Why the Software Industry Hates Your SMB

Summary

Paul Ford returns from the Inc. 5000 conference in Phoenix, Arizona, where he presented on vibe coding to a room full of small-to-medium business (SMB) owners. He and Rich Zotti discuss how the SMB segment — representing roughly 50% of the American economy — has been chronically underserved by the software industry. These are companies doing millions to hundreds of millions in revenue, selling carpeting, manufacturing sneakers, and running distribution businesses, yet they exist in a technology no-man’s-land between cheap SaaS tools and expensive enterprise platforms.

The conversation explores why custom software economics have never aligned with SMB budgets. Hiring a CTO costs hundreds of thousands of dollars, and the first thing they ask for is a multi-million dollar budget — eating into already thin margins. Vibe coding appears to be a tantalizing middle ground, but Paul and Rich argue it falls short of delivering real business solutions. They make a sharp distinction between software (brittle, stubborn tools) and solutions (which require understanding how a business actually works), arguing that AI agents are just “automation that’s unprompted” and cannot replace the human conversations needed to transform business processes into working systems.

Highlights

”It’s like 50% of the economy. We just don’t talk about it because it’s so boring.”

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“It’s like 50% of the economy. We just don’t talk about it because it’s so boring.” — Paul Ford, 2:24

”The economics of creating custom software just don’t line up”

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“It’s financially unattractive, in many ways untenable, to build custom software for a small business efficiently enough and cheaply enough that it’s valuable to them and it’s good value to the software provider.” — Rich Zotti, 13:10

”They just want their thing”

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“Vibe coding just looks like the answer to all of your problems. Because over here, I’m going to not be able to buy a summer house and my bonus pool will be really small. Over here, I have to keep using Notion or spreadsheets or this crappy tool from 25 years ago that everybody hates. And in the middle, I just tell a robot and run away.” — Rich Zotti, 11:02

”You know what we should rename agents? Locusts.”

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“You know what we should rename agents? Locusts. You’re releasing the swarm and then they eat all the crops.” — Paul Ford, 21:50

”I had a very nice guy come up to me after”

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“I had a very nice guy who has an outsourced development firm come up to me after and he’s like, ‘I gotta say, I just wonder if this is the death of my business.’” — Paul Ford, 17:30

Key Points

• Inc. 5000 Conference (0:41) - Paul presented on vibe coding at the Inc. 5000 conference in Phoenix to business owners curious about AI
• SMB Definition (4:18) - SMB means millions to hundreds of millions in revenue — not laundromats, but companies that represent trillions of dollars in the economy
• 50% of the Economy (2:24) - These mid-market businesses represent roughly half the American economy but get almost no media or tech attention
• Software No-Man’s Land (4:53) - SMBs are stuck between cheap SaaS tools (Notion, QuickBooks) and expensive enterprise platforms (SAP, Salesforce)
• Tax Strategy Shock (6:53) - After about 30 employees, tax strategy and HR become the most important parts of running a business
• CTO Cost Reality (8:53) - Hiring a CTO costs hundreds of thousands, and they immediately ask for a multi-million dollar budget
• Growth vs. Software (7:57) - SMBs invest in software not because they think it’s cool but because they can’t scale without better processes
• Economics Don’t Align (13:10) - The economics of creating custom software historically haven’t lined up with the economics of medium-sized businesses
• Vibe Coding Promise (11:02) - Vibe coding looks like the perfect middle ground but doesn’t deliver real business solutions
• Warmest Room Ever (12:10) - Paul describes pitching to the warmest, most enthusiastic room he’s ever experienced
• No Upfront Costs (16:05) - The decision that gets SMB owners to lean in most is eliminating upfront software costs
• Outsourced Dev Firm Worry (17:30) - An outsourced development firm owner asked if AI tools represent the death of his business
• Software vs. Solutions (22:20) - There’s a massive distinction between software (brittle tools) and solutions (understanding how a business works)
• Agents as Locusts (21:50) - Paul suggests renaming AI agents to “locusts” — they just want to skim off the top without understanding how you work
• Agents as Automation (23:30) - Agents are simply unprompted automation; they reinforce existing processes rather than improving them
• Humans Still Required (24:30) - You can’t have that 50% of the economy without actually having conversations with people

