Why Non-AI Companies will soon be obsolete

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“Our Choco AI Product is growing 3x compared to Choco 1.0 with half the CAC (Customer Acquisition Costs).” - Daniel Khachab

In the rapidly evolving tech landscape, AI is no longer a futuristic concept—it's a present reality reshaping industries. The question for tech startup founders and operators isn't whether to adopt AI but how swiftly and effectively they can integrate it into their businesses.

Daniel Khachab , Founder and CEO of Choco , a company revolutionizing the food supply chain, shares a compelling narrative of how Choco underwent a radical transformation to become an AI-first company.

This article (based on our (German) podcast ) delves deep into Daniel's journey, offering actionable and tactical insights for founders looking to embrace AI's potential.

1. Recognizing AI as an Imperative, Not an Option

Daniel Khachab's Realization:

"We have to face reality—every company that doesn't become AI-first soon will likely become obsolete."

Actionable Insights:

• Assess AI's Impact on Your Business: Conduct a thorough analysis of how AI technologies can disrupt or enhance your industry and business model.
• Stay Informed: Subscribe to AI-focused newsletters, follow industry experts on social media, and engage with the latest research to stay ahead of the curve.
• Avoid Complacency: Recognize that AI adoption isn't just beneficial—it's critical for survival and competitiveness.

Daniel’s Thesis:

Companies that fail to integrate AI at their core risk losing relevance. AI isn't just a tool for efficiency; it's a catalyst for creating superior customer experiences and unlocking new value propositions.

2. Fostering a Company-Wide AI Culture

Initiating Team Engagement:

Daniel began by igniting curiosity within the team. He sent an email encouraging everyone to experiment with ChatGPT, offering to cover the license cost for those who shared ideas on leveraging AI in their roles.

Actionable Steps:

• Promote Experimentation: Encourage all team members, regardless of technical background, to explore AI tools relevant to their roles.
• Provide Resources: Offer access to AI platforms and training materials to lower the barrier to entry.
• Celebrate Early Adopters: Highlight and reward team members who pioneer AI initiatives, fostering a culture of innovation.

Hackathons to instill Curiosity:

Choco organized multiple hackathons focused on AI applications that were aligned with their strategic goals.

"We hosted hackathons with one rule—you have to build something using AI APIs. By Thursday evening, you need to present a working demo."

Actionable Steps:

• Organize Thematic Hackathons: Create focused events that challenge teams to build AI solutions addressing specific business challenges.
• Cross-functional participation: Include members from all departments to foster diverse perspectives and uncover unexpected use cases.
• Iterative Learning: Use each hackathon to build upon previous knowledge, steadily increasing the sophistication of AI projects.

Daniel’s Takeaway:

Upskilling the entire organization is crucial. Embedding AI into the company culture enables every team member to contribute to the transformation.

3. Defining What It Means to Be an AI-First Company

Daniel's Definition:

An AI-first company is one where AI-driven products generate more than half of the new revenue. It's about integrating AI into the core value proposition, not just using it for internal efficiencies.

Actionable Insights:

• Set Clear Metrics: Define what AI-first means for your company in measurable terms (e.g., percentage of revenue from AI products).
• Evaluate Your Offerings: Analyze your product portfolio to identify areas where AI can drive significant value.
• Align AI with Strategy: Ensure that AI initiatives directly contribute to your strategic objectives and accelerate your vision.

Distinguishing AI-Enabled vs. AI-First:

Daniel emphasizes that merely using AI internally doesn't make a company AI-first. The proper distinction lies in AI being central to the customer-facing product and revenue generation.

Daniel’s Thesis:

Being AI-first requires a fundamental shift in how value is created and delivered. It's about reimagining products and services with AI at their core.

4. Building the AI Product: A Tactical Approach

Creating the 'Speedboat' Team:

Rather than overhauling the entire organization at once, Daniel formed a small, agile team dedicated to developing the AI product.

Key Characteristics of the Team:

• Zero-to-One Engineers: Full-stack developers comfortable with rapid prototyping and handling data science tasks.
• AI-Enthusiastic PMs: Product managers deeply passionate about AI, open to discarding traditional processes, and capable of thriving in chaos.

Actionable Steps:

• Select the Right Talent: Choose team members who are not just skilled but also excited about AI and willing to challenge the status quo.
• Isolate the Team: Allow them to operate outside standard procedures to maintain speed and flexibility.
• Direct Leadership Involvement: Provide strong executive support to remove obstacles and accelerate decision-making.

Hands-On Customer Engagement:

The team embedded themselves with select customers, working on-site to understand needs and iterate rapidly.

"We flew to Boston, sat in the customer's office for a month, and quickly validated what worked and what didn't."

Actionable Steps:

• Co-create with Customers: Involve key customers early in development to ensure the product addresses fundamental pain points.
• Rapid Iterations: Use customer feedback to make swift adjustments, even if it means significantly changing the product direction.
• Measure Learning Velocity: Focus on how quickly the AI system improves with user interactions, not just initial performance.

