You have people twenties, thirties and forties that you’re teaching skills that, and I’m wondering how you dealt with it and then how you communicate this to other people who have that mindset.
Russ Walling:
So I will say absolutely same experience, incredibly risk averse school just reinforces that, especially with an empirical degree, right? Engineering degree. It’s real simple. You either got the answer right or you didn’t. Right? And to be honest, what saved me, I guess, rescued me from that was the poker boom. So when online poker took off, I absolutely fell in love. There were a bunch of us nerds that started playing it together, really, really cool sharp people, some who had engineering degrees, some who were kids living in their parents basements that were absolute geniuses. And the feedback that I constantly got was, you’re too risk averse. And poker is an imperfect game. If you play the game at all, you can make all the right decisions. And then that wrong card comes on the river and everyone, oh, and then it’s a big thing, and all the poker tournaments that somebody sucks out on the river.
And it’s just that kind of concept of being risk averse, having that pounded into me by my peers and them constantly telling me, you’re too risk averse. That is your problem. And then there’s one, without going too far down the poker rabbit hole, there’s a dude named Phil Gfo, a poker player, and he is, I’ve always admired him, always thought he was kind of a nice guy, just kind of a laid back guy. And the World Series of Poker was the big tournament, and the main event is the one you want to win. And Phil Gfo had a run one year where he got out way ahead, and he just had chips stacked up, and it just eroded away. And I watched him the whole time he played, he smiled, and he was smiling and smiling, and I went back with some of my peers and we were kind of analyzing those hands that he had played.
And he was right most of the time. That’s why he was smiling was because he knew he made the right decision. So at that point, having my peers pound that, you’re too risk averse into me, had kind of helped to cure me of it. But that was kind of the nail in the coffin. But that was the big one where I was like, holy cow, this guy’s dream is crumbling in front of him because every poker player, their dream is to win that tournament, and he’s doing it with full confidence and a smile. What a straight up baller. And just he knew. He knew. And I haven’t had a lot of problems with making those decisions since then. And ultimately too, these decisions that we make, they’re difficult and they’re important, but what’s the worst? What’s the worst that can happen when you make this decision if it goes south? I’ll tell you another story. I ran a project that was the biggest project. I was working for a large electrical contractor. It was the biggest project that electrical contractor had ever run.
Rob Walling:
Is this the Armageddon beer story?
Russ Walling:
Yes. This is the Armageddon beer story.
Rob Walling:
Please tell it. Okay, so I have told this on the show before and people love it, and I left you anonymous, and I said, it’s like a friend of mine because it involves a beer, and I didn’t want your name on it, dude, tell the story because I’m certainly, I got facts wrong and I really want to hear this from your mouth. Yeah,
Russ Walling:
It’s pretty straightforward. There was a cat named Dave Shilling who was, and I’ll name him by name. He was 100% of all the people I’ve worked with. If I could keep working with one person, it would be Dave. He retired, rightfully so, great guy. And he had run some big jobs before. This was certainly a huge step up for me to run a job this size. And it was with a national general contractor who it turned out was a fantastic general contractor, but going into it, we thought, holy cow, these guys are going to be rough. So a lot of angst. And I come in one day and we had a fridge in the office there. We had an onsite office, and I opened the fridge, and I’m like, what the, and there’s food in there. I look at him, what the hell is this?
There’s a beer in there. And Dave says, what? And Dave’s typical kind of goofy way that he was, goofy is not the right word. He was just a happy go-lucky guy. And he’s like, what? And I’m like this. I said, we can’t have a beer in here. Safety comes in. They’re going to kick us all off the job. He says, no, he says that that’s the Armageddon beer. And I said, what’s the Armageddon beer? He says, if this really goes south, if goes downhill enough, you and I are going to sit in that office, open that beer, drink it, drive to the office, and then throw our keys on his boss’s desk. I won’t name the bosses, throw our keys on his desk and say, we’re out of here. And I’m like, okay. Yeah, yeah, yeah. And the other thing that was funny was anybody who’d come in, they’d see the bear.
What’s that? And I’d tell the story and they’d, oh, that’s really funny. But here’s the punchline to it, the big one, we had a time on that job. We had multiple times on that job that things went wrong. The biggest one was we had 16 generators that showed up. We got ’em into place, and it turned out that where they had been stubbed up was 100% wrong. And turned out that wasn’t our issue. But at that time, I didn’t know that. So Dave comes in, he sits down, he says, Hey, I want to tell you this. The generators, all the stub ups are wrong. I’m like, what are you talking about? We’re off by a few inches. He’s like, no, they’re on the exact left corner. They need to be on the bottom. And I went white.
Rob Walling:
So this is poured in concrete. These are right, is huge amounts of pipe poured in concrete to run electrical through.
Russ Walling:
I mean, these are millions of dollars of work to undo. I am thinking if we have to undo this, this is going to be big. Maybe not. Yeah, I mean, as big as the job was,
Rob Walling:
It’s all the profit, all the profit on the job, plus you’re upside down, plus you’re literally losing money to work on this thing for a year or two,
Russ Walling:
And it’s cata. So this is an epic failure. And he looks at me, smiles and says, should I grab the Armageddon beer? But what that did was I went from, oh my Lord, we’re done to, should he grab the Armageddon beer? Are we going to drink that thing and throw those keys on his boss’s desk? And I thought, we can intercept them. We’ll have to leave those existing stubs in place. We’re not going to cut ’em out. We can patch wood. So as my mind’s working, I look at ’em and I say, no, no, let’s think about how we’re going to fix this. And that happened half a dozen times on that job. There were times that he could tell I was starting to lose it, and he would just say, should I grab the Armageddon beer? And every time it was a no. And it was huge just to have that level of his insight into people and his insight into me specifically.
That was pretty cool that he knew people that well. So at that point, again, I always think, would I grab the Armageddon beer? So when I’m making a decision, if this goes wrong, would I grab the Armageddon beer? And the answer is always no. And then when it does go wrong, I ask myself again. It’s been no so far. And then as far as how I convey that to my team, I do my best to be really, really positive with them and let them know you’re going to have to become comfortable with being uncomfortable. And there’s different ways that you do that. Construction’s very fast paced. You have people who are difficult people, and it’s about, okay, but how do we work with them still? Then from a decision standpoint, you’re going to get ’em wrong. That’s cool. Don’t make a mountain out of a mistake.
And that was a mentor that you and I both had who used to throw that one out there. If you make a mistake, it’s okay, right? Don’t hide it. If you hide it, then we have a problem. If it happens and you tell me about it, we can figure out a way to fix it. So that’s really it. And then when it does go wrong and someone tells me a decision they made, and I think, how the heck did you come up with that? How was that your plan? I don’t ever say, how was that your plan? Okay, cool, so let’s fix it first, and then once we get past it, create that space. It’s fixed. Everybody’s feeling better. Okay, now let’s talk about how we got here. What did we do wrong here to make this happen?
Rob Walling:
The reason I’ve told that story, the Armageddon beer story on this show is because I was so impacted by it when you said it, and it felt like a lesson encapsulated in a four minute story. I mean, I was already, I think you probably told that to me, if I were to guess maybe 2018, maybe it was six, seven years ago,
And at that point I had sold, drip was unquote successful. I felt like I had my together and felt I’m a grownup now. And that it really impacted the way that I think about everything professionally, especially, and it’s aside from years of therapy and working on myself internally, that mental model of how bad is this really? Of being willing and able to ask that that’s all that does. Is this really that bad? If it is, the worst case is we just do the thing and we chuck our keys and you can just rates quit and shut the company down. And I’ve had that moment. Everything I’ve done since that time, that 2018 time has been higher stakes with more money, should feasibly be more stressful in everything I did before. And I have been less stressed over the past six, seven years. And it’s a combination of things, as I said, like it’s therapy and it’s just becoming older, becoming more confident in my own abilities. But I have asked myself multiple times as things have gone wrong, is it in my head like, huh, is it time to get the beer? I could just shut this entire company down, just burn it to the ground and I’ll be all right. And it’s a weird level set of, I mean, come on. It’s not that bad. It feels like that in my body that it’s that bad, but it’s not that bad. I love it. And I have definitely gotten feedback about it when I’ve told it on the show.
So you and I ended up both running our own companies, and I’ve started several from scratch, and you acquired a company. Why do you think that is?
Russ Walling:
So growing up, that was something we discussed. We had talked about starting our own electrical contracting firm long, long ago to do our own thing.
Rob Walling:
Oh, yeah, you and I did.
Russ Walling:
Yeah, we ended up going separate ways. I stayed here and you ended up moving on to tech, which I tell everyone was the right decision because I am three and a half years older than you, and I’ll be working for quite a while. And that’s the nature of being in a construction firm. I always tell everyone that no one’s retiring early. We don’t get these big life changing payouts, but we do have nice steady income. You get good relationships, you’re able to provide for your family, and when you do retire, you’re able to enjoy that retirement. But back to the business question, to be perfectly honest with you, it was always something that was there. We had talked about it when we were younger. You were more entrepreneurial than I was as we were growing up. You were always looking for ways to make money, and you were looking for ways to make money that were entrepreneurial, whether it be selling comic books or something of that nature.
And we did a little bit of that together too. But I was always looking at the job. I was going to get the job, and then I was going to work my way up through the ranks, and then I was going to be at the top of an organization if we didn’t start our own thing. And then over the years, what happened for me at least, is I realized that I wanted to have the ability to create an organization that was different than any of the organizations that either A, was working for, or B, were out there. And one of the big things that I looked at was how siloed the construction companies were. And that was always very frustrating for me. And to me it was a simple solution. Why don’t we just share KPIs? And every time I brought that up, I kind of got laughed at or side eyed and it’s like, no, we could totally do this.
That person, the way most construction companies work is the pre-comm people. They are their KPI is. How much work did you win? And it’s like, well, you can win a lot of work that’s not very profitable. And I’m not saying their only KPI should be, how did the job do? But let’s look at that more across the board. And whenever a job went bad, that always came up. How was the estimate? But why aren’t we looking at that when a job goes well and kind of celebrating those wins together? So for me, it was being able to kind of create the direction in which the organization was going to go. And that’s fast forwarding to Wide now because I mean, just acquired the organization within the last few years had been buying into it. And it was finding the right person too. It was a person that I worked with who I’ve worked with for quite a while.
And even when I was at a different firm, he and I still kept contact. Tim is his name, and Tim and I still were in contact, and it was a great relationship and which very symbiotic. And then the other piece was just that ability. I tell everyone, the purpose of my organization is to create environments in which everyone can succeed. It doesn’t mean everybody will, and that doesn’t just mean us. That’s everybody. So my vendors, people I buy stuff from, they have to succeed. Certainly the customers have to succeed. Everybody working here can have a good livelihood and can retire and not have to work somewhere else, and they can be done. We all have to work hard to take care of each other to make that happen. That wasn’t how I felt at these other organizations or that wasn’t how I felt at the organization I was at, and certainly not what I was seeing from the other organizations.
It was a lot of non-collaborative, siloed, top down. We’re going to make people afraid to lose their job, and that’s not what I wanted anymore, and that was never how I interacted with others. Yeah, and it’s easy for me to say all of this. I’m a very small electrical contracting firm. Could I scale this to a billion dollars a year in revenue? I don’t know. I don’t know that that’s possible, but I do know that I was able to make it work like this, and we’re doing okay right now, so that’s good. Yeah. So that was ultimately why now that I’m here and I’m doing it, man, it’s great. It’s real interesting because there’s a lot of freedom in it. Not freedom necessarily to do what I want. I still technically have at least the nine to five. It’s certainly more than that. I own the company.
But now it’s what direction do we want to go in? Who do we want to work with? Who do we want? And not just who do we want to work with? Who do we want to help? And instilling in my team, creating symbiosis, right? I always tell everyone we want to work with people who want to work with us, not who have to work with us. So one of the things we don’t do a lot of public works because in public works, you throw out a number, whoever’s lowest and has the scope, they get that job. Those people on that job have to work with you. It doesn’t mean they don’t want to work with you, but that’s not why they chose you. So it’s about going out building those relationships. So I guess a very, very long-winded way of answering your question, and that punchline is because you can make a difference.
You know what I mean? It’s about adding value for people and for the people who work for me and with me, it’s adding value in their personal lives for the customers. I mean, some of them are doing some really cool earth shattering stuff. They’re next level. We’re here in Silicon Valley, it’s next level tech. It’s pushing into the future. And it’s like, I’m not the guy then invented that, or I’m not the guy that made that happen. But had I not been there to help them come up with this creative solution for how they were going to power it with the power distribution system they had, they wouldn’t have gotten it to market that fast. And it’s just being able to add that value is pretty fricking cool.
Rob Walling:
I’m curious if you could name two or three things about yourself, like personality traits that you believe are responsible for your success or that have highly the 80 or 90%, or you can argue and say, no, I think there’s 20, right? But
Russ Walling:
There’s not 20.
Rob Walling:
Yeah, I know, I don’t either. I think there’s two or three, which is why I said it for me. And I’m curious how you think about that for yourself. You could have done all this and not bought a company, or you could have bought a company and run it into the ground, or you could have not had the relationship with Tim to where he wanted to sell you the company or you know what I mean? There’s so many steps along the last 30 years you could have up, and why not though? Why?
Russ Walling:
So if I’m thinking about these, that perfectionism piece and kind of being the perfectionism was fueled by a pessimism as well, and that constantly being worried about what was going to go wrong. And I had somebody tell me one time, it was a superior at the organization I worked at previously who said, yeah, as project managers we’re professional warriors, and that is true when it was what can possibly go wrong in the anxiety? It was a detriment. Once I turned the corner to where I started to realize, man, I’m really, really good at seeing what obstacles are there, I got really good at removing them. So now if I can just get rid of this bull anxiety there, I’ll be really good. And I likened it to, I was talking to somebody one time, I likened it to a running back hitting holes. Those guys, the guys who are really good, everything’s in slow motion and they see the holes.
I was never a good enough athlete to see that, but that’s what happens for ’em. And I was like, I do that in my professional life. Where I add value is I’m able to see those obstacles and I do understand how to either miss them or remove them. And now all I have to do is just stop being so damn wound up about it that I’m telling everybody to be either terrified of it or that I can’t get out of my own way and just do it. So that was a big one. The other thing is being collaborative. And I didn’t tap into this early enough. What I used to do. I was very selective in who I tapped into it with. And I was afraid that I would be collaborative with people who would burn me. And that was why I wrote those emails that took me forever and that were completely taken rightfully so as being non-collaborative, not antagonistic, but being non-collaborative.
And I was always worried that someone was going to screw me over. And this is one of the things with my organization now that may happen, and I tell my people all the time, yeah, we’re exposing ourself here. Someone could screw us over with this. If they do, the damage will be X, and then we just won’t work with them again. And I was always collaborative by nature. When I ran that big data center job at the previous organization, I was at a point where I was really struggling. I was frustrated all the time, a lot of anxiety. And that was when poker was happening too. And I had my peers telling me, look, you’re too risk averse. You got to get yourself out there. And I thought, man, I have this great relationship with you guys and I trust all of you guys, and I don’t even know you.
I haven’t met any of you, so this is really cool. On that big job. I said, you know what? On this one, I’m just leaving it out there. These conversations that we have, I’ll follow ’em up with a one line email that says, yeah, this is what we discuss. This is what we’re going to do. It’s not going to be a novella. And then being able to turn that corner on that job, everybody loved us as an organization. Everybody that I worked with personally, I got along with them really well. It was a great experience. I was like, wow, this is how it could be if I wasn’t so busy protecting myself and trying to stay in my comfort zone, what it was. Because to me, and this is that failure thing, if I had made a commitment to someone or if I had agreed to something and then I came back and got burned by it, then I was wrong.
I should have seen that. And that’s the perfectionism. And once I got past that, I was just in a much better spot. And the whole point of this is what was so frustrating about that is once I did that, I was like, dude, I’ve been collaborative my entire life. I like to connect with people. I like to talk to people despite the fact that I’m an introvert, I still enjoy those connections. Why was I not doing this sooner? So I think that it’s part collaboration, connection. Yeah, I’m not exactly sure that there’s a single word for it, but that is certainly huge. And then there’s a concept of adding value. I had a guy that I worked with another electrician, and his thing was more is just enough. So no matter what you’ve done, you can always do a little bit more. His thing was with production, if you work for seven and a half hours and you got in way more than you should have, you can still do more.
You can do 30 minutes more. I started taking that and challenging myself with how can I add more value on projects and how can I add more value to teams? And not just up to the customer, but across the board, my team, my vendors, my subcontractors, how can I help everybody succeed? And that’s where the concept of creating environments in which everyone can succeed comes from. But how can I add more value? And along the way, I’ve had these different things that I’ve done and it’s just like, okay, well, for instance, when you have a project, let’s say a kitchen is a big one, there will be kitchen equipment, and then there’s a set of electrical drawings.
Rob Walling:
And just so people know these are industrial at huge office building, you don’t do residential. These are maybe the Facebook or the Google campus. If people can imagine a huge office building with a massive kitchen. So go on from there.
Russ Walling:
Absolutely. These kitchens are huge. They have big pieces. It’s all commercial, high commercial grade equipment. There’s always something that doesn’t make it to those electrical drawings. And usually it’s not a power connection. Usually it’s some type of an interconnect. You have a dishwasher that comes, right, and it’s the conveyor type, and it’s got six different limit switches on it. Well, okay, cool. I can look at those drawings once I get the job and say, none of this stuff was picked up and have a big fight. Or I can look at it ahead of time and say, Hey, it doesn’t look like this is picked up. And just add that value then. And I may not, may or may not get the job. That’s not the point. The point is, by adding that value over time, what I’ve found is people want to work with us and they can’t always, but having people want to work with you is significantly better than having people have to work with you.
And we are a commoditized industry, so you always have to be that best value, low price. So that’s part of the nature of our business, but you can still do it while adding value to people and making people’s lives better across the board. So that’s kind of a big piece is that, and once you start to challenge yourself with that, I want to add value, you come up with some really weird ideas. We had one where we ended up mapping out a bunch of, it was basically a bunch of work to support another contractor. I won’t go into all the details of it, and I gave it to the general contractor, and he looked at it, guy’s eyes got huge. He’s like, what the hell is this? And I said, well, I’ve laid out where we need all these walls cut open. It’s like, I’ve never gotten this before. Usually somebody puts tape on the wall and half the tape gets removed and blah, blah, blah. You know what I mean? But it was just that idea that we did that and the value that it added was huge. And then when I made a mistake later on in the job and the drywall guy could have crucified me for it, he’s like, yeah, you’re good. And so it comes back. So I would say that’s a huge part of it.
Rob Walling:
And I think there’s another one that maybe I would put as your zero because you just named three, right? But I think one that maybe Well, A, I agree with you on all those, and I feel like I have learned those lessons as well through my own entrepreneurial journey. But the thing that I don’t think you mentioned is your willingness to grind and work hard. I asked about personality traits, why you’re successful, and I think that’s foundational. In fact, growing up in high school and college and such, I was not the best athlete, just not that physically gifted. But I worked very, very, very hard. And I took pride in that. And there were very few people that I knew that I considered either at or above my willingness to work hard. It was you and Curtis. Listeners won’t know who Curtis is, but he is my best friend for 10 years, lived with him in college and stuff.
Russ Walling:
Curtis was
Rob Walling:
Above both of us,
Russ Walling:
By the way.
Rob Walling:
I think he was too. Yeah, that dude’s work ethic was brutal, but it was a model for me of being around someone. I’m like, man, I feel like I work hard and I’m proud of myself and this mother. I would do twice the stuff I would do. All that said, though, I Do you agree with that assessment about you that without that you could have these other three things you said, but without. You did literally used to pull all-nighters to estimate jobs. And I would be like, dude, I’m super both impressed and sad for you to have to do it, but you would just do it. What? Because that’s what you just had to do it, and then you’d bid the job and not get it sometimes. And sometimes you get it and you were just like, yeah, this is what it takes. Is kind of I think what we were brought up to say.
Russ Walling:
Yes. So I totally agree that is a foundation, a foundational piece. It’s funny I didn’t bring it up because to me it’s just second nature now, and I’ve got people that I work with that show it, and when they show it, when they do it, I’m really, really impressed with them. And when I do it, it’s just like, yeah, that’s what you got to do to get it done. But yeah, you’re totally correct because if you don’t have that, you’re not going to make it through.
Rob Walling:
I do want to say, people hear me talk about this on the podcast, but I haven’t had that every day of my life. It’s waxed and waned. When I had young kids, I wanted to work less. There are times now when it’s like I can’t do the hours that I used to do. I’m not that old, but I’m a little too old to be working as hard as I was personally when in my twenties and thirties, I just don’t have the energy. I don’t have the desire anymore. So it’s not, and there were times I never worked 70 hour weeks. There were months when I worked 60 hour weeks, you worked a lot of long weeks. Kind of like the startup grind people talk about, it’s the hustle culture in Silicon Valley. That was almost, I would say, almost a necessity in your role to be good at it, to run these huge jobs when you’re just kind of understaffed and you just have to put in the time to do it. Well,
Russ Walling:
One of the dad sayings was, you got to make hay when the sun shines. Which is kind of a really neat sounding way of saying, dude, you got to get the work done. When it’s there, you don’t have a choice. And when you’re on that big data center job was the one where it ground me down. It was a lot of long, long weeks. And you’re doing it for the team at that point. You’re doing it for other people and not other people in a negative way, a toxic way. It’s like, dude, if I don’t get this done, the people who are working for me aren’t going to be able to get their stuff done. Or if I don’t get this done, that guy who’s delivering the generator, he’s going to get pinched. You know what I mean? And that’s not cool. I don’t want to be the guy that made that happen. So it’s having everybody’s back.
Rob Walling:
Yep. Alright, well man, appreciate you taking time to come on the show and walk a little bit down memory lane, talk about motivation and all that. Thanks for spending an hour with me today.
Russ Walling:
Yeah, I appreciate you having me, it’ss. Awesome.
Rob Walling:
Thanks again to Russ for taking time out of his busy schedule. And I mean that honestly, he’s got a lot going on to come on the show and share his knowledge. I really appreciated it and I had a good time recording and I hope that you enjoyed the lessons that we tried to pull out of our experiences. Thanks for listening this week and every week. This is Rob Walling signing off from episode 818, listener, if you made it this far, what’s coming? This is the Hidden track in this episode of Startups For the Rest Of Us where I ambush my brother with trivia questions six in total, I’m going to pick three topics, two questions each. The topics today are Blade Runner, the film Made in 1982 by Ridley Scott, the thing made in 1982.
Russ Walling:
And
Rob Walling:
The third topic is Dungeons and Dragons.
Russ Walling:
Okay.
Rob Walling:
How do you feel equipped? Yeah, I handpicked, these are things you and I have in common,
Russ Walling:
Hopefully giving me softballs here. If I fail at these, talk about perfectionism and feeling like a failure. I don’t get these,
Rob Walling:
If you don’t get all six, you’re just like, rage quit. I’m never going on that podcast.
Russ Walling:
Well, and this teaches me I should listen to a podcast before I go on it, right?
Rob Walling:
Yeah. I only do this with people that I know really well.
Speaker 4:
I
Rob Walling:
Don’t ambush like new folks, so I do it like co-founders and stuff. Alright, so let’s kick it off with the Blade Runner in the final cut of Bladerunner, the director’s cut. Okay, so this is one without narration, which subtle visual cue reinforces the implication. And this is a spoiler. If you have not seen a 50-year-old movie or 43-year-old movie, I guess that Deckard is a replicant. So which subtle visual cue reinforces that implication?
Russ Walling:
So I’ll say unicorn. Part of me wanted to go into some big, well, gaff has the, he says, you’ve done a man’s job, these different animals.
Rob Walling:
Yeah.
Russ Walling:
And in the original.
Rob Walling:
Yeah. Yeah. And then I’ve seen things people wouldn’t believe you wanted to do the whole
Russ Walling:
Thing at the Yes. Roy’s monologue,
Rob Walling:
Man. So this is funny, interjection actually, we were talking, I’m hosting some folks at an Airbnb, friends of mine to play DD like weekend or two from now. And they’re like, what movie should we watch? Because when we get tired in the evening, we just put on a movie and we watched the thing, 1982, we watched the DD movie. And this time someone was like, well, let’s watch Blade Runner. And I was like, well, yeah, this is my cannon, right? These are my films. And I said, they said, oh, you like that film? And I said, I’m going to give you a hint. I literally watched it yesterday and I would watch it again, and I just said yes to watching it. That’s how much we enjoy this movie.
Russ Walling:
So not to drag this out, but here’s an interesting thing. In Android, do Android’s Dream of Electric Sheep, there’s like a, which is the Philip k Dick short story.
Rob Walling:
Yep. That the movie’s based on,
Russ Walling:
There’s like a whole bunch of, is Deckard a replicant? It’s really, really driven home. There’s he and I forget who the other guy is, but they’re giving each other vo comf tests and it’s really heavy. Heavy. That was why the director’s cut was cool of that piece. Right,
Rob Walling:
Right. Because he made it. Yeah. He was able to do that. So I’m not going to ask you this. The other, well, I have, I have eight different questions about blade memory, but one of them is, what is the name of the test? Used to identify replicants and you just answered it, so I’m not going to ask you that. No, you get no credit.
Russ Walling:
You give my one dude, give kids. You threaten my threaten people with VoIP comp all the time. Kids have no idea what I’m talking about.
Rob Walling:
Yeah, yeah. What specific model number distinguishes the replicants that come to earth from earlier generations in terms of emotional development? What model number or number? It’s a
Russ Walling:
Number. Nexus six is the Yeah, that’s what it’s, yeah. And that’s what the replicants that the stories about, they’re Nexus six,
Rob Walling:
Right? Correct. That’s it. Yeah. That’s the question I asked for extra hard questions. These are not as hard as chat. GPT thinks.
Russ Walling:
What would get me is if it was things like the actors’ names or stuff like that,
Rob Walling:
That who did
Russ Walling:
The production. I mean, I know Rucker Hower and obviously Harrison Ford. But yeah,
Rob Walling:
Moving on to the thing, 1982,
Russ Walling:
A movie I watched yesterday and would watch again today.
Rob Walling:
Did you really watch? I watched it like three weeks ago. My problem with both of these movies we’ve talked about this is I’ll be like, you know what? I’d love to see that. Just the opening scene of when the dog’s running and I kick it on and then you smash cut to me two hours later being like, man, I still can’t tell. Is McCready not a replicate? Is McCready the thing or not?
Russ Walling:
And getting ready to watch it again. Right? You’re ready to watch it again? Yeah. Oh, I
Rob Walling:
Can watch it.
Russ Walling:
Yeah.
Rob Walling:
Yeah. Alright. Here’s my question. Why does McCready destroy the and vehicles midway through the film? Wait, McCreedy doesn’t Cha Bte? No,
Russ Walling:
No, no. It’s the doctor.
Rob Walling:
Blair. Blair. That’s right. Not, yeah. Re-asking the question, why does Blair destroy the radio and vehicles midway through the film?
Russ Walling:
Because he’s done, he’s going to kill everybody. He doesn’t want the thing to get to population. There’s that whole scene where he’s looking at the computer and it’s talking about how quickly it’ll take over everyone in the world. I think it’s a year if, yeah, it gives a reason to go back and watch it again.
Rob Walling:
I know to go,
Russ Walling:
Aha, that’s a good question. How soon after first contact with population would. Yeah.
Rob Walling:
Yeah. I like that. Alright, second question on the thing. What real world paranoia or historical fear, is the film commonly interpreted as reflecting
Russ Walling:
Xenophobia?
Rob Walling:
I would say yes. Now the Chad GBT says Cold War Paranoia and Fear of Infiltration.
Russ Walling:
That’s a good one,
Rob Walling:
Which makes sense. It was eighties, but I think xenophobia is honestly an acceptable answer. So, so far you’re at a hundred percent, four of four living up to your reputation Nerd Crab baby. It is. And finally, Dungeons and Dragons. Oh yeah. Who co-created the original 1974 DD Box set alongside Gary Ax.
Russ Walling:
Is it Arnison? It is,
Rob Walling:
Yep. Dave Arnison. Dave Arnison. And then just so you get six for six, I’m going to ask this one in Advanced Dungeons and Dragons, what does Theo stand for?
Russ Walling:
Oh my, that’s extra. So interestingly enough, not only can I tell you what Faco means, I can tell you how to calculate it on the fly because we don’t need this current system to hit Armor Class Zero baby. And then it’s just an adjustment from there.
Rob Walling:
Yep. All right. Well done, man. I don’t know that anyone has ever gone a hundred percent on my trivia. So you really have lived up, your reputation has preceded itself to being a complete nerd. It’s
Russ Walling:
Good. It’s good. It’s good in the best way possible.
Episode 817 | Bootstrapping in the Age of AI with Jason Cohen
/
RSS Feed
How would a 2x unicorn founder build his next startup with AI?
In this episode, Rob Walling sits down with Jason Cohen, founder of SmartBear and WP Engine, to talk about building billion-dollar businesses, the future of AI for founders, and what makes small companies thrive even when the odds are stacked against them.
They dig into the early days of WP Engine, how Jason develops his frameworks, why execution beats ideas, and Jason’s framework for identifying “hidden multipliers” small, systematic changes that make an outsized impact.
Episode Sponsor:
Hiring engineers shouldn’t feel like sorting through AI-polished resumes.
G2i cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with 5+ years of real experience, and they run live, human-led technical interviews to verify actual skills.
No time wasters. No guesswork. Just solid developers who can deliver.
G2i is trusted by companies like Meta, Microsoft, and countless bootstrapped founders who need to move fast without making expensive mistakes.
👉 Get a 7-day free trial and $1,500 off when you mention Startups for the Rest of Us at https://www.g2i.co/rob
Topics we cover:
- (03:45) – The core idea behind Hidden Multipliers
- (09:24) – Writing as a way of thinking
- (12:34) – Why sharing your frameworks matters
- (14:14) – The origin of “Designing the Ideal Bootstrap Business”
- (18:10) – The hidden weak links in every startup
- (21:25) – De-risking and niching down effectively
- (24:56) – Why narrowing your focus expands your reach
- (26:24) – Building WP Engine in a commodity market
- (29:37) – Out-executing funded competitors
- (31:52) – Finding product–market resonance through pricing
- (32:40) – How brand actually develops
- (37:54) – Building in the age of AI: pitfalls and opportunities
- (41:52) – The three categories of AI startups today
- (46:02) – Why 10x improvement is the new baseline for differentiation
- (49:19) – The real moat in the age of AI
Links from the Show:
- MicroConf US 2026 – Portland, April 14–16, 2026 Promo Code: Rob50 for $50 off
- The SaaS Playbook
- PREORDER Hidden Multipliers by Jason Cohen
- Designing the Ideal Bootstrapped Business with Jason Cohen
- A Smart Bear Blog
- Jason Cohen (@asmartbear) | X
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. You’re listening to startups for the rest of us. I’m your host, Rob Walling. In this episode, I talk with Jason Cohen. You might know him online as a SmartBear. He’s been blogging for almost 20 years at a smartbear.com.
He has started two unicorns, including WP Engine, of which I was an angel investor. It was my first ever angel investment back in 2011. And Jason has just been a longtime supporter of MicroConf and now TinySeed. He has given several talks at MicroConf, including one that is widely considered to be the best talk ever given at a MicroConf, and I think it’s the best talk ever about bootstrapping startups. And we talk about that in this episode. I actually struggled to title this episode because we talked about so many topics, including mistakes founders make in the early days. We wrap it up with a discussion about AI and where Jason feels like the opportunity would be if he was starting over today. But in the end, we cover some meaty topics and Jason is just so thoughtful and deliberate in his thinking and so clear in his thinking.
I have infinite respect for him and it was a pleasure to have him on the show today. Jason’s actually going to be speaking at MicroConf US and Portland in just a couple months. Tickets are selling fast and we will sell this event out. MicroConf.com/US if you’re interested. And the promo code you’ll want to use is Rob 50 for $50 off. And with that, let’s dive into our conversation.
Jason, Cohen, welcome to the show.
Jason Cohen:
Hey, thanks for having me. It’s always great to talk.
Rob Walling:
It feels criminal that this is your first appearance on startups to the rest of us.
Jason Cohen:
I know. I don’t understand. Maybe because I was busy the last 15 years. I
Rob Walling:
Don’t know. Yeah. What have you been up to, man, growing another unicorn? No, it really … I mean, you and I talk often enough that I just … And you’ve spoken at MicroConf so many times that it just feels like you’re a staple in the ecosystem. And when producer Ron and I were talking, it was like, how has Jason never been on the show? It’s not great.
Jason Cohen:
Well, I mean, you’re an angel investor in WP Engine, so you’re probably happy that I stayed focused on that instead of doing podcasts.
Rob Walling:
Heck, yes, man. That bought our house, paid cash for our house. It was great. So a lot of folks will be familiar with you as the founder of WP Engine, as well as SmartBear, which was the software company. And before that, both are unicorns at this point. And you’ve been a longtime blogger at asmartbear.com. Hundreds of essays, if I were to guess. But what did I miss in that intro? How else would you like folks to know who you are and what you do?
Jason Cohen:
I think that’s good.That’s my best work.
Rob Walling:
Well, that’s your best work in the rear view mirror. I want to call people’s attention to hidden multipliers at hiddenmultipliers.com. It’s your first book that you have for pre-order right now.