Mentions

Companies

• Inc. 5000 (0:45) - Conference where Paul presented on vibe coding
• Salesforce (2:11) - Referenced as an example of off-the-shelf enterprise software
• SAP (5:34) - Enterprise platform that requires consulting firms like Accenture to implement
• Accenture (5:39) - Consulting firm that builds out SAP installations
• Google (1:27) - Referenced as a large company that SMBs are compared against
• Aboard (25:48) - The hosts’ company, building AI-accelerated software for businesses

Products & Technologies

• Notion (5:53) - SaaS tool used by small businesses to run operations
• QuickBooks (3:29) - Accounting software for small businesses
• Microsoft Office (5:06) - Changed how small to medium businesses work 30 years ago
• Vibe Coding (0:41) - AI-powered coding tools discussed throughout as both promise and limitation
• Waymo (25:20) - Paul took a Waymo autonomous car to the Phoenix airport

People

• Paul Ford (0:00) - Co-host, presented at Inc. 5000 conference
• Rich Zotti (0:02) - Co-host
• Mark Zuckerberg (2:32) - Referenced as getting media attention over SMBs
• Damon Dash (24:50) - Was speaking about mushrooms and AI medications at the conference

Surprising Quotes

“For a lot of executives, for a lot of entrepreneurs, they don’t know the difference between a CTO and the guy who fixes your Wi-Fi.” — Rich Zotti, 8:53

“If you look me in the eyes, I don’t want to do business with you. You have to get a credit card out and then you can run your shitty little carpet business.” — Rich Zotti, 22:48

“Agents in the most classically defined sort of silk suit sort of way are sort of leeches that hang on to the real transactions.” — Rich Zotti, 22:05

“Silicon Valley does not care about these businesses. Not one bit. Unless you’re going to get a credit card out.” — Paul Ford, 22:30

Transcript

0:00 Hi, I’m Paul Ford. And I’m Rich Zotti. And this is the Aboard Podcast. The podcast about how AI is changing the world of software. Rich, I just got back from Phoenix, Arizona. That’s cool. Yeah, let’s talk about it. All right.

0:31 So, you just got back from Phoenix. It was a whirlwind tour. Sounds like it. It was big city. What were you doing in Phoenix? I was presenting on Vibe Coding with a couple other people at the Inc. 5000 conference. Inc. 5000 companies. Yes. Lot of businesses. That’s a long list. It is a long list. It was a good trip. It was nice to be invited.

0:56 All right. And I had a kind of wild experience because you know usually I go to technology conferences. And this was just business. Okay. So just to clarify, it’s not an AI conference. No, no, no. It’s not a vibe coding conference. We were a breakout session for business people who are curious about AI.

1:14 It’s 5,000. So you’re kind of in the longer part of the tail. Not all the way down to small business. It’s not Fortune 500. No, no. I mean a lot of these people are from companies that are worth billions but it is like these are on the smaller side compared to like Google. And that’s where when people think business in America they actually don’t think about these businesses that much. But this is people who go to the office and sell carpeting and flooring and stuff like at a certain scale.

1:43 And they all have technology needs and so just to kind of cut to the chase we’re talking in this room it’s me and a couple other people. And I sort of was like, hey, this is where I think software used to be, and this is where it’s going to be next year. And so where it used to be was a process where you’d kind of need something. It would take a year or two. You’d need to get a consultant. You’d need to get a CTO if you didn’t have one. Chief technology officer. And it’s kind of like spend, spend, spend, and then maybe a year later you get something. Even if you use Salesforce.

2:18 You know, even if you use something kind of off-the-shelf or very customizable. So you’re highlighting there is a certain size of business which is sizable. We’re not talking about storefront. It’s like 50% of the economy. We just don’t talk about it because it’s so boring. No, for real. People care about like Mark Zuckerberg doing weird stuff. That’s like good news. Rayban AI glasses.

