Episode 792 | Hot Take Tuesday: GPT-5 Struggles, the A.I. Bubble, and the Windsurf Debacle

Rob Walling:
You’ve stumbled upon another episode of Startups. For the Rest Of Us, I’m Rob Walling, and in this hot take Tuesday, I welcome back Einar Vollset and Tracy Osborn as we talk about chat GPT five and the struggles they’ve had with that release, whether we’re in an AI bubble and a few other relevant news items, one of them actually deeply relevant to SaaS sales. Before we dive into the episode, I wanted to let you know that TinySeed applications are open for the Fall 2025 batch. If you’re a B2B SaaS founder with at least $1,000 in MRR and you’re looking for the right amount of funding, a community of ambitious like-minded founders and a network of world-class mentors, you should apply If you have any questions about the program or the application process, we’re also doing a live q and a with the TinySeed team this Wednesday, September 3rd on YouTube. We’ll link that up in the show notes. If you know your metrics, the application only takes about 10 or 15 minutes to complete applications close on September 9th. You can get all the details at TinySeed dot com slash apply. Alright, let’s get into it. Welcome back to Hot Take Tuesday. I have two guests, my recurring panel, and this is by popular demand and by that I mean two people have mentioned it to me in the past six weeks saying, why don’t you do Hot News Day anymore? And I was like, I don’t know. People have been traveling, it’s been summer. So here we are. We’re going to cover stories ranging from, well, it doesn’t, everyone want to hear us talk about American politics and crypto. 

We’re not going to do either of those things. We’re going to be talking about I he did. He’s like, I want to talk about both GPT five. Is it worse than 4.0? Are we entering an AI bubble with the limits that folks are starting to put on it? Windsurf and that whole debacle of employees getting hosed and more topics. First, I’d like to introduce my panelists, the head of product for TinySeed and MicroConf, Tracy Osborn. That was awful. That was awful.  

Tracy Osborn:
Do you want to do that again?  

Rob Walling:
Welcome to the show.  

Tracy Osborn:
I was going to say last time I was here I was wondering if you’ve realized I have a title change since the last time at this time. It’s been that long.  

Rob Walling:
It’s been a while. You used to be Tracy makes on Twitter and that’s where we’ll leave it. No wait, you’re Tracy at Tracy Osborn. Where are you? Tracy Osborn dot com on Guy. I am. Okay. And we’re still counting down the days until you owe a and RA thousand dollars and buy us both sushi dinner that was in there, right?  

Tracy Osborn:
Sushi, we never determined what the terms were between Twitter. We did. We did. Oh god.  

Rob Walling:
We did three years and I think it was a hundred million sign up. It wasn’t even active. It was like 50 or a hundred and we kind of balanced, I think it’s a hundred.  

Tracy Osborn:
Elon Musk has a lot to go. So I remain hopeful  

Rob Walling:
That other person chiming in is our very own a r volt co-founder of TinySeed, the founder of Discretion Capital, the best sell side m and a firm for SaaS between two and 20 million. A-R-R-A-R Volt. Welcome to the show.  

Einar Vollset:
Thanks for having me.  

Rob Walling:
Alright, let’s dive in to our first story. This is actually story zero and we’ve been talking about this for the past couple weeks and getting a lot of positive responses is what I would expect on X Twitter and the like. TinySeed, our startup accelerator for ambitious B2B SaaS founders has returned fund one, meaning we have returned more capital to our investors LPs than they invested. This is a six-year-old fund and a RI believe with other benchmarks or with the benchmarks across venture capital funds. We are in the top 10%, potentially top 5% of funds of that vintage. So you want to talk, why is this a big deal? I’ve never run a fund before and I was like, oh, that’s neat. And then I’m like, no, that’s not neat. This is a big deal. Why is  

Einar Vollset:
That? It’s a big deal. I mean I think it puts us in the top 10 if not top 95% of that vintage and it’s not just like, oh, that was a really crappy vintage. The fact of the matter is that venture funds have gotten to the point where traditionally partly because of how tech funds, tech companies stay private for longer, that sort of thing, they get longer and longer and longer before they return any funding and certainly before they start return the fund and multiples on that. So actually I just saw there was a stat out about Carta where it says basically, and DPI is the term distributions to paid in and basically says over 12 years in only about half the funds have returned one XDPI. So what that means is if you invested in all the venture funds out there and you held it for 12 years, only about half those funds would even have returned your capital. 

So yeah, it it’s a big deal. And also I think crucially for us, it’s not just like you can return the fund and then have nothing left in which case yeah, wasn’t so great. But the fact is for us for fund one, we still have the majority of the assets are still growing. It’s a very good sign very early on. VC is funny in the sense that one career where people don’t really know and you don’t really know if you’re any good until 10 years in. So it’s a good place for charlatans and fast talkers. So we’ll see if that includes us. But yeah, it’s a very good sign and yeah, I feel very good about it. And also crucially, look, we return the money of the people who trusted us the first time around this was fund one, it was an unproven thing. A lot of people called us, this is really stupid, it’s not going to work out. You’re never even going to get your money back. And at this point we’ve proven wrong and we can tell those people to go themselves and give the people more than the money that they think back. They’ve already gotten their return on their capital with more to come. So that feels good.  

