Episode 771 | What Changes As You Grow, AI Agents, Patents, and More Listener Questions (with Craig Hewitt)

Rob Walling:
This podcast is brought to you by Mercury. I’ve been banking with Mercury for years and whenever I set up a new account, I’m reminded why traditional banking feels stuck in the past. When our previous bank faced solvency issues, we needed to spin up new accounts quickly that could handle millions in funds across multiple businesses. Mercury had us up and running almost immediately. I manage half a dozen different Mercury accounts across a wide range of companies from my personal single member, LLC to MicroComp, our seven figure global events and education platform to TinySeed our venture fund and accelerator. Mercury easily handles them all. The interface is elegantly simple for daily banking, paying invoices, and sending and receiving international wires, yet powerful enough to handle the multi-step approval processes we needed to put in place. When funding founders with large transfers. Anytime founders ask me who they should set up their accounts with, I send ’em to mercury.com. 

Check the show notes for more details. And note that Mercury is a financial technology company, not a bank. It’s another episode of startup. For the Rest Of Us, I’m your host, Rob Walling, and in this episode I welcome Craig Hewitt back to the show and we answer listener questions on topics ranging from what changes as you grow into a multimillion dollar SaaS company, whether AI agents will be the death of SaaS, whether software patents are worth it, and more listener questions. Before we dive into the show, MicroConf remote is coming soon. It is focused on sales. The date is May 21st. It’s an online event. MicroConf remote.com speakers include Nick Desto, Steven Spears who spoke at MicroConf in Atlanta a couple years ago, and another speaker that will be announcing soon. We’ll also have our founder by Founder Sessions, which are like the digital hallway track for our virtual events. The date is May 21st for all the details. And to get your ticket head to MicroConf remote.com. We try to make these events accessible to everyone, so we keep the ticket prices low. I believe the early bird pricing for this event is $65. It takes place all online on May 21st from 10:00 AM to 1:00 PM Eastern time, MicroComp remote.com. And with that, let’s dive into listener questions. 

Craig Hewitt, welcome back to the show.  

Craig Hewitt:
Hey Rob, thanks for having me.  

Rob Walling:
It’s great to have you on the show, man. I’m excited to dive into some listener questions. Our first today comes from Amar and we’ll dive into that here.  

Speaker 3:
Hey, Rob, Amar here with Made longtime listener. First time caller. Heard a lot of advice from you over the years about startups and the early stages and sort of that David Vers Goliath battle. I had a quick question for you on how things change within the company and how you might approach marketing and sales and product differently when you begin to become a little bit more of the Goliath side of the equation versus David. So at ZenMaid, we’re making about two and a half million dollars a year right now, and we’re looking to take that to 5 million and 10 million and beyond. We still have much bigger competitors than ourselves, but we do already have the biggest brand in the industry thanks to our niche. And so I just wanted to quickly hear your thoughts on the mindset and what you would think about differently, what being a little bit bigger and going against folks that actually have less resources than us, what sort of advantages that might give us and how you would maybe keep the startup culture. So just any thoughts that you have on just once you get a little bit bigger and a little bit more successful and kind of how things change. So cool. I appreciate your podcast. Looking forward to this and many future episodes. Thanks for doing what you do.  

Rob Walling:
So Craig, before I kick it to you, I’ve realized that Ammar is kind of asking two questions and one is, how does it change for us as a company competing in our space, kind of the external marketing sales engine, the brand, what advantages do we have and should we capitalize on? And then a second question that he worked in towards the end is, and also our team’s getting bigger, how do we maintain a startup culture? So let’s split this into part A and part B for part A to me at two and a half million, even if you have bigger competitors, if you have the strongest brand, that’s probably the biggest thing I’d be leading into in any Reddit thread or any Facebook group or any conversation about your category. If you have a strong brand, you’re probably the top two that are mentioned, maybe top three, but probably top two, that’s a huge advantage. 

