How should founders think about AI?
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How should founders think about AI?
A couple weeks ago, Charlie O’Donnell wrote a great essay about how AI - while it seems to be taking over the world - might not be as big of an investing opportunity as the hype would have us believe.
From the VC perspective, the thinking goes like this:
VCs are on the lookout for investments that will become massive wins, like Stripe, Uber, or Airbnb (not to mention Google, Amazon or Facebook).
All of these companies have something in common - they were born out of massive technological shifts - first the rise of the internet itself, then the rise of mobile technology - and how these shifts enabled entirely new business models
VCs have been searching for that next shift, the one that will give birth to another crop of hundred billion dollar companies built on entirely new business models (see web3 and the metaverse for trends that did not quite pan out).
The question on the table is whether or not AI is this mega shift with new business models, or if it’s more of a continuing technology. Many seem to think it is (and that OpenAI is the first of these hundred billion dollar companies, and that there must be more).
Charlie thinks otherwise. He doesn’t see the same kind of new business models coming out of AI the way the internet and mobile enabled entirely new products and models.
For a VC, it’s a pretty big question, because if you’re wrong, you either go all in on startups that are going to have modest returns, or you miss being early in the wave that defines the next decade.
But instead of asking the question from a VCs perspective, let’s think about AI from the point of view of a founder.
Approach #1: What new business models does AI enable?
It’s not really a VCs job to think up new business models at the beginning of a technology shift. That’s the job of founders.
If I was a founder, and I wanted to build a startup that puts a dent in the universe, I would put all my energy into discovering and designing net-new business models with AI.
One book I’d recommend to get into this mindset is the 10 Types of Innovation by Larry Keeley, one of the founders of Dobin, an innovation agency that’s now part of Deloitte. They break down business model design into a science, and show how it’s been done in the past.
So let’s see if we can think of one. An AI native business model might be based around provenance and authenticity of all kinds of content and data. Just like Google built a business model around the explosion of content on the internet and “search” was the solution, I’d wager there’s a Google-sized company to be built with a very novel approach to authenticity. It probably will be a Ph.D. level founder who figures this out (so not me), or the modern hacker equivalent, but it’s out there.
Even if this idea is far fetched, my bet is there really is a net new and disruptive business model to be designed around AI.
Approach #2: What businesses can you build now that so many things are significantly better, faster, and cheaper?
I love this approach. I’m pretty sure that almost every business you can think of, from tax software to a landscaping company, is going to be impacted because the cost of doing business will go down on numerous fronts.
For many businesses, it will be a combo of the back office functions being automated down to nothing, along with a lot of marketing automation, and in digital worlds, product building. I can imagine a new competitor popping up in every single vertical that has a 30-70% cost advantage. You don’t even need to be better if you can be 50% cheaper. Just be lean and execute.
This will precipitate the rise of a whole new class of tiny-team startups, competing with much bigger companies on equal footing.
This will also create a few absolutely huge companies. Let’s look at Amazon. Amazon is as much a product of the internet revolution as Google. But instead of a completely new business model, they took an old one, and applied “better, faster, cheaper” across the board. The kicker is that they continued to invest into better, faster, cheaper, to the point where they created a moat and advantage that dominated both incumbents and new entrants. I can see a similar play happening in almost every industry - just keep reinvesting your AI gains until you have an insurmountable advantage.
To recap, just by playing the better, faster, cheaper card, we’ll see both VC backed behemoths, and an army of AI powered small businesses.
Approach #3: Build picks and shovels for all kinds of companies to adopt AI
The most agreed upon take with AI is that it’s going to be adopted by almost everyone - inside companies big and small, all functions. These companies are going to need all kinds of new tools to manage new capabilities and technology and ways of working. To me this will look similar to how the biggest tech companies won the biggest lion share of the cloud revolution, but then a whole ecosystem of startups and hundreds of agencies and niche tools have grown up around them.
We’ll see analogs to Snowflake and Datadog. Just like there’s a whole ecosystem (and conference) based around Salesforce implementation, we’ll see a similar thing with AI (or even just OpenAI).
And the tools and agencies playing in this ecosystem will constantly evolve. The first players won’t be the last. So this will be an evergreen source of innovation.
Approach #4: Just use AI to level up
If one thing is clear, founders need to leverage AI as much (if not a lot more) than most workers. Founders have to wear a dozen hats. Every single founder is not good at quite a few things that they need to do. AI will be a big boost to help founders close those gaps (without needing to hire outside help).
Most of the AI tools today are built around writing, content creation, or productivity. Tomorrow, tools of the “agent” variety will handle whole functions - outbound sales, social media management, customer service. These tools will be indispensable to a founder.
The last thought I’ll leave you with. As founders leverage AI tools, it will cost less and less to build and launch new startups. Founders will be able to go longer before needing any outside capital (especially if they build on the side or keep a freelance gig going while they get started). As founders need VCs less and less, we’ll see a growing disconnect between most founders and VC. Right now, only a tiny fraction of founders are building VC backable businesses. In the future, I see that fraction only getting smaller.
For all the uncertainty it is causing, AI is only empowering to founders. Lean into it.