Jason Cohen:
That’s right. Yeah. So I’m not here to promote it. Although maybe we can do another one where I am there to promote it. I don’t know. But yes, I’ve been writing for 18 years, like you said. But one of the things I felt was I’ve been writing on all these topics, but there’s no central idea. There’s no central framework. It’s just a bunch of random stuff. And so when things would come up in conversation or online or whatever, and I would say, “Oh yeah, I wrote about that over here. I wrote about it. ” It’s so scattered. And people would say things like, “Do you have just stuff about marketing?” And I’m thinking, “Yeah, kind of scattered over a million things.” It’s not very accessible. So the purpose of the book wasn’t just to take every idea and make it organized, but rather I thought, I wonder if I do have any central concepts.
Do I have a philosophy? I don’t even know. And so for maybe a year, I just thought like, “I don’t know. I don’t know that if I have one.” And so I didn’t want to just write an anthology. But then there was this common thread I found in at least a lot of the things that I think, which is that there’s these small things that make an inordinate difference in companies. And of course, every company’s different and all that, so all those normal things apply. But there’s some things which are systematic and mechanical about how companies work or how people buy things or how human nature is, how teams work, something or even about AB testing and the math behind that, like certain things which are true because they’re built into how it normally works and that’s why these things where a small change can make a big difference.
That’s why that’s so, I don’t want to say universal, it’s not, but so common because it’s based in some systematic fact about the world or how things work. And then another criteria I found that was interesting is, of course, if you can raise money or apply a lot of new money and teams to something, there’s many possibilities and that’s good. Maybe you should do that. But most of the time we have a team, we have a budget and we need to do things within that team and that budget. So if the feeling is, “Man, I’m not growing as fast as I want or I’m not as profitable as I want or I’m not getting this or that goal that I want. ” Usually the answer is not, “Oh, I got to go raise bunch of money.” Almost always, even if you have raised money, that’s usually not the answer.
Usually it’s like, but we have people doing stuff, even if it’s one person and surely we could be doing something a little bit better. So this was this extra criteria that I thought was interesting to add on top of this small things make big effects. It’s systematic so it’s usually true. You can pretty much rely on it. And this idea of, I’ve got to do it with my current team and budget. So it has to be doing something differently, but not some kind of big investment or something like this. And I found that there were these things which fell into this category. So that’s how I defined this idea of a hidden multiplier, multiplier being this notion. And then hidden is another funny word. Sometimes these things are hidden just because you didn’t know it. Sometimes you did know it, but it’s on a to- do list with 10 things and you didn’t realize how important it was.
So it’s hidden in that sense. I once had a great strategist tell me, a lot of times what’s wrong with a strategy is not that we didn’t know something, it’s that we didn’t realize how important that thing was. So these can be like that. Or maybe you did know it, but you didn’t know what to do or you were scared to do something about it. So without an explanation of what do I do, it just sort of hangs out there. And the form I see that in is people will say, “I already knew that. ” And then you look at their actions and you’re like, “Well, you’re not acting like you know that. ” So it’s like effectively you don’t know that, right? And so that’s what I mean by hidden. Somehow or another, you’re not taking advantage of it. So that’s what this book is, is like 10 of these hidden multipliers, one per chapter, just going in great depth, of course, about what is it, motivating it, proving it with examples, and then saying, of course, what to do.
Rob Walling:
And I was surprised to hear that this is majority new material that you obviously use some concepts and ideas from your blog, but you’ve been hammered on this original work for what, a year now.
Jason Cohen:
Yeah. I didn’t want it to just be an anthology or mix or rehash of the blog. But obviously there’s some stuff in there that is in the blog because these are … I’ve had certain ideas in the last 18 years, some of them are good. And so that’s only natural. But yeah, I didn’t want it to just be a rehash.
Rob Walling:
There are a lot of founders out there that are successful and they never, but they aren’t public about their thought process or their mental frameworks. And maybe they don’t have any. Maybe they just figured out in its instinct, maybe they get lucky, whatever. Then there are folks that are successful and they are public about what made them successful. And then there’s two camps there. I’ll see someone do a talk and they’ll say, “This is why I was successful.” And you’re like, “No, it’s not. ” You’re full of shit. Either you’re lying to yourself or you’re lying to me, like you’re delusional. But then there is this small, small camp of folks, and this is all arbitrary designation based on my opinion or your opinion, who have found success and think critically about what they’ve done and try to extract higher level learnings that go beyond just their end of one or two and that tend to … When you hear what they say, Paul Grahams, one of these guys, Joel Spollsky, yourself, when you hear what they say, you’re like, “Yeah, no, that generally tracks.
That’s a really unique insight that sounds obvious in retrospect, but no one has said it in that way before.” So I totally put you in that bucket and it’s very rare. There are not thousands of these people in the world in the startup space. Maybe there are hundreds. I don’t know if we were to quantify it. So I guess I’m just wondering how you got there. Have you always been a critical thinker analyzing your own behavior and what’s going on around you and trying to framework things or did this kind of evolve for you as you were starting companies or like, “Oh, I’m learning a thing and I should just share that with the world on this blog that you started in what, 2007 or 08?”
Jason Cohen:
Right. For me, writing is thinking and I have this drive to teach. Both my parents were teachers. I think it’s literally in the DNA. And of course, we all know that if you want to learn something the best, you teach it. On the other hand, can you teach something you’ve never done? A lot of people do. This is just not me. So I think that’s another reason people like it is at least this came from experience. And so what generally happens is I’ll have a thought either because I observe it in some other company, I observe it in our own company, we’ve learned something, something went wrong, something went right, and that’ll give me an idea for a thing like maybe it’s a framework or a concept or a story or something. But in writing it out, I often find, wait, maybe that’s not right or maybe I don’t even agree with myself and I haven’t even published it yet.
Or maybe I do like it and I’m just even more excited about it because, oh look, I’m finding other examples. I don’t know, I could get more excited. So I mean, I have hundreds of things in draft that I’ll never write because I don’t actually believe it or I haven’t figured it out well enough. I haven’t sorted it out well enough for myself to put it out there. So a lot of these things are, oh, it seemed to be right. We wrote it down, then we tried it at WP EngineSay, especially if it’s a framework. We probably, I mean, I can name them where we did, we tried it and then we iterated on that and we tried it again with a different team and then we iterated. And so the result when it comes out, it’s like, wow, this seems really thought out. It’s like, yeah, that’s because we actually did this and iterated on it and I tried to explain it as best as I could.
And if you write for a long time, maybe you’re better at writing, hopefully, right? So okay, now I can do that. So yeah, often that’s where that comes from. Having said that, I don’t think the goal, at least not for me, is to convince everybody that I’m right. It’s equally valuable if someone reads an article of mine and says, “This is total crap. I don’t believe this at all. I believe the opposite. No, it’s this. ” That’s perfect because what’s happened is you’ve gained greater clarity on what you do believe, what is your philosophy or your values or how you operate or what’s important or how you … Something important you’ve now gotten greater clarity on because I was a foil that was not what you thought and that led you to what you do think in greater relief and that will make you better, make you stronger and clear in whatever direction you’re going.
So to me, the goal is that, this kind of like, “Ooh, now I think X or now I’m clear on Y.” That’s the goal, which is not the same thing as agreeing, right? So that’s fun. Obviously there’s like, I don’t know, a constructive and not constructive way for people to say that online, you get both. But I love it when people have the opposite view. Also, we all know that for every piece of advice or observation of business, the opposite is true of some companies are successful and both it and its opposite are true of companies that fail. We know that all four of those are populated with companies, populated with examples. And so once again, there’s no way I’m going to think that that means I’m right all the time. But again, if someone can get clarity, that’s really useful. So how do you do that?
You have to say something useful, something real, something specific, hopefully in a way that’s relatively well put so that it’s enjoyable to read. And by doing that, hopefully someone will get something out of it.
Rob Walling:
I’m curious, a lot of this stuff that you write about has to come from firsthand experience because you’ve started four companies, two are unicorns, but you’re also an angel investor and an advisor. Were you kind of a founding member of Capital Factory in Austin? Am I remembering that correctly? So you’ve been exposed to dozens, if not hundreds of startups. Do you feel like more of your knowledge and information that you share comes from your firsthand experience or from the experience with other companies advising on the internet or otherwise?
Jason Cohen:
I would say when it comes to specific things like this decision framework or this prioritization or this workshop, that’s coming from WP Engine. That’s coming because we tried things and this seemed to be something that worked for us or for some teams. And so that seemed worth sharing. When it comes to more strategic or high level long reaching things, some of that’s experienced my own experience, but a lot of that is like, oh man, I’ve seen this like 20 times, which obviously doesn’t mean I saw it in my own one to four examples. So the 30th time you hear someone pitch something and you go, “Oh my God, that’s coming from a breadth.” So I would say where personal psychological stuff obviously starts from myself, but a lot of that is in talking to other founders where there’s certain kinds of things where 80% of the time that I share, “Oh yeah, I felt like this or I felt like that.
” And almost all the time the other person’s like, “Oh my God, I thought it was just me or I can’t believe you’re admitting that. ” And that again is some kind of, not universal, but pretty useful, good truth there. That’s coming from talking to other people, right? That’s the only validation that it’s not just me.
Rob Walling:
So you have what I believe is widely agreed to be the best microConf talk that’s ever been given. And I know I make you blush when I say this,
But that you mic dropped with this talk back in 20, I don’t remember if it was 13 or 14, but it’s called Designing the Ideal Bootstrap Business. And I was in the room when you gave that talk. And I was holding my head, I was like, “Oh,” as you were giving it, and then you got done and I turned to whoever was next to me and I said, “I don’t think I’ll ever give a talk that good. That’s the best talk I’ve ever seen.” It was huge and I’m serious. And it has lived on and I still believe I was trying to pull it up on YouTube right now, but I believe it might be the most popular talk on our … Yeah, of course it is. On our entire, what used to be the MicroConf channel has now been renamed to Rob Walling, but 510,000 views.
Jason Cohen:
That’s awesome. Here’s something funny about that, which should be inspiring to you or to the listener and to myself when I’m thinking about things like my own book, which is I thought that that talk was haphazard. It didn’t have a good arc, it didn’t have like a narrative arc. I felt like I did have a good personal emotional close to it, but I didn’t feel like it came for full circle. I felt like it was a shotgun of different ideas rather than like a conceptual framework, a tree with branches. Instead, it was just like stuff everywhere. So I felt when I made it, I am confident that the individual ideas here are useful. So I think this talk will be useful. I just don’t think it’ll be good in … I mean, literary is too strong a word, but good in sort of these other kind of structural ways like a Seth Godin talk is, for example.
So I was like, “Oh, well, hopefully being useful is good enough, especially for this audience, which I think it is. ” And yet, as you say, people loved it anyway. And so one of the lessons for me about that meta fact about it is I think when it comes to things that are more on the art side of things, going with what you just feel, what you are passionate about and the things you’re excited about, that’s actually good. That’s what people are here for. Probably every single idea in that talk you can read a blog post about somewhere. So that’s not really about everything’s a brand new invention. Although there were certain things in there that I, at least at the time, I hadn’t seen elsewhere, but they probably were elsewhere. I just hadn’t seen it, but it was more the exposition. So when I think about my book, there’s certain things like maybe it’s too long.
Maybe I go into too much detail about certain things. I don’t write like Hemingway. I use long sentences and semicolons and M dashes. I don’t have tiny little sentences and I don’t write for a fifth grader and all that stuff. So is that bad because quote unquote, that’s what a business book should be, unquote, right? Well, I don’t. And so I think on that artistic side of things, I’m comfortable saying, “Well, I’m going to go with what I am.” And that talk is a good example of that for me.
Rob Walling:
Yeah. And it’s inspired a lot of folks. I mean, I hear people mentioning it on podcasts and on Twitter to this day. So if folks haven’t watched that, it’s on YouTube and they should go find it. But I kind of want to contrast that or attach that to an essay you wrote called, Excuse me, is there a problem? Because in your talk about designing the ideal bootstrap business, there’s some filters for kind of finding an idea and finding the right type of business for bootstrappers, right? But if someone has a business that checks all those boxes, it’s recurring revenue, it’s a good market, there’s maybe no enterprise sales. If folks are solo, in your essay, excuse me, is there a problem, you show that maybe that’s still not good enough.
Jason Cohen:
Yeah, it’s not. I mean, there’s so many things that have to go right for any company to work, right? And you’re right, that talk doesn’t cover them all and maybe it’s too hard to. But yeah, what about, it has to be possible to get to the customers. Even if there is a problem to be solved, can you find them and can you find them cheaply enough in the noise that is the internet? And then when you find them, can you convince them to buy you instead of the other 20 alternatives they could buy? What about your own psychology? Are you going to be able to last three years or are you going to crash out? So kind of no one article, I think, maybe a book length thing could do it, I don’t know, but no one article is going to capture the many things that have to go right.
And so what do you do with that fact that many things have to go right? How should you react to that? So I think first of all, whatever is the weak link or one or two weak links, you really have to decide whether that’s okay and you have such overwhelming strength in some other areas that you can survive anyway or whether you really need to do something about it or it’s even a deal breaker. So let’s say the overwhelming weakness is the market’s very small. There’s only a hundred people that have it. Okay. There are certain overwhelming other things that could still make that okay like, well, it’s only just me, so I only need a couple of customers and those few people pay insane amounts of money. And I’m okay with the fact that if I lose one customer, the company might be over.
And you can go down the line. And I already know who all hundred are because my co-founder has worked in the industry and literally knows 70 of the hundred people already to call. So there could be this overwhelming other thing that makes it okay. So again, there’s no absolutes in this business, right? But if there is a dramatic negative, there had better be some kind of … The question is, what else is true that makes this okay, that makes this still viable? And if you can’t really answer that, you’re like, “I don’t know, we’ll have good features.” It’s like, okay, then that’s not an answer.That’s what everyone says. So another thing is to tackle that thing first. So let’s suppose you’re like, “Well, I have this great idea for a product that would be really cool, but I’ve never done marketing before, so it’s hard for me to get customers.” Well, the typical thing an engineer does is go work on the product because it’s fun and you know how and it’s kind of why you’re doing this in the first place and all that.
It’s exactly the wrong thing to do because the limiting factor here is, can you find customers? And if you build the product, you will have made no progress whatsoever on the question, can you go find customers? I know you can build a product, you’re an engineer. I just assume you can build a product. So doing so doesn’t help at all. It doesn’t de- risk the company at all. It doesn’t eliminate one of these at all. So instead you should be going and finding customers. You can then interview them and find out better what to build. And anyway, prove out to yourself that this weakness is not so much a weakness after all, and it won’t be a deal breaker after all because it’s not as bad as it seemed like it was. So there are a couple of things. It’s not the only things, but those are a few things you can do with this fact that it takes many, many things that are all an and.
So probabilities that get multiplied, and that’s very bad because even if the probabilities are reasonable, like 70%. Yeah, but if you multiply 10 of them, the probability is really low. And by the way, a lot are not 70%. They’re like 10. And so why do a lot of companies … Why do most companies die? That’s why because all these things have to go right. And okay. So again, can you tackle the low things first and de- risk them or see whether that really is a deal breaker or not? Can you overwhelm some with outrageous other things? That’s good. Niching down is another one because it starts making the answer to some of these better. Am I the best product? Well, if the market is enormous, almost for sure not, but if I said, yeah, but for this exact customer, oh, maybe you can make literally the best product as defined by the customer if you’ve niched down enough.
So that’s part of why you and I and many people say niche down because it allows you to be the best in fact and make some of these numbers and things get better. The market size gets smaller, but some of these other factors get better. That’s good.
Rob Walling:
Yeah. In terms of niching down, I get asked the question, when should I niche down? How do I know if I should niche down? What are factors that you think about when a founder’s trying to be like, should I be horizontal? Should I pick a niche? Should I pick three verticals to start with and see what’s your framework for that?
Jason Cohen:
With the caveat that of course it has to depend on what’s going on. I think you should always be focused on as narrow of a ideal customer profile as you can. But I think when people hear that, they think, “Oh, but that means I’m selling only to them and the rest of the market is off limits and that’s too limiting.” And I don’t believe that. In other words, when people say niche down, I think they either think, “I can’t talk to anyone else or I can only sell this market.” And that’s not how I observe it actually works. The way it actually works is you find this niche and you find this ideal customer and you talk only to them. And because you’ve been so specific, you can be so compelling with things like your advertising and your homepage message and what the price is and which features you choose to build because it’s so clear who you’re building for because you’ve narrowed it down so much that you know how to thrill them.
So the first thing that happens is at least those people when they hit your website, they’ll know. So you can at least sell them.That’s a start because if you’re not that specific, you never get that benefit. That’s not good. But what else happens is most of us are not the ideal customer for any product and yet we buy them. So what’s happening? What’s happening is we see the product, there’s things that we consider to be strengths of weaknesses, which by the way, other people disagree what’s a strength and what’s a weakness. So you can’t even just say a low or high price is a strength or weakness. It depends on the observer. If I’m a consumer and it’s a high price, I probably don’t like it, but if it’s a luxury brand, I only like it if it’s a high price or a business may not want to buy a cheap piece of software because they just assume it won’t do what they need or the company will be gone.
They’re only happy if it’s cost more. So is a high or low price of weakness. Again, it depends on the observer and that’s just true of almost everything. So what’s actually true is that your ideal customer sees the things that you are as strengths because of who they are and the things that you think are weaknesses they either don’t care about or they even are happy about it like a high price is sometimes like a good thing. So that’s the ideal customer, but everyone else, they’re still going through some sort of pros and cons or trade-off analysis and many of them will still pick your set of trade-offs. And because you are so specific about what you are, the trade-offs are clear. And when the trade-offs are clear, people are more willing to accept the weaknesses. And there’s data on this, which is very interesting.
For example, products that have negative reviews that are specific about what is negative about the product have higher sales and fewer returns than other products with the same rating like 4.1 stars or whatever. Why? Because you were able to see what the weaknesses were and you can either decide, well, then I’m not buying it, which is fine, but if you do buy it, you already knew what it was. So when it comes and it has this thing you don’t like, you knew that. You already decided it was okay, so you don’t return it. And the fact that you know what it is instead of just like, geez, I don’t know what’s good or bad about this. The fact that you know what it is gives you more confidence to move forward. So that’s just all a long way of saying, wow, if I’m very specific about what I am, then my ideal customer will definitely buy, which is already a reason to do it, but like a hundred times larger market than that, will see that specificity as a reason to buy your set of trade-offs, even though they’re not quote unquote ideal and they buy anyway.
So that’s a very long way of saying, that’s why I think everyone should niche down in this sense of having this narrow view of who you’re perfect for and staying focused on that because you won’t just sell there. So not niche down in the sense that that’s the only customer you’ll ever accept. That’s not what I mean. It’s the best way to get more customers. Now, of course, over time, you can expand what that is. When WP Engine first started, we were only for like small business, maybe medium sized. A lot of times it was going through freelancers, sometimes direct. And sure, four or five years in, we saw some more appetite from larger companies, but not for their homepages like it was for small and mid-size companies, it was for like campaigns in some country or something like this. It was a different use case for them.
And it was large enough that we thought, oh, let’s actually spend tens of millions of dollars over a couple of years on sales and marketing and this and this and that to actually enter that with this other message and it was successful. But that was years later and it was an intentional thing and it was because, right? So of course you can expand that as you scale and you can apply more things to it. So you can do that. But even to this day, we have specific types of things that we focus on and we have more of it, but that’s because we have a thousand people and we can do that. We have the capacity to have a few things. So that can be in your future, but that’s why I say yes niche down, but maybe not the way you were thinking where you’re super limited by it.
Rob Walling:
I mean, you started talking about WP Engine and I want to go back to the early days when you were starting it because you basically built a billion dollar company in what we might call a commodity space of hosting and you’re hosting WordPress, which is an open source thing. So anyone could have spun up exactly what you were doing with WP Engine.
Jason Cohen:
And they did.
Rob Walling:
And they did.
Jason Cohen:
There’s like 20 or plus competitors easily.
Rob Walling:
Yeah. So how did it work? How did you get ahead? How did you beat out all these other people who had the same idea or who were copycats or whatever? And part of this is that these days, if I were to start a startup right now, if I were to build a SaaS company, you know that you could at least half ass vibe code that in a few weeks, right? If I only spent a few months building it. So it’s this thing of like, well, the tech is not a moat and your tech was not a moat at the time, or at least the underlying hosting and such. So how did you win? How did you do so well with this?
Jason Cohen:
Yeah. I mean, and as we were just saying earlier, it can be hard to tell. And I think one of the reasons why I’m somewhat credible in how I write is I’m never quite sure, is this really the reason? Did we win in spite of this or because of this or was it just that … And I also don’t know. And in fact, I’ve even written about how I don’t know. So it’s all like on offer as things that seem good, but the listener will have to decide for themselves what fits in their own mind and feels good. But my best idea is the following. The idea of managed hosting, which means it’s 10 times as expensive, but it’s also like multiple faster … The site loads multiple faster, like four times faster. We used to have a shirt. My blog is four times faster than your shirt was our first marketing swag.
And things like security and service were also like really good compared to the cheap shared hostings, and it still is. So it was pay more, get more. And a shared hosts are just not designed for that. So to this day, they don’t really have that. But a new company could be … I think one of the things that you can do is when other people think it’s dumb or impossible, but it’s actually is possible, that’s usually … It’s not a moat because anyone could do it, but they don’t. So it’s a funny kind of a moat. We think of moats as it’s impossible for someone to do it, but there’s also like they just choose not to for various reasons. It could be ideological, it could be cultural. So the fact that we had great human support is something that like no VC wants you to have that because that’s expensive and it comes out of your gross margin.
Maybe it means you’re quote unquote not a software company because your gross margin’s less than 70%. So an emphasis on service is something that like a funded company doesn’t want to do ever. In fact, if you look at our funded competitors, none of them have that. So the fact that we did do it, it’s not that they couldn’t have copied us, it’s that they wouldn’t have because it wasn’t in their nature, their culture, et cetera. In competitive analysis, we often think about their business structure or their features or their architecture and that you’re right, but the culture and attitude does matter too. Let’s not forget that companies don’t change that very often. And if they try to change it, they often fail to change it, right? Whether you want to call that a mode or not, I don’t care, but it’s a thing that prevents that kind of competition.
Another thing is we were really, really good at execution. Now, traditionally, you don’t consider great execution a moat because again, you can’t stop someone else from having great execution. So it’s not really a mode. On the other hand, if you have great execution and most don’t in your field, that’s a reason to win. And there are certain fields where that’s not the case because everyone’s really good But like AI, in hard tech AI, everyone’s pretty good. So it’s not true that, I don’t know, Clog can simply out execute open AI.That’s not how you would think about it. But there are other fields and hosting was one and maybe grocery stores is one where you don’t want to say nobody, but almost nobody has any kind of innovation or will to do that or ability to do that or the culture to do that or whatever you want to say.
And so if you execute really well, I mean, there just isn’t other people doing that. And so that was one of the things. So when you have, oh, I’m a first time entrepreneur, I want to stay small. I don’t really know what’s going on. And then this is my fourth company and I’m going really fast and I’m hiring really good people. And then when we raised money, which wasn’t for two years, because originally the idea was to bootstrap it again, it was the fourth bootstrap company. But even then we only raised a million dollars. It was not exactly like earth shattering quantities of money. And the next round after that was only two. Again, so eventually we raised a lot when we were a lot bigger, but at first that’s not what was going on. But still a million dollars is a lot more than nothing as every bootstrap will agree immediately.
And so if we were just better at this and we have great people and even just a million dollars of working capital ahead, and if we put that to good use and we’re not dumb about it, yeah, we can probably simply out execute people. And that can matter in this field where there wasn’t good execution. So another thing we really nailed in 2012 was the pricing. The pricing was already pretty good, but we had some revelations talking to customers and hearing some stories. We had some revelations where we reset the prices, not dramatically, just like certain things in 2012. And that’s when we really took off. That’s like where the growth curve turns, bends and starts shooting up and never stopped shooting up. And so there was like this resonance that you might say with the pricing that was just exactly right. Now you could say it was a coincidence because other things, it could be.
Again, even I don’t know in retrospect because I can’t rerun it holding other variables constant. So I don’t know. We were also going to word camps and talking to people maybe, and that certainly helped. So I just can’t really know, but we were reacting to what people said about pricing. So I have to think that has at least something to do with it, if not the majority effect. Yeah. I think this combination of things is why we just did really well and surpassed the sort of immediate competitors or even people that came later who couldn’t grow as fast and therefore never got close in terms of the size. And I’m not trying to say that size is what matters. It’s not true. In our case, that’s what happened. Well, at SmartBear, I wasn’t interested in making a unicorn. So I myself don’t always have that goal.
In this case, that’s what we were doing. So I know I keep saying that, but it’s not like I think that’s the only thing that matters and far from it.
Rob Walling:
And I want to ask you about brand and when you feel like brand starts coming into play, because some folks, you’ll see them online, you see them on Twitter, whatever. They’re startup founders and they’re like, “Ooh, I want to build a brand from the start and I want to do all the fun design and the this and the that. ” I’ve always taken the tact of, we might say this podcast has a brand or TinySeed or MicroConflict. When you say those things, people have a picture in their mind. But I didn’t go out to build the brand. I wanted to deliver a really interesting product that served the needs of people that then they loved it. And so then the brand comes out of the execution for me. And in the early days of MicroConf, there was no brand because they’re like, “What the fuck is Micro?
Well, what is this thing?” But by the second or third year, it starts to have a meaning to people, right? So with all that said, I’m curious to hear your take on brand, if you thought about it in the early days, how you built it, and when do you feel like that momentum? Because at a certain point, there’s a conversation, oh, kind of higher end or really good WordPress hosting, what are they? And at a certain point, the list is two or three companies and WP Engine has always been on that list. And to me, that’s a really strong sign of brand. So what are your thoughts on all that?
Jason Cohen:
I think even when you think about people who have a great brand, like personal brand online or like you just said, isn’t the origin story always that they were obsessed about some topic and they talked about it and they got good at the exposition and that’s where the brand came from. I mean, even like Mr. Beast or I don’t know, whatever your favorite YouTuber is on any topic, did they set out to create a brand that they now have or were they just … Sure they wanted viewers and stuff. They wanted to become known, but weren’t they obsessed with a topic or a thing or teaching physics or teaching? I think that a genuine place is where it comes from. And we see corporations try to build brand all the time and it always fails, right? Anytime they rebrand, everyone hates it. So that wasn’t so good.
So that doesn’t seem like you can manufacture brand so well. Is brand a moat is an interesting question. I think the default answer is no. And the way you can tell is every company has a brand and it’s not true that every company has a moat. Just because it’s your identity doesn’t make it a moat. How do you tell when brand is really starting to matter either competitively at all or maybe a moat as opposed to just the identity of the thing, like a handle of the thing, is when customers are making buying decisions because of it. It doesn’t have to be the only reason, of course, but it has to be like top three reason. Everyone knows this, but like the classic, no one ever got fired buying IBM. That’s an example where the brand is a moat because the fact that you might buy IBM, even though it’s more expensive, it doesn’t have the features you want, it doesn’t this, it doesn’t that.
And you bought anyway because of the brand. Okay. See, to me, that means the brand really is at least a competitive edge, if not a moat because even when you’re losing on dimensions, customers also care about, they buy you anyway.That’s what I mean by the brand mattering. So today Apple is like that. And even back in the day, Apple was like that. It was like an identity statement to have a Apple product. So that’s not just a brand, that’s like a statement and therefore it surpasses that. Again, I don’t know if you want to call it mode or not. It’s certainly a thing that you have that others can’t take away in that sense and it’s competitive. In that sense, it’s a moat. We don’t have to try to have a razor accurate definition of mode, I suppose. But if you call it like a semi-permanent competitive edge that others can’t remove, then that level of brand is a mote.
But the general level of brand is not a moat. Just having a logo doesn’t make it a moat.
Rob Walling:
WP engine has a brand, a strong brand in the WordPress managed hosting space. And it has since 2012, 2013. How did you do that? Was it execution first, people then loved you?
Jason Cohen:
Yeah.
Rob Walling:
That’s what it was.
Jason Cohen:
Yeah, that’s it.
Rob Walling:
Just got enough customers and enough people talking about it and they loved it and yeah, okay.
Jason Cohen:
Yeah. And a good way to see that is like, let’s suppose our logo was different. Would our trajectory have been different? I don’t know, but my strong feeling is no. Okay. So that means the physical brand didn’t matter. It’s not like we picked the right color or something, right? We did need a consistent logo and color so that something was indelible in someone’s brain. Something was memorable. Something was a handle, right? So it has to be consistent. So to me, it’s sort of like the old thing about white space and braces in code. The studies show that the specific style of where you put the braces and stuff does not change readability or legibility. But the fact that everyone uses the same does. If different files have different styles, then people have a harder time or a slower time reading the code. So the main thing that’s important about a coding style is that you use one, but what you put in there doesn’t matter at all.
It’s like pure art, purely like whatever you feel like. And so I feel like a brand is like that. You need consistency so that you have an identity, but the details of that are unlikely to be terribly useful. I mean, linear is a great product. It’s starting to beat Jira in a lot of ways because they’re design decisions and they’re focused on an ICP, by the way, laser focus on that. And it’s the user, not the buyer, which is super interesting. But if it weren’t called linear, it was called something, I mean, what does linear mean anyway? That actually sounds bad. It sounds like a bottleneck or something. So again, it just doesn’t matter. The fact that they’re super opinionated in design and that it’s fast, that’s what matters.
Rob Walling:
So I want to wrap us up today by asking you a little bit about AI and specifically AI and how it affects founders who are starting new companies today because you’ve been building stuff for 20 years, 20 plus years, but as you look at AI, if you were to start your next company, how would you think about it as an opportunity? Is it a feature? Is it, would you build a wrapper? How would that impact your ideation and your, I guess your thought process and where the opportunities are and where the pitfalls are?
Jason Cohen:
Yeah, it’s a big topic. First of all, I separate how I use AI operationally to do stuff like write code or right marketing from AI that’s in the product that the customers use, whether directly or indirectly. So first of all, take all that operational stuff. Let’s set that aside because I don’t think that’s what you were asking, but I find that in conversations, sometimes people start confusing that. It just makes it more difficult to deal with an already complicated or complex question, right? So let’s just ignore that. It is true that corporate budgets now are heavily biased toward things that are AI, whatever that means. And it’s a fuzzy thing. The companies themselves are not clear on what that means, so we have to be fuzzy. That tells me that whatever I do does need an AI component somehow because that’s where the budgets are.
It doesn’t tell me what to build, but the idea of like, well, I just won’t have AI at all. It’ll just be a typical thing. That could be a good idea, by the way. But I would worry that I’ll be fighting a budget battle and an attention battle. And so that doesn’t feel like the easiest path. Okay. So however, the wrong way to think of it is I need an AI product. That may be how the budget is. So that may be down the line, sometimes how you talk about it. But this is another thing I see people doing wrong constantly, which is thinking of AI as if people want AI as the problem they’re solving. So let me put that differently. People have the same problems today as they’ve always had. Marketers want more leads. Sales wants to convert more leads to a sale that stay.
Customer service wants to have good customer service and get good results from customers. Engineers want to write code that doesn’t have bugs, that’s manageable, product managers want to build. Okay. Everyone wants the same prop that they’ve always wanted. What you don’t say is like, “I need AI in sales.” What you do say is, “If I could 10X my outbound volume with the same conversion rate, that would sure be nice.” So people talk about AI like it’s part of the problem to solve or that people want AI false. AI is part of the solution space. How is it that I can deliver more of what they already wanted because of AI? AI has made something possible that was previously impossible that they already wanted. So as soon as it’s an AI voice thing, I’m like, “I don’t know what that means.” Whereas if you said, for restaurants, we take over their phone tree because we can do the menu, we can do the ordering, we can do hours, but we do it on the first ring and in 40 languages.
Now, behind there is voice AI. Otherwise, that’s not possible. But the thing you’re solving is your phone. Your phone calls are now automated and awesome. And so I think when you stay focused on the problem that already existed and AI is why you can do something that was never done before or better, that’s the right way to think of it. So I’d be thinking about AI as the solution space, not as people say and they even say in their pitch decks as the problem space. Another thing I would do is I would say, look, AI doesn’t really work. I know it’s like, but when it does, it’s amazing. Oh, I know. When it does is a pretty big qualifier. When I research stuff for the book, I would say at least half the time it’s simply wrong. Even when you do the deep summary, deep research, it sounds good when they say it and then I go read the primary sources and it’s like completely wrong half the time.
And so what do we do with that? Because people say, “Well, over time will get better.” All right, but you’re building a company now. And people have been saying that for years, and they’re right, but you’re building a company now. So here’s what I do with that information. To me, there’s three kind of categories of AI products right now. One is AI that the incumbents are inserting into existing products. So this is like notion, and you can talk to Notion and sheets and you can talk to sheets. That’s not going very well. It’s not very useful, right? Yeah. Okay, whatever. But of course they’re doing that. What else are they going to do? I would do it too, but okay. The second kind is AI for experts. I’m already a software developer. Here’s AI that helps me write code. I’m already a marketing writer. Here’s AI that helps me write articles or do social media or something.
