Episode 849 | Legal Threats, AI as Platform Risk, Building Confidence, and More Listener Questions (Rob Solo)

Rob Walling: Welcome back to another episode of Startups for the Rest of Us. I’m your host, Rob Walling. And in this episode, I tackle a handful of listener questions on topics ranging from how often are terms of service threats legitimate, AI as platform risk, how to focus, and when to throw in the towel. Before I dive into those questions, my new book, Idea to Traction, comes out in just a month or two. You can get on the wait list now and you’ll receive my nine to five audit, which is a resource we put together to help folks find SaaS ideas at their day job. And you’ll get an invite to a live Q&A that I’m hosting on October 13th. It’s all about early stage SaaS. Ideatotractionbook.com if you want to find out how to stop building SaaS that nobody wants in the age of AI. Let’s dive into my first question.  

This is from Anonymous.  

Hi, Rob. Thank you for the excellent podcast. And I was at MicroConf just recently and it was such a great time. I have a question about dealing with competitors and how you relate to that in your overall philosophy of relating to competitors. Also specifically, I’ve had one competitor over something really small, threaten a very vague terms of service issue. I mean, it felt like a legal threat or something like this, and I didn’t know what to think of it. There was another sort of issue with another competitor that didn’t feel really significant, but it felt like they were trying to maybe get in my head. Is threatening something about terms of service, something that is common in SaaS? Do you think I actually did something wrong? Do you have experience of this? Do other people have experience with this in terms of vague terms of service threats?  

And how often should you really listen to them or should you just ignore them? Thank you, Rob, for the excellent podcast and your generosity.  

Rob Walling: Well, thanks for that question, anonymous. I mean, this is one that I’ll say it’s both easy and it’s hard to answer. So what’s hard to answer is did you do something wrong? And that I don’t know. If you’ve had two competitors threaten you with something, that is unusual. The normal number of terms of service threats that most SaaS companies, especially kind of early stage, receive is zero. That’s the most common number. However, the second most common number is one. And I say this a little tongue in cheek, but I’m invested in 241 SaaS companies and I’ve seen. How many have I seen in the last 10 years, let’s say, of these types? And it’s not always terms of service, right? I’m just talking about C’s and D’s, cease and desists from competitors, or I don’t like your alternative-to or your versus page, right? You did Drip versus Mailchimp.  

This is hypothetical because this never happened, but you did Drip versus Mailchimp and you said things that are not true about Mailchimp. Again, that didn’t happen, but it’s just an example so you understand. So I have seen maybe 12 of those, literally 15 in the past 10 years. And so what that shows you is at least across my portfolio I’m invested in, it is far less than one per company. Now, if you’ve received two similar things, that makes me think you might be walking on the more aggressive side of this or maybe you’ve done something wrong or illegal or illicit or that people think is unethical. I don’t know without knowing the specifics. So that’s kind of my short answer is are they common? Not that common, but more common than you might think. I mean, geez, lawsuits are more common than you might think.  

Getting hacked is more common than you might think. Co-founders imploding, employees stealing from me. There’s all these things that due to the law of large numbers, I have seen multiple examples of all the things that I’ve just mentioned. So the advice that I give founders when they face this is to evaluate whether they think they have done something wrong. To talk to a lawyer is number one, but I get it, that’s expensive. If you’re doing a few hundred dollars a month and you’ve received two of these and you don’t want to pay a lawyer $700 or $800 an hour to evaluate this, I get it that maybe a conversation, this is not legal advice, but maybe a conversation with ChatGPT and/or Claude at the most expensive, the highest deep thinking mode of your LLM of choice, feeding in what they’ve sent you, what you have put on your website, what’s actually happening and trying to get an opinion.  