2:36 You know, if you go to the homepage of the Times right now, it’s just Trump Trump. Okay, for obvious reasons. But is there anything else going on in America right now? AI, I guess. No, there’s a million things. There’s a million things that are kind of on the horizon. I mean, bless their hearts, there’s a lot of people who don’t get caught in that news cycle and are actually just running their distribution business for whatever.

3:01 That’s right. So, it’s sort of like we only can focus on like three or four stories right now in our adult headed state. And so, this is everybody else. I’m pitching to them and they’re just nodding and their eyes are lighting up and it’s nice. It’s nice to be in a room where like I kind of care about this cohort because the middle of the market is very forgotten, right? Small businesses we love. We love mom and pops. They use QuickBooks. They run the laundromat.

3:32 You know, we make movies about them. And then the big businesses we hate and love. We read news about them. They run the market. We give them acronyms. We were like, “Oh my god, here we go. What are they doing now? Because that’s going to change my 401k.” And then you have this big blobby middle. When we talk about them, we do things like make TV shows like The Office. Right. Like it’s just kind of like they kind of suck. They do boring stuff and they’re all sales and they have like conventions at the Javits and they install windows and they need raw materials.

4:09 But it’s trillions. It’s trillions of dollars. It’s a massive part of the American economy. It’s a massive part of many economies. In finance parlance, it is the SMB, the small to medium-sized businesses. And when we say small, we don’t mean a laundromat. We mean millions to tens of millions into the hundreds. A medium-sized business is considered hundreds of millions in revenue. Just worth saying.

4:32 That’s just the American economy doing what it does. It’s doing what it does, right? And there’s thousands of them. Many thousands of them. Yeah. And they’re filled with normal human beings who are trying to do a good job. Yeah. And they’re in the business because it’s worked. They didn’t get there by chance.

4:53 And talk a little bit about the sort of software no man’s land they’ve always found themselves in. They run their businesses with computers. Let’s say that out loud. Like it’s not a hundred years ago. You only have to go back 30 years and just the Microsoft Office suite changed how small to medium-sized businesses work. But they also use them to run their businesses. So why have they been left out of the party?

5:19 Well, I mean it’s actually pretty simple, right? So their eyes lit up as I started to talk to them because here’s how the world works. If you read about technology, you see giant platforms like Salesforce on one side or SAP and things that nobody knows what they really do because they do so many things. And then you hire like Accenture to build out your SAP install for your giant manufacturing conglomerate. And you go buy three companies and then you get them all into the same SAP system.

5:51 On the other side, you have things like I run my business on Notion. I get out $50 a month, right? And I use QuickBooks and I use Excel and I use these tools that everybody can just grab and they have tutorials and they have training. Pure software as a service, like really really kind of generic tooling. And then you have this really ugly spot in the middle where you need things. You need custom accounting. You went public early and now you have to do the accounting for, you know, even though you’re a smaller company, smaller companies still go public.

6:33 I mean, look, let’s talk about accounting for a second. You talked about a bunch of SaaS tools and whatnot. The thing about accounting is you have to be buttoned up. Like if you’re listening at home right now, when people talk about building a business, there’s a threshold, let’s say after like 30 people, where tax strategy becomes one of the most important parts of your job. HR and benefits and tax strategy. If you love business and you love entrepreneurship and you like to hustle, that’s coming for you.

7:06 You better get used to those two subjects because that was to me the biggest shock of being an entrepreneur is like, “Oh my god, we’re talking about taxes again.” So, okay, back to your point, right? So here you are, you’re growing and actually you can save like 15% of the money that comes in if you have a good tax strategy. Tax strategy is meaningful, but frankly also not getting in trouble is meaningful. Compliance.

7:29 You have to file your taxes. Like if you think you can just throw the numbers into Notion and then at the end of the year just sort of fold them into some tax return, it doesn’t work that way. As you reach a certain size the processes overwhelm you and you could cobble — you could do HR with spreadsheets. Every now and then you meet a process-oriented CEO who just is like thank god we’re at this point.

7:57 Yeah. Here’s the thing about software and business. If there’s growth ahead, you get real frustrated real fast with your existing processes. So, you’re in this weird place where you’re not investing in software because you think it’s cool. You’re investing in it because you can’t seem to scale if you don’t have better ways of working. And that’s a weird place to be.