I’m already a designer, here’s AI that helps me design. So AI for professionals. Bad news is that you’re selling to only those professionals, not like the whole world or something, and you’re up against the incumbents. Okay, but if as a startup, that’s what you are. The good news is it’s okay that the AI isn’t perfect because it’s an expert. So when the code is wrong, the expert can fix it when the writing’s bad or wrong, the marketer can fix it and so on. So it handles the fact that the AI is not perfect. This is why I like this category. The third category is AI for newbs or AI from muggles, I like to say. I’m not a software engineer. I want to make an app. I’m not a writer. I want to write a book. I’m not a designer. I want a website. Now, that’s good.
I’m not saying that’s bad. I get it. It’s empowering. It’s good. I’m not against it by any means when we’re talking about what business I would build. And the problem here is you get 70%, 80%, and then you’re stuck and as a newb, you are actually stuck. When I vibe code the SaaS and I don’t know anything about code and I’m like 80%, I can’t build a SaaS company and I don’t. There’s a lot of, “I did this. ” I know, but it’s not a SaaS company. If that’s what you were going for, that didn’t happen. And you can go down the line, like if you’re not this or that, it’s not going to … And you can’t fix it. You can’t take it downline, you can’t because you’re stuck. So the good news is that the market’s bigger because there’s 100 times or a thousand times more people that want a website than people that can build a website.
So hooray. But here’s the biggest problem is that the fact that AI doesn’t really work is like a massive hindrance, possibly a 100% hindrance. So that’s okay. If that’s what you want to do, take that. If you like that trade-off, go for it. I’m not judging. I’m just saying what I think the trade-offs are. For me personally, I’m always a problem solution sort of a entrepreneur. Everything I’ve done is like, oh, I can make this better, whatever. There’s this corporate thing that needs to be done or could be done. I can make it better. The typical B2B mindset. So that’s what I have. So they’re this center part of AI doesn’t work yet, so let’s give it to people for whom that weakness is not a deal breaker. So if I were doing a company, I would be solving a real problem that already existed.
Of course, that has budget, probably budget for AI. Okay, fine, I get it. I would use AI to make something possible that was previously impossible, and I would do it for experts so that the fact that AI didn’t work well, what did not mean the product was useless or bad. Another thing is, and this was also true of WP Engine actually. WP engine from the beginning and even now, we say like, “Oh, we make your site fast.” And of course, a fast website is good, search engines rank it higher, people don’t bounce off of it as much. There’s data that shows e-commerce sites that are fast, convert better. Media sites get more hits, which means more money. Perhaps it goes without saying, but I just said it, my fast sites are better and literally make more money for people like e-commerce and media. So okay, that’s good.
But if your site is 30% faster, is that enough to motivate someone to care, to search, to migrate their site, to not migrate away later? Is that good enough? I don’t know. It’s pretty weak. The reason we said four times faster is we had customer after customer where they had literally data showing that. And anyway, when it’s that much faster, you can just feel it. You can just see like, “Holy crap, what the hell’s going on? ” If that’s the reaction, that’s all you have to know. So when it’s not just quote unquote better or faster, more efficient, cheaper, but five times better, three times cheaper, da, da, da, da, right? Where you could measure it, but you don’t even need to to see like, holy crap when it’s that much. Then something mundane and commodity like hosting and how fast it is, how security is.
Even a commodity thing, if it’s not 30% but three, five, 10 X, it’s no longer a commodity thing. That’s now a substantially different thing busting you out, differentiating, earning a higher price and et cetera. So I say that in general, that’s part of why we went in the commodity market and WP engines because we had a couple of things like speed and scale and security and service, which were like that. But it’s also, I would bring back to the AI conversation. When the AI helps me write, but in the end of the day, I’m still writing an article a day, just a little bit faster. I don’t know, that’s something, but I’m not terribly compelled. But when I go from writing one article a week to two articles a day and they’re good, okay, that’s like dramatically changing what’s going on. Now do I want?
I personally don’t want to do that, but like, okay, that’s a product, right? Or I couldn’t respond to this many, I don’t know, posts on Twitter, whatever you’re supposed to do in social media, right? But now with this, you can. Okay. So if it’s in this multiple of saving money, increasing time, having outcomes, now maybe that’s really valuable and I’ll be interested in that. So that’s another thing I would expect from my AI. If AI is supposed to be so revolutionary, how come it’s only increasing my performance by 20%? It’s just not worth the hassle and the wonder about where this is all going. So I would also be looking for something where the AI can really make me 10X. In coding, it’s not. All the studies in real engineering departments is not that AI makes them 10 times better. The only people who claim that are the people selling AI products, the users of it, there might be individuals claiming that on Twitter because it’s something to say, but all the studies show that’s not true.
What I find in coding though is there are certain places where it absolutely is 10 or 100 X. If I need to use a library I’ve never used before to do something and it’s like, “Oh, just use this and it does. It just works.” I’m like, “Okay, in 10 minutes, you definitely save me a couple of days.” There’s no doubt, right? But there’s other areas like a big code base with a hundred developers where it’s just like, I mean, it’s just wrong so much. It’s just you’re wrestling with it. It’s actually kind of slower than just doing it. So to me, it’s contextual. The question is, when is AI coding a big 10Xer and when is it not? Is actually the question. So I’m saying that again, because that’s also part of my answer of what would I build? I would build something like that where contextually AI really can be like that.
So something as broad as coding, that’s too broad and it’s not even true that AI in that broad of a context is a 10Xer. So I try to find a product where it really is true that AI today, even with its failings, really is 3Xing something. Hopefully 3Xing more value for the customer, not just saving money. Saving money is a much weaker pitch. Hopefully it’s 3Xing the value and it really does and the weaknesses and the failings are fixed by the customer or we’ve picked a domain where AI really is much better, not like general AI, I guess. So these are the kinds of things I would go through as I would tick through it. Notice I didn’t talk about competition at all and I wouldn’t. My assumption is that every market of any reasonable size will be flooded with AI products. Maybe it already is, but my assumption is if it isn’t already, it’s going to be.
So, oh well, what am I supposed to do about that? And what moat do I have? Nothing because we all use the same models. We are all making prompts. And as you say, tech is usually not a moat. Okay, if you have very, very, very … We can all pick out special cases where the tech is the moat, but that’s the point.That’s why it’s usually not. So there’s no moats there. Everyone’s doing this stuff. So what am I supposed to do when the market is crowded? We’re all using the same tech more or less. And again, I think, well, then I’ve just got to have such a great vision for my product, my ideal narrow customer, how I build for them, how good it is for that particular customer, because not everyone’s going after that particular customer. So how can I just make an absolutely amazing product for that?
Trusting in the thing we talked about earlier that other people will also like that and want to join in. And so how can I find things like that that adhere to those other criteria? There’s a lot of Venn circles here, right? But of course there are because we just said all these things have to go right for the company to work. So yeah, that’s right. It’s going to be a vendor argument with lots of circles and a center that might not even be there. It might not even be a center, which is kind of the point. But those are the kinds of things I would look at. Now, again, not trying to imply there’s no other way to build a company, right? Of course, there’ll be successes that don’t do what I just said, like we’ve been saying. But in the spirit of that bootstrap machine where these are the things I would do that I think increase your chance of success or remove some kind of risk or at least lean into some kind of strength you have or go with the grain of what’s going on instead of against the grain and therefore just like hopefully make all these little probabilities be a little bit better than maybe they would have been.That’s what I would do.
And of course, no matter what I thought as customers actually used it, I would discover I was right about some things and wrong about some things and stuff I didn’t think of. So of course I would have to be following my nose after that, but this is what I would start with and then of course be following my nose as soon as I could intersect it with real customers.
Rob Walling:
Amazing. It’s a great note to end it on. Thanks for coming on the show. I want to have you back when you release the book. We can talk, probably dig into some of the content of that. Folks want to pre-order it. I pre-ordered my very own copy this morning. It’s at hiddenmultipliers.com. And you and I are going to be hanging out in Portland, Oregon here in just a few months. You’re speaking at MicroConf again. I think it’s been about 10 years since your last MicroConf talk and I’m really looking forward to hearing from you in April.
Jason Cohen:
Yeah. The talk is about what to do when growth slows.
Rob Walling:
Yeah. It’s just a topic for many, many people.
Jason Cohen:
It is. I think nowadays a lot of people are seeing that large and small companies. And of course, a lot of people want to grow anyway, whether it’s slowing or not. So it’s just a useful thing anyway.
Rob Walling:
It’s going to be good. Yeah. MicroConf.com/us if you’d like to pick up your ticket. It’s April, I think it’s 14th through the 16th in Portland, Oregon. And then if folks want to keep up with you on X, Twitter, you are a smartbear and of course a smartbear.com where all your essays live. So thanks again, man. It’s been great having you.
Jason Cohen:
It was fun. Thanks.
Rob Walling:
Thanks again to Jason for joining me on the show today. And I meant it when I said I want to have him back on when his book is live. I think there’s so much more to talk about with him that it both enlightens me and I think educates bootstrappers as a whole. As someone who has, I think he’s bootstrapped three companies and raised buckets of money for the fourth for WP Engine. He really just has a very grounded sense about him and about how he thinks about growing companies. As a reminder, his book is Hidden Multipliers. You can get it at hiddenmultipliers.com. And he will be speaking in just a couple months at MicroConf US in Portland, microConf.com/US if you want to buy a ticket and hang out with Jason and I for a couple days in mid-April. Thanks again for joining me this week and every week.
This is Rob Walling signing off from episode 817.
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. You’re listening to startups for the rest of us. I’m your host, Rob Walling. In this episode, I talk with Jason Cohen. You might know him online as a SmartBear. He’s been blogging for almost 20 years at a smartbear.com.
He has started two unicorns, including WP Engine, of which I was an angel investor. It was my first ever angel investment back in 2011. And Jason has just been a longtime supporter of MicroConf and now TinySeed. He has given several talks at MicroConf, including one that is widely considered to be the best talk ever given at a MicroConf, and I think it’s the best talk ever about bootstrapping startups. And we talk about that in this episode. I actually struggled to title this episode because we talked about so many topics, including mistakes founders make in the early days. We wrap it up with a discussion about AI and where Jason feels like the opportunity would be if he was starting over today. But in the end, we cover some meaty topics and Jason is just so thoughtful and deliberate in his thinking and so clear in his thinking.
I have infinite respect for him and it was a pleasure to have him on the show today. Jason’s actually going to be speaking at MicroConf US and Portland in just a couple months. Tickets are selling fast and we will sell this event out. MicroConf.com/US if you’re interested. And the promo code you’ll want to use is Rob 50 for $50 off. And with that, let’s dive into our conversation.
Jason, Cohen, welcome to the show.
Jason Cohen:
Hey, thanks for having me. It’s always great to talk.
Rob Walling:
It feels criminal that this is your first appearance on startups to the rest of us.
Jason Cohen:
I know. I don’t understand. Maybe because I was busy the last 15 years. I
Rob Walling:
Don’t know. Yeah. What have you been up to, man, growing another unicorn? No, it really … I mean, you and I talk often enough that I just … And you’ve spoken at MicroConf so many times that it just feels like you’re a staple in the ecosystem. And when producer Ron and I were talking, it was like, how has Jason never been on the show? It’s not great.
Jason Cohen:
Well, I mean, you’re an angel investor in WP Engine, so you’re probably happy that I stayed focused on that instead of doing podcasts.
Rob Walling:
Heck, yes, man. That bought our house, paid cash for our house. It was great. So a lot of folks will be familiar with you as the founder of WP Engine, as well as SmartBear, which was the software company. And before that, both are unicorns at this point. And you’ve been a longtime blogger at asmartbear.com. Hundreds of essays, if I were to guess. But what did I miss in that intro? How else would you like folks to know who you are and what you do?
Jason Cohen:
I think that’s good.That’s my best work.
Rob Walling:
Well, that’s your best work in the rear view mirror. I want to call people’s attention to hidden multipliers at hiddenmultipliers.com. It’s your first book that you have for pre-order right now.
Jason Cohen:
That’s right. Yeah. So I’m not here to promote it. Although maybe we can do another one where I am there to promote it. I don’t know. But yes, I’ve been writing for 18 years, like you said. But one of the things I felt was I’ve been writing on all these topics, but there’s no central idea. There’s no central framework. It’s just a bunch of random stuff. And so when things would come up in conversation or online or whatever, and I would say, “Oh yeah, I wrote about that over here. I wrote about it. ” It’s so scattered. And people would say things like, “Do you have just stuff about marketing?” And I’m thinking, “Yeah, kind of scattered over a million things.” It’s not very accessible. So the purpose of the book wasn’t just to take every idea and make it organized, but rather I thought, I wonder if I do have any central concepts.
Do I have a philosophy? I don’t even know. And so for maybe a year, I just thought like, “I don’t know. I don’t know that if I have one.” And so I didn’t want to just write an anthology. But then there was this common thread I found in at least a lot of the things that I think, which is that there’s these small things that make an inordinate difference in companies. And of course, every company’s different and all that, so all those normal things apply. But there’s some things which are systematic and mechanical about how companies work or how people buy things or how human nature is, how teams work, something or even about AB testing and the math behind that, like certain things which are true because they’re built into how it normally works and that’s why these things where a small change can make a big difference.
That’s why that’s so, I don’t want to say universal, it’s not, but so common because it’s based in some systematic fact about the world or how things work. And then another criteria I found that was interesting is, of course, if you can raise money or apply a lot of new money and teams to something, there’s many possibilities and that’s good. Maybe you should do that. But most of the time we have a team, we have a budget and we need to do things within that team and that budget. So if the feeling is, “Man, I’m not growing as fast as I want or I’m not as profitable as I want or I’m not getting this or that goal that I want. ” Usually the answer is not, “Oh, I got to go raise bunch of money.” Almost always, even if you have raised money, that’s usually not the answer.
Usually it’s like, but we have people doing stuff, even if it’s one person and surely we could be doing something a little bit better. So this was this extra criteria that I thought was interesting to add on top of this small things make big effects. It’s systematic so it’s usually true. You can pretty much rely on it. And this idea of, I’ve got to do it with my current team and budget. So it has to be doing something differently, but not some kind of big investment or something like this. And I found that there were these things which fell into this category. So that’s how I defined this idea of a hidden multiplier, multiplier being this notion. And then hidden is another funny word. Sometimes these things are hidden just because you didn’t know it. Sometimes you did know it, but it’s on a to- do list with 10 things and you didn’t realize how important it was.
So it’s hidden in that sense. I once had a great strategist tell me, a lot of times what’s wrong with a strategy is not that we didn’t know something, it’s that we didn’t realize how important that thing was. So these can be like that. Or maybe you did know it, but you didn’t know what to do or you were scared to do something about it. So without an explanation of what do I do, it just sort of hangs out there. And the form I see that in is people will say, “I already knew that. ” And then you look at their actions and you’re like, “Well, you’re not acting like you know that. ” So it’s like effectively you don’t know that, right? And so that’s what I mean by hidden. Somehow or another, you’re not taking advantage of it. So that’s what this book is, is like 10 of these hidden multipliers, one per chapter, just going in great depth, of course, about what is it, motivating it, proving it with examples, and then saying, of course, what to do.
Rob Walling:
And I was surprised to hear that this is majority new material that you obviously use some concepts and ideas from your blog, but you’ve been hammered on this original work for what, a year now.
Jason Cohen:
Yeah. I didn’t want it to just be an anthology or mix or rehash of the blog. But obviously there’s some stuff in there that is in the blog because these are … I’ve had certain ideas in the last 18 years, some of them are good. And so that’s only natural. But yeah, I didn’t want it to just be a rehash.
Rob Walling:
There are a lot of founders out there that are successful and they never, but they aren’t public about their thought process or their mental frameworks. And maybe they don’t have any. Maybe they just figured out in its instinct, maybe they get lucky, whatever. Then there are folks that are successful and they are public about what made them successful. And then there’s two camps there. I’ll see someone do a talk and they’ll say, “This is why I was successful.” And you’re like, “No, it’s not. ” You’re full of shit. Either you’re lying to yourself or you’re lying to me, like you’re delusional. But then there is this small, small camp of folks, and this is all arbitrary designation based on my opinion or your opinion, who have found success and think critically about what they’ve done and try to extract higher level learnings that go beyond just their end of one or two and that tend to … When you hear what they say, Paul Grahams, one of these guys, Joel Spollsky, yourself, when you hear what they say, you’re like, “Yeah, no, that generally tracks.
That’s a really unique insight that sounds obvious in retrospect, but no one has said it in that way before.” So I totally put you in that bucket and it’s very rare. There are not thousands of these people in the world in the startup space. Maybe there are hundreds. I don’t know if we were to quantify it. So I guess I’m just wondering how you got there. Have you always been a critical thinker analyzing your own behavior and what’s going on around you and trying to framework things or did this kind of evolve for you as you were starting companies or like, “Oh, I’m learning a thing and I should just share that with the world on this blog that you started in what, 2007 or 08?”
Jason Cohen:
Right. For me, writing is thinking and I have this drive to teach. Both my parents were teachers. I think it’s literally in the DNA. And of course, we all know that if you want to learn something the best, you teach it. On the other hand, can you teach something you’ve never done? A lot of people do. This is just not me. So I think that’s another reason people like it is at least this came from experience. And so what generally happens is I’ll have a thought either because I observe it in some other company, I observe it in our own company, we’ve learned something, something went wrong, something went right, and that’ll give me an idea for a thing like maybe it’s a framework or a concept or a story or something. But in writing it out, I often find, wait, maybe that’s not right or maybe I don’t even agree with myself and I haven’t even published it yet.
Or maybe I do like it and I’m just even more excited about it because, oh look, I’m finding other examples. I don’t know, I could get more excited. So I mean, I have hundreds of things in draft that I’ll never write because I don’t actually believe it or I haven’t figured it out well enough. I haven’t sorted it out well enough for myself to put it out there. So a lot of these things are, oh, it seemed to be right. We wrote it down, then we tried it at WP EngineSay, especially if it’s a framework. We probably, I mean, I can name them where we did, we tried it and then we iterated on that and we tried it again with a different team and then we iterated. And so the result when it comes out, it’s like, wow, this seems really thought out. It’s like, yeah, that’s because we actually did this and iterated on it and I tried to explain it as best as I could.
And if you write for a long time, maybe you’re better at writing, hopefully, right? So okay, now I can do that. So yeah, often that’s where that comes from. Having said that, I don’t think the goal, at least not for me, is to convince everybody that I’m right. It’s equally valuable if someone reads an article of mine and says, “This is total crap. I don’t believe this at all. I believe the opposite. No, it’s this. ” That’s perfect because what’s happened is you’ve gained greater clarity on what you do believe, what is your philosophy or your values or how you operate or what’s important or how you … Something important you’ve now gotten greater clarity on because I was a foil that was not what you thought and that led you to what you do think in greater relief and that will make you better, make you stronger and clear in whatever direction you’re going.
So to me, the goal is that, this kind of like, “Ooh, now I think X or now I’m clear on Y.” That’s the goal, which is not the same thing as agreeing, right? So that’s fun. Obviously there’s like, I don’t know, a constructive and not constructive way for people to say that online, you get both. But I love it when people have the opposite view. Also, we all know that for every piece of advice or observation of business, the opposite is true of some companies are successful and both it and its opposite are true of companies that fail. We know that all four of those are populated with companies, populated with examples. And so once again, there’s no way I’m going to think that that means I’m right all the time. But again, if someone can get clarity, that’s really useful. So how do you do that?
You have to say something useful, something real, something specific, hopefully in a way that’s relatively well put so that it’s enjoyable to read. And by doing that, hopefully someone will get something out of it.
Rob Walling:
I’m curious, a lot of this stuff that you write about has to come from firsthand experience because you’ve started four companies, two are unicorns, but you’re also an angel investor and an advisor. Were you kind of a founding member of Capital Factory in Austin? Am I remembering that correctly? So you’ve been exposed to dozens, if not hundreds of startups. Do you feel like more of your knowledge and information that you share comes from your firsthand experience or from the experience with other companies advising on the internet or otherwise?
Jason Cohen:
I would say when it comes to specific things like this decision framework or this prioritization or this workshop, that’s coming from WP Engine. That’s coming because we tried things and this seemed to be something that worked for us or for some teams. And so that seemed worth sharing. When it comes to more strategic or high level long reaching things, some of that’s experienced my own experience, but a lot of that is like, oh man, I’ve seen this like 20 times, which obviously doesn’t mean I saw it in my own one to four examples. So the 30th time you hear someone pitch something and you go, “Oh my God, that’s coming from a breadth.” So I would say where personal psychological stuff obviously starts from myself, but a lot of that is in talking to other founders where there’s certain kinds of things where 80% of the time that I share, “Oh yeah, I felt like this or I felt like that.
” And almost all the time the other person’s like, “Oh my God, I thought it was just me or I can’t believe you’re admitting that. ” And that again is some kind of, not universal, but pretty useful, good truth there. That’s coming from talking to other people, right? That’s the only validation that it’s not just me.
Rob Walling:
So you have what I believe is widely agreed to be the best microConf talk that’s ever been given. And I know I make you blush when I say this,
But that you mic dropped with this talk back in 20, I don’t remember if it was 13 or 14, but it’s called Designing the Ideal Bootstrap Business. And I was in the room when you gave that talk. And I was holding my head, I was like, “Oh,” as you were giving it, and then you got done and I turned to whoever was next to me and I said, “I don’t think I’ll ever give a talk that good. That’s the best talk I’ve ever seen.” It was huge and I’m serious. And it has lived on and I still believe I was trying to pull it up on YouTube right now, but I believe it might be the most popular talk on our … Yeah, of course it is. On our entire, what used to be the MicroConf channel has now been renamed to Rob Walling, but 510,000 views.
Jason Cohen:
That’s awesome. Here’s something funny about that, which should be inspiring to you or to the listener and to myself when I’m thinking about things like my own book, which is I thought that that talk was haphazard. It didn’t have a good arc, it didn’t have like a narrative arc. I felt like I did have a good personal emotional close to it, but I didn’t feel like it came for full circle. I felt like it was a shotgun of different ideas rather than like a conceptual framework, a tree with branches. Instead, it was just like stuff everywhere. So I felt when I made it, I am confident that the individual ideas here are useful. So I think this talk will be useful. I just don’t think it’ll be good in … I mean, literary is too strong a word, but good in sort of these other kind of structural ways like a Seth Godin talk is, for example.
So I was like, “Oh, well, hopefully being useful is good enough, especially for this audience, which I think it is. ” And yet, as you say, people loved it anyway. And so one of the lessons for me about that meta fact about it is I think when it comes to things that are more on the art side of things, going with what you just feel, what you are passionate about and the things you’re excited about, that’s actually good. That’s what people are here for. Probably every single idea in that talk you can read a blog post about somewhere. So that’s not really about everything’s a brand new invention. Although there were certain things in there that I, at least at the time, I hadn’t seen elsewhere, but they probably were elsewhere. I just hadn’t seen it, but it was more the exposition. So when I think about my book, there’s certain things like maybe it’s too long.
Maybe I go into too much detail about certain things. I don’t write like Hemingway. I use long sentences and semicolons and M dashes. I don’t have tiny little sentences and I don’t write for a fifth grader and all that stuff. So is that bad because quote unquote, that’s what a business book should be, unquote, right? Well, I don’t. And so I think on that artistic side of things, I’m comfortable saying, “Well, I’m going to go with what I am.” And that talk is a good example of that for me.
Rob Walling:
Yeah. And it’s inspired a lot of folks. I mean, I hear people mentioning it on podcasts and on Twitter to this day. So if folks haven’t watched that, it’s on YouTube and they should go find it. But I kind of want to contrast that or attach that to an essay you wrote called, Excuse me, is there a problem? Because in your talk about designing the ideal bootstrap business, there’s some filters for kind of finding an idea and finding the right type of business for bootstrappers, right? But if someone has a business that checks all those boxes, it’s recurring revenue, it’s a good market, there’s maybe no enterprise sales. If folks are solo, in your essay, excuse me, is there a problem, you show that maybe that’s still not good enough.
Jason Cohen:
Yeah, it’s not. I mean, there’s so many things that have to go right for any company to work, right? And you’re right, that talk doesn’t cover them all and maybe it’s too hard to. But yeah, what about, it has to be possible to get to the customers. Even if there is a problem to be solved, can you find them and can you find them cheaply enough in the noise that is the internet? And then when you find them, can you convince them to buy you instead of the other 20 alternatives they could buy? What about your own psychology? Are you going to be able to last three years or are you going to crash out? So kind of no one article, I think, maybe a book length thing could do it, I don’t know, but no one article is going to capture the many things that have to go right.
And so what do you do with that fact that many things have to go right? How should you react to that? So I think first of all, whatever is the weak link or one or two weak links, you really have to decide whether that’s okay and you have such overwhelming strength in some other areas that you can survive anyway or whether you really need to do something about it or it’s even a deal breaker. So let’s say the overwhelming weakness is the market’s very small. There’s only a hundred people that have it. Okay. There are certain overwhelming other things that could still make that okay like, well, it’s only just me, so I only need a couple of customers and those few people pay insane amounts of money. And I’m okay with the fact that if I lose one customer, the company might be over.
And you can go down the line. And I already know who all hundred are because my co-founder has worked in the industry and literally knows 70 of the hundred people already to call. So there could be this overwhelming other thing that makes it okay. So again, there’s no absolutes in this business, right? But if there is a dramatic negative, there had better be some kind of … The question is, what else is true that makes this okay, that makes this still viable? And if you can’t really answer that, you’re like, “I don’t know, we’ll have good features.” It’s like, okay, then that’s not an answer.That’s what everyone says. So another thing is to tackle that thing first. So let’s suppose you’re like, “Well, I have this great idea for a product that would be really cool, but I’ve never done marketing before, so it’s hard for me to get customers.” Well, the typical thing an engineer does is go work on the product because it’s fun and you know how and it’s kind of why you’re doing this in the first place and all that.
It’s exactly the wrong thing to do because the limiting factor here is, can you find customers? And if you build the product, you will have made no progress whatsoever on the question, can you go find customers? I know you can build a product, you’re an engineer. I just assume you can build a product. So doing so doesn’t help at all. It doesn’t de- risk the company at all. It doesn’t eliminate one of these at all. So instead you should be going and finding customers. You can then interview them and find out better what to build. And anyway, prove out to yourself that this weakness is not so much a weakness after all, and it won’t be a deal breaker after all because it’s not as bad as it seemed like it was. So there are a couple of things. It’s not the only things, but those are a few things you can do with this fact that it takes many, many things that are all an and.
So probabilities that get multiplied, and that’s very bad because even if the probabilities are reasonable, like 70%. Yeah, but if you multiply 10 of them, the probability is really low. And by the way, a lot are not 70%. They’re like 10. And so why do a lot of companies … Why do most companies die? That’s why because all these things have to go right. And okay. So again, can you tackle the low things first and de- risk them or see whether that really is a deal breaker or not? Can you overwhelm some with outrageous other things? That’s good. Niching down is another one because it starts making the answer to some of these better. Am I the best product? Well, if the market is enormous, almost for sure not, but if I said, yeah, but for this exact customer, oh, maybe you can make literally the best product as defined by the customer if you’ve niched down enough.
So that’s part of why you and I and many people say niche down because it allows you to be the best in fact and make some of these numbers and things get better. The market size gets smaller, but some of these other factors get better. That’s good.
Rob Walling:
Yeah. In terms of niching down, I get asked the question, when should I niche down? How do I know if I should niche down? What are factors that you think about when a founder’s trying to be like, should I be horizontal? Should I pick a niche? Should I pick three verticals to start with and see what’s your framework for that?
Jason Cohen:
With the caveat that of course it has to depend on what’s going on. I think you should always be focused on as narrow of a ideal customer profile as you can. But I think when people hear that, they think, “Oh, but that means I’m selling only to them and the rest of the market is off limits and that’s too limiting.” And I don’t believe that. In other words, when people say niche down, I think they either think, “I can’t talk to anyone else or I can only sell this market.” And that’s not how I observe it actually works. The way it actually works is you find this niche and you find this ideal customer and you talk only to them. And because you’ve been so specific, you can be so compelling with things like your advertising and your homepage message and what the price is and which features you choose to build because it’s so clear who you’re building for because you’ve narrowed it down so much that you know how to thrill them.
So the first thing that happens is at least those people when they hit your website, they’ll know. So you can at least sell them.That’s a start because if you’re not that specific, you never get that benefit. That’s not good. But what else happens is most of us are not the ideal customer for any product and yet we buy them. So what’s happening? What’s happening is we see the product, there’s things that we consider to be strengths of weaknesses, which by the way, other people disagree what’s a strength and what’s a weakness. So you can’t even just say a low or high price is a strength or weakness. It depends on the observer. If I’m a consumer and it’s a high price, I probably don’t like it, but if it’s a luxury brand, I only like it if it’s a high price or a business may not want to buy a cheap piece of software because they just assume it won’t do what they need or the company will be gone.
They’re only happy if it’s cost more. So is a high or low price of weakness. Again, it depends on the observer and that’s just true of almost everything. So what’s actually true is that your ideal customer sees the things that you are as strengths because of who they are and the things that you think are weaknesses they either don’t care about or they even are happy about it like a high price is sometimes like a good thing. So that’s the ideal customer, but everyone else, they’re still going through some sort of pros and cons or trade-off analysis and many of them will still pick your set of trade-offs. And because you are so specific about what you are, the trade-offs are clear. And when the trade-offs are clear, people are more willing to accept the weaknesses. And there’s data on this, which is very interesting.
For example, products that have negative reviews that are specific about what is negative about the product have higher sales and fewer returns than other products with the same rating like 4.1 stars or whatever. Why? Because you were able to see what the weaknesses were and you can either decide, well, then I’m not buying it, which is fine, but if you do buy it, you already knew what it was. So when it comes and it has this thing you don’t like, you knew that. You already decided it was okay, so you don’t return it. And the fact that you know what it is instead of just like, geez, I don’t know what’s good or bad about this. The fact that you know what it is gives you more confidence to move forward. So that’s just all a long way of saying, wow, if I’m very specific about what I am, then my ideal customer will definitely buy, which is already a reason to do it, but like a hundred times larger market than that, will see that specificity as a reason to buy your set of trade-offs, even though they’re not quote unquote ideal and they buy anyway.
So that’s a very long way of saying, that’s why I think everyone should niche down in this sense of having this narrow view of who you’re perfect for and staying focused on that because you won’t just sell there. So not niche down in the sense that that’s the only customer you’ll ever accept. That’s not what I mean. It’s the best way to get more customers. Now, of course, over time, you can expand what that is. When WP Engine first started, we were only for like small business, maybe medium sized. A lot of times it was going through freelancers, sometimes direct. And sure, four or five years in, we saw some more appetite from larger companies, but not for their homepages like it was for small and mid-size companies, it was for like campaigns in some country or something like this. It was a different use case for them.
And it was large enough that we thought, oh, let’s actually spend tens of millions of dollars over a couple of years on sales and marketing and this and this and that to actually enter that with this other message and it was successful. But that was years later and it was an intentional thing and it was because, right? So of course you can expand that as you scale and you can apply more things to it. So you can do that. But even to this day, we have specific types of things that we focus on and we have more of it, but that’s because we have a thousand people and we can do that. We have the capacity to have a few things. So that can be in your future, but that’s why I say yes niche down, but maybe not the way you were thinking where you’re super limited by it.
Rob Walling:
I mean, you started talking about WP Engine and I want to go back to the early days when you were starting it because you basically built a billion dollar company in what we might call a commodity space of hosting and you’re hosting WordPress, which is an open source thing. So anyone could have spun up exactly what you were doing with WP Engine.
Jason Cohen:
And they did.
Rob Walling:
And they did.
Jason Cohen:
There’s like 20 or plus competitors easily.
Rob Walling:
Yeah. So how did it work? How did you get ahead? How did you beat out all these other people who had the same idea or who were copycats or whatever? And part of this is that these days, if I were to start a startup right now, if I were to build a SaaS company, you know that you could at least half ass vibe code that in a few weeks, right? If I only spent a few months building it. So it’s this thing of like, well, the tech is not a moat and your tech was not a moat at the time, or at least the underlying hosting and such. So how did you win? How did you do so well with this?
Jason Cohen:
Yeah. I mean, and as we were just saying earlier, it can be hard to tell. And I think one of the reasons why I’m somewhat credible in how I write is I’m never quite sure, is this really the reason? Did we win in spite of this or because of this or was it just that … And I also don’t know. And in fact, I’ve even written about how I don’t know. So it’s all like on offer as things that seem good, but the listener will have to decide for themselves what fits in their own mind and feels good. But my best idea is the following. The idea of managed hosting, which means it’s 10 times as expensive, but it’s also like multiple faster … The site loads multiple faster, like four times faster. We used to have a shirt. My blog is four times faster than your shirt was our first marketing swag.
And things like security and service were also like really good compared to the cheap shared hostings, and it still is. So it was pay more, get more. And a shared hosts are just not designed for that. So to this day, they don’t really have that. But a new company could be … I think one of the things that you can do is when other people think it’s dumb or impossible, but it’s actually is possible, that’s usually … It’s not a moat because anyone could do it, but they don’t. So it’s a funny kind of a moat. We think of moats as it’s impossible for someone to do it, but there’s also like they just choose not to for various reasons. It could be ideological, it could be cultural. So the fact that we had great human support is something that like no VC wants you to have that because that’s expensive and it comes out of your gross margin.