Rob Walling:
Yeah, really exciting. Tracy,  

Tracy Osborn:
The thing I didn’t realize before I started working here, because before I was a startup founder, I raised some money from VCs, but I didn’t really quite understand how VC economics worked. And the return to the fund is super exciting because compared to startups where you’re like you’re doing super well and you can reinvest those profits into the business and continue growing, we have to continually raise new funds. So if we have this massive success on our first fund that proves out our thesis and proves that what we’re trying to do is working and is working really well, that means we can raise more funds and we need to raise more funds in order to exist because we can’t, all the returns and whatnot, it’s not coming back. The TinySeed for us to invest in other people, we have to raise new funds in order to do that and then we live off, run the company essentially off those management fees. So on one hand it, it’s super awesome to return that fund, but it’s also for me it’s like, yay, I get to have a job for longer because of this. I like that part.  

Einar Vollset:
It’s also pretty strange. It’s like, look, investing is like this. You take people’s money and you’re basically saying, I’m better. I know better than you what to do with your money and you should give your money to me instead of doing whatever you want to do with it yourself. And being able to prove that out with actual cash in the bank instead of arguing about markups and paper, paper returns and all this stuff feels really good.  

Rob Walling:
That’s the thing, we came out with a thesis A that bootstrap B2B SaaS founders would even take money. There was a whole conversation around this in 20 17, 18 as I started talking about this at MicroConf and there was a real pushback from a small group, but why would they take your money? Why would they give up equity? They should spora. So there was that thesis. Then there’s a thesis of does this return even close to the s and p 500, right? Because if it doesn’t return that over what 10 years or whatever the horizon is, no one’s going to give us more money and it’s not viable. And so those were our thesis and obviously the first one has been proven because we funded 204 companies in the past six years and the second one, the signs are good, we’ve returned the fund and as you said, more than the initial investment. 

So folks are already getting returned and there’s still a lot of upside with that in mind. Fund three, TinySeed fund three is closing soon we have a little bit more room and if you are an accredited investor anywhere in the world and would like to put some money to work in handpicked high quality, I would say some of the best deal flow in B2B SaaS in the world head do TinySeed dot com slash invest and you can read our thesis and if you fill out that form there, it goes directly to a R’S inbox and he will reach out. Before we move on from this topic a R, the last post I put on X Twitter got a question from Daniel Westendorf and he asked, are you able to share the distribution of returns? Was the majority from a few portfolio exits or something else? And obviously we don’t give exact numbers, we don’t need to because we’re a private fund, but what’s your sentiment around this?  

Einar Vollset:
Yeah, the short answer is yes, it’s exits or partial exits from one or two or a small number of the portfolio. And that’s sort of very much in line with the thesis that we wrote ahead of actually fund two, which is like, look, this is still a power law type environment. It’s not like all the companies are going to grow uniformly at the same rate. There’s still going to be some companies that outperform to the point where, yeah, it’s obvious that this is what drives performance. And that’s sort of been proven out for us as well.  

Tracy Osborn:
And if anyone’s curious about what this all means, we do have this on our website. It’s like tiny c.com/thesis. So if you are a data nerd, definitely check that out. I think it’s really interesting, again, coming from someone coming from startup world coming into vc, seeing how these things work behind the scenes, check out our thesis if you want to read more.  

Rob Walling:
Alright, moving on to our next story. Something that’s on a lot of folks’ minds right now is GPT five came out what, two weeks ago and there is a lot of talk. I mean we have a Y Combinator thread or hacker news thread that we’ll put in the show notes, but you can go almost anywhere on the internet and just search for is GT five worse than 4.0 And it does seem like there’s a little bit of friction online. Tracy, do you have thoughts you want to kick us off on whether do you have firsthand experience with it or what’s your sentiment around what’s going on?  

Tracy Osborn:
I think I am definitely not a power user, but it was really interesting yesterday, well I guess in the last week because if I’ve launched and you couldn’t choose what model it was using, it was choosing in the backend whether it was going to be using the slower, more expensive whatever robot to answer your questions or the fast quick one. And then just yesterday I was using it again and they added those two things. I was divorced from the discussion on the internet about which one’s better or the other, but I was like, oh, thank goodness you can finally choose. I don’t want it for me. I didn’t want it to choose and I wanted to pick. And then I found this whole wash of information of people screaming about different models and which one is the better one. And then people, it’s understandable if you are not able to choose which one, whether you want it to be fast or slow or using the expensive cycles or not because if you’re on a paid account, there’s this expectation of having the most expensive version. So I can kind of see why they monkey patch this back in the thinking, I guess they call it thinking or fast or the other two are. Anyway, my experience was just kind of seeing this in the last week being like, oh cool goodness. And then finding this bike on their friend and be like, whoa, it’s huge here. I am sure Einar has things to say though, so I think I should pass it over the him.  

