Small businesses operating online are more exposed than ever to legal, reputational, and financial risks. From fraud and user disputes to weak terms of service and insurance gaps, many companies are vulnerable simply because they fail to plan for the realities of digital commerce. In today’s episode of The Small Business Show, legal expert and Marketplace Risk founder Jeremy Gottschalk shares how entrepreneurs can shield their platforms before problems spiral.
"The problem is that most companies don't understand that they don't have legal risk. So they get in front of themselves and they mess up their lack of liability."
Many small businesses mistakenly assume they’re responsible for everything that happens on their digital platforms. In reality, federal law shields marketplace operators from legal liability for disputes or issues between users. Despite this protection, businesses often find themselves in litigation because they fail to understand their limited legal exposure or take the necessary precautions.
User fraud, data misuse, and internal platform disputes are common threats that can quickly escalate. Most platforms are not legally liable for those situations, but without proper safeguards, they still suffer reputational harm, unnecessary legal fees, and lost time. Addressing these risks proactively can help prevent major setbacks.
His new book, Bulletproof Your Marketplace: Strategies for Protecting Your Digital Platform, distills lessons from hundreds of startups and offers a practical roadmap for minimizing exposure and maximizing platform resilience. He outlines three critical steps to reduce digital legal exposure:
- Draft enforceable terms of service
Clear, customized terms of service define the relationship with users and limit liability. Relying on AI-generated policies or copying another company’s terms often leads to gaps or misalignment with actual platform operations. - Secure the right insurance
Even with legal protections in place, lawsuits can still happen. Insurance is essential to covering costs associated with claims, settlements, or court proceedings. - Verify all users and vendors
Unlike physical storefronts, where customer identity is clear, online businesses often serve anonymous users. Know Your Customer (KYC) and Verify Your Customer (VYC) protocols help reduce fraud risk and clarify who is engaging with the platform.
According to Gottschalk, crime targeting online businesses has become highly organized, and fraud is increasing across industries. Business owners must treat digital risk management as a core part of their launch and growth strategies. Waiting to act until an incident occurs can lead to irreversible damage.