Maybe it means you’re quote unquote not a software company because your gross margin’s less than 70%. So an emphasis on service is something that like a funded company doesn’t want to do ever. In fact, if you look at our funded competitors, none of them have that. So the fact that we did do it, it’s not that they couldn’t have copied us, it’s that they wouldn’t have because it wasn’t in their nature, their culture, et cetera. In competitive analysis, we often think about their business structure or their features or their architecture and that you’re right, but the culture and attitude does matter too. Let’s not forget that companies don’t change that very often. And if they try to change it, they often fail to change it, right? Whether you want to call that a mode or not, I don’t care, but it’s a thing that prevents that kind of competition.
Another thing is we were really, really good at execution. Now, traditionally, you don’t consider great execution a moat because again, you can’t stop someone else from having great execution. So it’s not really a mode. On the other hand, if you have great execution and most don’t in your field, that’s a reason to win. And there are certain fields where that’s not the case because everyone’s really good But like AI, in hard tech AI, everyone’s pretty good. So it’s not true that, I don’t know, Clog can simply out execute open AI.That’s not how you would think about it. But there are other fields and hosting was one and maybe grocery stores is one where you don’t want to say nobody, but almost nobody has any kind of innovation or will to do that or ability to do that or the culture to do that or whatever you want to say.
And so if you execute really well, I mean, there just isn’t other people doing that. And so that was one of the things. So when you have, oh, I’m a first time entrepreneur, I want to stay small. I don’t really know what’s going on. And then this is my fourth company and I’m going really fast and I’m hiring really good people. And then when we raised money, which wasn’t for two years, because originally the idea was to bootstrap it again, it was the fourth bootstrap company. But even then we only raised a million dollars. It was not exactly like earth shattering quantities of money. And the next round after that was only two. Again, so eventually we raised a lot when we were a lot bigger, but at first that’s not what was going on. But still a million dollars is a lot more than nothing as every bootstrap will agree immediately.
And so if we were just better at this and we have great people and even just a million dollars of working capital ahead, and if we put that to good use and we’re not dumb about it, yeah, we can probably simply out execute people. And that can matter in this field where there wasn’t good execution. So another thing we really nailed in 2012 was the pricing. The pricing was already pretty good, but we had some revelations talking to customers and hearing some stories. We had some revelations where we reset the prices, not dramatically, just like certain things in 2012. And that’s when we really took off. That’s like where the growth curve turns, bends and starts shooting up and never stopped shooting up. And so there was like this resonance that you might say with the pricing that was just exactly right. Now you could say it was a coincidence because other things, it could be.
Again, even I don’t know in retrospect because I can’t rerun it holding other variables constant. So I don’t know. We were also going to word camps and talking to people maybe, and that certainly helped. So I just can’t really know, but we were reacting to what people said about pricing. So I have to think that has at least something to do with it, if not the majority effect. Yeah. I think this combination of things is why we just did really well and surpassed the sort of immediate competitors or even people that came later who couldn’t grow as fast and therefore never got close in terms of the size. And I’m not trying to say that size is what matters. It’s not true. In our case, that’s what happened. Well, at SmartBear, I wasn’t interested in making a unicorn. So I myself don’t always have that goal.
In this case, that’s what we were doing. So I know I keep saying that, but it’s not like I think that’s the only thing that matters and far from it.
Rob Walling:
And I want to ask you about brand and when you feel like brand starts coming into play, because some folks, you’ll see them online, you see them on Twitter, whatever. They’re startup founders and they’re like, “Ooh, I want to build a brand from the start and I want to do all the fun design and the this and the that. ” I’ve always taken the tact of, we might say this podcast has a brand or TinySeed or MicroConflict. When you say those things, people have a picture in their mind. But I didn’t go out to build the brand. I wanted to deliver a really interesting product that served the needs of people that then they loved it. And so then the brand comes out of the execution for me. And in the early days of MicroConf, there was no brand because they’re like, “What the fuck is Micro?
Well, what is this thing?” But by the second or third year, it starts to have a meaning to people, right? So with all that said, I’m curious to hear your take on brand, if you thought about it in the early days, how you built it, and when do you feel like that momentum? Because at a certain point, there’s a conversation, oh, kind of higher end or really good WordPress hosting, what are they? And at a certain point, the list is two or three companies and WP Engine has always been on that list. And to me, that’s a really strong sign of brand. So what are your thoughts on all that?
Jason Cohen:
I think even when you think about people who have a great brand, like personal brand online or like you just said, isn’t the origin story always that they were obsessed about some topic and they talked about it and they got good at the exposition and that’s where the brand came from. I mean, even like Mr. Beast or I don’t know, whatever your favorite YouTuber is on any topic, did they set out to create a brand that they now have or were they just … Sure they wanted viewers and stuff. They wanted to become known, but weren’t they obsessed with a topic or a thing or teaching physics or teaching? I think that a genuine place is where it comes from. And we see corporations try to build brand all the time and it always fails, right? Anytime they rebrand, everyone hates it. So that wasn’t so good.
So that doesn’t seem like you can manufacture brand so well. Is brand a moat is an interesting question. I think the default answer is no. And the way you can tell is every company has a brand and it’s not true that every company has a moat. Just because it’s your identity doesn’t make it a moat. How do you tell when brand is really starting to matter either competitively at all or maybe a moat as opposed to just the identity of the thing, like a handle of the thing, is when customers are making buying decisions because of it. It doesn’t have to be the only reason, of course, but it has to be like top three reason. Everyone knows this, but like the classic, no one ever got fired buying IBM. That’s an example where the brand is a moat because the fact that you might buy IBM, even though it’s more expensive, it doesn’t have the features you want, it doesn’t this, it doesn’t that.
And you bought anyway because of the brand. Okay. See, to me, that means the brand really is at least a competitive edge, if not a moat because even when you’re losing on dimensions, customers also care about, they buy you anyway.That’s what I mean by the brand mattering. So today Apple is like that. And even back in the day, Apple was like that. It was like an identity statement to have a Apple product. So that’s not just a brand, that’s like a statement and therefore it surpasses that. Again, I don’t know if you want to call it mode or not. It’s certainly a thing that you have that others can’t take away in that sense and it’s competitive. In that sense, it’s a moat. We don’t have to try to have a razor accurate definition of mode, I suppose. But if you call it like a semi-permanent competitive edge that others can’t remove, then that level of brand is a mote.
But the general level of brand is not a moat. Just having a logo doesn’t make it a moat.
Rob Walling:
WP engine has a brand, a strong brand in the WordPress managed hosting space. And it has since 2012, 2013. How did you do that? Was it execution first, people then loved you?
Jason Cohen:
Yeah.
Rob Walling:
That’s what it was.
Jason Cohen:
Yeah, that’s it.
Rob Walling:
Just got enough customers and enough people talking about it and they loved it and yeah, okay.
Jason Cohen:
Yeah. And a good way to see that is like, let’s suppose our logo was different. Would our trajectory have been different? I don’t know, but my strong feeling is no. Okay. So that means the physical brand didn’t matter. It’s not like we picked the right color or something, right? We did need a consistent logo and color so that something was indelible in someone’s brain. Something was memorable. Something was a handle, right? So it has to be consistent. So to me, it’s sort of like the old thing about white space and braces in code. The studies show that the specific style of where you put the braces and stuff does not change readability or legibility. But the fact that everyone uses the same does. If different files have different styles, then people have a harder time or a slower time reading the code. So the main thing that’s important about a coding style is that you use one, but what you put in there doesn’t matter at all.
It’s like pure art, purely like whatever you feel like. And so I feel like a brand is like that. You need consistency so that you have an identity, but the details of that are unlikely to be terribly useful. I mean, linear is a great product. It’s starting to beat Jira in a lot of ways because they’re design decisions and they’re focused on an ICP, by the way, laser focus on that. And it’s the user, not the buyer, which is super interesting. But if it weren’t called linear, it was called something, I mean, what does linear mean anyway? That actually sounds bad. It sounds like a bottleneck or something. So again, it just doesn’t matter. The fact that they’re super opinionated in design and that it’s fast, that’s what matters.
Rob Walling:
So I want to wrap us up today by asking you a little bit about AI and specifically AI and how it affects founders who are starting new companies today because you’ve been building stuff for 20 years, 20 plus years, but as you look at AI, if you were to start your next company, how would you think about it as an opportunity? Is it a feature? Is it, would you build a wrapper? How would that impact your ideation and your, I guess your thought process and where the opportunities are and where the pitfalls are?
Jason Cohen:
Yeah, it’s a big topic. First of all, I separate how I use AI operationally to do stuff like write code or right marketing from AI that’s in the product that the customers use, whether directly or indirectly. So first of all, take all that operational stuff. Let’s set that aside because I don’t think that’s what you were asking, but I find that in conversations, sometimes people start confusing that. It just makes it more difficult to deal with an already complicated or complex question, right? So let’s just ignore that. It is true that corporate budgets now are heavily biased toward things that are AI, whatever that means. And it’s a fuzzy thing. The companies themselves are not clear on what that means, so we have to be fuzzy. That tells me that whatever I do does need an AI component somehow because that’s where the budgets are.
It doesn’t tell me what to build, but the idea of like, well, I just won’t have AI at all. It’ll just be a typical thing. That could be a good idea, by the way. But I would worry that I’ll be fighting a budget battle and an attention battle. And so that doesn’t feel like the easiest path. Okay. So however, the wrong way to think of it is I need an AI product. That may be how the budget is. So that may be down the line, sometimes how you talk about it. But this is another thing I see people doing wrong constantly, which is thinking of AI as if people want AI as the problem they’re solving. So let me put that differently. People have the same problems today as they’ve always had. Marketers want more leads. Sales wants to convert more leads to a sale that stay.
Customer service wants to have good customer service and get good results from customers. Engineers want to write code that doesn’t have bugs, that’s manageable, product managers want to build. Okay. Everyone wants the same prop that they’ve always wanted. What you don’t say is like, “I need AI in sales.” What you do say is, “If I could 10X my outbound volume with the same conversion rate, that would sure be nice.” So people talk about AI like it’s part of the problem to solve or that people want AI false. AI is part of the solution space. How is it that I can deliver more of what they already wanted because of AI? AI has made something possible that was previously impossible that they already wanted. So as soon as it’s an AI voice thing, I’m like, “I don’t know what that means.” Whereas if you said, for restaurants, we take over their phone tree because we can do the menu, we can do the ordering, we can do hours, but we do it on the first ring and in 40 languages.
Now, behind there is voice AI. Otherwise, that’s not possible. But the thing you’re solving is your phone. Your phone calls are now automated and awesome. And so I think when you stay focused on the problem that already existed and AI is why you can do something that was never done before or better, that’s the right way to think of it. So I’d be thinking about AI as the solution space, not as people say and they even say in their pitch decks as the problem space. Another thing I would do is I would say, look, AI doesn’t really work. I know it’s like, but when it does, it’s amazing. Oh, I know. When it does is a pretty big qualifier. When I research stuff for the book, I would say at least half the time it’s simply wrong. Even when you do the deep summary, deep research, it sounds good when they say it and then I go read the primary sources and it’s like completely wrong half the time.
And so what do we do with that? Because people say, “Well, over time will get better.” All right, but you’re building a company now. And people have been saying that for years, and they’re right, but you’re building a company now. So here’s what I do with that information. To me, there’s three kind of categories of AI products right now. One is AI that the incumbents are inserting into existing products. So this is like notion, and you can talk to Notion and sheets and you can talk to sheets. That’s not going very well. It’s not very useful, right? Yeah. Okay, whatever. But of course they’re doing that. What else are they going to do? I would do it too, but okay. The second kind is AI for experts. I’m already a software developer. Here’s AI that helps me write code. I’m already a marketing writer. Here’s AI that helps me write articles or do social media or something.
I’m already a designer, here’s AI that helps me design. So AI for professionals. Bad news is that you’re selling to only those professionals, not like the whole world or something, and you’re up against the incumbents. Okay, but if as a startup, that’s what you are. The good news is it’s okay that the AI isn’t perfect because it’s an expert. So when the code is wrong, the expert can fix it when the writing’s bad or wrong, the marketer can fix it and so on. So it handles the fact that the AI is not perfect. This is why I like this category. The third category is AI for newbs or AI from muggles, I like to say. I’m not a software engineer. I want to make an app. I’m not a writer. I want to write a book. I’m not a designer. I want a website. Now, that’s good.
I’m not saying that’s bad. I get it. It’s empowering. It’s good. I’m not against it by any means when we’re talking about what business I would build. And the problem here is you get 70%, 80%, and then you’re stuck and as a newb, you are actually stuck. When I vibe code the SaaS and I don’t know anything about code and I’m like 80%, I can’t build a SaaS company and I don’t. There’s a lot of, “I did this. ” I know, but it’s not a SaaS company. If that’s what you were going for, that didn’t happen. And you can go down the line, like if you’re not this or that, it’s not going to … And you can’t fix it. You can’t take it downline, you can’t because you’re stuck. So the good news is that the market’s bigger because there’s 100 times or a thousand times more people that want a website than people that can build a website.
So hooray. But here’s the biggest problem is that the fact that AI doesn’t really work is like a massive hindrance, possibly a 100% hindrance. So that’s okay. If that’s what you want to do, take that. If you like that trade-off, go for it. I’m not judging. I’m just saying what I think the trade-offs are. For me personally, I’m always a problem solution sort of a entrepreneur. Everything I’ve done is like, oh, I can make this better, whatever. There’s this corporate thing that needs to be done or could be done. I can make it better. The typical B2B mindset. So that’s what I have. So they’re this center part of AI doesn’t work yet, so let’s give it to people for whom that weakness is not a deal breaker. So if I were doing a company, I would be solving a real problem that already existed.
Of course, that has budget, probably budget for AI. Okay, fine, I get it. I would use AI to make something possible that was previously impossible, and I would do it for experts so that the fact that AI didn’t work well, what did not mean the product was useless or bad. Another thing is, and this was also true of WP Engine actually. WP engine from the beginning and even now, we say like, “Oh, we make your site fast.” And of course, a fast website is good, search engines rank it higher, people don’t bounce off of it as much. There’s data that shows e-commerce sites that are fast, convert better. Media sites get more hits, which means more money. Perhaps it goes without saying, but I just said it, my fast sites are better and literally make more money for people like e-commerce and media. So okay, that’s good.
But if your site is 30% faster, is that enough to motivate someone to care, to search, to migrate their site, to not migrate away later? Is that good enough? I don’t know. It’s pretty weak. The reason we said four times faster is we had customer after customer where they had literally data showing that. And anyway, when it’s that much faster, you can just feel it. You can just see like, “Holy crap, what the hell’s going on? ” If that’s the reaction, that’s all you have to know. So when it’s not just quote unquote better or faster, more efficient, cheaper, but five times better, three times cheaper, da, da, da, da, right? Where you could measure it, but you don’t even need to to see like, holy crap when it’s that much. Then something mundane and commodity like hosting and how fast it is, how security is.
Even a commodity thing, if it’s not 30% but three, five, 10 X, it’s no longer a commodity thing. That’s now a substantially different thing busting you out, differentiating, earning a higher price and et cetera. So I say that in general, that’s part of why we went in the commodity market and WP engines because we had a couple of things like speed and scale and security and service, which were like that. But it’s also, I would bring back to the AI conversation. When the AI helps me write, but in the end of the day, I’m still writing an article a day, just a little bit faster. I don’t know, that’s something, but I’m not terribly compelled. But when I go from writing one article a week to two articles a day and they’re good, okay, that’s like dramatically changing what’s going on. Now do I want?
I personally don’t want to do that, but like, okay, that’s a product, right? Or I couldn’t respond to this many, I don’t know, posts on Twitter, whatever you’re supposed to do in social media, right? But now with this, you can. Okay. So if it’s in this multiple of saving money, increasing time, having outcomes, now maybe that’s really valuable and I’ll be interested in that. So that’s another thing I would expect from my AI. If AI is supposed to be so revolutionary, how come it’s only increasing my performance by 20%? It’s just not worth the hassle and the wonder about where this is all going. So I would also be looking for something where the AI can really make me 10X. In coding, it’s not. All the studies in real engineering departments is not that AI makes them 10 times better. The only people who claim that are the people selling AI products, the users of it, there might be individuals claiming that on Twitter because it’s something to say, but all the studies show that’s not true.
What I find in coding though is there are certain places where it absolutely is 10 or 100 X. If I need to use a library I’ve never used before to do something and it’s like, “Oh, just use this and it does. It just works.” I’m like, “Okay, in 10 minutes, you definitely save me a couple of days.” There’s no doubt, right? But there’s other areas like a big code base with a hundred developers where it’s just like, I mean, it’s just wrong so much. It’s just you’re wrestling with it. It’s actually kind of slower than just doing it. So to me, it’s contextual. The question is, when is AI coding a big 10Xer and when is it not? Is actually the question. So I’m saying that again, because that’s also part of my answer of what would I build? I would build something like that where contextually AI really can be like that.
So something as broad as coding, that’s too broad and it’s not even true that AI in that broad of a context is a 10Xer. So I try to find a product where it really is true that AI today, even with its failings, really is 3Xing something. Hopefully 3Xing more value for the customer, not just saving money. Saving money is a much weaker pitch. Hopefully it’s 3Xing the value and it really does and the weaknesses and the failings are fixed by the customer or we’ve picked a domain where AI really is much better, not like general AI, I guess. So these are the kinds of things I would go through as I would tick through it. Notice I didn’t talk about competition at all and I wouldn’t. My assumption is that every market of any reasonable size will be flooded with AI products. Maybe it already is, but my assumption is if it isn’t already, it’s going to be.
So, oh well, what am I supposed to do about that? And what moat do I have? Nothing because we all use the same models. We are all making prompts. And as you say, tech is usually not a moat. Okay, if you have very, very, very … We can all pick out special cases where the tech is the moat, but that’s the point.That’s why it’s usually not. So there’s no moats there. Everyone’s doing this stuff. So what am I supposed to do when the market is crowded? We’re all using the same tech more or less. And again, I think, well, then I’ve just got to have such a great vision for my product, my ideal narrow customer, how I build for them, how good it is for that particular customer, because not everyone’s going after that particular customer. So how can I just make an absolutely amazing product for that?
Trusting in the thing we talked about earlier that other people will also like that and want to join in. And so how can I find things like that that adhere to those other criteria? There’s a lot of Venn circles here, right? But of course there are because we just said all these things have to go right for the company to work. So yeah, that’s right. It’s going to be a vendor argument with lots of circles and a center that might not even be there. It might not even be a center, which is kind of the point. But those are the kinds of things I would look at. Now, again, not trying to imply there’s no other way to build a company, right? Of course, there’ll be successes that don’t do what I just said, like we’ve been saying. But in the spirit of that bootstrap machine where these are the things I would do that I think increase your chance of success or remove some kind of risk or at least lean into some kind of strength you have or go with the grain of what’s going on instead of against the grain and therefore just like hopefully make all these little probabilities be a little bit better than maybe they would have been.That’s what I would do.
And of course, no matter what I thought as customers actually used it, I would discover I was right about some things and wrong about some things and stuff I didn’t think of. So of course I would have to be following my nose after that, but this is what I would start with and then of course be following my nose as soon as I could intersect it with real customers.
Rob Walling:
Amazing. It’s a great note to end it on. Thanks for coming on the show. I want to have you back when you release the book. We can talk, probably dig into some of the content of that. Folks want to pre-order it. I pre-ordered my very own copy this morning. It’s at hiddenmultipliers.com. And you and I are going to be hanging out in Portland, Oregon here in just a few months. You’re speaking at MicroConf again. I think it’s been about 10 years since your last MicroConf talk and I’m really looking forward to hearing from you in April.
Jason Cohen:
Yeah. The talk is about what to do when growth slows.
Rob Walling:
Yeah. It’s just a topic for many, many people.
Jason Cohen:
It is. I think nowadays a lot of people are seeing that large and small companies. And of course, a lot of people want to grow anyway, whether it’s slowing or not. So it’s just a useful thing anyway.
Rob Walling:
It’s going to be good. Yeah. MicroConf.com/us if you’d like to pick up your ticket. It’s April, I think it’s 14th through the 16th in Portland, Oregon. And then if folks want to keep up with you on X, Twitter, you are a smartbear and of course a smartbear.com where all your essays live. So thanks again, man. It’s been great having you.
Jason Cohen:
It was fun. Thanks.
Rob Walling:
Thanks again to Jason for joining me on the show today. And I meant it when I said I want to have him back on when his book is live. I think there’s so much more to talk about with him that it both enlightens me and I think educates bootstrappers as a whole. As someone who has, I think he’s bootstrapped three companies and raised buckets of money for the fourth for WP Engine. He really just has a very grounded sense about him and about how he thinks about growing companies. As a reminder, his book is Hidden Multipliers. You can get it at hiddenmultipliers.com. And he will be speaking in just a couple months at MicroConf US in Portland, microConf.com/US if you want to buy a ticket and hang out with Jason and I for a couple days in mid-April. Thanks again for joining me this week and every week.
This is Rob Walling signing off from episode 817.
Episode 816 | Developing an Editorial Eye, The Right Kind of Stubborn, and The Power of Focus (A Rob Solo Adventure)
/
RSS Feed
Have you ever pushed so hard on an idea that you missed the signal to change direction?
In this solo episode, Rob Walling covers a wide range of topics and dives into three areas every founder should master: how to develop an editorial eye (or “taste”), the difference between persistence and obstinance, and why focus, not diversification remains the hardest, most valuable entrepreneurial skill.
Episode Sponsor:
Hiring engineers shouldn’t feel like sorting through AI-polished resumes.
G2i cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with 5+ years of real experience, and they run live, human-led technical interviews to verify actual skills.
No time wasters. No guesswork. Just solid developers who can deliver.
G2i is trusted by companies like Meta, Microsoft, and countless bootstrapped founders who need to move fast without making expensive mistakes.
👉 Get a 7-day free trial and $1,500 off when you mention Startups for the Rest of Us at https://www.g2i.co/rob
Topics we cover:
- (1:55) – How to develop an “editorial eye” (and why it matters for founders)
- (7:03) – When to get out of the way and let true experts lead
- (8:07) – Why your product must start with a real problem (not just an idea)
- (9:11) – Paul Graham’s The Right Kind of Stubborn: persistence vs. obstinance
- (12:03) – Are you attached to your goal or just your first idea?
- (13:44) – How great founders adapt to new data without losing momentum
- (14:44) – Sam Parr on why “constant switching will kill you”
- (16:30) – Focus as a founder’s hardest and most valuable skill
- (16:49) – Why “Triple, Triple, Double, Double” isn’t dead (despite VC takes)
- (18:34) – The problem with clickbait startup advice
Links from the Show:
- MicroConf Europe 2026 – Join us in Reykjavík, Iceland (Sept 21–23) – Promo Code: ROB50
- The Mom Test by Rob Fitzpatrick
- Paul Graham: “The Right Kind of Stubborn”
- Sam Parr (@thesamparr) | X
- Harry Stebbings (@HarryStebbings) | X
- Rob Walling YouTube Channel
- The SaaS Playbook
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. Welcome back to another episode of Startup for the Rest of Us. I’m your host, Rob Walling, and in this solo adventure, I’m going to talk about developing an editorial eye, a realization a founder had about solving problems and being the right kind of stubborn.
Before we dive into today’s topics, MicroConf Europe this year is heading to Iceland. The dates are September 21st through the 23rd of 2026. Tickets have just gone on sale. And if you want to buy a ticket and you should, you should use promo code Rob50 at microConfEurope.com. We are selling all of our MicroConf in- person events out and have for several years. So if you want a ticket and you want it at the cheapest price, it will ever be head to microConfEurope.com and enter code ROB50.
First topic I want to touch on today is about developing an editorial eye, or as I’ve sometimes called it on this podcast, developing taste. And I think in most of the instances I’m thinking about it, editorial eye might be better, but I think about this applying to all creative or intellectual domains like movies, books, visual design, software, code. And when you’re first exposed to any of these things, you don’t yet know what’s good or bad because you lack taste, you lack that editorial eye. And the reason I like the term editorial eye is it implies a level of discernment and it applies the ability to not just have taste and be snooty, oh, this is good or bad, but to potentially editorialize it. And that’s what I want to talk about today. I was thinking about the three stages of developing an editorial eye in any medium.
Again, whether that’s movies, books, design, code, the first is exposure to just figure out what’s good and what’s bad. It’s exposure to many films or to many books or to writing and reading a lot of code. Not just writing code, by the way. I find that the people who have only written code, have never worked on a team, have never had to get into a code base that they’ve never seen before. It’s like they’re code blind and they’ve only experienced the way they do it and they have these really strong opinions about how it should be done. And this code base is a piece of … Because the whole thing needs to be rewritten. It’s like the famous agency or new dev that comes in. It’s often folks who have not had to adopt code bases that they themselves didn’t write. But the idea here with knowing what’s good and bad is that you get enough exposure to enough variations of this thing that you’ve seen enough work to develop a sense of quality.
You can’t form an editorial eye by watching one movie or reading one book. It might take hundreds. And this again is why seeing a lot of code bases and seeing code written by different people and having to take over a code base you didn’t write, I think is actually a really helpful skill. Or with visual design, seeing hundreds of websites and logos and layouts, you start to understand the continuum between good and bad, especially if you learn some fundamentals along the way. This is either self-study or school or perhaps mentorship. So that’s the first stage, exposure, figuring out what’s good and bad. Stage two is analysis. It’s understanding why it’s good or bad. It’s understanding the reasons behind your instincts, because as a developer, you might know bad code when you see it, but the why involves understanding specifics, right? Broken logic, poor structure, lack of clarity, lack of maintainability.
As a non-designer, you might recognize a design feels off, but struggle to articulate why. And this is the bane of designers or freelance designers where it’s like someone says, “I need it to pop more. Can you make it? Can you make it? ” Bizzad some pizazz to it, right? It’s awful. This is where there’s a lot of folks stuck at stage one and there are even a lot of folks who maybe even don’t have the taste and think that they do, but it is a common frustration. If you’re hired by someone is a client who can judge taste or thinks they can, but they can’t explain the why and it’s because they haven’t gotten to stage two. This ability to explain why something works or doesn’t, it’s a refined skill. It’s a key marker of deeper expertise and it takes a lot of time and exposure and I think some self-learning as well to learn the vague rules.
And maybe there are rules of thumb and maybe there are hard and fast rules or maybe there are rules in your own head, but it’s your pattern matching that gets you here. And then stage three is mastery. It’s knowing how to fix it. This is not just diagnosing a problem, seeing there’s a problem, understanding why. It’s being able to say, “This is how to make it better.” So as a developer, you move from saying this code is bad to refactor this class or extract this into a parameter. In films, it might mean that you know pacing really well. You can say, “Oh, the pacing was off and here’s what I would’ve done.” Structural changes, right? That character didn’t need to be there at all. Story arc improvements, writing improvements. And being able to prescribe how to improve moves you from being a critic to creation and mastery, right?
Being able to actually improve a work of art, or in this case, a piece of software or a website. And this is kind of like ninja level expertise, right? It’s editorial vision. It combines a lot of experience, judgment, reasoning, and creative problem solving, and probably quite a bit of education that you’ve given yourself. And so there are a lot of things, there’s some things that I consider myself stage three at. Back in the day when I was still writing code full time, I was definitely this in software. I was never this in design. I was often stage one and I dabble in stage two now and again. So why am I telling you this? Well, I’m telling you for a couple of reasons. Number one, so that as you interact with people at your day job, or if you have clients, let’s say you’re a developer, designer, and you’re freelance, that you can start identifying this in yourself and in the people you work with.
I think it will be helpful. Second thing is if you’re a founder or you’re hiring freelancers or contractors or full-time employees, that you can accurately grade yourself and get the hell out of the way and let an expert maybe do it a little better if they can. So if you’re a stage one in design and you hire a really good designer, you might need to get out of their way and put your opinion aside. Likewise, if you hire a designer and you feel like they’re not even at a stage three, well, that may be a problem for you. I think having some type of framework for thinking about editorial eye and this trichotomy of knowing what’s good and bad at stage one, understanding why, and then knowing how to fix it. I really do think that being competent at these levels is something you should strive for in the areas of your expertise.
You’re not going to be this in everything. You are not going to be a stage three in movies, books, design, code, and all these things, right? It’s very unlikely because it takes a lot of exposure and it takes a lot of work to get there. My second topic is a realization that a listener had. They emailed a question into me and I just answered it via email and I told them to read the mom test because they had a solution in search of a problem. They had an idea for a product because it was an idea for a product. And I said, “What problem does this solve?” And they were like, “I don’t understand what you mean.” I said, “Go read the mom test.” And they emailed me. I just wanted to thank you for your suggestion. I listen to the mom test and I get what you mean.
It makes more sense for a solution to a problem to become a product than forcing a product to become a solution. I thought that was a very succinct and insightful statement of a real key to making successful B2B SaaS companies is starting with the problem. What problem do you solve and for whom? That’s the most common question I ask. When starter founders come to tell me their idea, I say, “Don’t tell me your idea. Tell me what problem it solves and for whom.” And if you haven’t read The Mom Test by Rob Fitzpatrick, you’re missing out. It’s a great book. My third topic is based on a Paul Graham essay that I was reading while I was on vacation with my family in Mexico just a few weeks ago. The essay is called The Right Kind of Stubborn, and I want to read you an excerpt from that essay.
Of course, you can Google it or go to Paulgram.com if you want to read the whole thing. “The reason the persistent and the obstinate seems similar is that they’re both hard to stop and I want to break in right here. He’s using the word persistent to describe successful founders. These are founders that get it done, they have a vision and they keep going after it. They’re persistent. He’s using obstinate to define founders who are stuck in a certain direction. They seem persistent, but they’re actually stubborn and they don’t change their minds when they should. So resuming this piece. They’re both hard to stop in different senses. The persistent are like boats whose engines can’t be throttled back. The obstinate are like boats whose rudders can’t be turned. It’s a great analogy. In the degenerate case, they’re indistinguishable. When there’s only one way to solve a problem, your only choice is whether to give up or not, and persistence and obstinacy both say no.
This is presumably why the two are so often conflated in popular culture. It assumes simple problems, but as problems get more complicated, we can see the difference between them. The persistent are much more attached to points high in the decision tree than to minor ones lowered down while the obstinate spray don’t give up indiscriminately over the whole tree. The persistent, and this is the key right here. “The persistent are attached to the goal. The obstinate are attached to their ideas about how to reach it. ” I love, love those two sentences. Those two sentences alone described so many founders that I have seen or tried to give advice to or interacted with on the internet. And I tell you, the persistent are the ones that they just can figure it out and the obstinate are the ones that get in their own way over and over and over.
And the only way they’re successful is if they happen to luck upon the right answer from the start because they’re so attached to their ideas about how to reach it. Continuing on with the essay. Yeah, he says it right here. “We’re still, that means they’ll tend to be attached to their first ideas about how to solve a problem. “I wasn’t trying to quote him, it came to me, even though these are the least informed by the experience of working on it. So the obstinate aren’t merely attached to details, but disproportionately likely to be attached to the wrong ones. Paul Graham drops knowledge. I mean, if you haven’t read Mongram’s essays, they’re very well thought out. But I love it when he has this take because I see these patterns playing out over and over in founders over and over. I see it on social media and you see the same people tripping over themselves and getting in their own way over and over and it’s because they’re being obstinate.
So there’s a wrong kind of stubborn and a right kind of stubborn. The right kind of stubborn is like, ” I’m going to figure this out and I’m going to be persistent with it. “So the idea is to find out which kind of founder are you? Where’s your blind spot? What’s your weakness? Is your weakness that you give up and you’re just not persistent at all? Well, that’s a problem. Is your weakness that you are obstinate and that your rudder can’t be turned, that the initial idea of how you want to do something doesn’t change with new information, with new data, or with conversations with experienced and knowledgeable founders. I have worked with or seen founders in a group of very knowledgeable and successful entrepreneurs and I’ve seen some founders ask for advice and then ignore all the advice from all the other founders and they act like they want advice and they really don’t.
And it’s a problem. It’s a problem. And it’s not just a problem because it pisses everybody off. These founders almost never succeed. Or if they do, it’s because they got lucky and stumbled upon that very first idea that happened to be right, and that’s just unlikely to happen. So the reason I’m bringing this up is look at yourself, like give yourself a good look in the mirror. Take a personality test or two. Ask some folks around you, a co-founder, a mastermind, a spouse, a significant other. Think about how you go about solving problems. And when things get hard, do you take in new data and do different things? Do you mix it up or do you make excuses and continue doing the same thing over and over thinking that this should work? This really should work. Should isn’t going to get you there. I like the way that Ruben Gomez, founder of Sinwell, weighs in when I was saying the successful founders I see, they do a lot of things and they’re right most of the time.
They’re right enough of the time that they make forward progress. And Ruben said,” You should point out that they’re usually not right the first time. They usually have a hypothesis that they try and then they get new data and then they realize, Oh, that wasn’t quite right, pivot a little bit to the right. “And they tried that, make a little bit of progress. “Eh, it wasn’t quite right either. Pivot back to the left.” And they move and their rudder can be changed, but you can’t throttle them back. They keep moving forward, taking in new data and being creative about the next step that they need to solve this problem or to overcome this mountain or to get to a million or two million ARR when things aren’t working. I think it’s a really insightful comment both from Reuben and Paul Graham about the idea that the odds of you coming up with the right solution from the start are really, really low and that the best founders I see are not only the persistent ones, but they are the ones that take in new information and adjust their course as they move forward.
