AI will enable previously unviable businesses.

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AI Will Enable Previously Unviable Business

• Why Read: 

  • Valuable insights into how AI is enabling new business opportunities and cost structures.

• Featuring:

  • Alastair (Alex) Rampell(@arampell), General Partner at Andreessen Horowitz

• Link: 

  • “AI’s Second Order Effects“

Key Concepts and Tactics:

1. The Dead Zone of Products:

   • Point: Products priced around $500 that require a sales-led approach often struggle to exist due to the high cost of sales relative to the product price.

   • "A $20 product can work with a product-led growth strategy (think Dropbox, OpenAI, Midjourney, etc). A $1M product can work with an outside sales strategy (think Workday, ServiceNow, Databricks, etc). A $500 sales-led product normally cannot exist. Maybe it should exist, but it's truly the "dead zone" of products. You can't charge enough to support your sales team, much less the other fixed costs of the business."

2. AI Enabling Previously Unviable Businesses:

   • Point: The productivity gains from AI may allow for the creation of non-AI companies and products that were previously not viable due to high costs.

   • "But there's likely a whole category of non-AI companies and products that can FINALLY exist because of the productivity gains of AI. AI will help sell your widget. AI will provide 24/7 support for your widget. AI will help retain people for your widget."

3. The Importance of "Why Now" in Venture Capital:

   • Point: Venture capitalists consider the timing and enabling factors when evaluating new ideas and businesses.

   • "In venture capital, we always ask ourselves "why now?" If this is such a great idea, why didn't it exist 5 or 10 years ago? The "why now" for something like Uber was the smartphone, the "why now" for something like Workday was acceptance of the Cloud, the "why now" for something like Adobe was the proliferation of the GUI PC."

4. AI as the "Why Now" for Previously Unsuccessful Business Models:

   • Point: AI's impact on cost structures may enable previously unsuccessful business models to become viable.

   • "Business models that were previously tried but didn't work because of high support costs, sales costs, etc…might have found a "why now" in the dramatically new cost structure of AI tools."

5. AI's Impact on Incumbent Businesses and New Opportunities:

   • Point: While AI will help incumbent businesses save money, it will also enable the creation of new software companies and marketplaces where AI plays a supporting role in making the business sustainable at a consumer-friendly price point.

   • "There's no question that AI will save incumbents money — along the lines of the Known Knowns here. But AI will likely spawn more classic software companies and marketplaces where AI isn't the primary "offering," but rather allows for a sustainable business to exist at a price point that consumers are willing to pay."

Tips from a YC Partner

Why Read:

• Valuable insights from an experienced founder and investor, providing actionable advice on perseverance, product focus, and balancing vision with execution.

Featuring:

• Harry Stebbings (@HarryStebbings), Founder at 20VC interviews Tom Blomfield (@t_blom), Group Partner at Y Combinator

Link: 

• “20VC: Behind the Scenes at Y Combinator: The Interview Process | What the Best & Worst Do in the Program | Do the Best All Raise Pre-Demo Day & YC’s Fundraising Advice to Startups | Why the Value is in Application Layer AI with Tom Blomfield“

Key Concepts and Tactics:

• Persevere through rejection when fundraising and don't get discouraged: 

  • "It was really dispiriting. Saying the same thing over and over again about how I believe this bank was going to be valuable, how we were going to make money, how people are going to deposit their salaries and people just not believing me 95, 96 times in a row. I mean now I feel vindicated all of the stuff I said turned out to be absolutely true, but at the end of 96 we got these two Canadian Pension funds to say ‘yes’ and they agreed to put in 100 million along with our existing investors at a flat valuation"

• Focus on building a narrow, high-quality initial product rather than trying to replicate every feature of competitors: 

  • "I would always encourage Founders to go for a very very very narrow feature set. Like even narrower than they possibly could imagine. And polish it to a very high level of quality and get only a few people or a few hundred people really excited about that really narrow thing. Then broaden out.

  • What way too many Founders try to do is competing with Google Docs or something and they try to replicate every single feature of Google docs to a mediocre level of quality and then release that and are surprise when no one likes it. So keep your initial product super super super narrow so you can build it quickly but keep the quality bar super high."

• Hold both the big vision and short-term priorities in your head simultaneously as a founder: 

  • "A key skill of a Founder is holding these two realities in your head simultaneously without cognitive dissonance or driving yourself crazy. One is the big vision. The 1% best outcome. If this really, really works what could this become... At fonso we were building a bank for a billion people around the world. That's the big Vision that you have to hold in your head. And then you have to hold the what is my top prity today and this week and this month, which is very different from the billion people around the world, right? And you have to execute on that and get your team to focus on it but you have to have both."

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