8:17 Also, all the SaaS tools will tell you, we can get you there. Always. And the big enterprise tools are like, oh, you want to play, you want to be a big kid. It’s a no man’s land. Get your checkbook out. And so you’re kind of screwed either way.

8:31 And then what they do — I’ll set up a case. Let’s say my sneaker manufacturing is going really good. And I’m now getting like $30 million a year in revenue and I got to hire a CTO. Okay. Because I got so many orders coming in and suppliers and so on and my tech is all over the place. Too many spreadsheets.

8:53 How much does the CTO cost? For a lot of executives, for a lot of entrepreneurs, they don’t know the difference between a CTO and the guy who fixes your Wi-Fi. But let’s say I’m smart. I’ve been listening to this podcast. I’m going to go get a real CTO to help me solve my problem. I mean, you could spend hundreds of thousands of dollars for that recruit, for that role.

9:16 What’s the first thing they ask for when they get the job? Budget. How much? How much budget they have. Yeah. And they’re going to need a couple million. Let’s say your margins, you were doing good. You were making $15 million this year on your 100 million. Yeah. Like a fifth of that just went to — It’s unfathomable. That was your bonus pool. Like just goodbye.

9:41 So that you can give the money to a bunch of other people so they can install software that looks not that different from the — frankly take control away from you in a lot of ways. So SMBs are kind of like caught. Many don’t bother. Most don’t, right? So they cobble it together and they hire more staff. They hire that guy and then that guy brings in somebody from India and they’re always looking for downward pricing.

10:07 Because they don’t care about it. They don’t see it as differentiating. You know what they see as differentiating? How shiny their silk carpets look. It’s also like very very few people in this industry — because this industry, tech, takes growth for granted. Can actually advocate for growth. Right. So the CTO comes in and it’s not somebody who will be like I know how to get you there and we’re going to find you 20%. No. It’s somebody who’s like this is a mess. I’ll clean up your mess. Give me 500.

10:48 So I’m talking to this room and they’re nodding, right? Because I’m sharing this because that’s the room I’m in and they’re like, “Yeah, yeah, exactly.” And all right, now AI makes its way into the picture.

11:02 Well, this is what’s tricky. We have a strong opinion here, but vibe coding just looks like the answer to all of your problems. If you’re this person. Because over here, I’m going to not be able to buy a summer house and my bonus pool will be really small. Over here, I have to keep using Notion or spreadsheets or this crappy tool from 25 years ago that everybody hates. And in the middle, I just tell a robot and run away. And it’s all wonderful.

11:30 And we’ve talked a lot about vibe coding on this podcast. I mean, the truth is you’ve got, in my view, two cohorts that use it. The engineer who’s curious and knows how to sort of surgically remove the bits that make sense and put them into the codebase and the non-engineer who’s been given this promise which is I just need to manage my fleet better. Right? And they type it in and the robot never says no.

12:01 And there’s curiosity and enthusiasm and excitement. I have to assume you were in the room. I have never pitched a warmer room. Just the warmest room ever. And I thought about it for a long time after because I’m used to New York. I’m used to just hostile, right?

12:21 Well, that must have felt good. It did. People came up. They wanted to talk. A lot of LinkedIn exchanges happening. Going to have some calls. All really good. So that’s good for our business. But I think what really struck me was how this giant part of the world can just kind of sit there in the middle. It’s not attractive to most venture funding. It’s not attractive to big businesses. It’s not interesting to the media, but it’s 50% of the freaking economy.

12:48 Yeah. And let’s talk about why it’s not attractive. It’s not because they don’t like them or they hate them. No. For many, many years. Why is this a neglected class of customer? Because in the past and to this day we’re not there yet. It’s financially unattractive, in many ways untenable, to build custom software for a small business efficiently enough and cheaply enough that it’s valuable to them and it’s good value to the software provider.

13:36 Let me state this back to you — the economics of creating custom software just don’t line up with the economics of a medium-sized business. They don’t line up because small business you can scale out on the credit card and they get no custom service. Big business, it’s all handholding by giant consulting firms and you get these enormous licenses.