Einar Vollset:
Yeah, I mean, yeah, I have opinions. There’s a couple of different things here like is chat GPT five better than oh four or 4.0 or however, whatever the name is. I mean I think it is, I use it a fair bit and I think there’s no doubt in my mind that GT five is very good. I think one of some more vindicating things for me is that I’ve been saying for a while actually in the talk that I was supposed to give at MicroConf Nola that Tracy you expertly gave, one of the points I make is like look, and this was about will AI kill SaaS, which has been a big question for the last couple of years since Chatty came out. It’s like, look, everyone’s just going to come so smart now, so soon that you’re never even going to need any SaaS. You just talk to it or it is just super intelligence and it’s like there’s all this stuff. 

And my point has been if you look at the data of how quickly it’s improving and how much it’s improving per step, it seems to me to be doing the opposite of what all these AI doers are talking about. All the AI boomers are talking about like, oh, it’s this sort of idea of foam or it’s exponential takeoff and it’ll soon be so smart that we’ll be ants to it. And I’m like, yeah, okay. But that’s not what the data shows. The data shows it’s reaching looks to be reaching some kind of asymptote. This asymptote could be very high, but still to me it seems like each new model that comes out, whether it’s from chat GPT or Google or Grok or whatever, it seems to be an improvement, but it’s a smaller improvement. It’s a smaller step up than the last one. And I think chat GPT five just sort of confirms that view in me in that look, this is something that, yeah, it is an extremely disruptive thing to technology. 

There’s a lot of stuff here that is disruptive. It is different. It’s capable in a way that it’s obviously a very new, very capable technology. But do I think we’re going to be amped to it in two years? Do I think we need to bomb data centers because otherwise humanity has ended because of chat g, PT seven? No, I mean that’s bullshit. It always was bullshit. If you looked at the data, this was crap. Honestly, when it came out, I looked at it, I was like, eh, there’s some really smart people that basically told me I was an idiot when I pointed this out. And there are just some fundamental scaling laws underneath the capability growth. That just means that as you make another step in capability, the amount of compute that you need to add to make it smarter as it were just grows exponentially. 

So you get a linear increase in capability with an exponential growth in compute and that just doesn’t work. You need a data center the size of the moon to get to the next step just by scaling and beyond that it’s like, ah, now it’s a data center the size of the galaxy, come on. It just doesn’t work that way. And so for our listeners, to a degree it must be sort of relieving to see that GPT five isn’t superhuman, isn’t going to reproduce any SaaS at any time with a flick of a button for 20 bucks a month. And so it’s more like, okay, this is an extremely capable technology that you need to stay on top of. You need to incorporate it into your SaaS business, you need to incorporate it into your business or you will be left behind, but you don’t need to become a plumber. I mean, nothing wrong with plumbers, but it’s not like technology as a job is over. So yeah, that’s what I think  

Rob Walling:
When a R had talked about the Asim tote whenever it was, you mentioned that a year ago or six months or something that resonated with me already because the first GT that I used, the first chat GPT that I used feels pretty similar to the one that I used today. It’s a little better. It’s obviously, but it’s improving in a small way. And I broke my own personal rule, which is never read the Hacker News comments because this is just a, there’s no article here, it’s just a Chad GBT is slow and no better than four. And it asks a question, but I did the first comment says, G PT five is better as a conversational thinking partner than 4.0. Its answers are more focused, concise and informative and it goes on. And probably that’s probably accurate. The thing that it reminds me of is we are thinking like chat GPT, the new model is going to be able to do everything better than all the old models. 

And that’s the difference is I think we’re getting to this point, I’m probably not the first person to say this, but where there’s going to start being GPTs just for this, if it’s like a brainstorming GPT and it’s optimized for that versus long form copy or short form copy or conversation or coding. There’s all these uses people are using it for and if it was a GI then maybe it could do all these things, but it’s not, and I don’t see a near future where that is. So I think the specialization of these models already exist obviously, but I don’t know that most people think about it that way and they just think new model better on everything. And I don’t think that’s going to happen.  

Einar Vollset:
I think that’s definitely true. I mean to the point where when DPT five came out, so I pay for the pro level, 200 bucks a month, whatever, and when it came out I was genuinely a little sad that I couldn’t talk to 4.5. That’s still, it’s like it almost, it has personality, some of it and I really like four or five. And so when they discontinued four or five, I was like, this is a right here because in some ways five is more capable in some of the tasks that I have it running on. But 4.5 was just a better conversation list. It just was. And so when it got it back, I was like, yes, thank you. I’m extremely happy to have and that’s true. I was a little sad when it disappeared and now I’m like, yeah, it’s back. It’s amazing.  