My fourth topic of today is from X Twitter and it’s a tweet from Sam Parr, co-host of My First Million. He says, “One reason why entrepreneurship is hard is because you fear that what you’re working on today won’t pay dividends in five years and that it’ll be a waste of time.” And so you switch from thing to thing to make yourself feel that you’re addressing that fear, not true. He says in all caps, “Constant switching will kill you. The focus is the hard part and will increase the likelihood of the desirable outcome.” The price of the payout future profit selling company is the focus. If you’ve listened to this podcast for any length of time, you’ll know that this is something I harp on a lot because there are a lot of people making excuses for being distracted and for engaging and feeding their entrepreneurial ADHD or their shiny object syndrome or their, “I need to be diversified or it’s all a matter of luck, so I need to make a hundred bets because won my payoff, et cetera, et cetera.” I don’t believe that.
I think it’s terrible advice. Sam Parr doesn’t believe that. Jason Cohen has come out, doesn’t believe it. He’s come out in favor of focus. And I love it when someone like Sam, who by all means has been very successful and is now in his second successful effort. He sold his first startup, I believe he’s been public about it, that it was an eight figure exit and now he started Hampton and here he is talking about the power of focus. And someone chimed in that they think this is survivorship bias. And Sam says, “If your goal is to have an outsized success and be above average, that doesn’t come from diversification.” Diversification is what you do to preserve wealth. Focus people, don’t believe those who tell you that you can lose weight by not exercising and eating more ice cream. It sounds good. It feeds your instinct.
I want to start 20 things. I don’t want to focus on anything. Focusing is hard. Bouncing from one thing to the next is easy and it’s fun. Usually in life, I’ve found that the things that are most worthwhile and that are going to bring me the success that I want or the results that I want are the hard things. When in doubt, I lean in to the hard things. My last topic of the day is an original tweet from Harry Stebbings who hosts the 20 minute VC podcast and he’s a venture capitalist himself. And then Adam Fox, who’s at last name Fox on X Twitter said, “Rob Walling for your next episode.” So Harry Stebbings original tweet says, “Triple, triple, double, double is dead. Going from one million to three million to nine million is not interesting. You have to go from one million to 15 million to a hundred million.” Adam Fox has the melt emoji because he’s kind of like, “Are you kidding me guys?
Are you kidding me with this? ” And yeah, it’s interesting. So if you haven’t heard of triple, triple, double, double, it’s a big thing in the venture capital world where it’s like, all right, once you get to a million, then to have a good growth trajectory or like a fundable or a unicorn growth trajectory, like a really solid one, you get to a million and then you triple once to three, you triple again to nine, and then you double to 18, you double to 36 in that once a year. So that’s over the course of, you get to a million and that’s four years from there, you’re at 36 million ARR. And I mean, even that is pretty impressive growth. I get it that venture capitalists only want to fund deco corns now, but yeah, the idea that anything is dead, triple, triple, double, double is dead and you have to go from, you have to 15X and then six and a half X.
I mean, that’s essentially what this is, right? One million to 15 million in a year and 15 to 100. Do you have to be venture fundable? I don’t think so. If you triple, triple, double double, I still think, yeah, you’ll be overshadowed by those that are doing the lovable and the Nin growth curves, right? The one to 15 to 100, but can you still raise rounds? I do believe you can. I don’t think it’s dead. This is where you have to consider your source, right? You’ll see certain folks on the internet, especially big influencers who are trying to get the eyeballs and they say stuff like this, that really like you have to do this. Have our growth expectations changed forever is what he tweets. And look, I get it. You’re listening to this podcast. You don’t really care about venture capital. You’re not going to raise venture capital, so why does this impact you?
The point is, be really aware of who you’re listening to. There is probably half the tweets that I see in any given day. I think to myself, “That’s not true.” Like you’re either lying to yourself or you’re lying to me by posting this. And you’re going to be rewarded for it, of course, because it’s an outlandish take. And this is one of the most frustrating parts for social media that I’ve experienced is that the folks who do the click baity bullshit to either get people mad or to say outlandish things to get attention are the ones who get rewarded with these audiences on social media. Back in the day, a little bit about blogging was to have a crazy headline writer to get some attention, but really earning that audience by writing a meaty piece that you’ve thought through, it was so much harder to be lazy, right?
Because you had to put in work to write a thousand, 2,000, 3,000 word blog posts. You look at Jason Cohen back in the day, myself, Patrick McKenzie, Pell Eagles only. There’s a bunch of folks who were bloggers back in the day in the entrepreneur space, even like Paul Graham and Joel Sporsky. And it wasn’t that you couldn’t get some eyeballs by being clickbaity, but you had to put in that work and have some meat to your statements. Now with social media, you can make a two sentence thing about how this is all dead and everything’s changed forever. Don’t believe everything you read, please. I know that I keep saying this. This is something I avoid so hard on social media and maybe it’s to my detriment. Shouldn’t I have 10 times the following that I do? Probably if I said statements like this, would I?
In fact, if I told you you should do a two-sided marketplace and that B2C is where it’s at, do I think I’d have a lot more followers than I do? Probably, but I couldn’t sleep at night. I just couldn’t live with myself saying these things that I feel are disingenuous and are done for no other purpose than to engagement bait and to grow my audience. As you know, the mission of this podcast and really my mission for the past 20 years has been to help startup founders like yourself. Folks, maybe you’re bootstrapping, maybe you raised a small amount of money, maybe you’re raising series A’s and you’re raising a huge amount of money. If you’re starting a SaaS company, I think you can gain from the information in this podcast and on my YouTube channel and in my books. And that is really what excites me these days is being able to see across the wide swath of startups and SaaS companies that are being built today.
I’m certainly indexed more on Bootstrap than mostly Bootstrap, but I do get exposure to venture funded because I’m invested in 234 companies and I don’t know, a dozen or two dozen. No, it’s got to be close to two dozen have raised venture rounds. And so I’ve been exposed to that as well. And I like to be able to take that knowledge and experience and that filter and that lens and the viewpoint that I have and try to distill it down into helpful frameworks and insights for you every week on this show, every other week on my YouTube channel, which is youtube.com/robwalllling. And of course in the books I put out every couple years and maybe on social media too, you can follow me on X Twitter @RobWalllling. I don’t tweet as much as I used to, partially because I got fed up with having to read tweets like this.
But all that said, it’s enough smack talking for me today. I hope that today you are building an incredible business for yourself that may not change the world, but hopefully changes your little corner of it. This is Rob Walling signing off from episode 816.
Hiring engineers right now is noisy. You post a role and get flooded with AI polished resumes from people who’ve never actually shipped anything. G2I cuts through all of that. They’ve pre-vetted over 8,000 engineers, all with over five years of experience, and they do live technical interviews with real humans checking for real skills. There’s no time wasters, no guesswork. Just candidates who can actually get the job done. Meta trusts them, Microsoft trusts them, and so do bootstrap founders who need to move fast without making expensive mistakes. Check them out at gt2i.co/rob. Get a seven-day free trial and $1,500 off when you mention startups for the rest of us. That’s g2i.co/rob. Welcome back to another episode of Startup for the Rest of Us. I’m your host, Rob Walling, and in this solo adventure, I’m going to talk about developing an editorial eye, a realization a founder had about solving problems and being the right kind of stubborn.
Before we dive into today’s topics, MicroConf Europe this year is heading to Iceland. The dates are September 21st through the 23rd of 2026. Tickets have just gone on sale. And if you want to buy a ticket and you should, you should use promo code Rob50 at microConfEurope.com. We are selling all of our MicroConf in- person events out and have for several years. So if you want a ticket and you want it at the cheapest price, it will ever be head to microConfEurope.com and enter code ROB50.
First topic I want to touch on today is about developing an editorial eye, or as I’ve sometimes called it on this podcast, developing taste. And I think in most of the instances I’m thinking about it, editorial eye might be better, but I think about this applying to all creative or intellectual domains like movies, books, visual design, software, code. And when you’re first exposed to any of these things, you don’t yet know what’s good or bad because you lack taste, you lack that editorial eye. And the reason I like the term editorial eye is it implies a level of discernment and it applies the ability to not just have taste and be snooty, oh, this is good or bad, but to potentially editorialize it. And that’s what I want to talk about today. I was thinking about the three stages of developing an editorial eye in any medium.
Again, whether that’s movies, books, design, code, the first is exposure to just figure out what’s good and what’s bad. It’s exposure to many films or to many books or to writing and reading a lot of code. Not just writing code, by the way. I find that the people who have only written code, have never worked on a team, have never had to get into a code base that they’ve never seen before. It’s like they’re code blind and they’ve only experienced the way they do it and they have these really strong opinions about how it should be done. And this code base is a piece of … Because the whole thing needs to be rewritten. It’s like the famous agency or new dev that comes in. It’s often folks who have not had to adopt code bases that they themselves didn’t write. But the idea here with knowing what’s good and bad is that you get enough exposure to enough variations of this thing that you’ve seen enough work to develop a sense of quality.
You can’t form an editorial eye by watching one movie or reading one book. It might take hundreds. And this again is why seeing a lot of code bases and seeing code written by different people and having to take over a code base you didn’t write, I think is actually a really helpful skill. Or with visual design, seeing hundreds of websites and logos and layouts, you start to understand the continuum between good and bad, especially if you learn some fundamentals along the way. This is either self-study or school or perhaps mentorship. So that’s the first stage, exposure, figuring out what’s good and bad. Stage two is analysis. It’s understanding why it’s good or bad. It’s understanding the reasons behind your instincts, because as a developer, you might know bad code when you see it, but the why involves understanding specifics, right? Broken logic, poor structure, lack of clarity, lack of maintainability.
As a non-designer, you might recognize a design feels off, but struggle to articulate why. And this is the bane of designers or freelance designers where it’s like someone says, “I need it to pop more. Can you make it? Can you make it? ” Bizzad some pizazz to it, right? It’s awful. This is where there’s a lot of folks stuck at stage one and there are even a lot of folks who maybe even don’t have the taste and think that they do, but it is a common frustration. If you’re hired by someone is a client who can judge taste or thinks they can, but they can’t explain the why and it’s because they haven’t gotten to stage two. This ability to explain why something works or doesn’t, it’s a refined skill. It’s a key marker of deeper expertise and it takes a lot of time and exposure and I think some self-learning as well to learn the vague rules.
And maybe there are rules of thumb and maybe there are hard and fast rules or maybe there are rules in your own head, but it’s your pattern matching that gets you here. And then stage three is mastery. It’s knowing how to fix it. This is not just diagnosing a problem, seeing there’s a problem, understanding why. It’s being able to say, “This is how to make it better.” So as a developer, you move from saying this code is bad to refactor this class or extract this into a parameter. In films, it might mean that you know pacing really well. You can say, “Oh, the pacing was off and here’s what I would’ve done.” Structural changes, right? That character didn’t need to be there at all. Story arc improvements, writing improvements. And being able to prescribe how to improve moves you from being a critic to creation and mastery, right?
Being able to actually improve a work of art, or in this case, a piece of software or a website. And this is kind of like ninja level expertise, right? It’s editorial vision. It combines a lot of experience, judgment, reasoning, and creative problem solving, and probably quite a bit of education that you’ve given yourself. And so there are a lot of things, there’s some things that I consider myself stage three at. Back in the day when I was still writing code full time, I was definitely this in software. I was never this in design. I was often stage one and I dabble in stage two now and again. So why am I telling you this? Well, I’m telling you for a couple of reasons. Number one, so that as you interact with people at your day job, or if you have clients, let’s say you’re a developer, designer, and you’re freelance, that you can start identifying this in yourself and in the people you work with.
I think it will be helpful. Second thing is if you’re a founder or you’re hiring freelancers or contractors or full-time employees, that you can accurately grade yourself and get the hell out of the way and let an expert maybe do it a little better if they can. So if you’re a stage one in design and you hire a really good designer, you might need to get out of their way and put your opinion aside. Likewise, if you hire a designer and you feel like they’re not even at a stage three, well, that may be a problem for you. I think having some type of framework for thinking about editorial eye and this trichotomy of knowing what’s good and bad at stage one, understanding why, and then knowing how to fix it. I really do think that being competent at these levels is something you should strive for in the areas of your expertise.
You’re not going to be this in everything. You are not going to be a stage three in movies, books, design, code, and all these things, right? It’s very unlikely because it takes a lot of exposure and it takes a lot of work to get there. My second topic is a realization that a listener had. They emailed a question into me and I just answered it via email and I told them to read the mom test because they had a solution in search of a problem. They had an idea for a product because it was an idea for a product. And I said, “What problem does this solve?” And they were like, “I don’t understand what you mean.” I said, “Go read the mom test.” And they emailed me. I just wanted to thank you for your suggestion. I listen to the mom test and I get what you mean.
It makes more sense for a solution to a problem to become a product than forcing a product to become a solution. I thought that was a very succinct and insightful statement of a real key to making successful B2B SaaS companies is starting with the problem. What problem do you solve and for whom? That’s the most common question I ask. When starter founders come to tell me their idea, I say, “Don’t tell me your idea. Tell me what problem it solves and for whom.” And if you haven’t read The Mom Test by Rob Fitzpatrick, you’re missing out. It’s a great book. My third topic is based on a Paul Graham essay that I was reading while I was on vacation with my family in Mexico just a few weeks ago. The essay is called The Right Kind of Stubborn, and I want to read you an excerpt from that essay.
Of course, you can Google it or go to Paulgram.com if you want to read the whole thing. “The reason the persistent and the obstinate seems similar is that they’re both hard to stop and I want to break in right here. He’s using the word persistent to describe successful founders. These are founders that get it done, they have a vision and they keep going after it. They’re persistent. He’s using obstinate to define founders who are stuck in a certain direction. They seem persistent, but they’re actually stubborn and they don’t change their minds when they should. So resuming this piece. They’re both hard to stop in different senses. The persistent are like boats whose engines can’t be throttled back. The obstinate are like boats whose rudders can’t be turned. It’s a great analogy. In the degenerate case, they’re indistinguishable. When there’s only one way to solve a problem, your only choice is whether to give up or not, and persistence and obstinacy both say no.
This is presumably why the two are so often conflated in popular culture. It assumes simple problems, but as problems get more complicated, we can see the difference between them. The persistent are much more attached to points high in the decision tree than to minor ones lowered down while the obstinate spray don’t give up indiscriminately over the whole tree. The persistent, and this is the key right here. “The persistent are attached to the goal. The obstinate are attached to their ideas about how to reach it. ” I love, love those two sentences. Those two sentences alone described so many founders that I have seen or tried to give advice to or interacted with on the internet. And I tell you, the persistent are the ones that they just can figure it out and the obstinate are the ones that get in their own way over and over and over.
And the only way they’re successful is if they happen to luck upon the right answer from the start because they’re so attached to their ideas about how to reach it. Continuing on with the essay. Yeah, he says it right here. “We’re still, that means they’ll tend to be attached to their first ideas about how to solve a problem. “I wasn’t trying to quote him, it came to me, even though these are the least informed by the experience of working on it. So the obstinate aren’t merely attached to details, but disproportionately likely to be attached to the wrong ones. Paul Graham drops knowledge. I mean, if you haven’t read Mongram’s essays, they’re very well thought out. But I love it when he has this take because I see these patterns playing out over and over in founders over and over. I see it on social media and you see the same people tripping over themselves and getting in their own way over and over and it’s because they’re being obstinate.
So there’s a wrong kind of stubborn and a right kind of stubborn. The right kind of stubborn is like, ” I’m going to figure this out and I’m going to be persistent with it. “So the idea is to find out which kind of founder are you? Where’s your blind spot? What’s your weakness? Is your weakness that you give up and you’re just not persistent at all? Well, that’s a problem. Is your weakness that you are obstinate and that your rudder can’t be turned, that the initial idea of how you want to do something doesn’t change with new information, with new data, or with conversations with experienced and knowledgeable founders. I have worked with or seen founders in a group of very knowledgeable and successful entrepreneurs and I’ve seen some founders ask for advice and then ignore all the advice from all the other founders and they act like they want advice and they really don’t.
And it’s a problem. It’s a problem. And it’s not just a problem because it pisses everybody off. These founders almost never succeed. Or if they do, it’s because they got lucky and stumbled upon that very first idea that happened to be right, and that’s just unlikely to happen. So the reason I’m bringing this up is look at yourself, like give yourself a good look in the mirror. Take a personality test or two. Ask some folks around you, a co-founder, a mastermind, a spouse, a significant other. Think about how you go about solving problems. And when things get hard, do you take in new data and do different things? Do you mix it up or do you make excuses and continue doing the same thing over and over thinking that this should work? This really should work. Should isn’t going to get you there. I like the way that Ruben Gomez, founder of Sinwell, weighs in when I was saying the successful founders I see, they do a lot of things and they’re right most of the time.
They’re right enough of the time that they make forward progress. And Ruben said,” You should point out that they’re usually not right the first time. They usually have a hypothesis that they try and then they get new data and then they realize, Oh, that wasn’t quite right, pivot a little bit to the right. “And they tried that, make a little bit of progress. “Eh, it wasn’t quite right either. Pivot back to the left.” And they move and their rudder can be changed, but you can’t throttle them back. They keep moving forward, taking in new data and being creative about the next step that they need to solve this problem or to overcome this mountain or to get to a million or two million ARR when things aren’t working. I think it’s a really insightful comment both from Reuben and Paul Graham about the idea that the odds of you coming up with the right solution from the start are really, really low and that the best founders I see are not only the persistent ones, but they are the ones that take in new information and adjust their course as they move forward.
My fourth topic of today is from X Twitter and it’s a tweet from Sam Parr, co-host of My First Million. He says, “One reason why entrepreneurship is hard is because you fear that what you’re working on today won’t pay dividends in five years and that it’ll be a waste of time.” And so you switch from thing to thing to make yourself feel that you’re addressing that fear, not true. He says in all caps, “Constant switching will kill you. The focus is the hard part and will increase the likelihood of the desirable outcome.” The price of the payout future profit selling company is the focus. If you’ve listened to this podcast for any length of time, you’ll know that this is something I harp on a lot because there are a lot of people making excuses for being distracted and for engaging and feeding their entrepreneurial ADHD or their shiny object syndrome or their, “I need to be diversified or it’s all a matter of luck, so I need to make a hundred bets because won my payoff, et cetera, et cetera.” I don’t believe that.
I think it’s terrible advice. Sam Parr doesn’t believe that. Jason Cohen has come out, doesn’t believe it. He’s come out in favor of focus. And I love it when someone like Sam, who by all means has been very successful and is now in his second successful effort. He sold his first startup, I believe he’s been public about it, that it was an eight figure exit and now he started Hampton and here he is talking about the power of focus. And someone chimed in that they think this is survivorship bias. And Sam says, “If your goal is to have an outsized success and be above average, that doesn’t come from diversification.” Diversification is what you do to preserve wealth. Focus people, don’t believe those who tell you that you can lose weight by not exercising and eating more ice cream. It sounds good. It feeds your instinct.
I want to start 20 things. I don’t want to focus on anything. Focusing is hard. Bouncing from one thing to the next is easy and it’s fun. Usually in life, I’ve found that the things that are most worthwhile and that are going to bring me the success that I want or the results that I want are the hard things. When in doubt, I lean in to the hard things. My last topic of the day is an original tweet from Harry Stebbings who hosts the 20 minute VC podcast and he’s a venture capitalist himself. And then Adam Fox, who’s at last name Fox on X Twitter said, “Rob Walling for your next episode.” So Harry Stebbings original tweet says, “Triple, triple, double, double is dead. Going from one million to three million to nine million is not interesting. You have to go from one million to 15 million to a hundred million.” Adam Fox has the melt emoji because he’s kind of like, “Are you kidding me guys?
Are you kidding me with this? ” And yeah, it’s interesting. So if you haven’t heard of triple, triple, double, double, it’s a big thing in the venture capital world where it’s like, all right, once you get to a million, then to have a good growth trajectory or like a fundable or a unicorn growth trajectory, like a really solid one, you get to a million and then you triple once to three, you triple again to nine, and then you double to 18, you double to 36 in that once a year. So that’s over the course of, you get to a million and that’s four years from there, you’re at 36 million ARR. And I mean, even that is pretty impressive growth. I get it that venture capitalists only want to fund deco corns now, but yeah, the idea that anything is dead, triple, triple, double, double is dead and you have to go from, you have to 15X and then six and a half X.
I mean, that’s essentially what this is, right? One million to 15 million in a year and 15 to 100. Do you have to be venture fundable? I don’t think so. If you triple, triple, double double, I still think, yeah, you’ll be overshadowed by those that are doing the lovable and the Nin growth curves, right? The one to 15 to 100, but can you still raise rounds? I do believe you can. I don’t think it’s dead. This is where you have to consider your source, right? You’ll see certain folks on the internet, especially big influencers who are trying to get the eyeballs and they say stuff like this, that really like you have to do this. Have our growth expectations changed forever is what he tweets. And look, I get it. You’re listening to this podcast. You don’t really care about venture capital. You’re not going to raise venture capital, so why does this impact you?
The point is, be really aware of who you’re listening to. There is probably half the tweets that I see in any given day. I think to myself, “That’s not true.” Like you’re either lying to yourself or you’re lying to me by posting this. And you’re going to be rewarded for it, of course, because it’s an outlandish take. And this is one of the most frustrating parts for social media that I’ve experienced is that the folks who do the click baity bullshit to either get people mad or to say outlandish things to get attention are the ones who get rewarded with these audiences on social media. Back in the day, a little bit about blogging was to have a crazy headline writer to get some attention, but really earning that audience by writing a meaty piece that you’ve thought through, it was so much harder to be lazy, right?
Because you had to put in work to write a thousand, 2,000, 3,000 word blog posts. You look at Jason Cohen back in the day, myself, Patrick McKenzie, Pell Eagles only. There’s a bunch of folks who were bloggers back in the day in the entrepreneur space, even like Paul Graham and Joel Sporsky. And it wasn’t that you couldn’t get some eyeballs by being clickbaity, but you had to put in that work and have some meat to your statements. Now with social media, you can make a two sentence thing about how this is all dead and everything’s changed forever. Don’t believe everything you read, please. I know that I keep saying this. This is something I avoid so hard on social media and maybe it’s to my detriment. Shouldn’t I have 10 times the following that I do? Probably if I said statements like this, would I?
In fact, if I told you you should do a two-sided marketplace and that B2C is where it’s at, do I think I’d have a lot more followers than I do? Probably, but I couldn’t sleep at night. I just couldn’t live with myself saying these things that I feel are disingenuous and are done for no other purpose than to engagement bait and to grow my audience. As you know, the mission of this podcast and really my mission for the past 20 years has been to help startup founders like yourself. Folks, maybe you’re bootstrapping, maybe you raised a small amount of money, maybe you’re raising series A’s and you’re raising a huge amount of money. If you’re starting a SaaS company, I think you can gain from the information in this podcast and on my YouTube channel and in my books. And that is really what excites me these days is being able to see across the wide swath of startups and SaaS companies that are being built today.
I’m certainly indexed more on Bootstrap than mostly Bootstrap, but I do get exposure to venture funded because I’m invested in 234 companies and I don’t know, a dozen or two dozen. No, it’s got to be close to two dozen have raised venture rounds. And so I’ve been exposed to that as well. And I like to be able to take that knowledge and experience and that filter and that lens and the viewpoint that I have and try to distill it down into helpful frameworks and insights for you every week on this show, every other week on my YouTube channel, which is youtube.com/robwalllling. And of course in the books I put out every couple years and maybe on social media too, you can follow me on X Twitter @RobWalllling. I don’t tweet as much as I used to, partially because I got fed up with having to read tweets like this.
But all that said, it’s enough smack talking for me today. I hope that today you are building an incredible business for yourself that may not change the world, but hopefully changes your little corner of it. This is Rob Walling signing off from episode 816.
Episode 815 | Unexpected Skills Your Day Job Can Teach You About Entrepreneurship (Rob Solo)
/
RSS Feed
Can your 9-to-5 job secretly prepare you to be a founder?
In this solo episode, Rob Walling shares 11 unexpected lessons from his own day jobs, from courier to electrician to engineering manager, and how each role quietly taught him skills that shaped his success as a SaaS founder. He dives into the value of curiosity, self-education, and learning to lead before you ever start a company.
Episode Sponsor:
If you’ve got a strong vision but no technical partner, you need more than a “vibe-coded” MVP, you need a real foundation.
That’s where Designli comes in. Their two-week SolutionLab Prototyping Sprint pairs you with a product owner, designer, and developer to turn your idea into a beautiful, clickable prototype you’ll be proud to show investors or early users.
Right now, Startups for the Rest of Us listeners get $3,800 off their sprint.
👉 Get started at designli.co/fortherestofus
Topics we cover:
- (2:03) – Why every day job can teach entrepreneurial skills
- (4:44) – Lesson #1: Figuring things out when instructions are unclear
- (7:27) – Lesson #2: Learning to respect other people’s time
- (9:05) – Lesson #3: How early self-education compounds over time
- (11:33) – Lesson #4: Embracing hard, unglamorous work
- (14:09) – Lesson #5: Why experience always beats credentials
- (16:42) – Lesson #6: Letting the buck stop with you
- (17:44) – Lesson #7: Knowing when to cut corners (and when not to)
- (20:11) – Lesson #8: Finding the right people to work with
- (21:33) – Lesson #9: Managing and motivating people as a learned skill
- (23:53) – Lesson #10: Turning hiring and firing into Founder superpowers
- (26:11) – Lesson #11: The value of exposure to well-run systems
Links from the Show:
- MicroConf Mastermind Matching – Apply before January 16th
- The SaaS Playbook by Rob Walling
- Good to Great by Jim Collins
- Seven Habits of Highly Effective People by Stephen R. Covey
- Think and Grow Rich by Napoleon Hill
- MicroConf
- Rob Walling @robwalling) | X
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling:
Welcome back to Startup for the Rest of Us. I’m your host, Rob Walling, and in this episode, I’m going to talk about the unexpected skills your day job can teach you about entrepreneurship. And I don’t just mean if you are working for a tech company or if you are a software engineer at a large firm. I’m going to walk back through my history of jobs from when I was a teenager and I was a courier driving a vehicle all around the Bay Area, delivering things, picking them up, and things I learned during that time, as well as being a construction worker, being a developer, being a manager of developers. And I’m just going to talk about all the things that I learned during those times, as well as a mindset that I had during this time that I think helped me learn more than if I had just shown up every day, clocked in and clocked out.
Before I dive into that, applications for this round of a MicroConf mastermind matching close in just two days. Building a SaaS alone is lonely and it can be hard. If you want to surround yourself with a small group of folks who are on this journey with you, you should join a mastermind. Luke, a founder who recently went through the program said, “There is something about being in the trenches together with like- minded, good people willing to offer up their experiences that’s nearly impossible to find anywhere else.” To date, we’ve facilitated well over a thousand mastermind matches, bringing together founders from more than 50 countries and 20 time zones based on things like ARR, team size, experience level, and geography. Applications close on January 16th for all the details and to apply today, and you’re going to want to do it soon. Don’t be the person who emails us five hours or five days after it closes and said, “I really want to be matched.” You’re going to miss it.
We only do it two, sometimes three times a year. So you’re going to want to head to microConf.com/masterminds. That’s microConf.com/masterminds.
So the topic for today, looking at unexpected skills or day job can teach you about entrepreneurship came up because periodically I get emails or questions about things that folks can learn about being an entrepreneur or a founder, even when they haven’t gotten started. Before they have the ability to build or launch or do any of the other things, I believe you can learn from so many life experiences, including traveling the world, living in a different country than where you grew up, being in relationships, whether that’s being married or having kids. There’s things you can learn from everyday life, but I think that a lot of folks wanting to be entrepreneurs are so anxious or so motivated or so in a hurry to get away from their day job or to never have a day job that I actually think they might do themselves a disservice by not taking advantage of what a day job can teach you.
A day job can offer you a steady paycheck and it can offer you health insurance if you’re in the US. It’s a big deal. It can offer you a lot of things, but something that I think a lot of aspiring entrepreneurs and founders overlook is how much I believe you can learn from a day job. In fact, I think I would be less successful or it would have taken me a lot longer to achieve the success I’ve achieved if I had not worked several of the day jobs that I’m about to talk about in this episode. And my hope in telling my own story is that you can see some of the things that I learned from unexpected places. Like how could I possibly learn how to be a better entrepreneur from driving a car around the Bay Area and picking up and delivering packages?
What are you going to find out in this episode? Really, the conceit of this episode is almost any full-time job can teach you skills that make you a better entrepreneur if you’re paying attention. And I had a string of pretty normal jobs. As I said in the intro with a courier, an electrician and developer and then managing developers. And at the time, none of them felt like entrepreneur training, but in retrospect, I can definitely trace a straight line from things I learned as an employee to things that later helped me as a founder. So hopefully hearing this can make you look intentionally at the things you do day to day in your day job that you might be able to learn and use to your advantage. But I do think you need to be pretty deliberate about doing so. Or I should say, I think the more deliberate you are and the more you seek it out, the more you’ll get.
So I have 11 lessons that I learned throughout my entrepreneurial journey and I’m going to kick it off with the first one. And it was as a teenager, as I was a career in the Bay Area, I had to learn how to figure things out when instructions were unclear or when there were no instructions. So this was pre-cell phones, it was pre- GPS. And oftentimes I was given vague instructions and expected to deliver or pick something up. There were locked doors. There were buildings that were in the wrong places. There were construction sites that didn’t match up with the directions. There were no addresses. I just had to figure things out. And I had to find people when it wasn’t obvious where they were. I had to troubleshoot addresses that were wrong, roads were closed and I had to persevere instead of escalating every problem to my boss or to someone else.
And this was a really good skill for me to learn because when you’re an entrepreneur, the buck stops with you. And although I could pull the ripcord, I could drive somewhere 45 minutes away, and if I couldn’t find someone, I could feasibly just drive 45 minutes back to the shop and tell people I couldn’t find them, but that’s a huge waste of time. And it kind of shows incompetence. It shows, “Oh, you didn’t try hard enough. Figure this out. ” And I was 16 at the time, 17, 18. I think I did it. I did it in summers and during holiday breaks. And I learned that things are often less clear than you want them to be. You want all the instructions to be perfect and you want people to have thought this through, but realistically, everyone’s in a hurry, someone scribbles something down. Sometimes you can’t even read their handwriting and I would just have to figure it out.
And that was a really good lesson for me to learn as a teenager. Given that founders operate with incomplete information all the time, and that as a founder, you have to make progress without perfect clarity.That’s a core skill of being an entrepreneur. Both of those lessons were things that were driven home for me, and I think it was very helpful. And the other thing was learning to not throw problems back necessarily to the person who asked. Now, sometimes I did have to go find a payphone and call someone. And that was me pulling a ripcord in essence and being like, “I really can’t figure this out. ” And that was fine too. I had a backstop, but learning to handle things that were unclear set me apart from the other folks who were doing deliveries. It’s like, “Why does Rob always figure this out? I don’t really have many problems with Rob doing the delivery or doing the pickup or whatever.” And I think getting better at that was a skill that I wasn’t taught as a kid and learning that as a teenager I think was really helpful.
The second lesson I learned still with this first job, and this job was a, when was this? It was in the mid ’90s. The lesson I learned was how to work with busy people higher up in an org chart. So I regularly interfaced with executives, project managers, folks who needed stuff done, plans delivered, permits picked up, whatever. At the time I was pretty young. I was inexperienced in a professional environment and I was very unaware of how you’re supposed to interface with these types of folks. And what I learned was that respect includes respecting someone’s time if they’re busy and they’re doing a lot of things. The higher up someone is in an org, the less bandwidth they have for small decisions and the more work I could take off their plate, the more valuable I became. And this was a super entry level. This was the minimum wage job I talk about making 450 an hour starting.
And I made a little more than that by the time I left. But seeing executives and project managers who were busy and who were some of them entrepreneurial in their own right and that they would make a percentage of the net profit on their projects. So they were highly motivated to execute really well and highly motivated to get a lot done. It kind of taught me this lesson again of like, don’t escalate stuff unless I really need to. Don’t put it back on them. And it also, I think was a decent model for me as I became an entrepreneur of, oh, I should respect my time too. I should not waste my time or care about little minutia when I really need to be looking at the big picture. The third lesson I learned is that self-education can compound pretty fast. The context for this is I was in the car a lot.
Long hours alone meant that I could listen to a lot of music, which I did, tons of Beatles. This is where I actually really developed that love I have of The Beatles and Bob Dylan, but it also meant a lot of time for audiobooks. And this is before Audible, that’s how old I am. So it was books on tape and CDs. And you can think of the classics, right? There’s good to great. And there was, I think I listened to Seven Habits of Highly Effective People and I was kind of like, “Eh, this isn’t that great.” I did listen to Think and Grow Rich, didn’t love it. But there were books about management. There were books about entrepreneurship and company building. I had never managed a person before. I didn’t really know how to do it. I even listened to books about kind of self-improvement, social skills, confidence, learning how to be … It’s not even like more charismatic, but just how to operate in the world and have difficult conversations.