You should and could still go after SEO, generic terms, all that stuff. But you’re at the point now where if people know your name, that’s a huge advantage. And so one thing I’d be thinking about is do you have some type of community ambassador, brand ambassador, someone out there who is attending in-person events, who is frankly monitoring through arvid calls, POD scan FM or CEN monitoring, all the mentions on the Reddits and the, I say Hacker News, I don’t know if Send MA’s mentioned there, but you get the idea on all the socials that you can possibly monitor and being out there among the people because that’s something that when you’re doing five KA month and you’re scraping by it trying to build a full-time income, you kind of do that. I do that myself still for TinySeed MicroConf in my books, but you don’t really have the time to do that. 

If I’m honest, it’s maybe not the best user of time, but as you’re being mentioned by name now, if you go to an in-person event and if you have a booth or just wear the t-shirt, people will come up to you and be like, oh, we know and love you, or we’ve been hearing all about you we’re thinking. And it’s like having a presence and starting to have someone who is consistent and if it can be a founder or it can just be a human. Like Clay Collins at Leadpages, that’s a company that acquired Drip. He hired, and I forget the guy’s name, but he hired a guy to be the face of the webinars  

Craig Hewitt:
Tim Page.  

Rob Walling:
It was Tim Page, thank you. 

And Tim Page would then go to the in-person events and at first it started as Clay was the face, he was the founder, he got it to wherever he got it to, they raise venture money and then hired Tim Page who then became the face of it until he moved on three years later and then they promoted someone else. And it is fascinating in this world of AI and social media kind of starting to be not replaced by ai, but being flooded with ai, the depth human connection that people will resonate with and that you’ve talked a lot about this, right? About how you have moved forward yourself with, because obviously you’re the founder of casts and you’ve done a ton of SEO content marketing, all the blocking and tackling you’ve done over the years, but over the past 12 to 18 months, it seems like you’ve really doubled down on a little bit more of the personal brand side of you being a front facing person.  

Craig Hewitt:
Yeah, I heard it said really well the other day. They’re like, the goal of marketing is to be on the shortlist when somebody is evaluating a new product, there’s the top three, and if you’re there, that’s the goal of marketing. From there, it’s product and sales and pricing, all this. But brand I guess is what we’re talking about just gets you into the conversation. I was having this exact conversation letter founder today who in some circles they’re in that conversation and in some circles they’re not. And they’re like, that’s just the problem. And frankly, that’s a problem we run into In some circles, Casto is at the top of that list or in that top three and in some it’s not. And that’s where we fall short. So yeah, Amar, if you’re there because of kind of this niche that you’ve carved out, dude, that’s amazing. And I agree, lean in hardcore to that as much as you can that will take you a lot of places and give you unfair advantages that the other guys can’t. Pricing power and terms and missing features and things like that, right? It’s like no one ever got fired for buying IBM kind of thing.  

Rob Walling:
The other thing that I think about is if you’re doing north of 200,000 a month, MRR, because he said he’s north of two and a half million a year, you probably have some leeway to take, make some bets and to drop $20,000, $30,000 a quarter, take a flyer, take something that you think might have an asymmetric bet. And what I mean by this is marketing approaches, sponsorships, sales, just whatever. You have that luxury. Now, you didn’t have it when you were doing 10 KA month. You were just scraping by. So that’s the other thing that we did this with Drip the moment I had leeway, we started taking some pets. We’d certainly do it with MicroConf. You saw when we were dropping 15 grand a month on YouTube and it worked. It was a lot of money, but it works for us. And then now we’re spending a lot of time and money on LinkedIn. 

Why? Because we have that ability to take a flyer and if it doesn’t work the business, it’s money. It’s a bummer that I’m spending it, but the business will survive. And if it does work, and I can, like with YouTube, we went from let’s say 10 K subscribers to almost 90 K subscribers in two years. If it does work, if it does that, then it’s worth it. You don’t need every bet to pan out and it’s a luxury you have, you should have at that size. So now switching to the part B of his question, which is team has gotten bigger, and so let’s assume whatever it is, 15 to 30 people, maybe 50 would be a big team for that size, but let’s say it’s certainly not, probably not 10 people at two and a half million. So let’s say it’s some 15 to 30. You can lose your culture, you can lose the threat on it. And I know you’ve done a lot of thought, you’ve given a lot of thought to this, so I want to hear from you on it.  