Tracy Osborn:
And also I want to say four or five also had, there’s some amount of, I dunno the right word for this is neutering, but it felt like it was kind of pulled back a little bit that they’ve in five now there’s some topics that we’ll talk about, but I believe also with five that it’s hasn’t been prevented from talking about certain topics as much as it was in four five. Have you run into that in  

Einar Vollset:
I thought four five was pretty, actually one of the interesting things is they said, what was it? Oh yeah, only pro users. So the $200 a month are going to be able to use four five from power in. And because it’s apparently is an extremely expensive model. And the nice thing about four five is it doesn’t have a thinking per piece. And it’s like when you’re doing back and forth, I don’t want you to be thinking, I don’t want you to spend a minute and a half thinking about the response you just to respond. And to me that seems to be, it almost feels like four, five is the, which I guess five is two, like the five fast maybe. Although that does seem a little brain dead compared to four or five, it’s like four or five seemed to me this is where the current paradigm is able to go with pure scaling without those kind of thinking hacks on top of it. That’s what it feels like to me.  

Rob Walling:
There was speculation on X Twitter about maybe it wasn’t speculation, maybe it was backed up with data or whatever, but it was kind of like five is less good, but it is because it’s cheaper and OpenAI is thinking about cost and there were folks kind of piping in with that. So maybe that’s part of it too.

Do you wish you had a technical co-founder to help bring your idea to market? Gearheart specializes in helping early stage founders build products. Users actually want their AI powered approach tests assumptions validates concepts with real users and builds scalable MVPs with best practices that won’t collapse when your first customers arrive. Founded by entrepreneurs who’ve launched and exited their own startups, they understand the journey you’re on For the last 13 years, they’ve helped launch over 70 B2B SaaS platforms, including Smart Suite, which raised $38 million. Book your free strategy session at gearheart.io and mention this podcast to get 20% off validation, discovery or prototyping for your early stage venture. That’s gearheart.io. 

Our next story is kind of, I’m going to frame it as I don’t know, are we in an AI bubble? I think the answer is obviously yes with the amount of money flowing in, but the idea is what’s it going to look like as it pops? And I have a Reddit thread here, but this is another one where AI compute is essentially being given away for far less than it takes to produce, right? Open AI and and all of these are losing hundreds of millions, billions of dollars, whatever it is because they are buying something for a dollar and giving it away for 20 cents. So there’s a couple ways to think about this. I mean I know people got, developers got pretty angry online when suddenly it was like, wait, they’re limiting my, I don’t even remember what service it was. It was a cloud code or something. 

It was like, now I have limits on this thing. And it’s like, well of course, because you’re probably chewing up $500 worth of AI and you’re paying 20 bucks a month, this doesn’t make any sense. So that’s kind of a first topic. But the other one is it reminds me there are a lot of wrappers and a lot of SaaS apps that I think where AI is at their core, where all they’re doing is taking AI and taking these virtually free, almost free compute credits and doing things with them that if they were actually charged what it cost, it would be completely ridiculous, like creating headshots for me or creating thumbnails or creating internal building or outside any of these small image things or the conversion things. I think if you actually had to charge with that really cost, these are unviable businesses is my hypothesis. And that’s what I want to throw out to the panel is if you have thoughts on that. Let’s start with you A, what are your thoughts here?  

Einar Vollset:
I think it’s hard to tell. It’s one of those things where I think actually, okay, yeah, it’s expensive now, but again, I think a good enough capability is probably achievable on a self-hosted model. And for a lot of these businesses in certain times, certainly with fine tuning and as you talked about, you get different models, specializations. So yeah, maybe these startups, they can’t just do whatever, just do API calls to the latest model to chat GPT, and as they crank up the cost there, maybe that’s become sustainable. But I also think, okay, if it becomes so expensive that your model doesn’t work well then given the specialization you’re in, and particularly if it’s something like a very specialized vertical SaaS thing that you’re doing, okay, you can probably get as good if not good enough models by getting your own model, open source model, fine tuning that, really honing it towards your use case, which honestly, to be honest with you, some of these companies probably need to be doing anyway or thinking about it once you get to scale and you’re a certain size, okay, really you just want to be, if this then that plus API calls to open, okay, well then they have you buy the balls versus if I had a 20 million A or business that was doing that right now, I’d be like, hmm, yeah, let’s spend some money and some time figuring out can we have our own open source model? 

What does it look like to fine tune that model so that we can host it so that we can really control the whole stack is what I,  

Rob Walling:
Yeah, there definitely is. It is interesting. I want to pass it to you in a second, Tracy, but that makes me think that these underlying AI provider, the L-L-M-A-P-I providers, I imagine that what happens when they do GPT dash cheap and we know that it’s like the one oh or two oh version, but it’s a fifth or a 10th of the price. And to your point, and it’s good enough to do a lot of stuff, it was good enough 18, 24 months ago, but it’s way cheaper. So that could be a thing of the future where we haven’t really gotten to the point of really thinking about cost because I paid 20 bucks a month for chat GPT and I don’t even think about it. And if they charge me 50, I would still pay it, but I don’t know the cost is out of line. I don’t think it’s anything that a lot of us are thinking about. I don’t think about the cost of AI these days. How about you, Tracy? What are your thoughts here?  