I wasn’t taught any of that growing up. And so this allowed me to start installing mental models before I needed them. And as I faced these situations later, I started realizing, oh, this is the thing that one book talked about. And these days, do I listen to audiobooks way in advance of needing them? No, I don’t. I’m much more a believer in just in time learning. But back then, I was such a sponge. I had so much free time and I didn’t know anything. I just needed to be exposed to a bunch of concepts. And so a lot of the books on tape, most of them were from the library. I didn’t have any money. They were the most popular business books and self-improvement and self-help books. And I really feel like those books helped shape a lot of my thinking. I also listened to a ton of books on personal finance and investing because I knew that that was just an important skill that they don’t teach in school.
So I think a couple takeaways are you don’t need permission to start training for a future role or to start learning. And if you’re listening to this podcast, you already know that. Kudos to you. If you’re a career or a truck driver with long hours and you’re listening to this show and others like it because you are training your mind to be exposed to other entrepreneurs and to think like an entrepreneur. And I think especially in the early days, that can be really helpful. The other thing I think is if you’re just getting started and you’re just starting to learn, the best time to learn these hard skills is before you’re forced to use them. Lesson number four is that hard work is non-negotiable. So after I was a courier, I was actually an estimator for a while, a few summers and breaks as I was in college.
And then my first job out of college was as an electrician in the field. So I was doing construction work in the Bay Area, physical labor, hands-on labor, swinging a hammer, so to speak. And that job taught me that manual labor is hard. Even in my 20s, I was sore a lot. I needed a lot of sleep and that work doesn’t care how you feel about it. It’s got to get done. Unless I wanted to quit or get fired, I had to put in the work and it was pretty … It was hard on my body, which in my 20s I could take that. I can’t imagine doing it these days, but I didn’t really have a choice because I needed to pay the bills. And if I didn’t want to work, I could go home and not work. It was just a non-negotiable to exist.
So I showed up every day and I did things I didn’t want to do. This was much like playing sports, although sports was more of my choice. I didn’t have to run track and play football, but working a job as a construction worker was just something, it was just something that I did. And while I didn’t love it, I didn’t really question it either. I mean, I wanted to do a different job ultimately, but day to day, I was like, no, this is what I have to do. The hard work is non-negotiable. And there were no shortcuts around it, even when the work was unglamorous. And I think that the lessons from both sports and from working as a construction worker paid huge dividends for me years later, because I was able and willing to grind in a way that I don’t know that everyone is.
And I get emails on this podcast about folks who were like, “Yeah, you know what, I don’t really have that much motivation to do it. ” And it’s like, “Well, I’m not sure that you’re going to be willing to do the grind and to do the hard things.” Or I see folks, the indie hacker types on Twitter where it’s like, “I’m just going to launch 20 projects.” And it’s like, it seems like you’re not really willing to do the hard work because the fun work is launching 20 projects. The fun work is building a bunch of projects. I love building, creating, that’s what we are. We’re makers. The hard work is focusing on one and focusing on it long enough to see it through and to put in the marketing and the sales and doing the stuff you don’t want to do and being willing to grind, much like you hear folks that I interview on this show doing.
So you think of Kevin, the co-founder of Spectora, you think of Ruben Gomez, you think of Jordan Gall, you think of a lot of folks I interview on the show, especially in the early days, maybe not for your whole life, especially in the early days, they’re just wanting to do what it takes to make it work. Lesson number five is that experience beats credentials. So I had an electrical engineering degree coming out of college and I worked alongside electricians with 10 or 20 years of experience in the field. And it was really obvious that the people doing the work who had been doing it for a decade or two were so much more skilled than I was and they knew so much more about it. This sounds obvious, but what? I was a cocky 22 year old, this was humbling. And I realized that putting in the work matters more than reading about the work.
So all the audiobooks and the courses, they don’t replace actually getting out there into the field and learning all about what it’s actually like to connect this light switch to that lamp and to connect this big data center, UPS to the incoming power. There’s a lot to it and getting firsthand experience with it, much like firsthand experience with entrepreneurship is invaluable. And so you can’t just stay on the sidelines or go to university or read books and listen to podcasts and expect to have anywhere near the same level of knowledge that you would if you actually did it. And that’s not to discount that knowledge because as I’ve just said, I feel like I prepared myself pretty well by listening to a lot of audiobooks and there were no podcasts at the time, right? So it would’ve been podcasts and audiobooks if it was a few years later.
But realistically, you do have to get out there and start swinging a hammer at some point in order to learn the lessons.
If you’re a founder with a strong vision, but no technical partner, you need more than a vibe coated MVP. You need a real foundation. That’s where Designly comes in. Their Solution Lab Prototyping Sprint is a focused two-week collaboration where you work together with a seasoned product owner, a developer, and a designer to define what to build, why it matters, and how it should look, feel, and function. You’ll turn your idea into a beautiful and clickable prototype, something you’ll be proud to show to early users or investors. Designly is the product team you can actually trust with a track record of helping founders move from being ghosted by dev shops to growing real businesses. And right now, Designly is giving my listeners $3,800 off their solution lab prototyping sprint. To get started today, check out designly.co/fortherest of us. That’s D-E-S-I-G-N-L-I.co/for the rest of us.
Lesson number six is to let the buck stop with you. So as an electrician, and this was in the late ’90s, I was reading blueprints and I was installing circuits and frankly, it was often confusing. The engineer or the CAD operator who had drawn the blueprints had made a mistake or they were in a hurry or whatever. And it was tempting to ask the foreman about every uncertainty. But what I tried to do instead, coming back to treating executives with respect and treating their time with respect was I would do everything I could to troubleshoot at first, right? Avoid escalating every small issue. Even when something isn’t your fault, as an entrepreneur, it’s still your responsibility. And so this whole mindset of just, if at all possible, the buck stops with me and I just don’t have anyone else to … I can’t find the foreman.
Foreman left to do something. I have to just figure this out even though it’s kind of over my head. And I think that’s a mindset that has really helped me as an entrepreneur. Lesson number seven is learning when I could and should cut corners and when I shouldn’t. So since I didn’t really love working construction and I had written code when I was a kid, I went to the library and I learned Pearl and I think a little bit of PHP and ASP 1.0 maybe, HTML, a little bit of JavaScript. I just checked out books. And in the early 2000s, I think it was in, what was the year 2000, I stopped working construction and I became a full-time software developer, a junior software developer. And it was amazing. I was working 40 plus hours a week writing production code. We were basically like an agency, a consulting firm, and we were building a lot.
We were in Sacramento and we were building a lot of apps for. Com. So this was during the last year or two of the. Com boom. And what I learned during this time was that sloppiness always comes back to bite you, but there are times when you can and should cut corners on projects. On the flip side, the other end of the spectrum is you can gold plate software. There’s a spectrum between being sloppy and being overbuilt and the right level of quality depends on the usage and the risk and what it needs to scale to. So you can build something that scales to infinity users and is so incredibly abstracted and maintainable and so compact and performant and all this stuff. And then you have five internal users and you just don’t need to really build that, right? So if you have five internal users versus 10,000 simultaneous public users trying to validate a credit card, learning that spectrum and learning when to cut corners, maybe you’re probably cringing if you’re hearing this, but sometimes you just need to move quickly on some things.
And I think not thinking in absolutes, which I was apt to do. I think a lot of us in our teen years and early 20s think in these absolutes and there’s no nuance to our thinking. I know I was definitely like that and a little too engineery. This is where I started learning, it’s not just some absolute that someone would say on social media that didn’t exist yet, but people love to talk in absolutes and say all caps, always and never. And it is almost always never the right choice to talk in absolutes. So my takeaways from there were that founders do not have infinite time and knowing which corners to cut, how many corners to cut without hurting the company long term was a skill that I learned in that job. Lesson number eight was learning who I wanted to work with and why.
So I’m a software developer, I’m an individual contributor. And what I noticed is that as I would meet and work with other engineers, I knew within one project who I wanted to collaborate with. And sometimes it was the strongest developers and sometimes it wasn’t. Sometimes it was the people who were coachable, they were willing to collaborate, they had a desire to improve and we worked well together, even if they weren’t the best engineer on the team. And learning to evaluate other coworkers trained me to evaluate candidates when I started getting involved in the hiring process. And I’m going to talk about that in a second, but being able to be involved in the interview process and hiring for engineers was such a boon for me later on when I started my own companies because it translated directly into hiring people to work for me. So even before I was helping with the hiring and doing interviews and such, I was honing my skills of evaluation, of evaluating other team members, sometimes engineers, sometimes business analysts, whatever role it was, I was learning what makes a person really great to work with and that skillset and kind of that mental model helped me for the rest of my entrepreneurial journey.
Lesson number nine is that managing and motivating humans for me was a learned skill. I didn’t do it naturally. And this started coming about when I started managing engineers, became a team lead, a tech lead, and started managing. And of course, I then reviewed a lot of the management books I had read years prior to that. And I realized for me at least, managing people is not instinctive that it is a learned skill. And I think if you can’t learn to manage and have hard conversations and to motivate people and to paint a picture of why they should be on your team and what you’re building and get them excited about what you’re doing, I think it can cap your growth as an employee if you’re not going to manage anybody, but it can also negatively impact your journey as a founder because this is a core skillset, is to figure out that vision and why should people be excited to work for you.
They can go work for anyone and realistically they’ll probably make more money if they don’t work for a bootstrap founder. So how was it that at Drip when we were Bootstrapped, I was able to hire some of the best talent in town without paying them as much as they could get from other employers and keep those folks like none of them left, even though I was not … I mean, I feel like I’m a good leader and I’m a mediocre manager is how I would phrase it. And when I mean a leader, like I can paint the vision, I can paint the picture of where we’re headed and get people really excited about it and get them on board. And then week to week, day to day management is fine. I can do it. It’s just not something I’m super excited about. But learning how to do it well enough, this comes back to the grind.
If I’m not excited about it, why did I do it? Well, because I had to. A, I wanted to make more money as a manager at these companies. And once I started companies, I had to be good at managing and motivating people. And so even if it wasn’t something I wanted to do day to day, it was what would make me a successful entrepreneur. And that goal I valued far above enjoying every minute of every day as I was building these companies. Lesson number 10 is that learning how to hire and how to fire our founders superpowers. So at almost every org … Yeah, almost every org I was at after I was a developer, I became involved in the hiring process and there were two reasons for that. Number one is I would come in and do really good work and write code that wasn’t buggy and I would manage myself and then I’d slowly start being a tech lead and people looked to me for guidance and I was opinionated about things in a right way without being a jerk.
And then I would raise my hand and say, “I want to be involved in the hiring process.” And one of the reasons is I wanted to control who I worked with, but another reason is I knew it was a skillset that would help me forever. I didn’t know if I would be an entrepreneur. It was a dream, but I didn’t know if it would ever happen, but I did know that it would help me at my day job. And if I ever did start a company, I had to know how to hire and how to fire people. And something I learned as I went through this is that hiring well is hard. You’re never going to be perfect at it, but it does take reps. And the more reps you put in, usually the better you get at it. And firing is actually really tough.
It’s tough to make that decision because it’s always muddier than you think it’s going to be. It’s never as clear as you want it to be. And usually it’s the really nice but slightly less than competent person who you’re like, “Well, I keep them around because they’re really nice and they get along with the rest of the team.” And there’s always these edge cases and learning that if I wanted to have a high performing team that I had to hire really well and learn how to do that and how to evaluate people and then I had to be pretty picky about it. And then I had to fire relatively quickly to reduce long-term pain was a great, it was a great skillset to learn. I didn’t learn it in a week. I didn’t learn it in a year. It was probably over the course of four or five years, over two or three different jobs because yeah, I was a job hopper, shocker, right?
This unemployable. I was actually very nice. I never made people mad. I never got fired. I was left with the job, but I would get bored with things. And I think like a lot of entrepreneurs do, kind of get tired of the BS and be like, “Ugh, it should be different. I’m going to go try to do this other job. I’m going to make more money, but I’m also going to try to go to this job that sounds better.” And then usually it wasn’t better. So my advice here is if you can be involved in hiring at your day job, do it and then watch other folks around you watch how good people evaluate talent. If you have a manager who’s really good at hiring, pick their brain like crazy and try to figure out what’s their mental model? Try to get better at it.
You can also read books about this these days. There weren’t so many 20 years ago. I mean, there were a few, but there’s a lot more these days that can help you get better. And lesson number 11 is exposure to systems that work really well and being up close and personal with them can teach you a lot. So this one comes from the last salary job I had before starting TinySeed. And this was after we sold Drip, I was a salaried employee and I was exposed to what was just an exceptional hiring funnel. Our acquirer had gone from, they had like hired a hundred people in a year or something like this because they had raised $38 million in venture funding and they had a really solid people ops team. It’s what they called their HR group. They had two recruiters, they had a dial and it was really impressive.
It was kind of the best execution I’d seen to hire folks. And they happened to be hiring locally, but I think that part’s irrelevant. Realistically, they had a very structured way of finding new candidates with both outreach and inbound. They had consistent evaluation criteria, clear decision making. And to be honest, just seeing how that operated was enlightening for me and that helped me get even better at it, right? And any of these shortcuts and lessons you can learn from other departments at a company you’re working at can later help save you months, if not years. So those are my 11 lessons. And I want to underscore this thought of you should be deliberate about extracting lessons or learning lessons from the place that you work, right? Your job is training you whether you realize it or not. And the difference between learning a little and learning a lot is if you go out and seek it.
I don’t think a lot of these would have happened by accident. I would have gotten some training about being an engineer or about being an electrician. But when I was working at the construction firm, for example, I would walk into other departments. I knew folks in different roles and I would ask how their job worked, right? So I’d talk to accounts payable about purchase orders and invoices. I didn’t really understand how all that worked. Or I would talk to accounts receivable about collections and what happens when customers don’t pay. Sometimes people were too busy. Other times they were super happy to explain to me. They loved being an expert, right? They liked teaching someone who’s genuinely curious, which was me. And I did the same thing later as a developer at … I worked at a credit card company and we had an onsite call center in Los Angeles.
And I talked to the woman who ran it and I asked her, how do you handle rude customers? What happens if call volume spikes and the wait is suddenly really long? And what happens if you have downtime or staffing mismatches? None of that was my job. I was just curious about it. And at that time, I was a nerdy developer who loved writing web application code, but learning how finance, operations and support worked gave me a much broader understanding of how businesses in their entirety actually function. And this was before I was an entrepreneur, well before. I was trying to do stuff nights and weekends at the time, but I was trying to do little tiny software projects, just me, no employees, no contractors. But when I did eventually start my own companies, all of this mattered. Everything I’ve talked about in this episode and probably more than I’m missing mattered.
I felt just a little bit more comfortable, a little less intimidated because I understood the pieces of how a business works. And if you think about all these roles, courier, electrician, developer, development manager, VP of product, I think was my title after selling Drip, managing a team of 20 engineers and product people. In most of these roles, I was not even a manager. In some of these roles, I was a teenager and I was just trying to do good work and learn and looking back, my deliberate curiosity absolutely paid off in spades for me over the next couple decades of building companies. So thanks for hanging around with me today and learning some of the unexpected entrepreneurial skills you can learn if you’re still in a day job. I appreciate you listening this week and every week. If you have any questions, comments or thoughts on this episode, I would love it if you’d at mention me on Twitter.
I’m @RobWalllling, or you can email questions@startupsfortherestofus.com. This is Rob Walling, signing off from episode 815.
Welcome back to Startup for the Rest of Us. I’m your host, Rob Walling, and in this episode, I’m going to talk about the unexpected skills your day job can teach you about entrepreneurship. And I don’t just mean if you are working for a tech company or if you are a software engineer at a large firm. I’m going to walk back through my history of jobs from when I was a teenager and I was a courier driving a vehicle all around the Bay Area, delivering things, picking them up, and things I learned during that time, as well as being a construction worker, being a developer, being a manager of developers. And I’m just going to talk about all the things that I learned during those times, as well as a mindset that I had during this time that I think helped me learn more than if I had just shown up every day, clocked in and clocked out.
Before I dive into that, applications for this round of a MicroConf mastermind matching close in just two days. Building a SaaS alone is lonely and it can be hard. If you want to surround yourself with a small group of folks who are on this journey with you, you should join a mastermind. Luke, a founder who recently went through the program said, “There is something about being in the trenches together with like- minded, good people willing to offer up their experiences that’s nearly impossible to find anywhere else.” To date, we’ve facilitated well over a thousand mastermind matches, bringing together founders from more than 50 countries and 20 time zones based on things like ARR, team size, experience level, and geography. Applications close on January 16th for all the details and to apply today, and you’re going to want to do it soon. Don’t be the person who emails us five hours or five days after it closes and said, “I really want to be matched.” You’re going to miss it.
We only do it two, sometimes three times a year. So you’re going to want to head to microConf.com/masterminds. That’s microConf.com/masterminds.
So the topic for today, looking at unexpected skills or day job can teach you about entrepreneurship came up because periodically I get emails or questions about things that folks can learn about being an entrepreneur or a founder, even when they haven’t gotten started. Before they have the ability to build or launch or do any of the other things, I believe you can learn from so many life experiences, including traveling the world, living in a different country than where you grew up, being in relationships, whether that’s being married or having kids. There’s things you can learn from everyday life, but I think that a lot of folks wanting to be entrepreneurs are so anxious or so motivated or so in a hurry to get away from their day job or to never have a day job that I actually think they might do themselves a disservice by not taking advantage of what a day job can teach you.
A day job can offer you a steady paycheck and it can offer you health insurance if you’re in the US. It’s a big deal. It can offer you a lot of things, but something that I think a lot of aspiring entrepreneurs and founders overlook is how much I believe you can learn from a day job. In fact, I think I would be less successful or it would have taken me a lot longer to achieve the success I’ve achieved if I had not worked several of the day jobs that I’m about to talk about in this episode. And my hope in telling my own story is that you can see some of the things that I learned from unexpected places. Like how could I possibly learn how to be a better entrepreneur from driving a car around the Bay Area and picking up and delivering packages?
What are you going to find out in this episode? Really, the conceit of this episode is almost any full-time job can teach you skills that make you a better entrepreneur if you’re paying attention. And I had a string of pretty normal jobs. As I said in the intro with a courier, an electrician and developer and then managing developers. And at the time, none of them felt like entrepreneur training, but in retrospect, I can definitely trace a straight line from things I learned as an employee to things that later helped me as a founder. So hopefully hearing this can make you look intentionally at the things you do day to day in your day job that you might be able to learn and use to your advantage. But I do think you need to be pretty deliberate about doing so. Or I should say, I think the more deliberate you are and the more you seek it out, the more you’ll get.
So I have 11 lessons that I learned throughout my entrepreneurial journey and I’m going to kick it off with the first one. And it was as a teenager, as I was a career in the Bay Area, I had to learn how to figure things out when instructions were unclear or when there were no instructions. So this was pre-cell phones, it was pre- GPS. And oftentimes I was given vague instructions and expected to deliver or pick something up. There were locked doors. There were buildings that were in the wrong places. There were construction sites that didn’t match up with the directions. There were no addresses. I just had to figure things out. And I had to find people when it wasn’t obvious where they were. I had to troubleshoot addresses that were wrong, roads were closed and I had to persevere instead of escalating every problem to my boss or to someone else.
And this was a really good skill for me to learn because when you’re an entrepreneur, the buck stops with you. And although I could pull the ripcord, I could drive somewhere 45 minutes away, and if I couldn’t find someone, I could feasibly just drive 45 minutes back to the shop and tell people I couldn’t find them, but that’s a huge waste of time. And it kind of shows incompetence. It shows, “Oh, you didn’t try hard enough. Figure this out. ” And I was 16 at the time, 17, 18. I think I did it. I did it in summers and during holiday breaks. And I learned that things are often less clear than you want them to be. You want all the instructions to be perfect and you want people to have thought this through, but realistically, everyone’s in a hurry, someone scribbles something down. Sometimes you can’t even read their handwriting and I would just have to figure it out.
And that was a really good lesson for me to learn as a teenager. Given that founders operate with incomplete information all the time, and that as a founder, you have to make progress without perfect clarity.That’s a core skill of being an entrepreneur. Both of those lessons were things that were driven home for me, and I think it was very helpful. And the other thing was learning to not throw problems back necessarily to the person who asked. Now, sometimes I did have to go find a payphone and call someone. And that was me pulling a ripcord in essence and being like, “I really can’t figure this out. ” And that was fine too. I had a backstop, but learning to handle things that were unclear set me apart from the other folks who were doing deliveries. It’s like, “Why does Rob always figure this out? I don’t really have many problems with Rob doing the delivery or doing the pickup or whatever.” And I think getting better at that was a skill that I wasn’t taught as a kid and learning that as a teenager I think was really helpful.
The second lesson I learned still with this first job, and this job was a, when was this? It was in the mid ’90s. The lesson I learned was how to work with busy people higher up in an org chart. So I regularly interfaced with executives, project managers, folks who needed stuff done, plans delivered, permits picked up, whatever. At the time I was pretty young. I was inexperienced in a professional environment and I was very unaware of how you’re supposed to interface with these types of folks. And what I learned was that respect includes respecting someone’s time if they’re busy and they’re doing a lot of things. The higher up someone is in an org, the less bandwidth they have for small decisions and the more work I could take off their plate, the more valuable I became. And this was a super entry level. This was the minimum wage job I talk about making 450 an hour starting.
And I made a little more than that by the time I left. But seeing executives and project managers who were busy and who were some of them entrepreneurial in their own right and that they would make a percentage of the net profit on their projects. So they were highly motivated to execute really well and highly motivated to get a lot done. It kind of taught me this lesson again of like, don’t escalate stuff unless I really need to. Don’t put it back on them. And it also, I think was a decent model for me as I became an entrepreneur of, oh, I should respect my time too. I should not waste my time or care about little minutia when I really need to be looking at the big picture. The third lesson I learned is that self-education can compound pretty fast. The context for this is I was in the car a lot.
Long hours alone meant that I could listen to a lot of music, which I did, tons of Beatles. This is where I actually really developed that love I have of The Beatles and Bob Dylan, but it also meant a lot of time for audiobooks. And this is before Audible, that’s how old I am. So it was books on tape and CDs. And you can think of the classics, right? There’s good to great. And there was, I think I listened to Seven Habits of Highly Effective People and I was kind of like, “Eh, this isn’t that great.” I did listen to Think and Grow Rich, didn’t love it. But there were books about management. There were books about entrepreneurship and company building. I had never managed a person before. I didn’t really know how to do it. I even listened to books about kind of self-improvement, social skills, confidence, learning how to be … It’s not even like more charismatic, but just how to operate in the world and have difficult conversations.
I wasn’t taught any of that growing up. And so this allowed me to start installing mental models before I needed them. And as I faced these situations later, I started realizing, oh, this is the thing that one book talked about. And these days, do I listen to audiobooks way in advance of needing them? No, I don’t. I’m much more a believer in just in time learning. But back then, I was such a sponge. I had so much free time and I didn’t know anything. I just needed to be exposed to a bunch of concepts. And so a lot of the books on tape, most of them were from the library. I didn’t have any money. They were the most popular business books and self-improvement and self-help books. And I really feel like those books helped shape a lot of my thinking. I also listened to a ton of books on personal finance and investing because I knew that that was just an important skill that they don’t teach in school.
So I think a couple takeaways are you don’t need permission to start training for a future role or to start learning. And if you’re listening to this podcast, you already know that. Kudos to you. If you’re a career or a truck driver with long hours and you’re listening to this show and others like it because you are training your mind to be exposed to other entrepreneurs and to think like an entrepreneur. And I think especially in the early days, that can be really helpful. The other thing I think is if you’re just getting started and you’re just starting to learn, the best time to learn these hard skills is before you’re forced to use them. Lesson number four is that hard work is non-negotiable. So after I was a courier, I was actually an estimator for a while, a few summers and breaks as I was in college.
And then my first job out of college was as an electrician in the field. So I was doing construction work in the Bay Area, physical labor, hands-on labor, swinging a hammer, so to speak. And that job taught me that manual labor is hard. Even in my 20s, I was sore a lot. I needed a lot of sleep and that work doesn’t care how you feel about it. It’s got to get done. Unless I wanted to quit or get fired, I had to put in the work and it was pretty … It was hard on my body, which in my 20s I could take that. I can’t imagine doing it these days, but I didn’t really have a choice because I needed to pay the bills. And if I didn’t want to work, I could go home and not work. It was just a non-negotiable to exist.
So I showed up every day and I did things I didn’t want to do. This was much like playing sports, although sports was more of my choice. I didn’t have to run track and play football, but working a job as a construction worker was just something, it was just something that I did. And while I didn’t love it, I didn’t really question it either. I mean, I wanted to do a different job ultimately, but day to day, I was like, no, this is what I have to do. The hard work is non-negotiable. And there were no shortcuts around it, even when the work was unglamorous. And I think that the lessons from both sports and from working as a construction worker paid huge dividends for me years later, because I was able and willing to grind in a way that I don’t know that everyone is.
And I get emails on this podcast about folks who were like, “Yeah, you know what, I don’t really have that much motivation to do it. ” And it’s like, “Well, I’m not sure that you’re going to be willing to do the grind and to do the hard things.” Or I see folks, the indie hacker types on Twitter where it’s like, “I’m just going to launch 20 projects.” And it’s like, it seems like you’re not really willing to do the hard work because the fun work is launching 20 projects. The fun work is building a bunch of projects. I love building, creating, that’s what we are. We’re makers. The hard work is focusing on one and focusing on it long enough to see it through and to put in the marketing and the sales and doing the stuff you don’t want to do and being willing to grind, much like you hear folks that I interview on this show doing.
So you think of Kevin, the co-founder of Spectora, you think of Ruben Gomez, you think of Jordan Gall, you think of a lot of folks I interview on the show, especially in the early days, maybe not for your whole life, especially in the early days, they’re just wanting to do what it takes to make it work. Lesson number five is that experience beats credentials. So I had an electrical engineering degree coming out of college and I worked alongside electricians with 10 or 20 years of experience in the field. And it was really obvious that the people doing the work who had been doing it for a decade or two were so much more skilled than I was and they knew so much more about it. This sounds obvious, but what? I was a cocky 22 year old, this was humbling. And I realized that putting in the work matters more than reading about the work.
So all the audiobooks and the courses, they don’t replace actually getting out there into the field and learning all about what it’s actually like to connect this light switch to that lamp and to connect this big data center, UPS to the incoming power. There’s a lot to it and getting firsthand experience with it, much like firsthand experience with entrepreneurship is invaluable. And so you can’t just stay on the sidelines or go to university or read books and listen to podcasts and expect to have anywhere near the same level of knowledge that you would if you actually did it. And that’s not to discount that knowledge because as I’ve just said, I feel like I prepared myself pretty well by listening to a lot of audiobooks and there were no podcasts at the time, right? So it would’ve been podcasts and audiobooks if it was a few years later.
But realistically, you do have to get out there and start swinging a hammer at some point in order to learn the lessons.
If you’re a founder with a strong vision, but no technical partner, you need more than a vibe coated MVP. You need a real foundation. That’s where Designly comes in. Their Solution Lab Prototyping Sprint is a focused two-week collaboration where you work together with a seasoned product owner, a developer, and a designer to define what to build, why it matters, and how it should look, feel, and function. You’ll turn your idea into a beautiful and clickable prototype, something you’ll be proud to show to early users or investors. Designly is the product team you can actually trust with a track record of helping founders move from being ghosted by dev shops to growing real businesses. And right now, Designly is giving my listeners $3,800 off their solution lab prototyping sprint. To get started today, check out designly.co/fortherest of us. That’s D-E-S-I-G-N-L-I.co/for the rest of us.
Lesson number six is to let the buck stop with you. So as an electrician, and this was in the late ’90s, I was reading blueprints and I was installing circuits and frankly, it was often confusing. The engineer or the CAD operator who had drawn the blueprints had made a mistake or they were in a hurry or whatever. And it was tempting to ask the foreman about every uncertainty. But what I tried to do instead, coming back to treating executives with respect and treating their time with respect was I would do everything I could to troubleshoot at first, right? Avoid escalating every small issue. Even when something isn’t your fault, as an entrepreneur, it’s still your responsibility. And so this whole mindset of just, if at all possible, the buck stops with me and I just don’t have anyone else to … I can’t find the foreman.
Foreman left to do something. I have to just figure this out even though it’s kind of over my head. And I think that’s a mindset that has really helped me as an entrepreneur. Lesson number seven is learning when I could and should cut corners and when I shouldn’t. So since I didn’t really love working construction and I had written code when I was a kid, I went to the library and I learned Pearl and I think a little bit of PHP and ASP 1.0 maybe, HTML, a little bit of JavaScript. I just checked out books. And in the early 2000s, I think it was in, what was the year 2000, I stopped working construction and I became a full-time software developer, a junior software developer. And it was amazing. I was working 40 plus hours a week writing production code. We were basically like an agency, a consulting firm, and we were building a lot.
We were in Sacramento and we were building a lot of apps for. Com. So this was during the last year or two of the. Com boom. And what I learned during this time was that sloppiness always comes back to bite you, but there are times when you can and should cut corners on projects. On the flip side, the other end of the spectrum is you can gold plate software. There’s a spectrum between being sloppy and being overbuilt and the right level of quality depends on the usage and the risk and what it needs to scale to. So you can build something that scales to infinity users and is so incredibly abstracted and maintainable and so compact and performant and all this stuff. And then you have five internal users and you just don’t need to really build that, right? So if you have five internal users versus 10,000 simultaneous public users trying to validate a credit card, learning that spectrum and learning when to cut corners, maybe you’re probably cringing if you’re hearing this, but sometimes you just need to move quickly on some things.
And I think not thinking in absolutes, which I was apt to do. I think a lot of us in our teen years and early 20s think in these absolutes and there’s no nuance to our thinking. I know I was definitely like that and a little too engineery. This is where I started learning, it’s not just some absolute that someone would say on social media that didn’t exist yet, but people love to talk in absolutes and say all caps, always and never. And it is almost always never the right choice to talk in absolutes. So my takeaways from there were that founders do not have infinite time and knowing which corners to cut, how many corners to cut without hurting the company long term was a skill that I learned in that job. Lesson number eight was learning who I wanted to work with and why.
So I’m a software developer, I’m an individual contributor. And what I noticed is that as I would meet and work with other engineers, I knew within one project who I wanted to collaborate with. And sometimes it was the strongest developers and sometimes it wasn’t. Sometimes it was the people who were coachable, they were willing to collaborate, they had a desire to improve and we worked well together, even if they weren’t the best engineer on the team. And learning to evaluate other coworkers trained me to evaluate candidates when I started getting involved in the hiring process. And I’m going to talk about that in a second, but being able to be involved in the interview process and hiring for engineers was such a boon for me later on when I started my own companies because it translated directly into hiring people to work for me. So even before I was helping with the hiring and doing interviews and such, I was honing my skills of evaluation, of evaluating other team members, sometimes engineers, sometimes business analysts, whatever role it was, I was learning what makes a person really great to work with and that skillset and kind of that mental model helped me for the rest of my entrepreneurial journey.
Lesson number nine is that managing and motivating humans for me was a learned skill. I didn’t do it naturally. And this started coming about when I started managing engineers, became a team lead, a tech lead, and started managing. And of course, I then reviewed a lot of the management books I had read years prior to that. And I realized for me at least, managing people is not instinctive that it is a learned skill. And I think if you can’t learn to manage and have hard conversations and to motivate people and to paint a picture of why they should be on your team and what you’re building and get them excited about what you’re doing, I think it can cap your growth as an employee if you’re not going to manage anybody, but it can also negatively impact your journey as a founder because this is a core skillset, is to figure out that vision and why should people be excited to work for you.
They can go work for anyone and realistically they’ll probably make more money if they don’t work for a bootstrap founder. So how was it that at Drip when we were Bootstrapped, I was able to hire some of the best talent in town without paying them as much as they could get from other employers and keep those folks like none of them left, even though I was not … I mean, I feel like I’m a good leader and I’m a mediocre manager is how I would phrase it. And when I mean a leader, like I can paint the vision, I can paint the picture of where we’re headed and get people really excited about it and get them on board. And then week to week, day to day management is fine. I can do it. It’s just not something I’m super excited about. But learning how to do it well enough, this comes back to the grind.
If I’m not excited about it, why did I do it? Well, because I had to. A, I wanted to make more money as a manager at these companies. And once I started companies, I had to be good at managing and motivating people. And so even if it wasn’t something I wanted to do day to day, it was what would make me a successful entrepreneur. And that goal I valued far above enjoying every minute of every day as I was building these companies. Lesson number 10 is that learning how to hire and how to fire our founders superpowers. So at almost every org … Yeah, almost every org I was at after I was a developer, I became involved in the hiring process and there were two reasons for that. Number one is I would come in and do really good work and write code that wasn’t buggy and I would manage myself and then I’d slowly start being a tech lead and people looked to me for guidance and I was opinionated about things in a right way without being a jerk.
And then I would raise my hand and say, “I want to be involved in the hiring process.” And one of the reasons is I wanted to control who I worked with, but another reason is I knew it was a skillset that would help me forever. I didn’t know if I would be an entrepreneur. It was a dream, but I didn’t know if it would ever happen, but I did know that it would help me at my day job. And if I ever did start a company, I had to know how to hire and how to fire people. And something I learned as I went through this is that hiring well is hard. You’re never going to be perfect at it, but it does take reps. And the more reps you put in, usually the better you get at it. And firing is actually really tough.