Craig Hewitt:
Yeah, I think this is probably still that scrappy startup culture kind of phase. I think two and a half million, that’s nothing to sneeze at, right? Yeah, 12, 15 people probably, if you’re profitable and bootstrapped, you still need to own your small business roots. I think the bigger culture and the growing team, things like culture become more important as you’re scaling and hiring more because every time you hire, for me at least, it’s a chance for culture to get kind of eroded a little bit, have this one higher, that’s two degrees one way or the other. And it changes your culture if you’re not really intentional about keeping it culture, I’m going to mess up the quote, but culture is the personification of your values. It’s like what you do every day versus what you say you do as a company. I don’t know Omar, I know of Omar from Twitter and I know that you’re walking the walk and that’s really what culture is. You show up every day shipping stuff, providing value to customers and knowing that everyone else in your company is doing the same thing. I don’t think it needs to give you any more complicated than that and probably anything, but that is this premature optimization to say, Hey, we’re going to get big air quotes,  

Rob Walling:
And I’ll add to that. If you don’t define your culture and model it, your culture will evolve naturally based on the people you hire. And do you want to define it as the founder or CEO or do you want it to define itself? That’s a rhetorical question. The answer is the former. You absolutely want to personify that and it’s good to have that in writing. It’s good to have it in writing somewhere. I would say it’s not required and I’m the guy who, yeah, I know. It depends on the size. If you have 50 people, it has to be in writing, right? 

At MicroConf, TinySeed between us is nine or 10 people. The mission is to multiply the world’s population of independent self-sustaining startups. The culture is what we’ve built and what we communicate by leading. Now, it’s going to get dangerous if we had 15 people and we don’t have it in writing. I think there’s a point between 15 and 20 where if we are not communicating that, if the people at the top, let’s say a R and myself and Tracy and Alex on the accelerator side, if we are not directly doing the hiring and training and it’s people that we’ve hired that are doing the hiring and training, that’s when you need it. It’s that second layer because it’s a copy of a copy. So that is a controversial take. I know that some folks want more process. I’m really process light and I’m very mission driven, but I’m not a put everything in writing. I’m allergic to that until it’s necessary, but it’s just a different perspective. I’m not saying that’s right. That’s how I run companies and that fits within my skillset leader. I’m a way better leader and someone who paints the picture and motivates folks than I am a manager or I can operate, but I don’t like operating.  

Craig Hewitt:
I’ll just for what it’s worth, we didn’t have this until we did kind of a brand refresh codifying some of these things were part of that brand exercise that Francois from our team led us through. And that’s the only reason we have it. We didn’t have it before that we ideally would use those things to make decisions about product and hiring and all this kind of stuff. But yeah, I think there’s, the point of this is there’s a lot of different ways to slice it. And Omar, you probably have your own way and if that’s working for you, that’s great. I wouldn’t take what Rob or I say if what you’re doing works in the way that you’re exemplifying your culture to your team as a leader is working. That’s great.  

Rob Walling:
Omar, if you haven’t watched Omar Zen Homes talk at MicroConf in Dubrovnik, which was just, what was it like six months ago in October? So it was MicroConf 2024. He talked a lot about how as Webinar Ninja grew. So they exited Webinar Ninja, he had a great exit. He and his wife co-founded it, but he talked about how as it got bigger, he didn’t define the culture and they had to unwind that at a certain point and go in and say, look, this is the culture. And they put stuff in writing and one of ’em was being scrappy and being kind of frugal. They were bootstrapped from the start and they were always extremely frugal about expenses. And they got to a point where, and I don’t remember it was 20 employees or something where someone signed up for just a very expensive imagine. It’s like they signed up for Salesforce type thing and it’s like, no, no, no, we don’t use Salesforce here, dog. 

That’s like buying a Lamborghini when a Volvo be perfectly fine. And they had to go back and do that. And so there was a section of his talk that I would recommend. I think I believe those. You can go to micron.com and look around. I think we sell those talks for 50 bucks for the whole package of that, but also something to take a look at. So thanks for that question Ammar. Hope it was helpful. Question number two comes from Dan Delamar and he says, Hey Rob, hope you’re doing well, really enjoying your latest podcast episodes. Your show is one of the few must listens every week. I appreciate that, Dan. He says, one area I think would be interesting to explore is how SaaS can survive in a world of autonomous AI agents. We specialized software takes the backseat to more generic agents that can have a larger span of control and abilities, and then he links to, there’s a Google doc that was trending on Hacker News. 

