Rob Walling - Stop Building Stuff Nobody Wants
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Meet Rob Walling
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Jonathan Stark: Hello, and welcome to Ditching Hourly. I'm Jonathan Stark. Today I am joined by Mr. Rob Walling. Rob, welcome to the show.
Rob Walling: Thanks for having me, Jonathan.
Jonathan Stark: I can't believe we've never met before, even virtually like this, because we've sort of traveled in the same circles for a long time, but for folks who haven't come across you before, can you tell them a little bit about who you are and what you do?
Rob Walling: For sure. So my background is in software development, and I was an engineer for many years working for consulting firms, and then I started freelancing in the aughts, and eventually I realized I wanted to ditch hourly. And so I wanted to build products, and so I started building software products before SaaS even. My first one was an invoicing software that sold for 300 bucks, and it was a one-time deal. And then after that got into SaaS. I have a podcast called Startups for the Rest of Us that's been running for 16 years, 52 episodes a year, and it's all about bootstrapping. It's about how, as a technical or mostly technical person, how you don't have to follow the Silicon Valley narrative of raising funding, of asking for permission to start your business. Things I say include build your business, not your slide deck. Not that I'm against funding. I also run a venture fund, $59 million. It's a micro fund—a tiny, tiny $59 million fund, and we invest in SaaS bootstrappers. And I've written five—well, six—books. I'm about to publish my sixth book on this topic of software entrepreneurship.
Idea to Traction
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Jonathan Stark: That's exactly, yeah. So Jason Cohen and Craig Hewitt from Castos introduced us to talk about the book, which should be available for pre-order when you're listening to this, dear listener, so you can check it out. So why don't we start there? What's the new book?
Rob Walling: Yeah, so the new book is called Idea to Traction: Stop Building SaaS Nobody Wants in the Age of AI.
Jonathan Stark: Mm.
Rob Walling: And if folks want to skip to the punchline, it's ideatotractionbook.com, and that's where you can pre-order it or do whatever. Of all the books I've written, my very first one, Start Small, Stay Small: A Developer's Guide to Launching a Startup, was in 2010, and that book continues to sell like a few hundred copies a month. It has momentum, it has word of mouth, but it's so out of date. It's 16 years old. And so Idea to Traction is my kind of revisit, my homage to that book of like, what is it like to start from scratch, no ideas, and figure out how do I come up with ideas, how do I validate, how do I vet, how do I build a launch list, how do I do early marketing, early pricing, and how do I launch, right? That's what Idea to Traction is in the modern day, including AI, vibe coding, all of that. So it's the first time I've revisited that early stage in 16 years.
Who Builds SaaS Now?
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Jonathan Stark: Amazing. Well, and the timing couldn't be better, I'm sure. Well, I mean, you just came off a MicroConf in Iceland, right?
Rob Walling: Mm-hmm. Yep.
Jonathan Stark: And I'm super curious, and it sounds like it relates to the book, it must relate to the book. If you're seeing an influx of more non-technical people interested in your material, you know, folks that are on Lovable and creating something, and they think it's going to be the next big thing, but, I mean, your history is as a developer, and it seems to me like you have a lot of developers in the audience. Is there an influx of people who are less technical that are finding your stuff, or is that just me imagining it?
Rob Walling: I think so. Influx might be a strong word. Historically, like across MicroConf and TinySeed and just my audience, it's been about 80-20, I'd say. Well, to start off, it was 100% developers, like in the early days, because that's what I was blogging about. But it's swung to be about 80-20: 80% developers, 20% non-developers.
Jonathan Stark: Mm-hmm.
Rob Walling: Usually people who have a co-founder, but sometimes who don't. You know, often who have a developer co-founder, sometimes don't. We are definitely seeing more applicants to the accelerator that I run, who are non-technical and don't have a technical co-founder and who have, you know, we're calling it vibe coding. We keep saying vibe coding, and to be honest, like, look, everybody, I mean, I know senior engineers writing incredible code that are just using AI and kind of one-shotting it now because they have systems in place. So are they vibe coding? Well, I don't know. So I'm starting to become like these terms are pejorative, I think. They started as a pejorative anyways. But that's my answer is, yes, there are more non-technical people getting into it, but see, there always have been, like no code was a big wave of that too, right? We got Airtable, Bubble, Softr applicants, and I'm still at the point, though, if you are a non-technical founder solo without a developer and you're AI coding your stuff, there's still a stigma in my book, like pretty significant, that the code base will probably have to be rewritten within 6 to 12 months. I don't think that's forever. I do think AI is going to get to the point—I don't know if that's in six to 12 months—where it'll get to the point where it can probably write decent code that won't have to be rewritten, but I don't know when we're going to get there, and it also depends on a bunch of stuff, right? If you build a very simple app, you never need to rewrite it, but if you build anything substantial, you know that the cruft, security, and maintainability, etc. goes out the window at a certain point.