It’s tough to make that decision because it’s always muddier than you think it’s going to be. It’s never as clear as you want it to be. And usually it’s the really nice but slightly less than competent person who you’re like, “Well, I keep them around because they’re really nice and they get along with the rest of the team.” And there’s always these edge cases and learning that if I wanted to have a high performing team that I had to hire really well and learn how to do that and how to evaluate people and then I had to be pretty picky about it. And then I had to fire relatively quickly to reduce long-term pain was a great, it was a great skillset to learn. I didn’t learn it in a week. I didn’t learn it in a year. It was probably over the course of four or five years, over two or three different jobs because yeah, I was a job hopper, shocker, right?
This unemployable. I was actually very nice. I never made people mad. I never got fired. I was left with the job, but I would get bored with things. And I think like a lot of entrepreneurs do, kind of get tired of the BS and be like, “Ugh, it should be different. I’m going to go try to do this other job. I’m going to make more money, but I’m also going to try to go to this job that sounds better.” And then usually it wasn’t better. So my advice here is if you can be involved in hiring at your day job, do it and then watch other folks around you watch how good people evaluate talent. If you have a manager who’s really good at hiring, pick their brain like crazy and try to figure out what’s their mental model? Try to get better at it.
You can also read books about this these days. There weren’t so many 20 years ago. I mean, there were a few, but there’s a lot more these days that can help you get better. And lesson number 11 is exposure to systems that work really well and being up close and personal with them can teach you a lot. So this one comes from the last salary job I had before starting TinySeed. And this was after we sold Drip, I was a salaried employee and I was exposed to what was just an exceptional hiring funnel. Our acquirer had gone from, they had like hired a hundred people in a year or something like this because they had raised $38 million in venture funding and they had a really solid people ops team. It’s what they called their HR group. They had two recruiters, they had a dial and it was really impressive.
It was kind of the best execution I’d seen to hire folks. And they happened to be hiring locally, but I think that part’s irrelevant. Realistically, they had a very structured way of finding new candidates with both outreach and inbound. They had consistent evaluation criteria, clear decision making. And to be honest, just seeing how that operated was enlightening for me and that helped me get even better at it, right? And any of these shortcuts and lessons you can learn from other departments at a company you’re working at can later help save you months, if not years. So those are my 11 lessons. And I want to underscore this thought of you should be deliberate about extracting lessons or learning lessons from the place that you work, right? Your job is training you whether you realize it or not. And the difference between learning a little and learning a lot is if you go out and seek it.
I don’t think a lot of these would have happened by accident. I would have gotten some training about being an engineer or about being an electrician. But when I was working at the construction firm, for example, I would walk into other departments. I knew folks in different roles and I would ask how their job worked, right? So I’d talk to accounts payable about purchase orders and invoices. I didn’t really understand how all that worked. Or I would talk to accounts receivable about collections and what happens when customers don’t pay. Sometimes people were too busy. Other times they were super happy to explain to me. They loved being an expert, right? They liked teaching someone who’s genuinely curious, which was me. And I did the same thing later as a developer at … I worked at a credit card company and we had an onsite call center in Los Angeles.
And I talked to the woman who ran it and I asked her, how do you handle rude customers? What happens if call volume spikes and the wait is suddenly really long? And what happens if you have downtime or staffing mismatches? None of that was my job. I was just curious about it. And at that time, I was a nerdy developer who loved writing web application code, but learning how finance, operations and support worked gave me a much broader understanding of how businesses in their entirety actually function. And this was before I was an entrepreneur, well before. I was trying to do stuff nights and weekends at the time, but I was trying to do little tiny software projects, just me, no employees, no contractors. But when I did eventually start my own companies, all of this mattered. Everything I’ve talked about in this episode and probably more than I’m missing mattered.
I felt just a little bit more comfortable, a little less intimidated because I understood the pieces of how a business works. And if you think about all these roles, courier, electrician, developer, development manager, VP of product, I think was my title after selling Drip, managing a team of 20 engineers and product people. In most of these roles, I was not even a manager. In some of these roles, I was a teenager and I was just trying to do good work and learn and looking back, my deliberate curiosity absolutely paid off in spades for me over the next couple decades of building companies. So thanks for hanging around with me today and learning some of the unexpected entrepreneurial skills you can learn if you’re still in a day job. I appreciate you listening this week and every week. If you have any questions, comments or thoughts on this episode, I would love it if you’d at mention me on Twitter.
I’m @RobWalllling, or you can email questions@startupsfortherestofus.com. This is Rob Walling, signing off from episode 815.
Episode 814 | How to Beat a Venture-Backed Competitor (with Laura Roeder)
/
RSS Feed
What’s it take for a bootstrapped SaaS to beat a competitor with $10M in venture funding?
In this episode, Rob Walling talks with Laura Roeder, founder of Paperbell, about how her lean, fully-bootstrapped team outlasted and outperformed a VC-funded rival. They discuss what the venture-backed company got wrong, how Paperbell focused on the right customers, and why efficiency still beats funding.
Topics we cover:
- (3:52) – Competing against a $10M-funded startup
- (8:45) – Why “self-serve SaaS on hard mode” was worth it
- (14:36) – How over-investing in engineering killed their competitor
- (19:04) – The real problem with under-investing in marketing
- (21:19) – Why some SaaS markets can’t scale upmarket
- (24:13) – Why some markets are perfect for bootstrappers
- (28:42) – How big funding rounds create false signals
- (30:24) – The behind-the-scenes of a potential acquisition deal
- (33:26) – How Paperbell became the market leader
Links from the Show:
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify
Rob Walling :
It’s another episode of Startups for the Rest of Us. I am your host, Rob Walling, and in this episode I am joined by fan favorite Laura Roeder, who has made several appearances on this very show. And in this episode, we talk about how she and her small but mighty bootstrap team beat a venture backed competitor. And I believe if I recall, it’s in the episode, but I think they raised $10 million. It’s a significant amount of money. And while Laura talks a lot about why the venture-backed competitor failed in a way that almost makes it sound like they beat themselves, I would encourage you to listen to this episode and listen to what the funded competitor did wrong, but also what Laura has done right. And what Laura has done right is a lot of marketing, a lot of focusing on building the right things for their customers, not building too much, not having a large bloated org chart, hiring a lot of engineers.
She’s been very focused on what her customers need and then very focused on how to find more of those customers. It’s always an inspiring story to hear a founder who’s bootstrapping against a funded competitor and that bootstrapper wins. And sometimes it happens this way and other times it doesn’t. There is no, “Oh, funded companies always implode or funded companies will always win.” There’s none of that. It’s always nuanced. It depends a lot on the situation. It depends a lot on the founders. That’s something else I want to call out here is if Laura Roeder had $10 million in funding, she still would have won. Or at least that’s the position I would take given everything we talk about in this episode. But before we dive in, I want to let you know that MicroConf Mastermind matching is open. One of the most valuable things you can do as a founder is surround yourself with people who get it.
And that’s exactly what this program is designed to do. A recent member had this to say, quote, “Our fear is all the same. It’s that our product’s going to flop, that it’s not going to take off.” We openly talk about it and I’m like, “Oh, this is so normal.” And so then it makes it feel a little more fixable, relatable, and approachable, and we can all have ideas for how to just get past this. To date, we facilitated well over a thousand mastermind matches, bringing together founders from more than 50 countries and over 20 time zones based on things like ARR, team size, experience level, geography, and when they’re able to meet. Applications close on January 16th. For all the details and to apply today, head to microConf.com/masterminds. And with that, let’s dive into my conversation. Laura Roder, welcome back to Startups for the Rest of Us.
Laura Roeder:
Hello. I am happy to be back on one of my favorite podcasts.
Rob Walling :
Oh, you are too kind. I think this got to be your, what, your fourth, fifth appearance?
Laura Roeder:
Something like that. Yeah. It’s a long running show. I’m a long running entrepreneur, so I go together.
Rob Walling :
Indeed. You’ve told the story. Well, you come on and answer the listener questions a few years back. You told the story of Edgar of exiting that, I believe. I know we talked about the whole story there, but you are a storied entrepreneur. You’ve had consulting, you’ve had info products, and most recently for the past 10 years at least, you’ve had two SaaS companies, right? You had Meet Edgar and now Paper Bell.
Laura Roeder:
Yes. And another one that we shut down shortly after it started. So technically-
Rob Walling :
It had Hog in the name.
Laura Roeder:
It had
Rob Walling :
Pig.
Laura Roeder:
Pig. Pig. What was it called? It was called Ropig. The mascot was like a robot. Robot Pig. Robot Pig.
Rob Walling :
Oh, I love it. It’s so memorable because I remembered Hog. I
Laura Roeder:
Remember Hog. I don’t know.
Rob Walling :
Yeah. Maybe not. All right. So we want to talk about Paper Bell today. And the reason I wanted you to come back on the show is I saw you tweeted out that one of your venture backed competitors went out of business. I’ll use the word imploded, but I don’t know if that’s accurate. They went under. And Paper Bell, for the record, is fully bootstrapped and you and your husband are co-founders, right? He’s the developer and you are everything else, marketing and sales and all that.
Laura Roeder:
Correct.
Rob Walling :
And it’s a common story because I remember growing drip, seeing venture back competitors come and just hit the market and spend a bunch of money and implode. And I never really talked much about that, but there was always some really interesting nuggets in that. And so you were mentioning, “Hey, I might write a blog post.” And I was like, “Just come on, let’s talk about it. ” And if you do wind up publishing a post, we’ll obviously link to it in the show notes. But can you set the stage for people? What is Paperbell? What’s the space it’s in? When did you launch? Where does a business stand today? Just give us the ground level view.
Laura Roeder:
Yeah. So Paperbell launched in 2020. So five years ago at the time of this recording, we’re fully bootstrapped. We’re now in the low millions ARR.
Rob Walling :
Awesome. And how big is the team?
Laura Roeder:
It’s hard to answer because we have one full-time person, everyone’s freelance. So as small as possible, basically as how big’s the team.
Rob Walling :
Yeah. You run really lean businesses for folks who don’t know. And it’s a lot of async, right? There’s like almost no meetings.
Laura Roeder:
There’s literally no meetings.
Rob Walling :
Yeah. And so you take that tact and it’s for your lifestyle, right? It’s like you don’t want to be in meetings. That’s the purpose. The business serves your lifestyle’s true bootstrap business.
Laura Roeder:
Yes. I did the meetings in the last business. I got sick of the meetings. I’m like, let’s do no meetings. See how that goes so far. It’s going great.
Rob Walling :
Paperbell.com. If folks want to check it out and your H1 is $47 million paid to coaches like you. Wait, you pay coaches? Paperbell is the simplest way to sell coaching online. Aha. It’s a SaaS. Get your own gorgeous social friendly website with scheduling payments, messaging and more built right in. The proof is in the profits. Coaches like you have earned, collectively earned over $47 million using Paperbell. $47 million, that’s a lot of money actually, because coaches, I know it’s a dicey … I guess I view it maybe as there’s a lot of prosumers and hobbyists doing coaching. You think that’s accurate?
Laura Roeder:
That is accurate. A lot of people do it because it’s something you can sort of just do for a few hours on the side. So yeah, a lot of people do it on the side. As you can guess, our best customer is someone who does it full-time as their career. So there’s plenty of those out there. But yeah, it’s a very prosumery type of business. I liked hearing that headline reflected back and I was like, okay, I think that actually does sum it up pretty well. And yeah, just to clarify in the 47 million, that’s not our revenue. People connect their Stripe account and their PayPal account and then do their payments through Paperbell. So that’s just flowing through us. We don’t take any kind of cut on that, which is a benefit to our customers. So yeah, we’re just a true self-serve SaaS business, $57 a month.
Rob Walling :
And when you entered the space, I have to imagine there were already coach … Can I call this space the category like, is it coach practice management or just coaching SaaS?
Laura Roeder:
Coaching software.
Rob Walling :
Coaching software. There had to have been other coaching software that existed.
Laura Roeder:
Yeah. Yeah. The easiest way to think of it is just kind of an industry vertical tool for coaches to do their contracts, their payments, their scheduling. And when I say coaches, I mean life coaches, executive coaches, business coaches, that’s kind of most of our market. It’s not fitness coaches. That’s kind of a different category where they’re often wanting apps with their own workouts and meal plans. We don’t do that. Yeah. So that’s the market.
Rob Walling :
And was it competitive when you entered it? Were there a lot of alternatives and why entered this particular space? You have a lot of options to what you’re going to
Laura Roeder:
Do. Yeah. So when we launched, there were competitors that existed. There were no venture backed competitors and it was very, very fragmented. The competitors that existed seemed to be more hobby business type of things. I think what often happened was like someone who was a professional coach would sort of see the need for this. They would kind of try to build it, but they weren’t really like software people necessarily, which maybe that should have … You can view that either way. One, there was competition, but it’s like, well, if there’s not a one really successful competitor, maybe that’s a red flag. I don’t know. But what I liked about the space was one, like I love self serve, even though it’s absolutely SaaS on hard mode and you should go up market and it makes it a lot easier and it makes you ensure all the things that Rob says are true.
But I like a challenge. I like doing self-serve. I just love that market of helping the individual coaches, creators. It’s just really fun for me. And I thought that coaching would be a hugely growing market, which has … That hypothesis has definitely turned out to be correct. Coaching is weird. You can’t actually get any numbers on it because anyone can call themselves a coach. It’s not something where you have to be certified. So there’s no official association and they say, we have this many members. So no one really knows how many coaches there are, but I think anyone could tell you anecdotally that they have come across more and more life coaches over the years and it has become more and more popular.
Rob Walling :
Yeah, that makes sense. A little bit to the bane of coaches like my wife, Dr. Sherry Wallinging, who has a psychology degree and is like, she’s like, “I don’t want to call myself a coach because it puts me in a bucket of a lot of people who are just calling themselves a thing.” So she often uses consultant, but that doesn’t mean that it’s not a viable market and doesn’t provide value to a lot of people. And so in this episode, I want to focus on this venture backed competitor and is it practice. Practice.do. And they set the stage there. So you launched in 2020. When did they launch and were they funded by the time you heard about them and how much did they raise?
Laura Roeder:
So they also launched in 2020 and their founder is actually someone that I did know from years ago when he was more in the course space also, but we hadn’t spoken in like 10 plus years. We both apparently just had the same idea at the same time. I don’t think that’s a huge surprise because like I said, it was a growing market and there wasn’t someone who had really, completely addressed it really well. So Practice launched the same year as us 2020 and they announced that they had raised 10 million when they launched, I think they might have called it a seed round. So the founder in his previous business had raised like a hundred million. So he’s someone who’s used to those larger numbers. So this is my assumption. I would assume that he thought he would go on to raise more, which they did not end up doing.
Rob Walling :
10 million is a load of money for those watching at home. I will often say, “Oh, mostly bootstrap TinySeed, you raise 150 grand or whatever, 200 grand.” It’s like, that’s not as much money as it sounds like if you bootstrap. You burn through that pretty quick. It’s a salary or two.
Laura Roeder:
10
Rob Walling :
Million bucks, that’s a lot of money and that means your goalposts are very, very high because if you raise that 10 million in 2020, was it a hundred million dollar valuation maybe or maybe 50 million, right? So yeah, 50 million if they bought 20%, which may be more accurate. So now if you sell for a quarter of a billion dollars, you give a 5X return to your VCs, which they don’t want a 5X return.
Laura Roeder:
Well, and they raised from Andrews and Horovitz. So they’re not expecting small returns over there.
Rob Walling :
Yeah. They want decacorns. They want billion or 10 billion. We want to roll up the whole coaching industry, which I’m still thinking it just doesn’t seem like it’s that big. There must have been some vision that they painted that is not just serving coaches for $57 a month.
Laura Roeder:
Well, coaching is kind of a weird industry. So there are a few VC backed companies in the coaching industry. And what those companies do is they kind of have like a tech enabled service coaching as an enterprise perk, kind of like better help for therapy. There’s a few companies out there because all large corporations do have lots of coaching actually, both provided in- house or they’ll contract a firm to do their leadership coaching, stuff like that. So there is like a coaching enterprise market, but that’s not what Paperbell does. That’s not what practice does. And it’s kind of a weird one where they have completely different needs because we’re basically enabling individual coaches to sell their services. Obviously if you’re coaching in- house at Coca-Cola, you’re not selling a service, you’re just providing a service in house. So it’s not the type of thing where you’re selling more of the same to upmarket.
And it’s also not … If you look at that upmarket space, they don’t need a ton of software or like custom software necessarily.
Rob Walling :
Got it. So yeah, it is an interesting fragmented market, but kind of sounds like there’s a dichotomy there with enterprise and the self-serve is like different.
Laura Roeder:
Yeah.
Rob Walling :
It’s called coaching, but it’s not really the same. It’s very different ICP.
Laura Roeder:
Right. Especially as far as the business model works. So yeah, I was not in their pitch meetings, but I would think part of it could just be like coaching, coaching, because it’s true, like there’s a lot of coaching going on. There’s some money going into coaching. We’re going to capture that in some way. And so maybe that was their pitch or maybe they planned … I always assumed that they planned to start in coaching and then kind of expand to a larger freelancer. There’s a lot of tools out there just for general freelancers to kind of manage their business, take payments, stuff like that. I thought they would go in that direction, which before the call I sent you some, we looked sort of through their website over the years. They sort of did try to go there for a while, but never fully went there.
Rob Walling :
And so for folks wondering what we’re going to cover, I want to talk a little bit about what you feel like they did wrong. The things, because you’re still alive doing millions a year in ARR and they’re now under, out of business, even though they had such a headstart with 10 million in the bank. So I’d love to hear, we’re going to dig into the things that you did differently as well as even like to jump to the spoiler, you had a conversation with the founder of Practice, I guess as they were kind of knowing that they were struggling about potentially acquiring the business, which I think is a fascinating part to this story. So you outlined a handful of things that they did differently and that you feel like … I mean, some of these, as I read them, I’m like, oh yeah, these are classic engineering mistakes, classic like technical founder mistakes.
And the first one is you said that they over invested in engineering too early that they launched an Android and iOS mobile apps either immediately or very early on. And yeah, any mobile apps plus web apps, it’s like, you burned through 10 million pretty quick doing that kind of stuff. So just talk us through that, that whole point.
Laura Roeder:
Yeah. And I mean, this was pre AI. It’s a lot easier now to create apps and maybe languages you’re not as familiar with, although obviously still a ton of work. And our market does not demand a mobile app. It’s a nice to have … People sometimes ask us for it, but if I’ve never had anyone cancel saying it’s because we don’t have a mobile app. But it makes sense if you think from their perspective, it’s like when you’re raising money from these huge VC firms, it’s like you’re not supposed to sort of gradually feel things out, right? You’re supposed to go, honestly, spend as much as possible, as soon as possible to try to dominate the market. So I can understand why they’re like, ” We’re going to do web, we’re going to do all the mobile. “But what it meant was they had a large engineering team right from the beginning.
We had one person engineering team for the first three years of the business, and our one person was able to build extremely similar to what their entire team built. The big thing, we didn’t have the mobile apps, that was the big difference. But as far as the functionality of the software, it was extremely, extremely similar.
Rob Walling :
This is where I talk about founders having a gut feel and a product sense, which is I’m sure that, and you just said, you have received through Paper Bell requests for a mobile app and obviously practiced it as well. And they said,” Oh, customers ask for it. We need to build it. “And you said,” Customers ask for it. I’m not building it unless I start losing a book, right? And this is this bootstrapper mindset of what is the minimum that I can build to get this business off the ground or to half a million or a million or wherever you’re going. And while bootstrapping … Look, I may get hate mail for this. Bootstrapping is doing it on hard mode. Now that I have raised funding with TinySeed and I see companies that raise a few million, we have a bunch of TinySeed companies that have done this.
If you do it well, if you think about it like a bootstrapper and you approach it like Laura Roder or like a Ruben Gomez or even like a Jason Cohen, he raised a bunch of money, but he approaches things super pragmatically, that is a superpower. It’s like adding octane to a fire in a good way though, not in the bad explosive incendiary way. But when I think about folks raising a bunch of money and then not acting more capital efficient, it sounds like that was this of like, “Well, everyone’s requesting everything, we’re going to build it all. ”
Laura Roeder:
Well, I think it’s a very common VC trap because again, I have to assume that they wanted to keep raising just an assumption, but that’s kind of what you do if you call 10 million your seed round. So you get yourself in this weird trap often where it’s like you have to keep raising because that’s how the game is played. But then if you want to keep raising, you kind of have to show this evidence that you’re just going as all out as possible. It almost looks better if you’ve spent all the money. It’s like impressive if you have this huge engineering team and sometimes all these huge marketing plays, that’s another theme that they seem to have missed. They seem, maybe because they had only quote unquote 10 million, they seem to have put it all into engineering and extremely little into marketing. But if you think you’re going to keep having more and more tens of millions coming in, I can see why you would make that choice.
But yeah, it just makes you a lot more sloppy with what you’re building because you don’t have that constraint of, oh, we can only build things that will make us keep our current customers and get more of them.
Rob Walling :
Yeah. And the fundraising landscape in 2020 after … Obviously there was the big stock market crash in March or April. And then when it came back and there was all the stimulus here in the US, well around the world for that matter, it became really easy to raise money and money was cheap and that carried into 2021. And then we know there was like an asset crash after that. And 2022 and 23, it was very hard to raise money. And so I imagine they just went under in the last few months, right? This is the end of 2025. Yeah. So I imagine if they didn’t have the numbers these days, it is you do need fundamentals to raise because if they’re at 10 million, well, what’s your next round going to be? Aren’t you supposed to raise more? To raise 20 million at a whatever, a 200 or 100 million dollar valuation, like you need some really good fundamentals these days in a way that I don’t think you did in 2021.
And to circle back on something you just said is 0.2 that you had sent me is they overinvested in engineering it sounds like, and they underinvested in marketing and distribution. And the quote from your email that you sent me, “I kept waiting for them to do more marketing, but we just never really heard much about them.” The lack of visibility was noticeable. That feels like, shouldn’t their VCs or someone smart be telling them, “You guys need to market more? What happened there?”
Laura Roeder:
Yeah, again, maybe you can get their founder on, that would be fascinating and hear his side of the story. So that one always was surprising to me because that was more the worry to me because I know how much one engineer can build. There’s some benefits to only having like a one person or two person team, like especially one person, they’re able to keep the whole architecture in their head, not have any of the back and forth, not have any of the drop balls between two people, right? But marketing, I mean, like we’ve done marketing through SEO and through ads. And obviously ads is very much like if you spend more money, you get more exposure. It’s very black and white. It may not be effective, you may not be converting, but if you spend more, you can get more exposure. SEO, sort of similar, I mean, all that’s got out the window in 2025, but in 2020, it’s like you could sort of spend more on SEO, maybe get more traffic faster.
So that’s what we were doing. And I was always kind of looking around being like, “Oh God, are they just about to murder us spending tons of money on Meta ads?” Meta’s a great channel for coaches. They’re very active there and over the years they did little or no ad spend.
Rob Walling :
That’s crazy because I would think with that much money in the bank, that’s the most obvious and easiest path is to just drop money. I would think AdWords or Meta ads. Well, all right, so that’s mistake number two. And then the third thing you mentioned was a fundamentally limited upmarket path. The coaching industry is difficult because there isn’t a cleanup market path without fundamentally changing the product. And you touched on this earlier where you say the true upmarket in coaching is the corporate coaching and that’s enterprise, but basically with self-server, mostly self-serve, I guess there’s not a ton of expansion revenue is kind of what it is.
Laura Roeder:
Right. There’s a market which, looking at their website, I think they tried to serve. There are some coaching practices that have multiple coaches, maybe there’s like a leadership coaching practice and they have like 10 coaches and you hire them to do leadership coaching for your team. It’s just not a big market and it’s also not … It doesn’t really help you if you have businesses that are somewhat bigger, but they still don’t make a ton of money. So a coaching practice with 10 coaches isn’t necessarily having huge revenue or like huge willingness to spend that much more than like the solo leadership coach. So it’s something I looked into because again, you’re supposed to go at market. It’s very helpful if you do. But I just saw after being in that industry, we would get some requests over the years of like, “Oh, we have five coaches, we have 20 coaches at our practice.” And we’d be like, “Buy five Paperball accounts.
I’ll give you a discount. That’s kind of all we can do. ” But we got so few of those requests that I’m like, “This is not going to be worth our time to build functionality for this. ”
Rob Walling :
If someone’s listening to this, I don’t want it to come across like us saying, “Well, anyone who raises 10 million, it’s just so stupid and all the incentives are and you can’t build a great business doing this. ” It’s like we hear, it’s kind of fun just in general and the broader internet to talk about the companies that raise a ton of money and then go under because there’s a little bit of Shadenfroda of like, “Oh, you thought you had this great thing and you fumbled the ball with 10 million in the bank or 100 million or whatever, some of these big companies do. ” And while that is probably the most common story, because we know that for every 10 companies, VC backs, I think don’t seven of them go to zero and like two of them break even or have very little return and then one is the big returner, right?
That’s the idea is 100x or something. And that is kind of how the model works. But I have personally seen many companies, some that compete with TinySeq companies, others like a Jason Cohen or folks kind of within our orbit that do raise buckets of money. I mean, I think Close didn’t necessarily raise buckets of money, but they did go through YC. I think v.io is doing really well. We had dinner with Saba, remember a couple years ago in Croatia, you spoke at MicroConf, they raised a lot of money and I think it was Sequoia or Andreessen, I don’t remember, and I think they’re doing pretty well. So I don’t want to paint this picture because someone, if you’re so pro bootstrapping and you’re listening to this, you’re like, “Yeah, this is why you never raise money because it totally screws you and you should never…” And that’s all we’re saying.
We’re saying that it is a balance and that probably 70% of the time, if I were to throw it out, 70 or 80% of the time, it doesn’t work out. But I tell you what, 10 million bucks in the hands of the right person of you, of Ruben, Heaton Shaw, like Jason Cohen, Dharmesh, we can name a bunch of like really accomplished and capital efficient founders, you can do some damage. I mean, it doesn’t necessarily mean that the business is bad because you raised 10 million for it.
Laura Roeder:
Right. And I would add to that, I do think that there are some markets, some businesses where you don’t want to raise 10 million, and I think this is one of them. And I think this is one of the huge bootstrapper advantages that people don’t deeply understand that doesn’t get talked about enough is as a bootstrapper, I can run a business that, let’s say it maxes out at two million, let’s say it never gets higher than that, and I can take home a million dollars a year. You know what I mean? That’s obviously a great outcome for me, but that’s a zero, that’s a dud in VC world. So there are actually, I think, more SaaS opportunities than a lot of people realize because by definition, they’re too small for VC and coaching might be one of them, the way that we’ve approached it, Paperbell serving just these one person businesses, because even if Paperbell goes to 50 million, that’s still not a VC win, right?
The numbers are just so different. VC, again, depending on how much you raise, they’re often looking for businesses that are doing hundreds of millions or more in revenue. So it does also have to be a match what the business model is, who you’re serving and the amount that you’re raising.
Rob Walling :
Yeah, that’s a good point. I really like the way back machine headlines you’ve sent me for practice.du. DO? Practice.due. I’ve never- They just
Laura Roeder:
Called it practice.
Rob Walling :
Practice. Okay. For practice. I haven’t heard the due TLD before, but I remember when we were building Drip and I would look at the newer entrance into the market, a lot of them had some type of venture money or some type of funding. And I would watch their headlines change every four or five months and dramatically, and I was like, “Oh, they’re floundering. They don’t really know what they’re doing.” Or maybe they do know what they’re doing, but they’re just not finding product market fit, so they just keep changing it. And I’m not saying that necessarily about practice, but you look at their headline from 2021, the H1 launch and manager coaching business instantly. So it’s like, all right, it’s for coaches, right? In 2022, streamline your coaching business. We help coaches consolidate clunky, disjointed and annoying systems into one simple place. All right, this still checks out.
It’s a little different. 2023, give clients a simple way to schedule, sign, submit a form, pay, message you, get reminders, schedule. Practice has everything you need for your client-based business. So there’s no coach anymore. It’s now anyone with a client. 2024, stop tracking sessions manually. Give your team the tools that would … I don’t think of coaches as having a team in general. Give your team the tools to schedule, track sessions, manage clients in real time automatically. And then the 2025, the last homepage before they shut down, the appointment platform built for growth. I mean, that’s almost a completely different category. It is. Empower your team with the scalable tools to track, manage, and grow bottom line. Were you looking at these headlines over the years or did you just look at them retroactively?
Laura Roeder:
It was interesting looking at them retroactively for this podcast because I kind of popped in over the years, but I’m definitely someone who have some awareness of what your competitors are doing, but I’m more kind of focused on my own thing. But they were always the one I was most interested in because they launched in the same year as us and raised 10 million where none of our other competitors had. So I was certainly worried about them taking a lot of the market, but also it was also along the way this kind of parallel journey because we’d launched at the same time. So I did notice that one year in the middle when they started to go more just sort of general client business and small business, I actually thought at that point, I’m like, oh, that makes sense to me. I think they saw that this was not a big enough market for the amount they’ve raised.
I think they’re going to go broader, but then they seem to move from there to like, I think those later headlines are trying to serve, again, those like multi-coach practices is kind of my best guess. And again, this is where like VC world can be so different from bootstrapper world. Just speculating, maybe when they tried to go after that general client business, maybe they felt like, “Oh, we need to raise another 50 million to go after this really broad market.” Where I think bootstrappers think more like, “Okay, if it’s not working, if you need a pivot, let me try just running a few ads to this market. Let me try just changing the marketing and not too much with the product and let’s see if it gets traction there.” Whereas I think there’s this other kind of thinking that’s like, “Okay, if we’re going to go in this different direction, we have to invest tons of money changing everything.”
Rob Walling :
Yeah. So I want to talk about how you potentially were going to acquire the business, but before we do that, I think this maybe leans into it or leads into it. One of the points that you had sent me was that their fundraise created a false signal. And what did you mean by that?
Laura Roeder:
Just that I thought that they were going to dominate the market is what I expected by … It’s like, oh, they have this huge company behind them. And I always kind of wondered, am I missing something? Because we wouldn’t hear about them. You get people emailing you saying, “Oh, how do you compare to this company? I’m thinking of switching from this competitor. How do you compare?” And we just didn’t hear about them very much. I would also like to throw in here, I do think they had just a terrible name, and I don’t think that names matter that much at the end of the day, but this name was impossible to Google, impossible to track. It’s like you can’t see when people are talking about you on Reddit or Facebook or anything when your name is … And you can’t even put in practice coaching, but you can’t put in practice software because there’s a million other softwares within practice in the name, so we just didn’t hear about them.
So I kept thinking because they’d done this big raise and they announced that Tony Raw Cobbins was maybe even on their board or one in their investors or something. I’m just like, is there something going on that I’m missing? Have they found some sort of secret part of the market that we haven’t found that they’re serving?
Rob Walling :
Yeah, that makes sense. And so you had a conversation about potentially acquiring it. How did that come about? Did he reach out to you? I guess you kind of knew him?
Laura Roeder:
Yeah. So at one point he had sent me an email because like I said, we kind of knew each other. So he had sent me an email at one point over the years being like, “Hey, do you want to chat?” And we didn’t end up chatting, but it was friendly and fine. And then we actually heard they were closing from customers because we started getting emails saying like, “Oh, all of a sudden we need to move our coaching business somewhere. How do you guys compare to practice? Can we move over?”That kind of stuff. But there was no public info on social media, on their blog, on their website. So we actually asked one of those people who had contacted us, were like, “Can you forward us the email that you got?” Because there was nothing public. And then we were actually able to jump on that and publish a blog post about practice closing because they had told their customers, but there was no public info.
So people were searching for it, but there wasn’t a lot out there. So I then tried to reach out to their founder to find out what was happening. It took me a little while, a few layers to get to them, but I did end up speaking to them. But I think the thing about SaaS is that if you’re acquiring another business, you either have to keep that business running and keep their whole business and keep their customers or you have to tell their customers, “Hey, we’ve acquired practice. Do you want to sign up for Paperbell?” But you don’t just magically collect their money. They have to actively resign up. And it is, even if they’re similar, it’s obviously a different system.
Rob Walling :
Yeah. And you don’t have mobile apps.
Laura Roeder:
Right.
Rob Walling :
So people want that, they’re going to get … Yeah. So you have to almost guess how many … Because you don’t want to maintain two apps and keep building. You’re not going to do that. So you have to guess, I don’t know how many of their customers are going to translate over, right? And what is that worth to us?
Laura Roeder:
Exactly. So I think it’s a lot … I talked to some friends who had acquired companies to get advice from them, but if you’re not in … A lot of them … I talked to one person who had a service business and he had grown his business hugely acquiring other businesses. But if you’re an accountant, you’re just like, “We’re doing your accounting now.” And that’s kind of all it is, but it’s quite different in SaaS. So that was a big question for me. It’s like, is this really going to be worth it? Because if their business closes down, their customers are going to have to go somewhere. Aren’t we kind of going to get … We’re so similar to them, we’re going to get a lot of them anyway for free if they shut down.