Now I will say this, be very cautious. I’ve heard that there is no attorney-client privilege between you and an LLM. And so if later it does become a lawsuit and in discovery they subpoena your LLM chat, your conversations, they can pull those into discovery much like they’re an email or a private message. And so anything you say in there can and may be used against you in a court of law. I mean, that’s legit. So this is where I’m saying you got to kind of be careful with this. Take the risk into your own hands as to how you talk about that. But realistically, if you can afford an attorney, you should talk to an attorney, although they’re usually going to say, “Well, it’s not worth litigating. If someone sues you, it’s going to be very, very expensive for both sides. They probably don’t want to sue you either.  

So A, do you think you did something wrong? B, is it worth standing up to them and saying, No, I’m not going to change it and just responding with agree to disagree type thing. Or is it something that’s not that hard to change? I have known folks change their versus pages very subtly to try to get around these types of complaints. I have known some founders who ignore C&D or not necessarily C&D threats from lawyers, but when it’s an angry email from a founder, how serious is that? When you get something from an attorney, that’s like the next level up, right? A huffy letter from an attorney is like, oh, they spent some money and some time to get an attorney to draft something to put into your inbox. So the question is how often should you listen to them? I don’t know. It depends because it depends on what the threats are.  

And if you’re receiving multiple of them, it might be time to ask yourself, have I walked on the wrong side of this line? Am I being a bit too aggressive with my marketing or what I’m claiming on my website? I could never tell someone to ignore them. I don’t even tell my own founders you should ignore it. I tend to ask them how likely do you think they are, they being your competitor, are to move forward with something and are you comfortable with the risk of doing nothing or of either of saying no or doing nothing and then getting a letter from an attorney and having to deal with that down the line? So no one size fits all answer here, but thanks for your question.  

Kyle Schmidt: Hey Rob, my name’s Kyle Schmidt, the founder of FieldLogic Labs and developed a FloorSync project management app for residential new home construction and remodelers to manage their flooring projects. I just wanted to say first of all, thank you for everything that you and your team put out there for new SaaS founders who are jumping into the deep end with no floaties or the experienced ones. I happen to be the first, deep end no floaties, and I have just learned so much and it’s been such an immense help. So thank you for that. My question is about AI as platform risk. I hear you guys talk about platform risk a lot and with so many things deeply integrating AI, native AI apps, is that a platform risk in itself? What happens if AI crashes? What if it gets too tightly regulated, if they raise rates on it so your usage for your users goes through the roof and it just becomes too costly?  

So is that a real platform risk and how do you mitigate that? And then secondly, what do you think about a pilot program? I just proposed one to my employer today. It’s a limited pilot program, limited number of seats, 90 days. They pay full freight for the first 90 days just off of the regular rate card for enterprise clients. And if they agree to sign an annual contract at the end and roll it out with the whole organization, then the cost that they paid for the pilot program then gets credited towards that. So essentially the pilot program becomes free so it minimizes risk for them as well and gets me some real good solid feedback. Thanks. I’m looking forward to hearing your responses.  

Rob Walling; Well, first of all, thanks Kyle for the kind words. I really do appreciate it. I love helping new folks get into this, right? It’s like we were all new at SaaS once. We were all new at software and entrepreneurship. And so I definitely appreciate your sentiment because that’s what I love to hear is that new folks are starting businesses and hopefully changing their lives through entrepreneurship. Then Kyle asked about AI as platform risk. I was thinking when I saw the subject line of this, I was thinking, oh, AI is platform risk in the sense that AI will subsume your feature set, meaning that your customers will just be able to do whatever your software does because LLMs get better or some type of AI gets better. I think that is a real concern for a lot of SaaS apps. I think if it’s not, it should be.  

There are already many, many SaaS apps. What could we guess? Do we think five, 10% of SaaS apps, 15%? Depends on if we count little utilities or like indie hacker side projects, because I think those are just decimated, right? AI can do a lot of what a little conversion app or obviously chat with your PDF or anything like that. I think those are gone. But if we look at the broader SaaS space, let’s say there’s 50, 60,000 legitimate SaaS companies in the world, 99 plus percent of them are B2B, what percentage do we think AI has already caused a dramatic shift, meaning AI can do most of what that app can do? Something like let’s say generating ad copy or generating ad creatives, something that you used to have software to do that type of stuff is really taking it out. So yeah, I wouldn’t be surprised if it’s like 10%, and this is a vague ballpark guess on my part, but what will it be over the next couple years?  