SaaS in the Age of AI
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Jonathan Stark: How much do you sort of pontificate about the future of SaaS in a world where, you know, AI agents are booking meetings for us and so forth? Like, do we need Calendly anymore when agents just talk to agents, or is that just the narrative that Frontier Labs are pushing, like, oh, you won't have to do anything, and it's the death of SaaS and all of that?
Rob Walling: It's neither. That's what it is. So I just gave a talk and recorded a podcast episode. I gave a talk at MicroConf in Iceland two weeks ago, and then my co-founder of TinySeed, Einar Vollset, and I did like a 75-minute podcast episode, which is unusual for us. My podcast is about 30 or 35 minutes, and I said, let's just let this thing run because it is our stake in the ground of where we see SaaS going over the next one to three years. And the idea is really couched behind moats. Are there any moats left, or will SaaS just be completely decimated by the models and by coding and by whatever else? Our thought—or my thinking—is that SaaS will be impacted, but it's not SaaSpocalypse, right? People with SaaSpocalypse are saying 100% SaaS goes to zero, and it's like, no, there's no way. That's not happening. But we're also not Pollyanna. Early on, I was like, well, it's barely going to impact SaaS. That's not true either. So I'm of the mind today that between 10% and 20% of all SaaS companies will either go to zero or see significant plateaus and just melt like an ice cube, right? One example is small indie-hacker projects, like all those little “chat with your PDF” and “convert this file format to that” utilities, those are going to zero. Like who uses those anymore? Yeah. But then it even translates to Squarespace, big public companies. How is Squarespace going to survive? Everyone I know—including me; I have seven Squarespace sites. I'm moving all of them to Astro, Cloudflare, and flat files.
Jonathan Stark: Right.
Rob Walling: Or all of them but one that's more complicated, but... So 10% to 20%. Now, there are about 50,000 or 60,000 SaaS companies in the world, like SaaS apps that are, that are of any size. That probably doesn't include tiny little indie hacker utilities. That's more things that we can track with websites and this and that. So when you think about it, 10% to 20% is not what SaaSpocalypse has been saying, What does it make us think—80% or 90%? They're all going to zero?
Jonathan Stark: Yeah.
Rob Walling: But 10% to 20% is still not nothing, you know? And it's a bunch of threats. It's not any one thing, right? People say, “Oh, people are going to vibe-code it.” And it's like, that's one. There are actually nine other supply and demand shocks that AI is bringing. Things like your competitors can now get to feature parity with you very quickly. Things like your customer might be out of business tomorrow, because imagine if you're selling transcription software or software for receptionists.
Jonathan Stark: Mm-hmm.
Rob Walling: Transcription houses are going to zero. It's all AI now. So if that was your customer base, there are threats around. As I'm saying, I gave a whole talk on it, so it's all in my head, but—
Jonathan Stark: Cool.
Rob Walling: Yes, AI is impacting it, but not as much as everyone would have you believe, and I think the sentiment, especially earlier this year, swung too negative, and it'll effectively swing not back to where it was, but it will become less negative over the next six months, I think.
Jonathan Stark: Mm, okay. So people should definitely check that out. And then say the name of the show again, so for people that are just tuning in.
Rob Walling: Yeah, Startups for the Rest of Us, and that episode will come out here in the next—well, when this goes live, probably that week or maybe in the next two weeks after that. And then we're going to be releasing the actual talk. We don't normally release my MicroConf talks until about eight months after I do them, but this one is so prescient, and we want to like let SaaS founders know. I also gave eight moats that I believe will hold up in the age of AI for SaaS. And this is like stake in the ground type stuff. So that'll be up on my YouTube channel soon, youtube.com/atrobwalling.
Jonathan Stark: Awesome. How much of this sounds like stuff that's probably not in the book, right? This is
Rob Walling: Yeah, correct.
Jonathan Stark: more. Okay, so let's—
Rob Walling: Yep.
Validate Before You Build
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Jonathan Stark: Let's loop back to the book after that. That was great, and I look forward to listening to that. So let's talk about the book. So for people listening—it's mostly not people doing product right now, but it is a lot of developers, so they might be thinking, especially if business is slow. I know business is slow for a lot of people right now because it seems like buyers are like, well, let's see if we can do this ourselves, and I think they'll find out they can't, but in the meantime, they're going through this. A lot of people are going through a slow period in the consulting side. So they might be thinking, well, I'm smart, I know how to code, and now that I can launch a SaaS app in a weekend or a Salesforce competitor in a weekend because I've got this fleet of AI agents building stuff for me, I might as well do it. So they're new to the whole thing. They're sort of experienced developers, and they've built stuff for clients who are probably running a SaaS, and have certainly worked on SaaS projects. But what should they be thinking about in terms of the steps you walked them through in the book if they were going to get started?