Rob Walling :
Yeah. So that does make it challenging because acquiring it, like if I swooped in or just some random entrepreneur swooped in and bought it for parts, then it’s a business that I’m running and now I see there’s potential in it. But you already have one. And while it seems on the surface like, well, they’re complimentary. It’s the same ICP or very similar. It should work, but it really is a complex issue and you would have to kind of guess how many folks would move over.
Laura Roeder:
Yeah. And they had a different tech stack than us. So if we were to maintain them at all, we would have to hire engineers and like, now you’re not making money anymore.
Rob Walling :
Yeah, it’s complicated. Well, I guess, I mean, Paper Bell, are you the market leader in this space? I mean, it’s a pretty impressive business.
Laura Roeder:
Now we are. I didn’t know. I kept thinking, I think we’re the market leader, but I’m not sure. And yeah, so to close that loop, we did not end up acquiring practice and it didn’t really end up being a serious conversation and they ended up just shutting down. And I did find out that they weren’t that large, that we were definitely far ahead of them as far as revenue and customers. So yeah, we do seem to be the market leader, which is cool. And I think we are kind of seeing our growth has been accelerating for the past year. And I think we are starting to see that market leader benefit happen of like the more customers you have, the more referrals you get, the more of our competitors go out of business. We’re like the last man standing and we’re going to get more customers.
Rob Walling :
Winning by attrition.
Laura Roeder:
Yeah.
Rob Walling :
You’re just like, “Yeah, I’m still here.” Well, it’s an interesting story and I really appreciate you taking the time to come on here and share it and share it so thoughtfully, right? It’s like you had the headlines and the takeaways and all this stuff. And it’s obvious that you, it should be obvious to everyone, you’re a very experienced and talented entrepreneur and I’ve had multiple successes under your belt and I just appreciate your insights and analysis on this topic.
Laura Roeder:
Thank you. If
Rob Walling :
Folks want to keep up with you, you’re on X Twitter. Are you @LKR?
Laura Roeder:
I just got back on. I was off for like two years, but now I’m totally addicted again, LKR.
Rob Walling :
What brought you back?
Laura Roeder:
I just got bored. I tried to go to Blue Sky, but then it didn’t end up being active. And then I was just not on social media, which is great for you, but I missed all the Twitter drama.
Rob Walling :
You miss the Twitter drama. Oh boy. No, that’s great. And I wouldn’t have heard about this probably at all if you weren’t on Twitter because this is where I saw it. Yeah. @LKR, if folks want to follow up or just hang out, follow you, paperbell.com. If folks want to see the best coaching platform on the internet. Then market later. Number one, the best, best on the best. Awesome. Thanks again, Laura. Thank
Speaker 3:
You.
Rob Walling :
Thanks again to Laura for coming back on Startups for the Rest of Us. She’s always a fount of knowledge and very experienced and exceptional entrepreneur. I hope you learned a lot from this episode and thank you for listening this week and every week. This is Rob Walling signing off from episode 814.
It’s another episode of Startups for the Rest of Us. I am your host, Rob Walling, and in this episode I am joined by fan favorite Laura Roeder, who has made several appearances on this very show. And in this episode, we talk about how she and her small but mighty bootstrap team beat a venture backed competitor. And I believe if I recall, it’s in the episode, but I think they raised $10 million. It’s a significant amount of money. And while Laura talks a lot about why the venture-backed competitor failed in a way that almost makes it sound like they beat themselves, I would encourage you to listen to this episode and listen to what the funded competitor did wrong, but also what Laura has done right. And what Laura has done right is a lot of marketing, a lot of focusing on building the right things for their customers, not building too much, not having a large bloated org chart, hiring a lot of engineers.
She’s been very focused on what her customers need and then very focused on how to find more of those customers. It’s always an inspiring story to hear a founder who’s bootstrapping against a funded competitor and that bootstrapper wins. And sometimes it happens this way and other times it doesn’t. There is no, “Oh, funded companies always implode or funded companies will always win.” There’s none of that. It’s always nuanced. It depends a lot on the situation. It depends a lot on the founders. That’s something else I want to call out here is if Laura Roeder had $10 million in funding, she still would have won. Or at least that’s the position I would take given everything we talk about in this episode. But before we dive in, I want to let you know that MicroConf Mastermind matching is open. One of the most valuable things you can do as a founder is surround yourself with people who get it.
And that’s exactly what this program is designed to do. A recent member had this to say, quote, “Our fear is all the same. It’s that our product’s going to flop, that it’s not going to take off.” We openly talk about it and I’m like, “Oh, this is so normal.” And so then it makes it feel a little more fixable, relatable, and approachable, and we can all have ideas for how to just get past this. To date, we facilitated well over a thousand mastermind matches, bringing together founders from more than 50 countries and over 20 time zones based on things like ARR, team size, experience level, geography, and when they’re able to meet. Applications close on January 16th. For all the details and to apply today, head to microConf.com/masterminds. And with that, let’s dive into my conversation. Laura Roder, welcome back to Startups for the Rest of Us.
Laura Roeder:
Hello. I am happy to be back on one of my favorite podcasts.
Rob Walling :
Oh, you are too kind. I think this got to be your, what, your fourth, fifth appearance?
Laura Roeder:
Something like that. Yeah. It’s a long running show. I’m a long running entrepreneur, so I go together.
Rob Walling :
Indeed. You’ve told the story. Well, you come on and answer the listener questions a few years back. You told the story of Edgar of exiting that, I believe. I know we talked about the whole story there, but you are a storied entrepreneur. You’ve had consulting, you’ve had info products, and most recently for the past 10 years at least, you’ve had two SaaS companies, right? You had Meet Edgar and now Paper Bell.
Laura Roeder:
Yes. And another one that we shut down shortly after it started. So technically-
Rob Walling :
It had Hog in the name.
Laura Roeder:
It had
Rob Walling :
Pig.
Laura Roeder:
Pig. Pig. What was it called? It was called Ropig. The mascot was like a robot. Robot Pig. Robot Pig.
Rob Walling :
Oh, I love it. It’s so memorable because I remembered Hog. I
Laura Roeder:
Remember Hog. I don’t know.
Rob Walling :
Yeah. Maybe not. All right. So we want to talk about Paper Bell today. And the reason I wanted you to come back on the show is I saw you tweeted out that one of your venture backed competitors went out of business. I’ll use the word imploded, but I don’t know if that’s accurate. They went under. And Paper Bell, for the record, is fully bootstrapped and you and your husband are co-founders, right? He’s the developer and you are everything else, marketing and sales and all that.
Laura Roeder:
Correct.
Rob Walling :
And it’s a common story because I remember growing drip, seeing venture back competitors come and just hit the market and spend a bunch of money and implode. And I never really talked much about that, but there was always some really interesting nuggets in that. And so you were mentioning, “Hey, I might write a blog post.” And I was like, “Just come on, let’s talk about it. ” And if you do wind up publishing a post, we’ll obviously link to it in the show notes. But can you set the stage for people? What is Paperbell? What’s the space it’s in? When did you launch? Where does a business stand today? Just give us the ground level view.
Laura Roeder:
Yeah. So Paperbell launched in 2020. So five years ago at the time of this recording, we’re fully bootstrapped. We’re now in the low millions ARR.
Rob Walling :
Awesome. And how big is the team?
Laura Roeder:
It’s hard to answer because we have one full-time person, everyone’s freelance. So as small as possible, basically as how big’s the team.
Rob Walling :
Yeah. You run really lean businesses for folks who don’t know. And it’s a lot of async, right? There’s like almost no meetings.
Laura Roeder:
There’s literally no meetings.
Rob Walling :
Yeah. And so you take that tact and it’s for your lifestyle, right? It’s like you don’t want to be in meetings. That’s the purpose. The business serves your lifestyle’s true bootstrap business.
Laura Roeder:
Yes. I did the meetings in the last business. I got sick of the meetings. I’m like, let’s do no meetings. See how that goes so far. It’s going great.
Rob Walling :
Paperbell.com. If folks want to check it out and your H1 is $47 million paid to coaches like you. Wait, you pay coaches? Paperbell is the simplest way to sell coaching online. Aha. It’s a SaaS. Get your own gorgeous social friendly website with scheduling payments, messaging and more built right in. The proof is in the profits. Coaches like you have earned, collectively earned over $47 million using Paperbell. $47 million, that’s a lot of money actually, because coaches, I know it’s a dicey … I guess I view it maybe as there’s a lot of prosumers and hobbyists doing coaching. You think that’s accurate?
Laura Roeder:
That is accurate. A lot of people do it because it’s something you can sort of just do for a few hours on the side. So yeah, a lot of people do it on the side. As you can guess, our best customer is someone who does it full-time as their career. So there’s plenty of those out there. But yeah, it’s a very prosumery type of business. I liked hearing that headline reflected back and I was like, okay, I think that actually does sum it up pretty well. And yeah, just to clarify in the 47 million, that’s not our revenue. People connect their Stripe account and their PayPal account and then do their payments through Paperbell. So that’s just flowing through us. We don’t take any kind of cut on that, which is a benefit to our customers. So yeah, we’re just a true self-serve SaaS business, $57 a month.
Rob Walling :
And when you entered the space, I have to imagine there were already coach … Can I call this space the category like, is it coach practice management or just coaching SaaS?
Laura Roeder:
Coaching software.
Rob Walling :
Coaching software. There had to have been other coaching software that existed.
Laura Roeder:
Yeah. Yeah. The easiest way to think of it is just kind of an industry vertical tool for coaches to do their contracts, their payments, their scheduling. And when I say coaches, I mean life coaches, executive coaches, business coaches, that’s kind of most of our market. It’s not fitness coaches. That’s kind of a different category where they’re often wanting apps with their own workouts and meal plans. We don’t do that. Yeah. So that’s the market.
Rob Walling :
And was it competitive when you entered it? Were there a lot of alternatives and why entered this particular space? You have a lot of options to what you’re going to
Laura Roeder:
Do. Yeah. So when we launched, there were competitors that existed. There were no venture backed competitors and it was very, very fragmented. The competitors that existed seemed to be more hobby business type of things. I think what often happened was like someone who was a professional coach would sort of see the need for this. They would kind of try to build it, but they weren’t really like software people necessarily, which maybe that should have … You can view that either way. One, there was competition, but it’s like, well, if there’s not a one really successful competitor, maybe that’s a red flag. I don’t know. But what I liked about the space was one, like I love self serve, even though it’s absolutely SaaS on hard mode and you should go up market and it makes it a lot easier and it makes you ensure all the things that Rob says are true.
But I like a challenge. I like doing self-serve. I just love that market of helping the individual coaches, creators. It’s just really fun for me. And I thought that coaching would be a hugely growing market, which has … That hypothesis has definitely turned out to be correct. Coaching is weird. You can’t actually get any numbers on it because anyone can call themselves a coach. It’s not something where you have to be certified. So there’s no official association and they say, we have this many members. So no one really knows how many coaches there are, but I think anyone could tell you anecdotally that they have come across more and more life coaches over the years and it has become more and more popular.
Rob Walling :
Yeah, that makes sense. A little bit to the bane of coaches like my wife, Dr. Sherry Wallinging, who has a psychology degree and is like, she’s like, “I don’t want to call myself a coach because it puts me in a bucket of a lot of people who are just calling themselves a thing.” So she often uses consultant, but that doesn’t mean that it’s not a viable market and doesn’t provide value to a lot of people. And so in this episode, I want to focus on this venture backed competitor and is it practice. Practice.do. And they set the stage there. So you launched in 2020. When did they launch and were they funded by the time you heard about them and how much did they raise?
Laura Roeder:
So they also launched in 2020 and their founder is actually someone that I did know from years ago when he was more in the course space also, but we hadn’t spoken in like 10 plus years. We both apparently just had the same idea at the same time. I don’t think that’s a huge surprise because like I said, it was a growing market and there wasn’t someone who had really, completely addressed it really well. So Practice launched the same year as us 2020 and they announced that they had raised 10 million when they launched, I think they might have called it a seed round. So the founder in his previous business had raised like a hundred million. So he’s someone who’s used to those larger numbers. So this is my assumption. I would assume that he thought he would go on to raise more, which they did not end up doing.
Rob Walling :
10 million is a load of money for those watching at home. I will often say, “Oh, mostly bootstrap TinySeed, you raise 150 grand or whatever, 200 grand.” It’s like, that’s not as much money as it sounds like if you bootstrap. You burn through that pretty quick. It’s a salary or two.
Laura Roeder:
10
Rob Walling :
Million bucks, that’s a lot of money and that means your goalposts are very, very high because if you raise that 10 million in 2020, was it a hundred million dollar valuation maybe or maybe 50 million, right? So yeah, 50 million if they bought 20%, which may be more accurate. So now if you sell for a quarter of a billion dollars, you give a 5X return to your VCs, which they don’t want a 5X return.
Laura Roeder:
Well, and they raised from Andrews and Horovitz. So they’re not expecting small returns over there.
Rob Walling :
Yeah. They want decacorns. They want billion or 10 billion. We want to roll up the whole coaching industry, which I’m still thinking it just doesn’t seem like it’s that big. There must have been some vision that they painted that is not just serving coaches for $57 a month.
Laura Roeder:
Well, coaching is kind of a weird industry. So there are a few VC backed companies in the coaching industry. And what those companies do is they kind of have like a tech enabled service coaching as an enterprise perk, kind of like better help for therapy. There’s a few companies out there because all large corporations do have lots of coaching actually, both provided in- house or they’ll contract a firm to do their leadership coaching, stuff like that. So there is like a coaching enterprise market, but that’s not what Paperbell does. That’s not what practice does. And it’s kind of a weird one where they have completely different needs because we’re basically enabling individual coaches to sell their services. Obviously if you’re coaching in- house at Coca-Cola, you’re not selling a service, you’re just providing a service in house. So it’s not the type of thing where you’re selling more of the same to upmarket.
And it’s also not … If you look at that upmarket space, they don’t need a ton of software or like custom software necessarily.
Rob Walling :
Got it. So yeah, it is an interesting fragmented market, but kind of sounds like there’s a dichotomy there with enterprise and the self-serve is like different.
Laura Roeder:
Yeah.
Rob Walling :
It’s called coaching, but it’s not really the same. It’s very different ICP.
Laura Roeder:
Right. Especially as far as the business model works. So yeah, I was not in their pitch meetings, but I would think part of it could just be like coaching, coaching, because it’s true, like there’s a lot of coaching going on. There’s some money going into coaching. We’re going to capture that in some way. And so maybe that was their pitch or maybe they planned … I always assumed that they planned to start in coaching and then kind of expand to a larger freelancer. There’s a lot of tools out there just for general freelancers to kind of manage their business, take payments, stuff like that. I thought they would go in that direction, which before the call I sent you some, we looked sort of through their website over the years. They sort of did try to go there for a while, but never fully went there.
Rob Walling :
And so for folks wondering what we’re going to cover, I want to talk a little bit about what you feel like they did wrong. The things, because you’re still alive doing millions a year in ARR and they’re now under, out of business, even though they had such a headstart with 10 million in the bank. So I’d love to hear, we’re going to dig into the things that you did differently as well as even like to jump to the spoiler, you had a conversation with the founder of Practice, I guess as they were kind of knowing that they were struggling about potentially acquiring the business, which I think is a fascinating part to this story. So you outlined a handful of things that they did differently and that you feel like … I mean, some of these, as I read them, I’m like, oh yeah, these are classic engineering mistakes, classic like technical founder mistakes.
And the first one is you said that they over invested in engineering too early that they launched an Android and iOS mobile apps either immediately or very early on. And yeah, any mobile apps plus web apps, it’s like, you burned through 10 million pretty quick doing that kind of stuff. So just talk us through that, that whole point.
Laura Roeder:
Yeah. And I mean, this was pre AI. It’s a lot easier now to create apps and maybe languages you’re not as familiar with, although obviously still a ton of work. And our market does not demand a mobile app. It’s a nice to have … People sometimes ask us for it, but if I’ve never had anyone cancel saying it’s because we don’t have a mobile app. But it makes sense if you think from their perspective, it’s like when you’re raising money from these huge VC firms, it’s like you’re not supposed to sort of gradually feel things out, right? You’re supposed to go, honestly, spend as much as possible, as soon as possible to try to dominate the market. So I can understand why they’re like, ” We’re going to do web, we’re going to do all the mobile. “But what it meant was they had a large engineering team right from the beginning.
We had one person engineering team for the first three years of the business, and our one person was able to build extremely similar to what their entire team built. The big thing, we didn’t have the mobile apps, that was the big difference. But as far as the functionality of the software, it was extremely, extremely similar.
Rob Walling :
This is where I talk about founders having a gut feel and a product sense, which is I’m sure that, and you just said, you have received through Paper Bell requests for a mobile app and obviously practiced it as well. And they said,” Oh, customers ask for it. We need to build it. “And you said,” Customers ask for it. I’m not building it unless I start losing a book, right? And this is this bootstrapper mindset of what is the minimum that I can build to get this business off the ground or to half a million or a million or wherever you’re going. And while bootstrapping … Look, I may get hate mail for this. Bootstrapping is doing it on hard mode. Now that I have raised funding with TinySeed and I see companies that raise a few million, we have a bunch of TinySeed companies that have done this.
If you do it well, if you think about it like a bootstrapper and you approach it like Laura Roder or like a Ruben Gomez or even like a Jason Cohen, he raised a bunch of money, but he approaches things super pragmatically, that is a superpower. It’s like adding octane to a fire in a good way though, not in the bad explosive incendiary way. But when I think about folks raising a bunch of money and then not acting more capital efficient, it sounds like that was this of like, “Well, everyone’s requesting everything, we’re going to build it all. ”
Laura Roeder:
Well, I think it’s a very common VC trap because again, I have to assume that they wanted to keep raising just an assumption, but that’s kind of what you do if you call 10 million your seed round. So you get yourself in this weird trap often where it’s like you have to keep raising because that’s how the game is played. But then if you want to keep raising, you kind of have to show this evidence that you’re just going as all out as possible. It almost looks better if you’ve spent all the money. It’s like impressive if you have this huge engineering team and sometimes all these huge marketing plays, that’s another theme that they seem to have missed. They seem, maybe because they had only quote unquote 10 million, they seem to have put it all into engineering and extremely little into marketing. But if you think you’re going to keep having more and more tens of millions coming in, I can see why you would make that choice.
But yeah, it just makes you a lot more sloppy with what you’re building because you don’t have that constraint of, oh, we can only build things that will make us keep our current customers and get more of them.
Rob Walling :
Yeah. And the fundraising landscape in 2020 after … Obviously there was the big stock market crash in March or April. And then when it came back and there was all the stimulus here in the US, well around the world for that matter, it became really easy to raise money and money was cheap and that carried into 2021. And then we know there was like an asset crash after that. And 2022 and 23, it was very hard to raise money. And so I imagine they just went under in the last few months, right? This is the end of 2025. Yeah. So I imagine if they didn’t have the numbers these days, it is you do need fundamentals to raise because if they’re at 10 million, well, what’s your next round going to be? Aren’t you supposed to raise more? To raise 20 million at a whatever, a 200 or 100 million dollar valuation, like you need some really good fundamentals these days in a way that I don’t think you did in 2021.
And to circle back on something you just said is 0.2 that you had sent me is they overinvested in engineering it sounds like, and they underinvested in marketing and distribution. And the quote from your email that you sent me, “I kept waiting for them to do more marketing, but we just never really heard much about them.” The lack of visibility was noticeable. That feels like, shouldn’t their VCs or someone smart be telling them, “You guys need to market more? What happened there?”
Laura Roeder:
Yeah, again, maybe you can get their founder on, that would be fascinating and hear his side of the story. So that one always was surprising to me because that was more the worry to me because I know how much one engineer can build. There’s some benefits to only having like a one person or two person team, like especially one person, they’re able to keep the whole architecture in their head, not have any of the back and forth, not have any of the drop balls between two people, right? But marketing, I mean, like we’ve done marketing through SEO and through ads. And obviously ads is very much like if you spend more money, you get more exposure. It’s very black and white. It may not be effective, you may not be converting, but if you spend more, you can get more exposure. SEO, sort of similar, I mean, all that’s got out the window in 2025, but in 2020, it’s like you could sort of spend more on SEO, maybe get more traffic faster.
So that’s what we were doing. And I was always kind of looking around being like, “Oh God, are they just about to murder us spending tons of money on Meta ads?” Meta’s a great channel for coaches. They’re very active there and over the years they did little or no ad spend.
Rob Walling :
That’s crazy because I would think with that much money in the bank, that’s the most obvious and easiest path is to just drop money. I would think AdWords or Meta ads. Well, all right, so that’s mistake number two. And then the third thing you mentioned was a fundamentally limited upmarket path. The coaching industry is difficult because there isn’t a cleanup market path without fundamentally changing the product. And you touched on this earlier where you say the true upmarket in coaching is the corporate coaching and that’s enterprise, but basically with self-server, mostly self-serve, I guess there’s not a ton of expansion revenue is kind of what it is.
Laura Roeder:
Right. There’s a market which, looking at their website, I think they tried to serve. There are some coaching practices that have multiple coaches, maybe there’s like a leadership coaching practice and they have like 10 coaches and you hire them to do leadership coaching for your team. It’s just not a big market and it’s also not … It doesn’t really help you if you have businesses that are somewhat bigger, but they still don’t make a ton of money. So a coaching practice with 10 coaches isn’t necessarily having huge revenue or like huge willingness to spend that much more than like the solo leadership coach. So it’s something I looked into because again, you’re supposed to go at market. It’s very helpful if you do. But I just saw after being in that industry, we would get some requests over the years of like, “Oh, we have five coaches, we have 20 coaches at our practice.” And we’d be like, “Buy five Paperball accounts.
I’ll give you a discount. That’s kind of all we can do. ” But we got so few of those requests that I’m like, “This is not going to be worth our time to build functionality for this. ”
Rob Walling :
If someone’s listening to this, I don’t want it to come across like us saying, “Well, anyone who raises 10 million, it’s just so stupid and all the incentives are and you can’t build a great business doing this. ” It’s like we hear, it’s kind of fun just in general and the broader internet to talk about the companies that raise a ton of money and then go under because there’s a little bit of Shadenfroda of like, “Oh, you thought you had this great thing and you fumbled the ball with 10 million in the bank or 100 million or whatever, some of these big companies do. ” And while that is probably the most common story, because we know that for every 10 companies, VC backs, I think don’t seven of them go to zero and like two of them break even or have very little return and then one is the big returner, right?
That’s the idea is 100x or something. And that is kind of how the model works. But I have personally seen many companies, some that compete with TinySeq companies, others like a Jason Cohen or folks kind of within our orbit that do raise buckets of money. I mean, I think Close didn’t necessarily raise buckets of money, but they did go through YC. I think v.io is doing really well. We had dinner with Saba, remember a couple years ago in Croatia, you spoke at MicroConf, they raised a lot of money and I think it was Sequoia or Andreessen, I don’t remember, and I think they’re doing pretty well. So I don’t want to paint this picture because someone, if you’re so pro bootstrapping and you’re listening to this, you’re like, “Yeah, this is why you never raise money because it totally screws you and you should never…” And that’s all we’re saying.
We’re saying that it is a balance and that probably 70% of the time, if I were to throw it out, 70 or 80% of the time, it doesn’t work out. But I tell you what, 10 million bucks in the hands of the right person of you, of Ruben, Heaton Shaw, like Jason Cohen, Dharmesh, we can name a bunch of like really accomplished and capital efficient founders, you can do some damage. I mean, it doesn’t necessarily mean that the business is bad because you raised 10 million for it.
Laura Roeder:
Right. And I would add to that, I do think that there are some markets, some businesses where you don’t want to raise 10 million, and I think this is one of them. And I think this is one of the huge bootstrapper advantages that people don’t deeply understand that doesn’t get talked about enough is as a bootstrapper, I can run a business that, let’s say it maxes out at two million, let’s say it never gets higher than that, and I can take home a million dollars a year. You know what I mean? That’s obviously a great outcome for me, but that’s a zero, that’s a dud in VC world. So there are actually, I think, more SaaS opportunities than a lot of people realize because by definition, they’re too small for VC and coaching might be one of them, the way that we’ve approached it, Paperbell serving just these one person businesses, because even if Paperbell goes to 50 million, that’s still not a VC win, right?
The numbers are just so different. VC, again, depending on how much you raise, they’re often looking for businesses that are doing hundreds of millions or more in revenue. So it does also have to be a match what the business model is, who you’re serving and the amount that you’re raising.
Rob Walling :
Yeah, that’s a good point. I really like the way back machine headlines you’ve sent me for practice.du. DO? Practice.due. I’ve never- They just
Laura Roeder:
Called it practice.
Rob Walling :
Practice. Okay. For practice. I haven’t heard the due TLD before, but I remember when we were building Drip and I would look at the newer entrance into the market, a lot of them had some type of venture money or some type of funding. And I would watch their headlines change every four or five months and dramatically, and I was like, “Oh, they’re floundering. They don’t really know what they’re doing.” Or maybe they do know what they’re doing, but they’re just not finding product market fit, so they just keep changing it. And I’m not saying that necessarily about practice, but you look at their headline from 2021, the H1 launch and manager coaching business instantly. So it’s like, all right, it’s for coaches, right? In 2022, streamline your coaching business. We help coaches consolidate clunky, disjointed and annoying systems into one simple place. All right, this still checks out.
It’s a little different. 2023, give clients a simple way to schedule, sign, submit a form, pay, message you, get reminders, schedule. Practice has everything you need for your client-based business. So there’s no coach anymore. It’s now anyone with a client. 2024, stop tracking sessions manually. Give your team the tools that would … I don’t think of coaches as having a team in general. Give your team the tools to schedule, track sessions, manage clients in real time automatically. And then the 2025, the last homepage before they shut down, the appointment platform built for growth. I mean, that’s almost a completely different category. It is. Empower your team with the scalable tools to track, manage, and grow bottom line. Were you looking at these headlines over the years or did you just look at them retroactively?
Laura Roeder:
It was interesting looking at them retroactively for this podcast because I kind of popped in over the years, but I’m definitely someone who have some awareness of what your competitors are doing, but I’m more kind of focused on my own thing. But they were always the one I was most interested in because they launched in the same year as us and raised 10 million where none of our other competitors had. So I was certainly worried about them taking a lot of the market, but also it was also along the way this kind of parallel journey because we’d launched at the same time. So I did notice that one year in the middle when they started to go more just sort of general client business and small business, I actually thought at that point, I’m like, oh, that makes sense to me. I think they saw that this was not a big enough market for the amount they’ve raised.
I think they’re going to go broader, but then they seem to move from there to like, I think those later headlines are trying to serve, again, those like multi-coach practices is kind of my best guess. And again, this is where like VC world can be so different from bootstrapper world. Just speculating, maybe when they tried to go after that general client business, maybe they felt like, “Oh, we need to raise another 50 million to go after this really broad market.” Where I think bootstrappers think more like, “Okay, if it’s not working, if you need a pivot, let me try just running a few ads to this market. Let me try just changing the marketing and not too much with the product and let’s see if it gets traction there.” Whereas I think there’s this other kind of thinking that’s like, “Okay, if we’re going to go in this different direction, we have to invest tons of money changing everything.”
Rob Walling :
Yeah. So I want to talk about how you potentially were going to acquire the business, but before we do that, I think this maybe leans into it or leads into it. One of the points that you had sent me was that their fundraise created a false signal. And what did you mean by that?
Laura Roeder:
Just that I thought that they were going to dominate the market is what I expected by … It’s like, oh, they have this huge company behind them. And I always kind of wondered, am I missing something? Because we wouldn’t hear about them. You get people emailing you saying, “Oh, how do you compare to this company? I’m thinking of switching from this competitor. How do you compare?” And we just didn’t hear about them very much. I would also like to throw in here, I do think they had just a terrible name, and I don’t think that names matter that much at the end of the day, but this name was impossible to Google, impossible to track. It’s like you can’t see when people are talking about you on Reddit or Facebook or anything when your name is … And you can’t even put in practice coaching, but you can’t put in practice software because there’s a million other softwares within practice in the name, so we just didn’t hear about them.
So I kept thinking because they’d done this big raise and they announced that Tony Raw Cobbins was maybe even on their board or one in their investors or something. I’m just like, is there something going on that I’m missing? Have they found some sort of secret part of the market that we haven’t found that they’re serving?
Rob Walling :
Yeah, that makes sense. And so you had a conversation about potentially acquiring it. How did that come about? Did he reach out to you? I guess you kind of knew him?
Laura Roeder:
Yeah. So at one point he had sent me an email because like I said, we kind of knew each other. So he had sent me an email at one point over the years being like, “Hey, do you want to chat?” And we didn’t end up chatting, but it was friendly and fine. And then we actually heard they were closing from customers because we started getting emails saying like, “Oh, all of a sudden we need to move our coaching business somewhere. How do you guys compare to practice? Can we move over?”That kind of stuff. But there was no public info on social media, on their blog, on their website. So we actually asked one of those people who had contacted us, were like, “Can you forward us the email that you got?” Because there was nothing public. And then we were actually able to jump on that and publish a blog post about practice closing because they had told their customers, but there was no public info.
So people were searching for it, but there wasn’t a lot out there. So I then tried to reach out to their founder to find out what was happening. It took me a little while, a few layers to get to them, but I did end up speaking to them. But I think the thing about SaaS is that if you’re acquiring another business, you either have to keep that business running and keep their whole business and keep their customers or you have to tell their customers, “Hey, we’ve acquired practice. Do you want to sign up for Paperbell?” But you don’t just magically collect their money. They have to actively resign up. And it is, even if they’re similar, it’s obviously a different system.
Rob Walling :
Yeah. And you don’t have mobile apps.
Laura Roeder:
Right.
Rob Walling :
So people want that, they’re going to get … Yeah. So you have to almost guess how many … Because you don’t want to maintain two apps and keep building. You’re not going to do that. So you have to guess, I don’t know how many of their customers are going to translate over, right? And what is that worth to us?
Laura Roeder:
Exactly. So I think it’s a lot … I talked to some friends who had acquired companies to get advice from them, but if you’re not in … A lot of them … I talked to one person who had a service business and he had grown his business hugely acquiring other businesses. But if you’re an accountant, you’re just like, “We’re doing your accounting now.” And that’s kind of all it is, but it’s quite different in SaaS. So that was a big question for me. It’s like, is this really going to be worth it? Because if their business closes down, their customers are going to have to go somewhere. Aren’t we kind of going to get … We’re so similar to them, we’re going to get a lot of them anyway for free if they shut down.
Rob Walling :
Yeah. So that does make it challenging because acquiring it, like if I swooped in or just some random entrepreneur swooped in and bought it for parts, then it’s a business that I’m running and now I see there’s potential in it. But you already have one. And while it seems on the surface like, well, they’re complimentary. It’s the same ICP or very similar. It should work, but it really is a complex issue and you would have to kind of guess how many folks would move over.
Laura Roeder:
Yeah. And they had a different tech stack than us. So if we were to maintain them at all, we would have to hire engineers and like, now you’re not making money anymore.
Rob Walling :
Yeah, it’s complicated. Well, I guess, I mean, Paper Bell, are you the market leader in this space? I mean, it’s a pretty impressive business.
Laura Roeder:
Now we are. I didn’t know. I kept thinking, I think we’re the market leader, but I’m not sure. And yeah, so to close that loop, we did not end up acquiring practice and it didn’t really end up being a serious conversation and they ended up just shutting down. And I did find out that they weren’t that large, that we were definitely far ahead of them as far as revenue and customers. So yeah, we do seem to be the market leader, which is cool. And I think we are kind of seeing our growth has been accelerating for the past year. And I think we are starting to see that market leader benefit happen of like the more customers you have, the more referrals you get, the more of our competitors go out of business. We’re like the last man standing and we’re going to get more customers.
Rob Walling :
Winning by attrition.
Laura Roeder:
Yeah.
Rob Walling :
You’re just like, “Yeah, I’m still here.” Well, it’s an interesting story and I really appreciate you taking the time to come on here and share it and share it so thoughtfully, right? It’s like you had the headlines and the takeaways and all this stuff. And it’s obvious that you, it should be obvious to everyone, you’re a very experienced and talented entrepreneur and I’ve had multiple successes under your belt and I just appreciate your insights and analysis on this topic.
Laura Roeder:
Thank you. If
Rob Walling :
Folks want to keep up with you, you’re on X Twitter. Are you @LKR?
Laura Roeder:
I just got back on. I was off for like two years, but now I’m totally addicted again, LKR.
Rob Walling :
What brought you back?
Laura Roeder:
I just got bored. I tried to go to Blue Sky, but then it didn’t end up being active. And then I was just not on social media, which is great for you, but I missed all the Twitter drama.
Rob Walling :
You miss the Twitter drama. Oh boy. No, that’s great. And I wouldn’t have heard about this probably at all if you weren’t on Twitter because this is where I saw it. Yeah. @LKR, if folks want to follow up or just hang out, follow you, paperbell.com. If folks want to see the best coaching platform on the internet. Then market later. Number one, the best, best on the best. Awesome. Thanks again, Laura. Thank
Speaker 3:
You.
Rob Walling :
Thanks again to Laura for coming back on Startups for the Rest of Us. She’s always a fount of knowledge and very experienced and exceptional entrepreneur. I hope you learned a lot from this episode and thank you for listening this week and every week. This is Rob Walling signing off from episode 814.