Daniel’s Takeaway:

Start small but move quickly. A dedicated team can achieve breakthroughs without the constraints of more extensive organizational processes.

5. Managing Organizational Change

Addressing Resistance and Fears:

Daniel noticed initial skepticism within his team, with concerns about AI being a hype or threatening job security.

Actionable Insights:

• Transparent Communication: Clearly articulate why the AI transformation is necessary and how it aligns with the company's vision.
• Empathize with Concerns: Acknowledge fears and provide support through training and reassurances about the future.
• Highlight Individual Benefits: Emphasize how gaining AI skills enhances each team member's career prospects and relevance.

Maintaining Balance:

While focusing on the AI product, Daniel ensured that the rest of the organization didn't feel neglected.

Actionable Steps:

• Inclusive Recognition: Continue to acknowledge contributions across all teams, not just those directly involved with AI.
• Integrate AI Across Departments: Encourage all business areas to find ways to incorporate AI into their operations.
• Manage Pace of Change: Transition gradually to allow teams to adapt without overwhelming them.

Daniel’s Thesis:

Leading an AI transformation requires both decisiveness and sensitivity. It's about driving change while bringing your team along on the journey.

6. Redefining Go-to-Market Strategies

Engaging Early Adopters in Sales:

Daniel leveraged enthusiastic sales leaders, like the team in London, to spearhead the AI product's market introduction.

Actionable Steps:

• Pilot with Key Markets: Choose regions or segments with leadership eager to embrace the new product.
• Develop Success Stories: Use early wins to build credibility and generate interest across the organization.
• Provide Sales Incentives: Adjust compensation structures to encourage the adoption and sale of AI products.

Adjusting Pricing Models:

Choco learned through experimentation that a flat-fee pricing model resonated better with their customers than a consumption-based model.

Actionable Insights:

• Understand Customer Preferences: Align your pricing strategy with what your customers value—simplicity and predictability, in Choco's case.
• Test and Iterate: Be willing to adjust pricing models based on market feedback and sales performance.
• Educate Your Sales Team: Equip your salesforce with the knowledge and tools to sell the new product effectively.

Daniel’s Takeaway:

Align go-to-market strategies with both customer needs and internal incentives. Make prioritizing the AI product easy and rewarding for your sales team.

7. Navigating Challenges and Difficult Conversations

Addressing Role Redundancies:

Automating processes with AI led to some roles becoming obsolete, a tough reality Daniel had to confront.

Actionable Steps:

• Approach with Empathy: Handle conversations about role changes or redundancies with care and respect.
• Offer Support: Assist in upskilling or transitioning to new roles within or outside the company.
• Focus on the Greater Good: Reinforce how these changes are essential for the company's survival and future opportunities for all.

Handling Technical Hurdles:

Early versions of the AI product didn't work as expected, requiring persistent troubleshooting and innovation.

Actionable Insights:

• Expect and Accept Failures: Anticipate setbacks as part of the development process and maintain a problem-solving mindset.
• Invest in Learning: Use failures as learning opportunities to improve the product and processes.
• Maintain Agility: Be ready to pivot strategies and approaches in response to new information or technological advances.

Daniel’s Thesis:

Challenges are inevitable in pioneering efforts. Overcoming them requires resilience, flexibility, and a commitment to continuous learning.

8. Key Takeaways for Founders and Operators

• Embrace AI Unreservedly: Recognize AI's transformative potential and centralize it to your business strategy.
• Lead by Example: As a founder or leader, immerse yourself in learning about AI to inspire and guide your team.
• Invest in Your Team: Focus on upskilling employees across all departments to build an AI-capable organization.
• Start Small, Move Fast: Use agile teams to develop and iterate on AI products rapidly.
• Communicate Transparently: Keep the organization informed about changes, challenges, and the reasons behind strategic decisions.
• Align Incentives: Adjust compensation and recognition programs to promote the adoption of AI initiatives.
• Prepare for Continuous Change: Stay adaptable as AI technology evolves, and be ready to update products and strategies accordingly.

Conclusion: The Imperative of AI Transformation

Daniel Khachab's journey with Choco underscores a critical message for tech founders and operators:

AI is reshaping the business landscape at an unprecedented pace. Companies must adopt AI and embed it at the core of their operations and value propositions to remain competitive and relevant.

The transformation isn't without challenges—technical hurdles, organizational resistance, and difficult personnel decisions are part of the journey. However, the rewards are substantial: improved efficiency, superior products, and a stronger market position.

By taking a proactive, tactical approach to AI integration—grounded in curiosity, agile execution, and empathetic leadership—founders can navigate the complexities of this transition. The time to act is now; the businesses that adapt swiftly and effectively will thrive in the AI-driven future.

About the Contributor:

• Daniel Khachab is the Founder and CEO of Choco, a company dedicated to improving the food supply chain. Under his leadership, Choco has transformed into an AI-first company, leveraging technology to deliver more excellent customer value and drive industry innovation.

Thanks for reading this Volume of Founder Tactics.

I hope this issue brought value. Let me know if you want to read about something specific soon.

All the best, Fabian & the Unicorn Bakery Team

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