14:00 They have the budgets to do it. The value returned because they’re at such a scale. It’s not hard to map out. Like I’m going to — it’s going to cost you 5 million bucks, but I’m going to save you 30. And you have 50,000 employees and they will all do a 2% better job. The case for budget is much easier to put together.

14:21 The SMBs don’t care much. Like here’s the thing that we want to say to the small business owners of the world. We don’t mind you not caring about software. Boy, they don’t. Why would you? You care about your suppliers giving you the right threads so you can make the right curtains or whatever it is and getting it to you cheaper. You don’t care about software and that’s okay.

14:50 The challenge that’s been to date is that the time and energy it takes to service those people to give them a solution that makes sense only for them is too high. And so we just didn’t bother. And we’re as guilty as anyone else, by the way. We turned away many small businesses at our agency in the past. We had to because the economics didn’t line up.

15:08 It didn’t line up, right? And so that’s okay. And now there’s this promise and there’s a lot of promises right now in the world. There’s a lot of promises around how tech is going to make it easier and simpler and cheaper, frankly. So that maybe we only have to have two conversations because it’s so much easier to ship software. And the truth is, we’re not there yet. It is an aspirational thing, but I think there is a massive opportunity if these tools are used the right way.

15:33 You know what it is though? Vibe coding doesn’t do it. It’s just not going to do it. You know what I think we’re unlocking that’s going to be very interesting — and I want you to talk about this and this is sound. Look, we’re marketing our product here, but this is actually relevant because this is a decision. The product is awesome. We don’t have to apologize. Check it out at aboard.com.

15:52 I’m not apologizing. I’m just sort of like our understanding. We’re making decisions about the product based on kind of real world economics. Here’s the one decision that seems to really get people to lean in. No upfront costs. Absolutely. And that turns out — which is scary to us, too, by the way.

16:19 But the reason that is so attractive is every time they’ve gone to do anything custom, they’ve been absolutely sticker shocked. Hundreds of thousands of dollars just to kind of get some pixels on the screen. And that is what it costs. Like humans have to be involved. You got to make some decisions. The cost of just slopping pixels on the screen so you can have an argument about what you really want — it’s gone down almost to zero. It’s very cheap.

16:49 And it’s not just to have an argument. They’re also a starting point. But the cost of actually shipping software is going down, but nowhere near as much. You got to actually like to get the thing you need is still time and money. It is. It’s less time and less money. And the truth is you have economies out there, you have cultures out there that are used to billing big and it’ll take them years to come to terms with the fact that their time is not as valuable because the tools are so powerful.

17:30 I had a very nice guy who has an outsourced development firm come up to me after and he’s like I gotta say I just wonder if this is the death of my business. It is. But you can live again in other ways. I was like look play with our tool play with other tools and go take it to your clients. If you’re asking yourself that question, you should start to look around and what you’re going to be next week and next year. The tools are powerful. They’re not shutting you out. They’re practically free. So go play.

18:08 All right. So, it sounds like it was a smash. Did you get a standing ovation at the end? No. It was a panel. But I definitely got more connection than I thought. It was a breakout session. Then I went in the room and Damon Dash was talking about mushrooms and using AI to do medications.

18:28 So no, this wasn’t really about necessarily about us. It was just this moment where I realized this deeply underserved space is about to get the software they need. And I just don’t think that is interesting to most of the rest of the world. And I really think it should be. It should be. Well, first off, it doesn’t have to be because you’re feeling altruistic. There’s massive amounts of money to be made if you play it right into that space.

19:02 That’s what I’m saying. Like I would love to see the New York Times cover the 50% of the world economy that is sort of like emergent here. New York Times is busy. They have a lot going on. There’s a lot going on. I’d love for us to really get to be known in that space. I think we’ll be welcomed into it because I think no one’s ever invited them to the party. I mean, we literally built a space in New York City to invite them to the party.

