# Every SaaS Founder MUST Know This About Platform Risk in SaaS... Channel: Rob Walling Video: https://www.youtube.com/watch?v=5OHCR8Bxbf4 Duration: 9 min Language: English Words: 1951 Transcript page: https://viewrankai.com/tools/youtube-transcript/5OHCR8Bxbf4 --- [0:00] almost 10 years ago I wrote an angel investment check to a friend of mine named Jordan Gul he had started cart hook which was a Shopify app and within a year or two card Hook was growing very very quickly into the multi-millions of dollars in annual revenue he was living A Cinderella Story of a SAS founder where he had a business likely worth tens of millions of dollars if you were to sell it and then one day he got an email from Shopify that effectively killed all of it platform risk is a real thing especially in SAS companies where we often build on other people's apis [0:34] and we rely on third parties to be the basis of our infrastructure and so in today's video I'm going to talk about what every SAS founder should know about platform risk and talk about some ways to potentially mitigate it or when it's probably okay to have a bit of platform risk the longer version of the cart hook story could be told over probably a couple hour interview there was a lot of back and forth with Shopify and Jordan was in touch with folks on the inside of Shopify and there was a lot of negotiation going on trying to figure out a path forward and in the end the [1:05] growth was slowed so much by Shopify stepping in and putting on what were some pretty unfair constraints that Jordan eventually moved on to his next startup he wanted to be ambitious and grow something really quickly and he did wind up selling cart hook a couple years ago but he moved on to start what effectively could become a Shopify competitor in his new startup rally obviously not every startup that has platform risk winds up meeting such a difficult fate and hitting challenges like cart hook did but platform risk is a real thing and not just if you're starting your company but if you were to go to sell your company acquirers will [1:42] look at platform risk and discount your multiple based on that so I'm going to ask a couple questions in today's video and walk through platform risk and how to think about it first question is are there different types of platform risk and in my experience there are there's a couple so the most common is what I call infrastructure platform risk risk this is when you are built on top of someone else's product or an API and there is no easy or suitable replacement for it so for example if you're a Twitter client or a Reddit client or a Shopify app there is no easy replacement for Twitter [2:14] Reddit or Shopify if all of your marketing positioning is the UR Twitter or Reddit or Shopify app and I want to point out here that let's say you were using a geolocation API underneath the hood and there are four or five other similar apis that you could switch over to I do not consider this platform risk because by my definition it's when there is no easy and suitable replacement for it and so if you have a bunch of apis that do the same thing just switching is a pain in the butt but it's feasible but if you have something like again Twitter Reddit or Shopify where you can't just [2:44] easily switch away and find a direct replacement that's infrastructure platform risk and is by far the most common the other type of platform risk I'm calling app store platform risk you might also call this Marketplace platform risk but I think of it as 80 or 90% of your new customers come from a single Source like the IOS app store the Shopify App Store the Salesforce Cloud Marketplace the Magento app store you know whatever it is that's where you're getting most of your leads and that one is perhaps more easily replaceable because you could always add more marketing approaches SEO cold out reach to replace that but infrastructure [3:18] platform risk is by far the bigger risk in my opinion now in most cases I think you have both right it's probably the most common situation where you are built on top of a platform Shopify Magento w Comm Merce and you also get most of your customers from their App Store I think more often than not if you have platform risk you probably have a bit of both my next question that I often hear when talking about platform risk is doesn't every SAS have some kind of platform risk for example I'm hosted on Amazon web services or I'm sending emails through send Grid or sending SMS [3:48] messages through twillo and this comes back to my infrastructure definition above if there is an equivalent replacement for the platform it's not what I would Define as platform risk switching is a real cost and it's a pain to switch platforms but it is not business ending I think a platform risk is when a single thirdparty company provides the vast majority of my new customers and or is the primary service I'm offering so the question to ask yourself to identify if you have what I would call true platform risk is if the platform went away would it devastate my business or would I just need a plan B [4:21] alternative that I could integrate with or find new traffic sources these would be difficult things but they would probably not wreck the business another common question that I hear when talking about platform risk is how can I minimize it and the most common way to think about it which frankly is is a mixed bag is to add additional