Will it continue to increase? I think so. The question is at what rate? I shouldn’t say continue to increase. Will it continue to chew through parts of the SaaS ecosystem? And I do think that will be the case. The question is at what pace that will be? And that’s why being a system of record, having data that no one else does, there’s these several moats. Einar and I talked about them on the podcast a few months ago and we are doing a deep dive. Einar actually is doing a deep dive into other moats that keep you safe from AI. So that’s what I thought Kyle was going to ask about, but in fact, he asked more about the platform risk of building on top of it, like what if it goes down? What if they raise their rates? What if it gets regulated? These are perfectly legitimate concerns and the fact that AI is being given to us below cost right now, and I forget what the estimates are.  

I saw something the other day and it was like we’re paying 20% of the cost of AI. So if we pay 200 bucks a month, it’s like a thousand, maybe even $1,500 worth of credits. That’s the cost to whoever, Anthropic or OpenAI or Google, what have you. And so the question is, but will that get cheaper? If we go back 30 years and you said hard disk space or thumb drives, remember those things, they’re only going to get cheaper. Imagine a world where the cost goes to zero, the cost of those goes to zero. It was hard to even imagine that, but that’s kind of what’s happened. And then remember bandwidth on the internet, there are all these resources that are expensive processes, CPU processing power. You look back at old renderings, like trying to make Pixar movies back in the 90s was really hard because the computers just weren’t that fast.  

They weren’t that resourced and it’s easier today both with the tooling, but also just the hardware has gotten so much better. And so the question I have is, do we assume that the cost of AI credits is over time going to go to zero? And what does that curve look like? If there’s a massive crash in AI funding, because there’s been obviously a ton of venture and just a ton of money in general, debt and everything going into AI because it is the current gold rush, right? It’s the land grab. And so all the money floods into it, therefore they can subsidize to get us all hooked on using AI and many of us are. I have a tough time imagining making it through a day of work or even honestly a day of cooking. I go to sous vide some steak and yeah, I know I could go to Google and type it in, but it’s just so easy and so shockingly accurate.  

I’ve only been led astray maybe once by even ChatGPT, like the personal chat, which isn’t even that resourced on cooking times and recipes and this and that. It’s shockingly more efficient than searching Google and clicking through and wading through how in 1876, your great-great grandmother came up with this recipe and then scrolling down through 26 ads. But all that to say, the subsidy has gotten most of us, many of us hooked on AI. And the question is, will it become less expensive, meaning actual cost of it, before there is a big AI funding crash and the LLM providers and the foundational model providers are forced to raise their prices to cover their costs? Because if there’s no more funding available, that’s when they have to say, “All right, I’m charging you at least break even unless they just have infinite money in the bank, we’re going to charge you that $1,500 or $1,000 for your $200 of credits.” A lot of people will drop off if that happens.  

The question is, will it become less expensive by that time, before that time? It’s like, “Well, maybe it doesn’t go from 200 to 1500. Maybe it goes from 200 to 400 or 500 and they can run along at cost for a bit.” I don’t know the answer to that, and I’m sure folks are pontificating about it, but that is something I’d be thinking about to Kyle’s question. The odds of it being regulated and you not being able to use it in your app, that’s a risk tolerance thing, but to me that feels highly unlikely. I think if it was going to be regulated to not be able to be used in B2B SaaS apps, that would have already happened. I think if you’re exporting that technology overseas, there’s going to be a bunch of stuff, but that doesn’t seem like a big concern to me.  