19:40 Yes, they happen to be in Omaha, but that’s okay. Come to New York. They love to come and look out the window and teach them about AI. That is the structure of the company. So, anyway, I guess what I would say is it was like a good validation. We have a lot of work to do. Everybody has a lot of work to do. But boy do people — the thing is like vibe coding is not delivering just yet. But boy do people want it to. And they wanted to for this reason not because they want to magically fire all the engineers. It’s because they just want their thing.

20:20 I want to make a closing point here. Wrapped up in sort of the AI promise is you can call it agents, you can call it automation, you can call it agentic, which is infuriating that that word materialized. Is it a real word? No. Anyway, I don’t know why AI showed up and then agents showed up like a week later. I don’t think most people know the difference because this is all stuff we’ve been talking about for 45 years.

20:52 And I think it’s the lack of empathy that comes out of like the big tech companies that are driving the AI boom. This is the most — this is the lamest podcast that Silicon Valley could ever come across what we’re talking about. They do not care. Not one bit. Unless you’re going to get a credit card out. If you look me in the eyes, I don’t want to do business with you.

21:20 I think what would be exciting to them is consumer credit card, but we can offer customization at scale so it feels like a human. They don’t believe what you just said for now. No one buys that. And this is the point I’m trying to make, which is you can’t automate away — let’s even say it took two weeks instead of two months to figure out how someone works. You can’t automate that away.

21:50 The thing about agents when you unleash them into an org, they don’t pause and say, “Hey, tell me a little bit about your business and let’s talk about how we can improve some processes here.” Nobody’s doing that. Instead, what it’ll do is actually reinforce and further entrench how they work. You know what we should rename agents? Locusts. It’s a little aggressive. Yeah. But I mean you’re releasing the swarm. And then they eat all the crops.

22:20 Agents in the most classically defined sort of silk suit sort of way are sort of leeches that hang on to the real transactions. That’s what agents are. There is a massive distinction between software and the solution context of software. Software is brittle, stubborn, and you kind of have to work with it and read the manual. Photoshop. Remember there was a day when you go to the bookstore and there’s just thick books about everything.

22:55 The context of solutions is that it’s another word for negotiation. You’re understanding how a business works. It’s like, why do you do that? And they get excited when they explain why that step is necessary. And then you have to somehow codify it into tools. And the truth is agents are purely — they just want to skim off the top. They don’t care about how you work. They just want to take a cut.

23:20 They may make your steps more efficient and more rapid or more reliable, but they’re not trying to make anything better. And again, the small business owner, they want this promise to be real. So let me break it down just a little bit. A consultant comes in, solution provider. And they turn your process into a system. That’s their job. So now everybody can use the same system to enact the process and the company behaves better and makes money more predictably.

23:50 And then you can build tools that enhance how you work. An agent comes in and it’s just like free jazz about what the process is. All agents are automation. That’s sort of unprompted. They’re shell scripts on top of the LLM. Sometimes they can look sophisticated, can do multiple steps of automation. But like I’m a mess and you’re going to drop automation in. It’s like how about we have a conversation because I can’t take spreadsheets anymore. Nobody wants to have that conversation.

24:20 That’s enhancing in some context and in the right places, but that’s not going to really be the solution. That’s just not it. And look, the good news here is people are like, “What happened to jobs?” And it’s like you’re going to have to talk to someone maybe about how they work and then you can use these tools. These are tools. Can’t have that 50% of the economy without actually having conversation.

24:50 No. You don’t have to talk as much. We don’t have to spend months taking notes because the tools are amazing. They’re amazing tools. But you do need to talk. All right. Well, there we go. I mean, God knows we talk. By the way, we have no issue with actual agents, sports agents, Hollywood agents, literary agents. They’re all great people.

25:20 All right, Richard. Have a lovely week, Paul. Congrats on your very successful talk. Oh, what a journey. I took a Waymo to the airport. It was an hour. Speaking of agents, driven by a robot. It was magical. All right. Hello at aboard.com. If you need us, check us out. Try Aboard. Go to aboard.com and type in your prompt and give it a little more detail and solve your SMB type problem. And if you need a little further advice, you can reach right out. We’ll help you. That’s the talking part. Reach out. We like talking. Have a lovely week. Bye.