diff --git a/backend/app_controller.py b/backend/app_controller.py
index 84ee02f..d45d1bc 100644
--- a/backend/app_controller.py
+++ b/backend/app_controller.py
@@ -106,6 +106,12 @@ class AppController:
                 DeviceManager = None
 
         self.device_manager = DeviceManager() if DeviceManager else None
+        self.is_cloud_only = DeviceManager is None
+
+        # If this is the cloud-only sidecar and mode is still "local",
+        # auto-switch to "byok" so the engine doesn't try to load Whisper.
+        if self.is_cloud_only and self.config.get('remote.mode', 'local') == 'local':
+            self.config.set('remote.mode', 'byok')
 
         # State
         self._state = AppState.INITIALIZING
@@ -367,7 +373,15 @@ class AppController:
 
             self._set_state(AppState.READY, f"Ready | Device: {device_display}")
         else:
-            self._set_state(AppState.ERROR, message)
+            # Cloud sidecar with no API key -- show helpful setup message
+            # instead of a scary error. The user needs to enter their key.
+            if self.is_cloud_only:
+                self._set_state(
+                    AppState.READY,
+                    "Setup needed: Open Settings > Remote Transcription > enter your Deepgram API key"
+                )
+            else:
+                self._set_state(AppState.ERROR, message)
 
     # ── Transcription Control ──────────────────────────────────────