So I want to start by saying I recorded a video that’s on YouTube now on the MicroComp channel, and you obviously will link it up in the show notes, but it’s called Will AI Agents Destroy SaaS. And so you can hear, what did I have? Nine minutes of thoughtful. I outlined it and kind of put a bunch of thought into how I am thinking about it. Realize these are predictions. There’s no one that’s right right now and there’s no one that knows where this is going. We’re all conjecturing based on past experience and our pattern matching and this and that. And so if you want to go watch nine minutes of that, it’s probably worthwhile, especially if you do it at two x. It’s only four and a half minutes. And I will also kind of summarize it here. But before I do that, Craig, I was going to pass it to you and ask, have you given much thought to this topic because AI agents are killing SaaS. Was kind of the refrain. I mean it was like two or three weeks ago everyone was saying that SaaS is dead, SaaS is dead, SaaS is dead. Where do you fall in this conversation?  

Craig Hewitt:
Yeah, so this has been the conversation on my podcast for the last 10 episodes, probably like my podcast is called Rogue Startups, and it’s all been interviews with SaaS business leaders talking about AI of late. And I think the answer is kind of to me, right? If you are a basic kind of CRUD app that you realistically could get replaced by just dropping a PDF into Claude, you’re toast. You probably were toast anyhow for a bunch of other reasons. If you’re a podcast hosting platform that integrates to Spotify and Apple and does petabytes of data a month and all this stuff, you probably are okay. And there’s an in-between to where yeah, will some of the pricing power and total customer base that’s looking for a solution like yours Change with ai. Yeah. Will it totally kill SaaS? No way. So I think it’s not, it’s going to kill SaaS. 

And it’s not that it doesn’t matter at all, it’s more nuanced than that. And it depends on then your application. How robust is it? How complex is it? It may even if you’re talking about someone’s going to vibe code this up in a weekend, good luck coding up cast us in a weekend. It is a beast. But I use this tool to frame screenshots. So I take a screenshot and it puts the Apple wallpaper behind it and downloads it. They’re probably be hurting. I saw this thing is Canva Toast. Now with the new image generation in chat, GPTI sure have created some images in the last week where I would’ve gone to Canva and I just did it in chat, GPT. So I think it’s chipping away at those edges. I do think we have years at the current trajectory probably,  

Rob Walling:
And I agree, and here’s the thing, someone might say, well, obviously Rob, you’re pro SaaS because SaaS is your whole life and your whole world and it’s what if SaaS starts going down or is negatively impacted. There’s going to be agent businesses that are subscription. It’s just another, it’s software by another name. So MicroConf on this podcast did not focus on SaaS until I got really deep in SaaS. Frankly, it was probably like 20 12, 13, 14. I had two SaaS apps before that. But we looked at mobile apps, we talked about, we had speakers talking about info products. We had downloadable software. We had downloadable web software that ran on the server on-prem stuff because that’s what the world was when this all started. And if I had started a fund and a TinySeed back then it would’ve invested in that. If SaaS goes away or it drops by 80% in terms of the value, something will replace that something. 

It will be software that does something. And so whether we call it SaaS or whether we call it agents, I’ll probably start investing in that and start telling people how to market that. So from my perspective, I’m not like, oh, if SaaS is dead, my whole ecosystem goes down. That’s not true. So take this with a grain of salt. There’s no way SaaS is dying. Just like no code didn’t kill SaaS, no code had an impact on SaaS, but it’s so easy to go to one of the streams and say, well, it’s not going to do anything or it’s going to totally kill it. It’s like, no, it’s going to do neither of those. Same way no-code did. Same way mobile apps. Remember people were saying, well, the web is dead, the open web is dead. There’s no more SaaS, there’s no more websites. Everything’s going to be mobile. 