Rob Walling: Yeah, it's a good question, and I gave a lot of thought to this and rethought a bunch of things from the ground up because the advice from 10 years ago changed with AI, right? But it didn't change as much as people think. So most developers want to go build, and as I was floating parts of the book out there as YouTube videos or as podcast episodes, parts were like, hey, you should do some type of validation. And developers hate that word because it implies talking to humans, and, you know what I mean, it implies being told your idea isn't very good, or they don't want it, right? So instead of doing that, they always look for an excuse. And look, I'm a dev. I started writing code when I was eight years old. I started doing it professionally when I was 25 or something and did it for 15 years. So I'm a dev too. I'm a maker, I'm a builder. I want to build. Don't look for excuses to not do some type of validation, some market research. I call it the 2-20-200 framework. So it's two hours, 20 hours, 200 hours in succession. The two hours is just doing some basic market research, right? Going online, looking at Reddit threads, asking ChatGPT or Claude, being careful that it doesn't kind of be a sycophant and say, this is a great idea; definitely you should make it—or going to Ahrefs and looking at traffic demand, you know, just doing some basic stuff. The 20-hour phase is when you do both. You set up a landing page, try to drive some traffic to it, but you also then go out and you do cold and warm conversations. If you've talked to Jason Cohen, you know how he validated WP Engine. He talked to 80 or 90 WordPress agencies and developers, and he got 40 yeses before he started building. 40 yeses. For my last SaaS app, I got 11 yeses, and I was like, I'm done. I'm exhausted by this. So the right number is probably, I don't know, 11 may be a little too few, and I think 40 is plenty. So the right number of yeses is probably somewhere in between. But that's the 20 hour phase. And is it exactly 20 hours? Of course not, but it's easy to remember 2-20-200, right? And then 200 is kind of building that MVP, getting something into market, getting your early access folks to start using it. That still holds up. I have gotten some pushback from developers being like, well, now that I can build it in two days with AI, I should just build it and launch it. And it's like, no, dummy. Do you realize that you're going to build the wrong thing? You're going to just build something out of your head. The whole point of talking to customers is not just to ask, oh, will they buy it? Is there a market? Part of it is that, but I guarantee you that your plan for your product will not survive contact with a real customer. They're going to tell you, well, I'd use this, but not this, or I'd like it this way, but not that way, or you'll pivot to an entirely different idea altogether that is so much better.
Jonathan Stark: Right.
Rob Walling: I have stories like that in the book that I won't go into about folks who had one idea and were two engineers, and one guy just did cold call after cold call, and at cold call 35, he learned this idea is not going to fly at all.
Jonathan Stark: Mm-hmm.
Rob Walling: But he heard about this other industry called senior placement agents, and what they are is realtors. If a relative of yours, for example, you wanted to place them in a senior living home in the US—
Jonathan Stark: Oh.
Rob Walling: They're agents that help you do that, and they get a commission based on placing. He started hearing that. He's like, what is this bizarre industry none of us have ever heard of? He did 35 more cold calls as an engineer—a Microsoft developer—and found out there was a big space, there was no software that was any good, and Senior Place now is a very successful business. It actually got funded by TinySeed, which is why I know their story. This stuff still works and is still needed in today's world. Validation and some upfront research are still needed. Just because you can build it doesn't mean you should.
Jonathan Stark: Yeah, back in the day when it took 200 hours to get something good, I would always say to people, like, well, okay, let's say it's built, it's 200 hours from now and you built it, what are you going to do?
Rob Walling: One hundred percent.
Jonathan Stark: You're going to have to go do the thing that I'm asking you to do now. You can't skip it. It's not going to happen. “Build it and they will come” is from a movie with the word dream in the title because it's not real. Especially, I mean, I feel like the marketplace for any of these things is crazy crowded, certainly for any ideas that are going to pop off the top of your head, like, oh, I have Calendly, but there's one thing about it I don't like, so I'm going to make a competitor, and I don't know. But yes, I definitely know that people, a lot of this type of person, their happy place is in front of an IDE or now in front of a, you know, Claude Code, and that's the last thing they want to do, but we're here to tell you that you do need to eventually do that, so why not start now? Because it will inform the decisions you make in that 200 hours, or if it's a 48-hour weekend.
Rob Walling: Exactly.
Jonathan Stark: One hundred percent.
Rob Walling: The way I know that validation is smart, and you don't have to do 2-20-200, that is a framework. You can make up your own, probably not the best idea if you haven't done it before. You can use Jason Cohen's, you can use whatever. You know, I'm not saying you have to do what I say, but just please, for the love of God, do some validation. The way I know that it's valuable and that it's probably generally the right thing to do is every serial entrepreneur I know on a second or third company does validation.