And then what if it goes down? Well, it does go down. Anthropic’s API goes down or slows down or does kooky things. How often? I don’t know. A couple times a month at least. I mean, it’s pretty frequent. And so if you’re mission critical and you are. I’m going to make a joke here, but if you are a medical device that keeps people alive or you’re navigating aircraft over heavily populated areas, well, then you probably have a backup. You probably have two foundational models that you can switch between. But if you are software for designing and managing flooring projects, yeah, I mean, a day of downtime would be catastrophic, but can you handle a few hours? It’s just a matter of mitigation, right? Is that a risk? Yes, it is. You have to ask yourself the likelihood of that risk, and then if there’s any ways you can mitigate it by having a backup provider in essence.  

So I hear what you’re saying, and these are likely concerns. Platform risk of foundational models and LLMs and such is a real concern, but the way you’re looking at it of the reliance on it, I think is actually less what I’d be concerned about, but more what I’d be concerned about is either my customers just using AI to replace me or my competitors maybe who has. If I’m just a little piece of it, I’m just a flooring project. Well, what about the system of record the construction firm uses that does all their billing and all their invoicing and kind of is their business system? Couldn’t that company just build flooring software or a flooring module into their software because AI makes it so fast to do it? Those I think are concerns I’d be much more likely to think about and address. And then lastly, regarding your pilot program, I mean, I think you’ve set it up pretty well.  

I don’t know that I have any notes for you. 90 days, they pay for it upfront. You credit it against an annual contract. Well done. I think this is a great example of the ways that you can do an enterprise pilot program and make it worth it for both parties, for all the parties that are involved. So bravo and thanks for writing in, Kyle. If you found some traction and product market fit, but you don’t have a repeatable way to find your next hundred or thousand customers, you should check out today’s sponsor, Designli. Here’s their CEO, Keith Shields.  

Keith Shields: Thanks, Rob. Most growth agencies you’ll speak with sell you a retainer and a calendar. Designli does growth engineering. We build you a system that finds the channels that pay you back. Every campaign we run is a hypothesis with a number attached to it. We set the goal up front and the point at which we stop. If a channel brings in customers under your customer acquisition cost ceiling, we pour more budget into it. If it doesn’t, we shut it off that week and move the money to what’s working. That’s how growth compounds instead of just costing you. A few months in, your spend is concentrated into the channels that actually attract customers and you have the numbers to prove it, not a theory about it. One of our go-to-market engineers works half-time or full-time inside your business, not split across 10 accounts. You pay for their time and nothing else.  

There’s no percentage of your ad spend or anything like this on top. We’ll start with an impact week. We look at everything you’re running now and test one thing. Can you follow a single click all the way to a paying customer? Most companies can’t, which means the growth they do get is luck they can’t repeat. You’ll finish the Impact Week with a findings report and a 90 day go-to-market plan built around your buyers and your numbers. To get started, head to designli.co/growth. That’s D-E-S-I-G-N-L-I.co/growth.  

Rob Walling: My next question is a response to an email that I sent to my list, robwalling.com/emails. If you want to be on my mostly weekly newsletter where I’m sending out essays covering stuff that I don’t cover here or on YouTube, and I ask in one of the emails, “Hey, what’s the biggest thing you’re struggling with?” And the respondent said, “The number one problem I’m facing is I don’t have confidence. As a software engineer, I’m passionate about building products, but I struggle with social interaction, which is currently holding me back. I believe I’m addressing a real problem, I assume with his software, but I’m hesitant to reach out to potential users to validate it.” So a couple things here. If you want to get better and get over your fear of social interactions, I want to talk about that. If you don’t and you just want to build a small business where you don’t have to reach out to people, stair step and do a step one business and just learn how to market it quietly.  

Back in the day when I had a full-time day job and a young child, and I also struggled with social interaction and was intimidated by everything in the world because that’s how I was raised, I learned how to market and write copy and sell software without having to have one-on-one conversations and without having to “bother people.” And that was part of my early stair stepping, and now I am not concerned about any of those things, that I have the confidence now that if I was building another SaaS app, and frankly, by the time I was building Drip, when I was at step three, I had the confidence, I had the experience, and I had some money, and I just had a lot more of a tailwind behind me to be able to really execute on an ambitious app. So one way to build confidence is to have small wins along the way, and that’s one of the things that stair stepping gets you.  