Tracy Osborn:
This is the place where if you’re a founder of building tools and services off of ai, a lot of folks are doing that right now and the people a couple of years from now, if you’re thinking now about what are the risks and you’re seeing these changes come down the funnel, you’re seeing things become more expensive, you’re seeing maybe you’re not going to have as much functionality as before. You can’t just build right now and assume it’s going to be that way forever. So the people who are thinking about it today are the ones who are more likely to be living still existing a couple years from now because they already have the expectations that this is going to happen. It’s going to get more expensive, it’s going to get harder to use. You need to start putting the work in today to future-proof yourself. 

And if you don’t a couple years from now, it could be like, oh wait, I built this whole business on the fact that this was really cheap and now it’s gone away and oh, my business is over. This is so sad, not so I was like, think today changes are happening so fast that thinking of different ways to differentiate yourself, think out different ways of how do you get that data, how do you provide that data to your customers? What can you do to futureproof yourself is going to determine who’s going to be still around in a couple of years versus not.  

Rob Walling:
Our next story is about Windsurf, which was a venture backed startup that do I need to say allegedly, allegedly screwed its employees, but we will link to a tweet from one of the employees who basically said, I was employee number two and I’ve worked on AI and code for years and all of my options, my vested shares, I basically got 1% of that value. And the quick summary of this, I mean it’s kind of complicated, but open AI in July, early July of 2025, almost acquired Windsurf for $3 billion, but the deal fell apart. Google swooped in and Acqua hired, and again, I don’t know if I need to say allegedly what are the facts here, but Google struck a 2.4 billion arrangement, a non-exclusive license to windsurf technology. They basically gutted the company non-exclusive license, but they hired the CEO, the co-founder, all the key r and d leaders, but no equity or control of the company changed hands. 

And so then another company cognition jumped in and acquired kind of what’s left, which to me feels a bit like a shell of a company, but early employees are like, I got nothing. The investors and the founders supposedly roughly half of that 2.4 billion. So obviously 1.2 billion went to investors and founders and there were some money left in the company. But again, it feels kind of gutted and really what I want to talk about here, it’s an interesting situation because it feels like the social contract of Silicon Valley was violated, and we’ve heard little stories about this over the years. I think toptal is either an LLC or maybe they raised a safe and they never converted it to equity and allegedly the founder just never converted it. So no one actually has equity even though they invested and is just taking money out of the company. 

Again, allegedly. But in this case, people did get screwed and oftentimes when I read these types of stories we talked about on this show on a hot tech Tuesday, the founders of one of these betting sites, how it sold for a billion dollars and they didn’t get any money years later. And we talked through how that actually works and usually they don’t report the whole story is what happens. It’s like, yeah, they sold their shares or they took secondary out early on, or they raised hundreds of millions and that diluted themselves into nothing. There’s usually more to the story than they actually report, but in this one I feel like the employees got screwed and this is kind of So do you want to kick us off a R? What are your thoughts on what happened here? If this is a precedent? I mean if this is dirty pool,  

Einar Vollset:
I mean I have to admit, I in shock when I first read the story and it’s still like it’s got to be Is it a breach of the social contract in Silicon Valley? Hell yeah. Hell yeah, it is. Are you kidding me? It was supposed to be a $3 billion. Imagine if you’re the employee, right? You sit around and you’re like, oh crap, we’re being bought by OpenAI for $3 billion. I’ve made it. I’m doing options math. What Porsche am I buying? I’m buying the Tahoe place immediately or do I wait six months? Things are good. And then you come in and you’re like, oh, the deal fell apart. And the founders and some people like the selected ones are getting almost as much money or maybe more and going to Google and I’m behind with the Unchosen ones in this company now where Google owns a license to what? That’s not cool. Even if there was some argument they were saying, look, they put a hundred million dollars investment into the company and this was the equivalent of what the leftovers for the people and you could have divot that out and they chose not to blah blah, blah. I’m still like, yeah, still you got is what you did. You got  

Rob Walling:
It is not good at all. I think it’s bad precedent and I hope this is not something that people start doing. Tracy, what are your thoughts  

Tracy Osborn:
As someone who has been in around Silicon Valley since it’s way too long? It’s really funny looking not funny. Haha, back in the day in the early two thousands and these first employees, the first employees, big things were happening. These first employees are also becoming millionaires and whatnot, but it feels like over time investors and acquiring companies have figured out, I don’t know, this might be hearsay, but it feels from my perspective that there is now a bag of tricks that they have. There’s all sorts of little tweaks and little rules and contractual things and things you can put into term sheets and whatnot that make it harder and harder for these first employees to get any sort of winnings from things like this. And it does suck. It does feel like that social contract is broken because people come into Silicon Valley and you’re going to join a startup and you’re going to get rich and it feels like it is getting harder and harder for that to actually happen. And the only way, like you said, so join a F company as an employee, you just make more money. You don’t have to worry about any of this or you’re startup popping and increasing your salary that way, but it’s hard to expect or you can’t really expect anymore to have this big payout from your startup that you joined as an employee number one, and now the founders are making bank  

Einar Vollset:
Well. So I don’t disagree with that. I mean to a degree I don’t disagree with it. I think there’s always like, look, there’s a difference between a company sort of not going all that well, like a soft landing type stuff. And in those type of situations, quite often it’s like the founders get taken care of. The founders end up with some sort of a package because their buddies at Google Acqui hired them and they’re now worth, look, they got not billions but multiple millions or even 10 million over time if they stayed employee versus yeah, in that case common shareholders are wiped out and it’s just like, look, you got a job, good luck.  