And it was like, no, it’s not. It was obvious to me back then it wasn’t. And yet there were people saying that, right? That’s how I feel about AI agents and anything else that comes along is, as you said, it will replace I think the utilities, if you have a basic, you talked about basic utility. I’m thinking something that we feed our audio for this podcast in and it does some show notes and some timestamps. It’s a really cool tool. I think it’s called Pod Squeeze and we really, really like it. That will be an agent. But here’s the thing, will pod squeezes just build that agent? They already have the engine, so they just build it. So even if the SaaS dies, if they’re paying attention, can’t they build an agent on top of it? So I think that’s my take is it’s like any of these extreme views. 

It’s like if you’re smart and paying attention, I think you’re okay if you are a big incumbent and your advantage really is just that you got there first and you have a brand and you’re super lazy and you’re not innovating and you’re not paying attention and you are, let me say you were Infusionsoft in 2014 as we started eating their lunch. Or we could probably think of a couple companies today that are kind of resting on their lores and just milking it when the value PE buys them and is just melting the ice cube and trend. Yeah, those guys are going to tank pretty hard I think. But the SaaS ecosystem and really the startup ecosystem I think will, I’ll say be just fine, but there will be shifts, right? It is a transition point. That’s kind of how I think about it.  

Craig Hewitt:
Can I ask you a question? I think it’s related is how do you view these wrapper tools? So like Pod Squeeze, right? It’s just a wrapper, but you’d call it SaaS, you’d call it an AI tool. It’s not an agent, but how do you view them I guess from a TinySeed perspective? Are you investing in wrapper companies?  

Rob Walling:
We get a lot of AI applicants and some of them are developing their own models, like custom models that they’re training. And I’ll be honest, I don’t know how many of those we’ve invested in. It’s a small number, low single digits, let’s say. I think all of them have been decimated because they have their own model and we’re like, well, cool, that’s your competitive advantage. And then their competitive advantage went away with GPT-4  

Craig Hewitt:
0.0  

Rob Walling:
Or perplexity, whatever the, I’m not saying custom models never work, but in our space as bootstrappers, custom models are really, really tough. So then it’s like, okay, so you’re then going to build on a commodity in essence, I would say chat, GPT and perplexity and Llama and deep seek. I know they’re not all the same, but is there’s an infrastructure layer. It’s the same thing. AWS, it’s not the same as gcp, it’s not the same as Azure, but they’re close in terms of the function. The job to be done of those things is the same. And so these underlying LLMs are the same. So then you’re saying, all right, I’m wrapping this thing, would I invest in it? And the answer is, it depends on if I think they have some type of moat, and it depends on if they have something more than just the wrapper. 

Because if you are a genuine SaaS app on your own that you’re doing marketing and you’re getting customers and you’re closing deals, and a good chunk of your functionality is wrapping GPT, I don’t know how defensible is that. It might be, but the ones that scare me are when I see something that’s mostly a wrapper that is just taking off and in the six months of MRR we see it just goes from zero to 10 K 20 K, and the churn is 25 or 30% a month. That scares me. And there’s just no way. There’s no way, right? So I hate to say, oh, it depends, but it really does. It depends on the specifics we dig in of think how defensible do I think this is and how useful do I think it’s going to be? How many competitors are there? There’s some questions we ask around it. How are you thinking about it though?  

Craig Hewitt:
I guess from two different perspectives. One is we are building AI into our product. I won’t say what, but we’re a podcast hosting platform. So all the things you’re thinking makes sense both from a generative and analytical perspective. Like, hey, how can customers understand their own data better? That’s one of ’em, but we don’t view any of that as differentiable or emote. It’s just like we got to have it because you’re going to go use this other tool or you’re just going to expect us to have it. I think that’s the other part is the guys from Reforge just said the expectation of customers is so much higher with ai. They expect it to just do the thing, not to help them do the thing. So I think that’s the lens through which we as mostly conventional SaaS should look at it. But then, I mean to be honest, Rob, I see these wrappers as a quick hit. If you want to go make a hundred grand, that’s about the easiest way I can imagine is you go wrap Claude and you do a thing and you go make it big and you sell it on acquire.com at 15 grand a month doubling monthly. But I would not plan to run that for two years even.  