Jonathan Stark: Yeah.
Rob Walling: Jason Cohen did it. Ruben Gamez, who started Bidsketch and then did SignWell, did it. Jordan Gall, who's on his third startup and has raised, I don't know, eight figures of venture capital. He did a big pivot, did a ton of validation for about a month before building, and these are some examples I give in the book, and others. It's just that, without a doubt, the people who are not doing it or arguing against it are inevitably first-time entrepreneurs. And that's fine, we're all first-time at some point, but you should probably learn from the folks who have done this multiple times successfully and see that they're doing some type of validation before they build.
Jonathan Stark: Yeah, if you've launched to crickets, this is the reason.
Rob Walling: Yeah.
Better Customer Conversations
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Jonathan Stark: So how detailed in the book do you get about how to have these conversations? Because I think part of the resistance is they don't know what to say, and they end up pitching the idea instead of listening. They're talking too much and not listening enough.
Rob Walling: Perfect. I love this question because I'm reading the audiobook for the book right now, and I read that section yesterday. And what I do is I talk about customer conversations: what questions to ask, should you ask for prepayment? And I give examples. I say, hey, I've never asked for prepayment, but that doesn't mean you shouldn't. And I talk about why, and I give an example of someone who did and someone who didn't, and the pros and cons of that. And then I recommend if you really want to dive into a whole book on the questions, there's a book called The Mom Test, I'm sure you've heard of it, by Rob Fitzpatrick, that is phenomenal. That is the best. So I kind of borrowed some elements of that to put into Idea to Traction, but of course, Idea to Traction is already 310 pages, so I wasn't going to have an entire volume on just what questions to ask.
Jonathan Stark: Mm-hmm.
Rob Walling: But there are some very excellent resources on how to do it. Again, Idea to Traction has a little primer if you want to, you know, read 3, 4, 5 pages about it.
Finding and Choosing Ideas
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Jonathan Stark: Do you find that people usually have an idea that they need to validate, or are there people who are like, I just want to build a SaaS, and I don't really care what it is, I'm looking for an idea?
Rob Walling: I find both. Yep. And in fact, in my email newsletter, in one of the first emails, I say, let me know what your number one problem is right now. Just hit reply; I respond to everything. And maybe the most common one is I can't find any ideas. That's probably the most common, and then the second most common is I don't know which idea to settle on.
Jonathan Stark: Mm-hmm.
Rob Walling: And this makes sense. It's a funnel, right? It's like of all the SaaS entrepreneurs from zero to, you know, super successful, like 80% of them are in the idea phase. It's just the way it is. And so, yeah, this is the hardest part, right? I talk about this in the book. My prior books are about a slightly later stage, like SaaS Playbook is for when you're launched, you have $5,000 to $10,000 of MRR, some weak product market fit. That book's designed to take you to millions, and that's actually pretty easy to prescribe. Like, I'm invested in 241 B2B SaaS companies. The patterns are very stark, like they're very noticeable. And yeah, sorry, I just used your name in vain. SaaS Playbook is easier to write than Idea to Traction, and I write about this in Idea to Traction. I'm like, look, this is more of a compass, not a blueprint, more of a compass, not a map to keep the metaphor there. Like, there is no map, and anyone who claims they're selling you a map is off. But it's like these are the directions that we all go, you know, and Jason Cohen read Idea to Traction and had kind things to say about it. And one thing he said was, he's like, this is the stuff we all say, but it's never been put into one book. I love that you've done this. Now I can hand this to people, you know?
Jonathan Stark: Yeah, yeah.
Rob Walling: That's really what it is, but it isn't a ticket. It doesn't have a 100% success rate. But with all that said, this is the fuzziest stage of all: trying to find an idea. How do you find ideas?
Jonathan Stark: Mm.
Rob Walling: I give like 7 different frameworks or thought experiments for how to do it. For example, where you have a day job, where do they currently spend money on software? Just put together the entire list and look at all the categories and be like, do I want to compete with one of these? Have you run into a problem? One of the TinySeed companies was dealing with home improvement contractors. So these are not big general contractors building large projects, but like doing little, you know, $5,000 to $100,000 home improvements. And he said their communication was just awful. So he's like, could there be software for them? And he built Builder Prime, which is now—I don't know if he's public about revenue. Let's just say he's doing millions and millions in ARR.
Jonathan Stark: Mm-hmm.
Rob Walling: And it was a problem that he didn't have per se, but he saw in the wild, right? There are five or six others that I offer, but keep your eyes on a swivel and look for these ideas and keep a notebook all the time.
Jonathan Stark: Mm.
Rob Walling: That's...
Jonathan Stark: Perfect.
Rob Walling: That's kind of what I prescribe.