If you don’t want to stair step and you want to get over this fear of talking to people, the only way to do it is to do it, right? I talked in the last couple episodes, because there’s been a lot of listener questions around this type of topic, I talked about how I would learn a new topic, learn sales, I think it was outbound sales, cold calling. It was cold calling. Similarly, how would I learn to try to get through this? Well, I would hire a therapist specifically or coach to specifically help me with this. If I hired a coach, maybe I would even have them on some of the calls. It sounds crazy, but first you crawl, then you walk, and then you run, and so you have to take small steps for this. I would also personally use an LLM to, at a minimum, help me with outreach.  

If I don’t want to bother people, I’m going to tell the LLM, “Hey, I’m an engineer. I think my software solves a problem, but I really am not great at social interaction. Can you help me draft emails to these people to help me reach out to them?” And then, “Oh my gosh, I booked a call. Can you help me with what I should cover? What are my scripts? What are my bullet points?” The more you prepare, and honestly, even practicing in advance, you can record yourself, you can do it in front of a mirror, you can just do it while you drive, but you say these things out loud and it gets you in the practice. It trains your body not to panic. I talked a couple episodes ago about nervous system regulation. That’s kind of what happens when we have these social anxieties, is your nervous system has this fight, flight or freeze response.  

Usually it’s freeze. A lot of us have that in these moments. And training your nervous system requires repetition and the reality, the realization that, oh, I am actually safe and I’m not being chased across the savanna by an elephant or a leopard or a hippo or something that is otherwise threatening and trying to kill me. So if you believe that you are addressing a real problem with your software and that you actually have a solution, that you are going to be helping people, taking that to heart and building up the thought in your mind and the confidence of like, “No, this will actually help other people.” It’s the only way that I’m able to say nice things about the stuff we do at MicroConf, TinySeed, on my YouTube channel or my books or this podcast, frankly. I have a really, really tough time feeling like I’m bragging when I say TinySeed is a world-class B2B SaaS accelerator.  

It’s one of the best in the world, but I really, really believe that. This was something that took years and years for me to get through. And then once I realized, no, I actually believe it, and if I don’t believe that, I probably shouldn’t be running it. I believe my books are some of the best for bootstrap and mostly bootstrap SaaS founders, some of the best in the world. If I didn’t believe that, I wouldn’t write them. I wouldn’t publish them. As awkward as it is for me to say that sentence, that hey, I think they are really, really good and people should buy them and read them, I had also had to learn to get through that mental. Really, it’s a speed bump, right? It’s a speed bump that is not a roadblock, it feels like one, but with practice and with some outside help, again, coach, a therapist, a friend, a co-founder, a person in your mastermind if they’re willing to do some one-on-one accountability, that’s I think what you probably need if you want to get past it.  

And as I said, if you don’t really want to work on it, then I think stair stepping might be a better approach for you. And my last question of the day is about when to throw in the towel. I’m going to keep this asker anonymous, but he did email questions@startupsfortherestofus.com. If you have a question for the show, for me or a guest, you can email it there or you can head to startupsfortherestofus.com, go into the top nav, click ask a question and audio and video, go to the top of the stack. I believe I’m down to just over 20 questions right now. Anonymous says, “Hey, Rob, I’m a CTO at a small bootstrapped B2B SaaS startup in Europe in the sustainability space, CO2 emission calculators, et cetera. We have some recurring revenue, but we’re still reaching for true product market fit. It feels more like we’re delivering bespoke services work rather than a scalable product.  