Rob Walling:
That’s the way I think about it. Yep. It’s opportunistic. It’s a short-term hit of I want to make quick money. It’s like a crypto and NFTA. There’s an opportunity there, but it’s not a five year business, certainly not a, I often think is it a 10 year business? But even this is not a five year business, as you’re saying, it’s not a two year business. So that’s how I think about it. And that’s the difference when people say this is a great business versus not. It’s like, well, it depends on what do you mean by great business? Do you mean it’s a billion dollar venture funded? Do you mean it’s more of a TinySeed funded? Do you mean it’s a awesome half a million dollar a year lifestyle business that I can run for 10 years or do you mean like you said, I can just pump a little bit of pumping up is the way I think about it, which  

Craig Hewitt:
Is  

Rob Walling:
Not wrong. You grow it,  

Craig Hewitt:
It’s not wrong, it’s just different.  

Rob Walling:
It’s not wrong. And it’s what I would’ve done years ago when I was first getting started to get some quick capital to actually build something more sustainable. It’s just not something I’m interested in anymore. So thanks for that question, Dan. I hope it was helpful. Our next question is from Stewart, and Stewart says, Hey Rob, hope you’re well. I know this has come up before on the podcast, although a long time ago, from what I can tell, I’m interested if your perspective on patents has changed evolved at all. I subscribe to Dave Kellogg’s newsletter and I like his writing and he links to an article that says, does your startup need a patent strategy? Why your startup needs a patent strategy? So we get the idea there. As a small self-funded business, I’ve always dismissed patents, but this did make me think particularly as we’re in the process of developing something relatively novel in our software. 

A couple of questions that would be interesting to hear answers to. Number one, in episode 542 of the podcast, Zach, co-founder of Squad Cast said he had two patents pending. Did they get granted? How much did they cost? Why did they go through the process? And then number two, have any of the TinySeed companies had patents or have patents pending? And number three, are patents something F International comes across much? And if so, do they add value to acquisition time? I’m going to give a quick summary of these. Basically I can’t answer for Zach and squad cast. I don’t know why they filed for the patents they are, or they were a tiny C company and they got acquired by script. I don’t know of any other tiny C company with patents. And we’ve invested 192 of them. It’s a very uncommon, they cost 20 to 30 grand each. 

That’s give or take, and I don’t know what is a year, 18 months. It’s a long time with Drip, after we got acquired, since we were acquired by a big venture backed company that had almost 40 million venture raise, I had a list of shit that Derek and I had invented that it was Unpatented in the software space that were novel and new in Drip, and I think I had six of them or seven of them, and I had just been jotting ’em down over the years that we would come up. I’d be like, wow, no one’s ever done that particular thing. And I showed it to the CEO and he said, Hey, we might patent those at some point. And you know what we never did because it just doesn’t matter. So you, Craig and I are not lawyers, so it was not legal advice, but this are two startup founders with opinions on the internet. What’s your take on, especially in our TinySeed, MicroConf kind of mostly bootstrap ecosystem about software patents?  

Craig Hewitt:
Yeah, so hey Stuart, I know Stuart Stewart’s been on my podcast. Yeah, this is not something I would spend energy on. That’s the simple answer. I think the only reason a patent is valuable is if it’s defensible. And I think in software especially, that becomes quite difficult, especially internationally steward’s in the uk. So just gets really tough really quick. I think it’s just not something, like you said, Rob, most of us who are building the dry cleaners of the internet, the little corner bodega, that’s going to provide a nice lifestyle business for us. This is just not where I would put my energy. As for TinySeed, I don’t think any of the TinySeed companies that I know of do this, and I can’t imagine it holds significant weight when you go to sell, unless that’s your moat. If that’s your moat, that’s really something  

Rob Walling:
That is really something. If that’s remote, I’ve never seen that be a mode other than in the big Facebook, Google spaces, then you’re going out and suing.  

Craig Hewitt:
But that would be something is I’ve never seen it. I’ve never even heard of it.  

Rob Walling:
Yeah, we’re on the same page and typically, and I didn’t read the full article that he linked to, but typically when you see an article like this of do you need a patent approach? I’ll just say every time I’ve ever seen an article like that, it’s written by a patent attorney every time. 