Turning Client Work into SaaS
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Jonathan Stark: I've got a weird question for you about, because you mentioned, you know, whether or not to ask for payment, and this one has come up a few times with me, and I've even interviewed people who've successfully navigated this. It always feels like a quagmire to me, but with all that said, they're essentially building custom software for a client who has come to them with, we need this thing done. We'd like you to build this software, and the developer is like, this could be a SaaS, this could be my first customer for the SaaS, and somehow they work out almost like an equity thing where the client essentially becomes the first customer, and they work out some financial arrangement where they fund the development and they maybe get exclusive access to the finished product for a year, or they get a lot of input on the direction of the product early on. And they get a deal, like it would have cost $300,000, this is pre-AI, would have cost $300,000, but if you give me $10,000 a month for two years, I'll get it all built exactly to your specifications, but I'm going to own the code, and it's going to be multi-tenant, and I'm going to sell it to your competitors and everybody else. Have you ever seen that work? I can only think of one example that I've encountered where that actually worked, and it was messy, but it did work.
Rob Walling: Yeah. I've seen this a lot with varying arrangements. I have seen a few where the client does own equity, where it's like the client owns 10% of the product business at the end. The client always gets a discount. Most of the time, it's just you get a discount, I keep all the IP, because the client doesn't want the IP anyways. They don't want to go market a product. They don't want to go, you know, and if they get half off, like you said, $300,000 to $150,000 or something, they're like, good, they don't care. So yes, I've seen it. Have I seen it work? Not often. But here's the thing, it may not fail for the reasons that people think. They might think that it gets messy because the client wants to own it and doesn't want their competitors using it, and there's a business conflict with that. It's not that. Usually it's that client has such a specific way of doing things and dictates how the app runs, and the developer or the agency doesn't talk to enough other customers. This is why I got 11 yeses and Jason Cohen got 40. Neither of us got one yes, because then your software is coded too closely to that company's process. That's usually... Well, there are a couple things, right? Number one, is the software going to work for anybody else is a big question. Number two, is anyone else willing to pay for this? Like, is the market big enough? And number three, can you find them and sell to them at a cost that makes sense for this product? Those are probably the three biggest questions. You haven't really answered any of them by building one thing for one client. This is where I would still go out and do validation.
Jonathan Stark: Yeah.
Rob Walling: This is great if you could set this up, but then can we answer the rest of the questions? You know, are there other folks out there? Can you build software that can serve multiple, or does it all have to be super custom? And can you find them at a cost that makes sense for you? Can you charge enough that it justifies the sales or marketing effort?
Jonathan Stark: Yep.
Rob Walling: So there are unanswered questions there, you know, if you only have one customer.
Jonathan Stark: Yes. And one thing you mentioned really triggered a whole bunch of memories. Back when I used to build custom software in-house for workflow systems for people, it was really common, I would say 20% of the time, which to me that seems like a high percentage, of clients would kind of justify the expense by saying, and someday we'll sell it. Someday we'll, we'll turn it into a product. And they do exactly what you just said, where they massively overfit it to their specific business, which is where a lot of the value for them comes from, because it is so optimized for their exact processes and personalities and everything, that it never once happened that they were able to, or even tried, but even if they did try, like, people would look at it and it'd be so complicated to anybody besides the people who had the back office processes. So I'm just piling on your point for anyone listening who's thinking about doing this, is you're going to have to validate it, find out what the actual features are that would be valuable to other people, or at least what they think, and then you need to not overfit it to the particular client, or at least make it modular in a way that is somehow customizable.
Rob Walling: Yep.
Jonathan Stark: I think this feels like the hardest. It's like, oh, I'll get paid to build a SaaS. It's like, er...
Rob Walling: Very hard. My gut would be to go out immediately and find three or four other companies in the same industry with the same need, and try to get them on. Maybe they're a lower tier in terms of input, maybe they get less of a discount, maybe there are arrangements you can work with them, but that would, first, help give you a sanity check of the feature set and how flexible it actually has to be.
Jonathan Stark: Mm-hmm.
Rob Walling: And second, if you can't find three or four more, how are you going to find three or four more after you have a product? You know what I mean? It's like that is the exercise. And of course, people, again, developers or agencies are like, well, I don't have time, it's too hard, whatever. Well, if you don't have time and it's too hard now, you're not going to have time and it's too hard six months from now once you have a full product, right?
Jonathan Stark: Yeah.
Rob Walling: So that's the exercise I'd be thinking about.
Market from Day One
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Jonathan Stark: Cool. Okay, so what comes up next in the book? Once we have an idea and we've validated, we've gone through the 2-20-200 framework. Now can I finally start building it, or have I built it, you know, and now I have to start marketing it, or do I start a mailing list? What do I do?