Tracy Osborn:
I mean you’re probably hearing all this stuff about everyone fetching about Phils in the Silicon Valley, right?  

Einar Vollset:
Yeah, yeah, exactly.  

Tracy Osborn:
All the elderly employees were like, no, but Phils was an example. They were not doing well when you looked at their actual numbers, and so they just got bought by PE and everyone underneath was wiped out anyways.  

Einar Vollset:
Yeah, there’s numbers of stories and there’s all sorts of things, but it’s like to a degree, there are other scenarios too where you see this often with private equity type buyouts and more equity hire type buyers, whereas this actually, actually the investors are getting screwed where it’s like they come along and they say, look, we’re going to buy this company for 50 or a hundred million dollars, but actually we’re going to pay 3 million for the equity or one X on the equity and the rest is carved out for retention. That happens too. And really what it boils down to is it’s about what the founders decide to fight for. That’s what it’s about, and that’s just what it is. My sort of view on this is like, yeah, does it reflect badly on the Wind source founder? Yeah, I think it does.  

Rob Walling:
I think it reflects poorly on Google’s part too, and I think it was Deep Mind, which is, I don’t know if that’s a company or a department within Google, but I think anytime employees, one of the great things, Silicon Valley has done a lot of good things and a lot of not good things. And I think one of the good things it has done is allowed folks, whether you’re a founder or whether you’re an early employee to participate in upside of companies. And there’s a lot of places in the world where that doesn’t exist. There’s a lot of places in the US where that doesn’t exist. And I think Silicon Valley has tended in general over time to do a decent job of that. Not perfect, but this is, and I think it’s a real problem,  

Einar Vollset:
I think because the big difference, this is not like an acqui, well, it’s on paper, it’s an acquihire mostly because of regulations around who can buy what. But it’s like the original deal, which was a successful holy crap, that’s a big number deal. It was 3 billion. The Google Acquihire is 2.4, that’s ballpark, same number. So you got screwed as if this was a soft landing for the founders, but it was a massive payday for the founders. That’s the big difference.  

Rob Walling:
And I think there are only with the middle class declining in the us, which is a major problem, there are only so many opportunities for unquote the American dream. Does it still exist the way it did 60 years ago, 70 years ago? I don’t think so. And I think that that’s a problem  

Einar Vollset:
I’m going to disagree on here. I actually think one of the interesting stats about this declining middle class stuff is actually, yeah, the middle class is declining, but that’s partly because the upper class expanding,  

Rob Walling:
Is it?  

Einar Vollset:
Yeah. Yeah. So it’s like, look, the middle class is declining, but also because people are getting richer, smaller  

Tracy Osborn:
For percentage of people are getting richer while a larger percentage are getting part,  

Rob Walling:
I think a larger, yeah, I think people struggle when I go to get gas or buy avocados, I’m like, if I was making 20 bucks an hour, how the fuck would I afford this stuff? It’s crazy expensive. Yeah, that’s true.  

Tracy Osborn:
But good for those people who are getting rich.  

Rob Walling:
Yeah, I mean  

Einar Vollset:
Billions of dollars. Well, I mean, what are the craziest things about me lately? What are the truly holy crap bananas thing for me is what Z’s doing with poaching AI  

Rob Walling:
Researchers. That’s insane.  

Einar Vollset:
People are getting paid, if that’s true. I started reading these numbers. This is no one’s getting paid out million.  

Rob Walling:
What? The  

Einar Vollset:
Million dollars?  

Rob Walling:
I thought it was a hundred million dollars where the complete package, including equity and salary and all this stuff for multiple AI researchers as a salaried employee. Yeah, it’s  

Einar Vollset:
Unprecedented. Hey, Z, if you’re listening to this, I would totally leave behind TinySeed for a hundred million dollars package  

Rob Walling:
If you need a podcaster and a voice of ai,  

Einar Vollset:
A really opinionated Norwegian, actually, I think I probably do it for like 99.  

Rob Walling:
Yeah, give you a discount.  

Einar Vollset:
Oh my gosh.  

Rob Walling:
Yeah. Special  

Einar Vollset:
Discount. Yeah.  