And we could probably click through and figure out if this guy has Esquire at the end of his name, but that’s usually what it is, and it’s trying to drum up business and they’re not saying anything that’s not true. They’ll be like, oh, with this, then there’s an asset you can sell at the end. And it’s like usually not in our space, but maybe in bigger spaces. You have heard of patent portfolios being acquired by the big companies, especially like cell phone patents and this and that. So yeah, I think you and I are pretty much in agreement the same thing. It’s like, no, I wouldn’t do it, never have never filed a patent for any software. And I built a lot of stuff that could have, I say a lot of stuff I built stuff that could have been patented and just never bothered with it, and I don’t regret it. It wouldn’t have made a difference.  

Craig Hewitt:
Hardware a hundred percent trademark a hundred percent.  

Rob Walling:
Our next question is an audio question from Javier.  

Speaker 4:
Hi Rob, it great to send you a question because I’ve been reading and listening to your content for quite some time now. I’ve learned so much from everything that you’ve taught on the internet, and I wanted to thank you for that. I’m sending you this from Spain. My name’s Javier, and I’m trying to build a B2B SaaS company. And my question is, how can a bootstrap company compete with a BC funded startup? I’ve found some resources that talk about this when the conversation is about an incumbent trying to beat an incumbent, and that makes sense to me, but a bootstrap company versus a startup, it’s a bit more difficult to imagine. Our strategy for now is trying to focus on other markets, Southern European markets that might be more price sensitive than the price our competitor is trying to push and to try to qualify a lower tier of our segment. But otherwise, we are very similar. So I don’t know. I would love to hear your insights about  

Rob Walling:
This. So Craig, in a way, this is a little bit of a different, it’s almost the opposite of the first question. The first question is not quite the opposite, but it’s similar to the opposite side of the fence where it’s like the first one’s like, Hey, I have two and a half million a RR. We’re a brand. How can we use that to our advantage? Javier is saying, how do I, you’ve talked about competing against incumbents, which I talk about all the time because we did it with Drip and I’ve seen a lot of TinySeed companies do it, but how do you compete against a venture funded company? Now, I want to say there’s some nuance here, and I know I try not to say it depends or when I say it depends, I then try to explore all the possibilities. It depends as a cop out, but realistically, it really depends. 

Venture funded is this huge world. You can be VC backed and raise a million dollars. You can be VC backed and raise 20, 30, $40 million. Those are two very different competitors given their capabilities. The other thing that I think about is someone can raise venture because maybe they got a little lucky, they knew the right person, they had the right idea at the right time, but they’re a very inexperienced founder and they just burned through their money very quickly. They just don’t know what they’re doing. And money doesn’t solve your problems in a startup. It can make them worse. If you don’t know what to do, you can overspend before product-market fit, you can do a lot of negative with it. So what if Mr or Ms, first time founder who doesn’t know what they’re doing raises $10 million versus someone like Jordan Gaal raising 10 million or Ruben Kamaz or you or me. 

So the founder and the founding team and their experience and their ability to execute, plus the amount raised, it changes things and one versus 2 million raised, maybe not, but have we seen TinySeed companies compete against companies that are mostly bootstrapped and then the next day they announce a $10 million funding ground? We have. It’s happened multiple times, and that’s where it’s like these guys can go freemium and they can cut their prices to a fifth of yours and they can survive forever. And so these are the types of things that I kind of want to throw at it in the front of. There is a lot of, it depends here, but with that said, what are your thoughts competing with VC back competitors?  

Craig Hewitt:
Yeah, I think just to add what you said to me, one of the biggest determinants of the potential for a company is I say it’s the boat you’re in. It’s the market and the opportunity and the customers you serve. And so as you are looking at yourself and this VC competitor or VC back competitor, if the market you’re in is that good, then VC makes more sense. If it’s not, then I think you actually as a bootstrapper have more of an advantage relative to the VC-backed company. So I just wanted to say that it’s the amount of money you raised, it’s the founding team and it’s the opportunity. Those three things quantify the opportunity of VC versus bootstrapping. And so Javier, you might be better off bootstrapped. And I think when it comes down to it as a bootstrap company, we have to be so much more focused and that’s our superpower. 