Rob Walling: I have this line that I've said for 15 years now. It's “start marketing the day you start coding.” And all I mean by that is like get a landing page up and start talking about it and/or driving traffic, like with my last SaaS. So my last SaaS I started in 2012, sold it in 2016, and it was a great, successful effort for me. I...
Jonathan Stark: And that was Drip, right?
Rob Walling: That was Drip. Yep. I started marketing that thing before we even had anything—before I even really knew what the idea was. I was talking about it on podcasts. I was like, yeah, it's going to be an email thing that sends stuff and does JavaScript, you know? It's just like, I kind of knew. I was talking about it. I started running Facebook ads once I had an idea what it was, and built up a launch list of 3,400 people, and built an actual kind of audience that wanted it. So “start marketing the day you start coding” is the next step. And sure, you can start coding today, but have you thought about your go-to-market? Like, who's your target customer? What's your positioning going to be like? I talk through all this, right? What's your early pricing going to be like? And then starting to think about marketing tactics. There are 20 B2B SaaS marketing tactics that I know that exist. I list all those in SaaS Playbook.
Jonathan Stark: Mm-hmm.
Rob Walling: But when you're pre-launch, when you don't have a product, there are about eight of them that apply, because there are several you need a product to do integration marketing, right, where you do integrations then market. You need a product to do those integrations, so you kind of put those in the post-launch bucket. But the eight that you can do before that are things like SEO or ads, pay-per-click ads, if you have any type of budget. So I encourage folks to get out there and do that early. But once again, validation is conversations, maybe getting some yeses, maybe building a small list. Once I start building, I want to, in tandem, really start pushing the marketing and the sales engine because I want to see how hard this is actually going to be, and now I'm validating a different part of the business. I'm not validating, is there a need for this software? Will anyone pay for it? I'm starting to validate: can I find other people like this? Who is the ICP? What exactly am I building as you have conversations, and how do I find them, and how expensive is it to find them?
Find and Refine Your ICP
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Jonathan Stark: Hmm. There's a great video I'll link to in the show notes where Bob Moesta and one of the people from Basecamp at 37signals do a Jobs to Be Done interview with someone who I think bought a Peloton or something, and during that, the Basecamp guy, I wish I could remember his name. Do you know his name? I can't remember.
Rob Walling: Is it DHH or Jason Fried?
Jonathan Stark: No, it was one of the—it was...
Rob Walling: Like one of the product managers or something.
Jonathan Stark: Yeah. Really smart, really good, and, at any rate, he described how Basecamp is not in competition with all the things you think it's in competition with because their ICP is so focused that people aren't even considering what you would think of as other project management software. Like, they're not considering Jira, you know, it's like an accounting firm. They're not getting Jira or whatever. Yeah. And that ICP piece that you just mentioned, I wanted to double down on. If people go watch that video, I think they'll be shocked how specific their ICP is. It's extraordinarily specific.
Rob Walling: Yeah, and do you know that 100% when you're at this early phase? You don't, but you need to take a guess. I had three different ICPs for Drip. So Drip was early on, it was just an email capture widget, JavaScript on your website. This was like the first commercial one. You couldn't buy that at that point in 2012. And the reason I did it is because I had a developer spend like 20 hours building one for me for another product I had.
Jonathan Stark: Mm.
Rob Walling: Because there was no... Was it SumoMe? I don't even know. There was Bounce Exchange at one point, there's Right Message, you know, there's all these widgets now, but there wasn't anything you could pay for. So it's just going to be that plus an email sequence. That was the original idea for it. Later on, it became a full-blown email service provider competing with Mailchimp and then with Marketo, and it became marketing automation. But the original ICP, I was like, well, I know that I have a lot of SaaS founders in my audience, so that was one. And then there was WordPress plugin developers because I had some of those, and info marketers, like course creators—we call them creators now, but it was called information marketing back then: I sell courses, books, and all that. Those were my three ICPs that we were building for. Turns out WordPress plugin developers didn't really need it, so I was wrong, which is fine. I learned that. And turns out I missed a big segment, which was bloggers. I just wasn't thinking, a lot of bloggers are kind of info marketers as well, right? Because they make most of their money from selling a book or a course or whatever. But there is a slight difference there, and when you get in the weeds, you learn, oh. So those became our three, and then, to be honest, e-commerce became one for us, totally unintentionally, like actual Shopify and BigCommerce customers. I don't know why I didn't have reach into that audience, but somehow Drip became a magnet for them. And by the time I sold the company and left in 2018, 15% of our customer base was e-commerce, and I had never marketed to them and hadn't really built a bunch of e-commerce features either. So it evolves over time. You're not going to be right the first time, but you take a few darts and you see, and then you have to listen to what the market says, and you evolve. And in fact, they did a big pivot, the acquirers did a big pivot with Drip into e-commerce after we left because they had so much traction and it was growing.
