Counter-Positioning X AI: The Greatest Founder Opportunity in our Lifetime

In the realm of business strategy, few concepts hold as much transformative potential as counter positioning. Originally articulated by Hamilton Helmer in the book 7 Powers, counter-positioning refers to the strategic maneuver of introducing a new, innovative business model or product that incumbents cannot or will not emulate. This often occurs because doing so would undermine their existing business model.

After incubating two businesses this year, one with the former CEO of Angi and the other with a handful of the largest real estate developers in the world, our goal of this post is to share our playbook with you to find your next counter positioning opportunity to enter into a vertical market.

This post is going to be the first of a multi-part Series where we dive into our learnings in Vertical AI across over 1K pitch meetings, customer meetings, founder and executive interviews across more than a dozen end markets.?

What is Counter Positioning?

Hamilton Helmer, in his seminal work "7 Powers," defines counter positioning as a strategic advantage where a new competitor adopts a different business model that an incumbent cannot replicate without suffering significant losses. This forces the incumbent to either adopt the new model and cannibalize their own revenue or continue as is and lose market share. Examples of counter positioning include:

1. Netflix vs. Blockbuster: Netflix’s subscription model and online streaming service disrupted Blockbuster's rental business, which relied heavily on late fees and physical stores.
2. Amazon vs. Traditional Bookstores: Amazon’s online bookstore with vast selection and home delivery counter positioned against the traditional bookstore model.
3. Dandy vs. Traditional Dental Labs: Dandy’s free intraoral scanner program was an attractive value proposition for dentists, but would’ve led to dramatically higher expenses for dental labs who had never provided them before and rarely invested in customer acquisition or tech

How You Can Leverage AI for Counter-Positioning

AI technology presents a unique and unprecedented opportunity for counter-positioning across various industries. Here’s how you can find your next business idea and leverage AI to establish a strategic advantage:

Step 1: Identify the right market

Find services that have been historically priced hourly and are reliant on heavy human labor

AI excels at automating repetitive and labor-intensive tasks.?

Interview key buyers at large companies in your markets of interest. Ask them what 3rd party service providers they use who bill hourly, how much they spend on them and how they perform the service.?

By targeting industries where services are billed by the hour and require significant human involvement, you can introduce AI solutions that offer superior efficiency and cost savings. This enables you to dramatically undercut on price while having a better margin profile.

It’s easiest to look into end markets where they frequently use BPOs for things like claims processing, scheduling or report writing.?

OR

Find markets where companies outsource data processing or other projects on a fixed fee/project basis

Incumbent service providers who are used to charging $30K+/project or $10/job to be done are not strongly incentivized in the short-term to drop their prices, but they are incentivized to leverage AI to improve their gross margins.?

In markets like this you can either:?

Enable the services firms OR Be the Services Firm

Enabling the services firm (aka selling to them) approaches include:

• Delivering work to the Services Firm, which enables them to scale without adding additional operational complexity for a fraction of the cost - e.g. EvenUp
• Co-Pilots that equip the services firm with tools, which unlocks a massive increase in employee efficiency and helps the business grow their revenue/employee - e.g. DataSnipper, Harvey
• OR Enable net new service providers to counterposition - By selling directly to the service providers just getting started you can enable them to counterposition. This is best in markets where a high number of net new businesses are being started. Companies like Captions have taken off in the consumer world, but we’re also hearing that offshore companies who provide video editing services are thriving leveraging tools like it.

Be the services firm can look like:

• Start a vertically integrated services firm - Selling the AI X Human Support directly to the business and counter-positioning greatly on price (50%+) - e.g. Hedral, Pilot, Invisible Tech
• Start an AI marketplace business - Provide customers/revenue and AI software to the supply side to make them 10X more productive. Force them to use your software when serving the demand side/end clients, which you’ve acquired for them. This is best in market where a high number of solopreneurs or SMBs exist who spend way too much time on backoffice tasks and are historically bad buyers of software. By driving the supply side new business and leveraging a take rate model you’ll be able to make more gross profit per SMB than your SaaS counterparts. - e.g. Manifest and Flare/Marble Law
• Buy + modernize an existing services firm - Improve the businesses EBITDA margins 2X+ overnight and help drive more demand through sophisticated AI-powered customer acquisition techniques - e.g. Metropolis?
• Franchise a services firm concept - help people launch their own business in a turnkey way where they can leverage AI to make operating the business 10X easier, while undercutting competitors on price and experience - e.g. Farther

Step 2: Analyze the market structure

Is this a fragmented market with lots of Mom and Pops providing the service who use onshore labor?