Rob Walling:
And to be clear about the previous story with Windsurf, I obviously more than anyone, I don’t begrudge any founder to want to change their life or to get rich building a company. I think capitalism and democracy have done a pretty decent job of that. And if anyone believes in it, I do. But this in particular, these kind of edge cases where people get screwed I think is a real problem. And my hope is that it is not something that continues. Our last story of the day is more of a SaaS focused, not news of the world, but it is an article on founder labs.io how to sell if your user is not the buyer, for example, your developer is a user, but the CT O is the buyer, and this is by Nate Riter. And we of course see this with TinySeed companies. Where it’s easiest thing to do is if you are a bootstrap founder, you are patient zero meaning you have the need, you validate it, and then you build it for you exactly who uses it, how they use it, and then you sell it to those people and it’s one user and they make the decision that is the best scenario with B2B SaaS, but it’s I would say probably the minority of SaaS that we see. 

And so at a certain point, you do have to learn how to sell to folks who are not your end user. And Nate talks through some thoughts and best practices. Tracy, what are your thoughts on his piece?  

Tracy Osborn:
I love this. I think it’s, like I said, we see this a lot with TinySeed and a lot of people are like be like, why can’t it be easier than this? Why can’t these people just pay for my, but they have to go through all these hoops where they have to talk to their manager and their manager has to talk to the buying team, and they’re like, well, by talking to this developer that’s saying how this would be such a great win. But then they as the founder and as the owner of this tool are divorced from being able to be in the room with those decision makers. This article does a really good job, I think, of explaining what you could do as the star founder in your product to make it easier. A couple of the things that I mentioned I thought were really great was if you think through this and you’re able to build ways, tools and resources for that, the non-buyer, the person who’s using using your product, make them tools and resources or things that they need to convince their leadership, you should do that. Think through three steps ahead. You have to do a harder sales process in that way and think through what the entire sales cycle is like and see through what tools you have on your end that you can give to those folks to help ’em make the deal and just talk to people. But I know those are just kind of like band-aids. I’m sure Einar has some thoughts here. As a true salesperson on this three person team, Einar, what do you think?  

Einar Vollset:
I thought it was a good article. There’s a bunch of stuff to this. I think for me it’s more like, it’s more like, yeah, I don’t disagree on this. And I think at a higher level, I think a lot of particularly bootstrap founders, they struggle conceptually or culturally or whoever. You pointed out this notion that a lot of them, not all, but they just want make money when they’re sleeping. They don’t like buying. They’re not the typical enterprise software buyers. And so they can’t believe that somebody doesn’t want to go to a sales page and there’s the pricing and you just click and put your credit card in, and why isn’t all software in the entire world? Why isn’t everything like this? They think it’s a dark pattern to hide pricing and call sales is a dirty word and all this stuff. And the fact of the matter is almost 100% of the time, okay, let’s call it 80 90% of the time, if you think you’re different, you’re probably not. 

You can get to, I would say 1 million, 2 million, 3 million of a RR somewhere in there for a lot of vertical SaaS businesses. With that sort of self-serve model, you can differentiate the pricing and you got to figure out, there’s a lot of stuff, don’t get me wrong. There’s a lot of stuff you got to get right to get to that level too. But a lot of businesses, once they get to that stage, if you want to keep increasing your growth and take from that one to 3 million up to like 5, 10, 15, 20, you really need to start unlocking enterprise sales. And what that means is dealing with issues like this. And the fact of the matter is a lot of founders just don’t want to do that. And actually, and shout out to Jason Cohen, friend of the show who he put out a new metric here on the max MRR that I thought was quite interesting. 

And it’s this notion that given where you’re at in terms of your churn rate and all this stuff, how much new MRR you’re booking, what is your exit max, MRR, where is your atom tote to pull back to an earlier point? And the fact of the matter is you can do that math earlier on. You can know, given where I’m at now and the kind of new MRR and booking and the churn rate that I’ve got, once you get to a certain size, you can do the math and know where you’re going to tap out at that. And fundamentally, you need to bend that curve. You need to change those metrics. And those metrics typically landed like, okay, you landing larger accounts who churn less? That’s just the way it is. And what also pisses me off sometimes is I see these founders, they get to 1 million, 2 million, whatever, and they’re like, this is like, I can’t figure it out, or I just don’t want to do anything more. 

And then basically, if you don’t do anything more, you’ll stall out and your business is worth less and less, even though you’re maybe growing slightly or they’re like, I’m going to sell to this private equity group that comes through the door and they’re like, whatever they’re paying, but I don’t care. It’s for good money. And the fact of the matter is a lot of these groups, what they do, this is what they know how to do, is they figured out, look, if you got it zero to one and you got it to a million or two or three and you didn’t build out an enterprise sales effort, and it’s clear that it could do so much, so much of the value of what you created compounds to them very quickly, you could have spent five or six years getting it to one or 2 million and then they buy it and then two, three years later, they make 80% of the money.  