Competitive Research and Positioning
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Jonathan Stark: How much competitive analysis do you think is the right amount?
Rob Walling: Yeah, that's a really good question, actually. I talk a little bit about that in the book. I don't go into it super deep. I think there is a spectrum I've seen of folks who pay way too much attention to their competitors, and every move they make and every time the floor squeaks, they're like, “Oh my God, a competitor did this,” and it's in a competitor Slack channel, and everyone every day is just like, ha.
Jonathan Stark: Yeah.
Rob Walling: And then there's people who are like, don't pay any attention, and neither of those is right. I mean, I'm not just steelmanning or like strawmanning arguments, like I have seen these folks, and I'm like, guys, maybe these days with AI, we can have an AI summary once a week of some high-level stuff that we look through and we want to pay attention to, but every freaking feature request and press release is exhausting. But in the early days, yeah, if I were going to launch into a space, I would want to know the landscape. And it depends. If you're building a senior placement software where there's maybe one other tool on the market, maybe someone else is using like Basecamp or a general purpose tool or Salesforce, your competitive research is very quick and/or it's very hard because everything's behind a paywall. It's demo-only; you don't even know the pricing. You might have to hire a secret shopper, like I've had folks do that, go to Upwork, hire a fake customer, a fake potential customer to go do an interview and actually learn the pricing and how the product works because there aren't even any screenshots of it.
Jonathan Stark: Yeah.
Rob Walling: So that's one way. Then if you build an email service provider, which I did, it's like, oh, so there are 375 of these. You don't want to do the whole space, right? That's where you try to find your ICP and your positioning a little bit. Like, our positioning became lightweight marketing automation that doesn't suck. That was our H1. And so what does that tell you? Well, we weren't the heavy-duty, very expensive marketing automation. Those tools were usually about $750 a month and up. Yeah. Up to $5,000 a month or more. So we were lightweight, so we started less expensive. Marketing automation is just the software category. It's like email marketing on steroids.
Jonathan Stark: Yeah.
Rob Walling: And then that doesn't suck implies what? Well, we treat our customers well, good customer service, and the UX is easier to use than these bulky things, right? So it communicates a lot in six words.
Jonathan Stark: Mm-hmm.
Rob Walling: That became our positioning. It evolved over time, but then I only needed to look at any ICP or any competitor that might potentially also be selling into that, right?
Jonathan Stark: Right.
Rob Walling: Or that we could pull from. Not necessarily lightweight. We had some heavy, I call them refugees. We had a bunch of refugees from Infusionsoft, which is now Keap, Marketo, Pardot, Silverpop, like all these bigger marketing automation folks.
Jonathan Stark: Yeah.
Rob Walling: And I needed to know their tool inside and out. So in the end, I probably knew about eight or 10 tools. ActiveCampaign was another one.
Jonathan Stark: Yep.
Rob Walling: Eight or 10 tools. I guess all that to say, I think it's important to know your landscape. If you don't know the landscape, you don't know when a customer requests something, if it already exists elsewhere, if there's already prior art, and if you can look at the feature they built and be like, oh, I can do that better. If you just don't know and you're going in blind, I think that's a real mistake to not know the market. Not knowing the pricing of all the competitive tools is also a big mistake because it's not that you need to copy their pricing, it's not that you need to be necessarily cheaper or more expensive, but you should have a mental map or a map in a notebook or something of all competitive pricing as you're doing this, just to see where you fit because your positioning and your pricing is part of your positioning.
The DNA of a Great SaaS Business
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Jonathan Stark: One hundred percent, yeah. Looking at the clock on the wall, I know you've got a hard stop, so what do you think is the biggest insight in the book? What can we leave people with that, you know, I think there's a lot of people who are probably your ICP in this audience, so what's the thing that you think is the most important thing for them to hear that's in the book?
Rob Walling: I mean, validation is a big thing. That is probably the core, and that is where I spend the most time. But I do have some almost listicle chapters. There's one called The DNA of a Great SaaS Business, and it's 13 different things that I would look for if I were starting a SaaS today, you know? And it's not that any SaaS business can have all 13, but it's things like expansion revenue and, you know, fewer people making the buying decisions, selling B2B, leaning towards vertical or orthogonal SaaS, not horizontal. So it's kind of a list.
Jonathan Stark: Mm.
Rob Walling: And I think those are important for people to consider. I also think maybe even more important is my chapter on the idea graveyard, six traps to avoid, and it's don't do these, just don't. Don't sell to consumers. Stop. Stop it with B2C. Stop doing this. Two-sided marketplaces. Stop trying to build a thing that matches people up. If you're like a single bootstrap founder, you don't have millions in the bank, don't try to build Uber for cats. Don't launch a bunch of products to see what sticks, focus on one.
Jonathan Stark: Mm.
