Last week, I met a founder who’d just lost a pretty big $2M deal to a 3-person startup with a half-finished product (I call these „3 Stanford grads in a trenchcoat“).
He was annoyed they didn’t even have a basic dashboard or settings page.
I think he wasn’t angry about losing the deal, but mostly because he worked on the wrong thing.
I think most of us in product have been there, realizing we put engineering teams through the wringer for something that someone else did in a weekend.
The pattern I can’t unsee
As part of the work I do at Paid, I’ve spoken to maybe 20 SaaS founders about AI, and lots of agent builders. Obviously these are VERY different companies, in different stages, and sometimes different industries.
With SaaS – it’s like watching everyone go through the same cycle, but for business models.
Let me show you what I mean. Every SaaS executive I know is somewhere on this curve today, with the variable being how quickly they’re going through it.
Stage 1: Denial
„Our customers need human oversight“
This is where it starts. Usually in a board meeting. Someone asks about AI strategy, and you hear yourself saying things like:
- „Our customers value the human touch“
- „AI can’t handle our level of complexity“
- „We’re monitoring the space“
- „It’s mostly hype“
Three months ago, I was advising a company that runs sales-training software. Solid business, $10M ARR, growing 35% annually. The CEO told me their moat was „design expertise that AI couldn’t replicate.“
Last week, their biggest customer started building their own training content with Claude Opus 4.1 with projects… They didn’t need design expertise for that…
Here’s how you know you’re in denial: You use terms like „AI washing“, you think ChatGPT is just a toy and everything built on top of it is „just a wrapper“.
You also believe your industry is somehow special, somehow immune. You’re waiting for the hype to die down. While you’re in denial, your customers aren’t.
I got some data from a couple of SaaS companies last month – on average, most of their daily active users were copy-pasting data into ChatGPT, then pasting it back because they didn’t like their AI interface..
Yeah, NOW your product has become expensive middleware for OpenAI.
Stage 2: Anger
„They don’t even have SSO!“
You lose a deal to a young player – 3 Stanford grads in a trenchcoat who are just out of YC.
This is when the anger kicks in…
I heard of a founder complaining that an AI competitor was „unsustainable“, they only had a dozen features versus his hundreds. They didn’t have compliance certifications. They were undercutting by charging 90% less.
He was right about everything except what mattered.
The anger phase sounds like:
- „When their VC money runs out…“
- „Wait until they hit enterprise requirements…“
- „Our features took years to build…“
- „Customers don’t understand what they’re giving up…“
Another CIO told me last week:
„These AI companies are cheating. They’re not playing by the rules – they aren’t making sure their stuff is compliant.“
Yeah. It sucks that they’re not playing your game at all. You’re bigger and optimizing for software excellence and reducing risk. They’re optimizing for outcome delivery.
Stage 3: Bargaining
„We’ll add AI features to our enterprise tier“
This is where 80% of you are right now. You’ve accepted AI is real, but you think you can negotiate with it.
Lots of us have been there. The frantic product meetings driven by the board mandate on AI. The emergency AI taskforce (or „tiger team“). The Google Slides titled „AI Strategy v5_final“… It’s literally „how to not die“ in slides form.
I’ve seen this all the way back at the end of 2022:
- November: „We’re adding AI-powered insights!“
- December: „We’re building a copilot!“
- January: „We’re experimenting with usage-based pricing!“
- February: „We’re exploring a hybrid model!“
- March: „We’re refocusing on our core value prop!“
I know because I’ve helped three companies go through this exact progression. Same presentations, same pricing experiments, same surprise when their AWS bill exceeded their MRR.
You know you’re bargaining when:
Your pricing page looks like a math textbook with lots of levers and options
You’re running three different pricing models simultaneously
You use „Now with AI ✨“
You’ve added „credits“ to your billing system
Your gross margins went negative but you call it „investment“ or „cost of marketing“
Now you’re just about paying customers to use your product.
Stage 4: Depression
„Maybe we should focus on enterprise“
Now your best engineers are updating their LinkedIn profiles. You start using phrases like „strategic pivot“ and „return to fundamentals“ and all sorts of McKinsey speak…
Even if your product was genuinely excellent, with a beautiful UI, thoughtful workflows, delightful to use – it just isn’t solving the right problem anymore. It helped humans work better, when customers wanted to eliminate more of the work.
The depression markers:
You stop shipping features
Every conversation ends with „what about enterprise?“
You’re considering acquisitions (buying or being bought – both…)
Your investors start sending „helpful“ articles
You dream about the good old days of 2020 (right???)
Now you’re actually ready to innovate. This is where real innovation happens.
When you stop trying to save your product and start trying to solve your customer’s problem.
Stage 5: Acceptance
„What would we build if we started today?“
The companies that make it here have realized something pretty significant.
You can’t bolt AI onto SaaS. You have to rebuild around outcomes.
Sounds like startup suicide? Here’s what will happen if you go down this path:
Imagine a project management software that retails for $89/seat/month.
Now transition to selling completed projects for $2,500 each. Customers don’t log in. They don’t see dashboards with burndowns – instead they just get results.
Revenue is up 3x. Costs are down 60%. Customer satisfaction is the highest it’s ever been.
You’ve reached acceptance when:
You stop defending your features
You price based on outcomes, not access
Your competitive set includes companies you’ve never heard of
You’re building things that would have seemed insane two years ago
You’re either terrified or exhilarated (both is a good marker)
These stages aren’t always sequential. I’ve seen company leaders go from denial to acceptance in a single customer call. I’ve watched companies bargain for nearly a year. Some never leave anger…
The longer you stay in each stage, the more expensive it gets. Denial costs you market position. Anger costs you talent. Bargaining costs you capital. Depression costs you momentum.
Acceptance costs you your ego, but that’s a price worth paying.
A few weeks ago, I was talking to a founder who’d just hit acceptance:
„We kept asking ‚How do we compete with AI?‘ until we realized we were asking the wrong question. The right question was ‚What would an AI-native solution look like?‘ Once we asked that, everything became clear.“
His company now looks nothing like it did a year ago. They sunsetted tons of features. They reduced their codebase and replaced their entire pricing model.
They’re growing faster than ever.
Where we’re going
I used to think AI would make SaaS better. More efficient, more powerful, more valuable.
I was wrong.
AI and agentic AI doesn’t improve SaaS. It replaces the need for it. Not the functionality—the entire concept of software as an intermediary between intent and outcome.
The question used to be: „How can we help humans do this better?“ The question now is: „Why do humans need to do this at all?“
If you’re in SaaS – you’re probably in Stage 3 right now, bargaining with reality. That’s okay. Most of us will go through it – you’re not alone.
But don’t stay there too long. Finish your cycle and start building again. Once you accept what’s happening, building becomes fun again.
You’ll stop protecting the past and start inventing the future again.
Even if that future doesn’t include your current product.
Sorry.
If you’re ready to make the move from SaaS to AI native pricing and business – give us a shout at paid.ai