Rob Walling:
This is why when founders are listening to advice on the internet, you need to ask what’s the source and what are their goals? It used to be, well, we’d see all this funded, like the VC backed advice for startup founders. You have to go after a billion dollar market and you have to have to have and bootstrap founders were doing this and be like, I have to go after a billion dollar market. And that’s where I came in and was like, no, stop doing that. You’re a bootstrapper. You don’t need all the stuff that you see venture-backed folks saying. And that’s why if you listen to any of the big VCs, there’s usually some nuggets of truth, but there’s a lot of bias towards becoming a unicorn or a deck of corn. And a lot of that stuff will actually break a bootstrap company. But even within bootstrapping, I had this realization, well, it’s about eight or nine years ago, that there are the lifestyle and the ambitious bootstrappers, this is the way I term it, right? 

And lifestyle bootstrappers are more like the indie hackers where it’s like, I don’t want to do stuff I don’t want to do, and I just want a business that’s, I’m willing to limit my growth and my aspirations based on my comfort zone, how much I want to work, whatever it is I want my lifestyle to be. Number one. I was that until about 20 11, 20 12. And then when we started Drip, I realized, oh shit, I have a tiger by the tail. This could be life changing. I’m going to switch. And I went into a different mode where I then sacrificed some things. I worked more than I should have. I sacrificed some of my quality life for a few years in order to get rich is basically what the thing was. And that’s I think, something that folks miss online, and you’ll see it on X Twitter, you’ll see an indie hacker arguing with someone who wants to build a $10 million SaaS. And really what you need to do are different in those two cases. And so you can say, well, you should never do this. You should always do this. And it’s like, well, not if I’m designing my life and my company a little differently than yours.  

Tracy Osborn:
I wanted pop in here just to triggered a little thought in my head in and around sales that I’ve been doing sales for our new product in tiny C, we have a SaaS institute. We’re working with 1 million plus a RR founders and bringing, we have the accelerator, we have this process of way do we grow our companies for the accelerator we’ve been doing for the last six years. We have this new product that where it’s like mentorship advisors and coaching, coaching facilitated masterminds in SaaS Institute, and I’m doing the sales for that. This is brand new to me. I love to build products. I haven’t really done sales before. I’ve been talking to founders within TinySeed for the last six years, but how much people hate sales. And the thing that really changed my perspective on this is that thinking about sales, it sounds kind of silly, but it’s like sales is everywhere. 

Sales is just understanding the perspective of the person you’re talking to, understanding what they need and figuring out on your end how to give it to them or how match their needs. And so if you’re talking to someone who is not necessarily a buyer, how do you give that person who is not the buyer, the tools that they need to make this happen? When I’m talking to someone and trying to convince ’em to spend a couple thousand dollars a month to join our coaching program, what can I say to reassure them of the value of that? What do they need in order to be reassured that value? This kind of has leaked into my thoughts for everything I do when I’m talking to Rob about my job. A lot of that’s sales too. What does Rob need? He’s shaking his head at me. What does Rob need? 

What do Rob and Einar need? And when I am talking about what I’m doing in my job and would I want something, how do I freeze that in a way that I am reassuring them of the things that they need, but I’m also getting what I want? And so when founders come to me and they say like, oh, I don’t like to do sales. I think that a interesting way of rethinking it is it’s not a scary process. It’s literally you kind of have to think one step ahead. The person I’m talking to, how do I get them what they need? How do I understand what they need and how do I get it to them? And then sales becomes a lot easier when you think of it that way.  

Rob Walling:
Tracy Osborn, people can find you on the internet at Tracy Osborn dot com and of course, Tracy Osborn dot com. On Blue Sky, you’re broadcasting to us live from the gift shop of a 1980s ski lodge. Thank you so much for making the show today.  

Tracy Osborn:
It’s true. Glad to be here.  

Rob Walling:
Einar Vol set you, of course are posting and arguing about the Giants on X Twitter at Einar vol set. We will link that up in the show notes. You of course,  

Tracy Osborn:
Do not judge us by his Twitter feed.  

Rob Walling:
Yeah, no, no, no. His opinions do not reflect that of Tracy or a TinySeed. Einar is, of course broadcasting from a discreet garage where he looks like he’s about to hold the annual meeting of his Rotary Club. So we will wrap it up here. Einar, thanks so much for joining  

Tracy Osborn:
Sweet Burns at the end,  

Rob Walling:
Sweet Burns. The other joke was, I’m expecting to see your Bowling Trophy collection appearing just off camera inside the wood panel behind you. All that said, you too. Thanks for joining.  

Tracy Osborn:
Yeah, glad to be here.  

Einar Vollset:
Thanks for having me.  

Rob Walling:
Hope you’ve enjoyed this episode of Hot Take Tuesday. If you liked the show format, please give me a shout on X Twitter. I’m at Rob Walling, and if you look at the Startups Pod Twitter account, you’ll see a tweet with a video clip from this week’s episode that I typically retweet. Just chime in there and say, I really enjoyed this episode. You should do more of these, because I don’t know, the last time we did one, it was probably six months, and I’ve gotten a couple requests over time to do it, but I often just kind of forget about doing ’em. So if you want to hear more of these, let me know on Twitter. Thanks for tuning in this week and every week. This is Rob Walling signing off from episode 792.