platforms so if you're a Shopify app you add Magento woo Commerce and big Commerce this is a say easier said than done I have seen many Founders add other platforms and usually what happens is their first platform is one that they got in on early and they get a lot of [4:55] customers from it and they have a lot of festar reviews and they rank really well in that App Store and so when they move on to the additional platforms oftentimes they aren't able to get as much traction as they did with the initial one now that's not the case all the time but I will say it's easier to say this than to actually successfully implement it but with that said that is certainly the approach I would be thinking about if I had infrastructure platform risk now if you have App Store risk the approach there is to Branch into other traffic channels as I said earlier it's to move into SEO or cold [5:25] Outreach or some other type of traffic channel to get around the fact that b basically some platform has the Monopoly on all of your leads and a final thought on minimizing platform risk is sometimes it's okay to have it in fact I've had many businesses that had platform risk and they were amazing businesses if you watch much of this channel I often talk about the stairstep method of bootstrapping and step one and step two businesses are these amazing lifestyle businesses that are getting you to the point of being able to own your own time so you can focus on a more ambitious full-time Standalone SAS app and step [5:56] one and step two companies often have platform risk and that's okay you just live with it maybe you have a few step one businesses and that gives you diversification or at this point in your career as you're stepping through your entrepreneurial Journey you realize well I'm only going to have this platform risk for a year or two or three as I'm relying on this company as I'm trying to get to my step three business and maybe I'll make sure that one has a lot less platform risk now I want to be clear I've seen many businesses ruined by platform risk but I'll admit given how many apps are out there that have [6:28] platform risk thousands tens upon thousands the actual number or percentage that are ruined in any given year is not high I don't want to act like every business that has platform risk is inevitably going to be crushed by the platform because that's not the case but a common question I get is if a platform cracks down on me how should I respond is there anything I can do once they block my app in the app store they reach out to me and say they want 50% of my Revenue in order to remain on their platform and of course the answer is it depends it depends on what they are [6:58] doing to upend your business if the platform has just accidentally or on purpose replicated your feature set in their application not sure you have much of a choice you're not going to convince them not to roll out that feature but if instead they are blocking API access they want to charge you an exorbitant amount of money they want to take a a chunk a big chunk of your Topline Revenue then there might be room for negotiation and this is where having some kind of relationship with the people at the platform can be enormously helpful usually if you've built on a platform they have developer relations or developer evangelists and having an [7:32] inn with one or more of those folks can make a huge difference if it comes time that you need to reach inside the company and contact someone so the first thing to do is reach out and complain and be persistent because often times you will not hear back the first time you contact and so I know Founders who have filled out contact forms every 3 days for a month or two before eventually hearing back by someone who is willing to engage and their persistence paid off the next step really is to negotiate and to say hey you're basically destroying my business we've been partners for years is there [8:03] something we can work out and sometimes that works and sometimes it's a hard no and frankly if they say hard no I don't know what else you can do other than to get the legal system involved in which case it becomes very expensive and very timec consuming and not something that I would particularly recommend unless you feel like you have a great case but I have seen at least one founder a couple Founders actually save their company by negotiating and the other option is to give up and move on as much as I hate to even say that in a video about being a founder and being an entrepreneur and [8:33] overcoming speed bumps right turning roadblocks into speed bumps sometimes you just don't have an option and you have to deal with it and you mourn that loss and you move on to bigger and better things if you like this video and this channel we have inperson events we have a big inperson event called micr comp Atlanta it's our Flagship event April 21st through the 23d we're going to have 200 250 of your closest bootstrapped founder friends should really check it out it's going to sell out soon microf.com Americas we have some pretty amazing speakers at this event and I hope you will join me in this next video I talk [9:08] about two major types of risk that you face when building your SAS thanks for watching --- About this transcript Read from YouTube's own caption track and laid out by ViewRank AI (https://viewrankai.com). 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