Rob Walling: Don't try to define a new software category, etc. So I think those are important because they're the most common. The reason they're so bold in the book and have their own chapter is that people just make the same mistakes over and over and over, and I see this. I do Q&A episodes on my podcast, and I've flat-out stopped answering questions about B2C SaaS and about two-sided marketplaces. And when people write in, sometimes I'll even read them, and I'll just say, yeah, they're like, how do I blah blah blah with this? And I say, I'll tell you how, don't. That's my answer. Then I move on to the next one. And I'm being, look, I'm being cheeky about it, but I get so many. It's just the boulevard of broken dreams. I can just tell you don't. And I saw a guy on X/Twitter respond after I said almost none of them work—maybe one in a thousand—especially for bootstrapping, unless you have access to one side of a two-sided marketplace, like the demand or the supply. “Just don't do it” is my thing. The guy said, “I bootstrapped a two-sided marketplace.” And I said, did you have access to one side? And he said, no. And I said, how was it? And he said, I'll never do it again. It was like eating glass. That was his actual tweet to me. And I'm like, oh, okay, then I think we're on the same page.
Vertical, Horizontal, and Orthogonal SaaS
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Jonathan Stark: Yeah. What was the, what did you say about vertical and orthogonal?
Rob Walling: Orthogonal.
Jonathan Stark: Yeah, what is that?
Rob Walling: Orthogonal is this term that I made up. I was going through all of our investments, and I was trying to just see patterns. I do this because I'm nerdy as hell, and this is the stuff I think about. And I was looking at horizontal SaaS, right, which is like an e-signature. SignWell is one of our companies. Any company can use SignWell, right? There's no specific industry, it's not designed for specific industries.
Jonathan Stark: Yep.
Rob Walling: Then vertical is, well, I'm going to make an electronic signature for realtors, right?
Jonathan Stark: Mm-hmm.
Rob Walling: Or for whatever, any other industry, right? What I started seeing is there's a third category of software that I was like, this doesn't quite work, and I just came up with a name for it, and it's orthogonal.
Jonathan Stark: Mm-hmm.
Rob Walling: What it actually is: role-based or title-based SaaS. So imagine that I have an applicant tracking system for HR directors or recruiters or whoever, you know, HR recruiters. That's horizontal because any company—Target Corp could use it, and Facebook could use an ATS, but it's aimed at a specific role or title at a company.
Jonathan Stark: Hmm.
Rob Walling: HR director. You sell it to a specific role or title versus SignWell, you don't. There's no, like, specific role or title that you sell electronic signature to. So that's why I wanted that designation. I called it orthogonal.
Jonathan Stark: Mm-hmm.
Rob Walling: And what we found, because we have all these numbers, right, of these 200-plus SaaS companies, we see their growth, we know if they're horizontal, vertical, orthogonal. We see that vertical and orthogonal behave more like one another than they do horizontal.
Jonathan Stark: Mm-hmm.
Rob Walling: And what we mean by that is, especially if you want to build, let's say, a $1 million to $20 million ARR SaaS company, small from the world's perspective, but still incredibly life-changing.
Jonathan Stark: Yeah.
Rob Walling: If you're like one of us, orthogonal and vertical are better in a lot of ways. There's less competition, they don't plateau as often or as early. You can get net negative churn. You do have pricing power because usually you have fewer competitors. You know who your customer is.
Jonathan Stark: That's the main one.
Rob Walling: One of the biggest—
Jonathan Stark: Yeah. In my mind.
Rob Walling: That's the number one, and the exit multiples can be higher and often are because of all these things I just said, like private equity has been willing to pay more for them because they aren't concerned about, oh, if you're horizontal, you're getting attacked like Google and Dropbox might
Jonathan Stark: Yeah.
Rob Walling: implement a feature that competes with you, literally.
Jonathan Stark: Exactly.
Rob Walling: Again, SignWell, electronic signature, everybody's building that into their product because they want it, right? Dropbox added that, or they acquired somebody to do it. You can see Google adding electronic signature stuff, if they don't already have it. They certainly added a Calendly equivalent. Google has that, right? There's like a link. So that's where horizontally you just get swiped by everybody, and that's what I mean by orthogonal.
Jonathan Stark: Mm, love it. Awesome. This is amazing. So I look forward to grabbing a copy of the book. I think everyone here who has aspirations for SaaS world domination should do the same, especially if you're a bootstrapper and you want to keep things small, which is absolutely my philosophy, and I know a lot of people listening are the same. So Rob, this has been amazing. Thanks so much for coming on.
Rob Walling: It's been my pleasure. Thanks for having me, Jonathan.
Jonathan Stark: All right, folks, that's it for this week. I'm Jonathan Stark, and I hope you join me again next time for Ditching Hourly. Bye.