I’m not a co-founder, but I’ve been here nearly three years with equity and fair monetary compensation. My question is about when to quit as a non-founder.” Ooh, this is interesting. “Our structure is a bit unusual. The original founder still works only part-time for the startup because he needs his day job to survive financially. He’s hired a full-time CEO who is based in a different country, which creates some communication challenges as the rest of the team is co-located. We have five employees plus me all working from the same office. How do you think about when to quit for a non-founder with equity in this kind of situation where slow traction might be partly a structural/founder availability problem versus purely a product problem? And how do you distinguish between this needs more time versus the fundamental conditions for success aren’t in place?” This took a turn. With these questions, I typically just read the subject line, and in this case I did.  

I read the subject line and I assumed it would be a, “Hey, when should I throw in the towel on my startup?” And I have some thoughts around that broad topic. This is so different. Bottom line, when I read this, I think if the founder is not willing to go full-time on their own idea to raise the money to make it work or to save up money to get into a situation where they can go full-time, and yet there are five employees and a remote CEO, this makes no sense to me. How are there five employees? There should be money for the founder. To me, this is a vote of no confidence. We do not fund companies at TinySeed if the founder is not willing to go full-time. When we interview founders about their idea, if they say, “Now there’s two co-founders and one’s not willing to go full-time,” we take it into consideration, of course.  

We try to give people the benefit of the doubt, but the honest answer is in this situation, this sounds like the founder just isn’t that committed to it. So why would I, as an employee with some equity, be more committed to it than the founder? And I’m sure I know that there are some circumstances that could be thrown in of like, “Well, he has a high cost of living. He’s taking care of his wife and kid. I can only imagine maybe he has special needs kids, maybe his wife has health issues, maybe his…” I’m just making assumptions that there are reasons for this, but the bottom line is the optics are not good. And if this were an actual. I mean, the reason he can’t raise investment is because no one will invest in this company because the founder himself doesn’t believe in the company, but expects other people to do it.  

But without founder activation energy, how can this company ever succeed? I haven’t seen a company be started by a founder and then part-time focused and just have it magically find product market fit. Team members, employees are not founders unless they’re founder level, right? If they’re a founder-level thinker and they are willing, they need the motivation. It’s never going to happen. I was going to say they need the motivation then to go on and find product market fit. It doesn’t happen. I see founders who start it and go full-time and don’t find product market fit because it’s so hard and it takes so much energy and it’s so muddy and you have to try all the things, you have to take big risks and you have to go with gut and make hard decisions with incomplete information. And I can’t imagine someone you hire who doesn’t have the upside that you do as the founder is going to do this.  

So I’m coming off pretty hot on this. I mean, I always say it’s a hot take, but it’s just my take. If I were in your shoes, I would get the out. There’s no way I would be investing time in this company. I would either go start my own if I wanted to be in the space, I’d get a job at a different company. I can’t imagine the founder hiring a CEO who’s based in a different country. This sounds like a disaster. This sounds like a big mess the way you describe it. And so that’s where I land on this. It’s easier to say it from the outside, but it’s honestly easier to be honest from my perspective, right? Because I don’t have any skin in the game. And the situation you describe, if you were to say like, “Hey, would you invest in this or would you come on board with this company as say a co-founder?” Because if you offer me the employee number one or number five spot, I’m not taking it because I don’t want to be an employee, but I do start things.  

So I’m a founder. Would I come on as a co-founder? Absolutely not. Not if the other founder is going to hire these other folks to run the company while he’s not willing to get in there and find product market fit. I’ve just never seen it. I’ve never seen employees, and even if they’re super smart, project level, maybe even owner level thinkers, it’s just not going to happen. It’s too hard. So if I were in your shoes, that’s how I would be thinking about this. I think the slow traction is structural. I think it’s founder availability. And the product problem, whether it’s a product problem or not, it doesn’t matter because the product’s not going to get better if the founder doesn’t get in there and bring their activation energy to make this work. So thanks for that question. I hope it was helpful. And that’s going to wrap us up for today.  

Thank you for joining me this week and every week. This is Rob Walling signing off from episode 849.