There’s a lot of the TinySeed companies I talked to in my advisor role where I’m like, yeah, you’re going up against the big huge competitor, whether they’re a VC funded or just the incumbent. You have to do something very different and you have to be better at it in some way, not across the board. You don’t have to have every feature, but you have to have this one feature that you do way better than everyone else, and you niche down and focus and position yourself on this thing to a T. And that’s how you can win because the VC backed company is going to try to do everything and have the billboards in San Francisco and be in the Super Bowl and all this crap, and you just can’t do it. And so just like how can you do the opposite of that is how I would think about competing against a mega funded competitor.  

Rob Walling:
I like that they’re going to zig how do you zag and how do you find, what is their Achilles heel where they’re kind of flailing all over the place. They need to grow very quickly. They don’t need to be profitable, but they need to grow very, very fast. So they’re going to be drawn towards the biggest, fastest growing segment of the market. Often with the highest ticket price. They’re probably going to wind up going upmarket, unless it’s a really, it depends on the space. But if it’s a really massive market and they can go freemium and get a huge funnel and start going with virality, that’s one thing that takes, that’s not as easy as it sounds. I’d take a hundred Silicon Valley founders, give ’em each 10 million bucks. There’s maybe five or 10 that’ll make that work. It’s not the majority. So I used to joke because with Drip, we would see new competitors come into the space because email service provider slash marketing automation is a net negative churn business if you do it well. 

So it’s a very, very lucrative business. It’s a very valuable business, a very large space that was growing fast kind of still is, but the heyday I think was 10 years ago or so with that second wave. The first wave was the MailChimps active campaign, even Infusionsoft. And then there was a second wave in the 20 teens that Drip was involved in. But I used to joke with Derek, my co-founder would drip where we’d see someone raise like 5 million bucks and I’d say, all right, let’s count down 18 months till they go out of business and then let’s acquire their assets. And I was right most of the time because that’s the typical path, that is the most common path for VC funded startups is if they go to zero, that’s the whole VC model is that what is it like six or seven out of 10 go to zero and two return two or three x and one returns a hundred x or something. That’s like the most typical model. So you expect 60 or 70% are going to go to zero. Now that’s not always the case. And I have seen mostly bootstrap companies operating and executing well and doing everything and still getting demolished or at least fighting a tremendous headwind against someone. Because 

Again, if someone raises 10 million bucks, if they’re smart, they’re really dangerous. And even if they’re not that smart or not that competent founder, they can live a long, long time. They can just last and they can just fuck it up for the rest of you that whole time as though it’s like, well, why are they a third of the price? Because they can afford to be, and you could say, but they’re not going to be around in a year or two. And people say, great, then I’ll switch back to you. They can really mess it up for you. So it muddies the water.  

Craig Hewitt:
If I could just add one thing about actual go to market is talking about that competitive advantage you could have as a bootstrap company is how you acquire customers. They’re going to go for things like paid and partnerships and paying affiliates 50%, and you’re going to go for things like community and brand and organic, and those are often better customers. So I might look at like you probably have a lifetime value of a customer advantage just as you’re formulating your go-to-market strategy.  

Rob Walling:
I like it. Greg Hewitt, thanks for joining me on the show. Folks want to keep up with you. You are the Craig Hewitt on X Twitter and you’re craig hewitt.com on Blue Sky, is that right?  

Craig Hewitt:
That’s right. Alright,  

Rob Walling:
Thanks for joining me, Amanda. Anything else you want to mention? The Rogue Startups, that’s your podcast you’ve been doing for a decade?  

Craig Hewitt:
Yeah, rogue Startups, the podcast. Yeah, that’s where I share most of what I’m thinking. Yeah.  

Rob Walling:
Yep. And if folks are on YouTube as well, they can search for your name and is it the CAOs channel or you  

Craig Hewitt:
Both? Yeah, Casto has channel. I have a channel where I talk about mostly sales.  

Rob Walling:
Awesome. Thanks again for joining me, man.  

Craig Hewitt:
Thanks, Rob.  

Rob Walling:
Thanks again to Craig for coming back on the show. Thank you for sending in your questions. These episodes only work. If we get folks like you submitting your thoughts, comments, and questions. You can email them directly to Questions at startups For the Rest Of Us dot com or head to startups For the Rest Of Us dot com. Click Ask Question in the top nav and you can submit an audio or video question. Thanks for listening this week and every week. This is Rob Walling signing off from episode 771.