Or is it a market with sophisticated, scaled players who efficiently leverage technology and offshore labor to drive the COGS down already??

The more fragmented and less sophisticated the market the better.

Step 3: Analyze the role AI can play?

Talk to experts in the market to understand how the service is specifically delivered.?

Perform a process, task and communication mining exercises where you map out how the service is actually provided.?

Then think through this question:

How can I introduce human-in-the-loop products that are better, faster, and cheaper into a great market??

Combining AI with human oversight via a service or co-pilot can result in products that outshine traditional services on multiple fronts. You want to find jobs to be done that will result in:

• Better Quality: In markets where accuracy is crucial, AI can deliver superior quality. For instance, image recognition technology powered by AI can outperform human capabilities in terms of speed and precision, proving invaluable in fields like medical imaging and security (e.g. Verkada, AmbientAI).?
• Faster Service Delivery: In industries constrained by human labor supply, such as healthcare and legal services, AI can significantly accelerate processes. Moreover, markets that require extensive licensing and training (e.g., specialized medical practitioners, architecture and engineering ) can benefit from AI-driven solutions that bypass these constraints with signoff by a licensed professional (when allowed), providing faster service delivery when the human can play more of a quality assurance role.?
• Cheaper Cost: Identifying and targeting major cost components in traditional business models can yield substantial savings. For instance, AI-driven customer service solutions can reduce the need for large call centers, cutting down on overhead costs while improving response times and customer satisfaction.?

Step 4: Figure out if it is a Great Market, not just a good one

A million opportunities exist out there, but you can only choose one. The difference between a good market and a great market will ultimately decide your longterm enterprise value. So what do we think makes a great market?

Better quality leads to 10X+ ROI, preferably driving revenue

Markets where higher quality results will lead to a significant ROI are great. Examples include:

• AI medical billing leads to higher collection rates
• AI procurement leads to more price transparency and immediate savings
• AI call answering increases conversion rate of customers leading to more revenue

Faster Service Delivery leads to better returns or cash flow

In real estate for instance, developers find themselves consistently waiting for service providers to deliver their product. This delay creates a drag on the internal rate of return (IRR), so speeding things up for them will make them look better in the eyes of their investors.?

Similarly, many businesses have challenging cashflow dynamics whereby they have to pay their employees every other week, but do not get paid by the end customer until the project is completed. In instances where you can expedite service delivery, you might be able to radically improve the cash flow of the business and reduce the stress levels of the owner.

High immediate savings in markets that clearly flow right to a tight bottomline?

Markets where margins are very tight and you are able to quickly and predictably reduce the cost of a major line item are bound to see a lot of demand.?

If companies are running at 15-35% gross margins or 5-15% EBITDA margins, and you can provide them with a major expense at 50% of the price, the demand will come either way.?

The Real Winner: Obvious workflows to build into post service delivery

This is the major key! A great AI powered tech-enabled service company or Co-Pilot will watch its margins get compressed over time if it cannot figure out a way to build stickiness.?

An ideal scenario would be that the service is delivered via a proprietary workflow platform that involves multiple stakeholders in the company (or outside) receiving the service who are then able to leverage the platform to complete downstream tasks .?

Conclusion

AI is poised to create the greatest counter positioning opportunity of our lifetime.?

By understanding and strategically applying AI to disrupt traditional business models, you can achieve a competitive edge that incumbents find difficult to replicate.?

Whether it’s through improved quality, faster service, or cost reductions, the potential for leveraging AI with counter positioning is immense.?

If you’re embracing this transformative technology to redefine an industry we want to talk to you! No matter what market you’re playing in, as we believe the opportunities are endless.