Is Your Startup Already Obsolete?

A venture fund in which I am an LP recently invited me to a meeting with one of their companies who were asking for a follow-on round. I listened to the pitch awhile, but soon realized that these guys were continuing to do the same thing they had been doing for several years, expecting a different outcome "this time."

?After the pitch, I suggested to the General Partner that I meet with the company management to talk about their plans. I did, and this conversation led me to pen a note to the GP, a somewhat edited version of which follows.

It is a message that I believe the management of every software startup - perhaps every software company - needs to internalize: If your business model is based on selling a “conventional” (i.e. code based) software product by SaaS, that’s a decade old model, and may no longer be relevant in today’s market.

Creating software by code suddenly becomes outlandishly capital-intensive to build, difficult – and expensive - to maintain/test and relatively static in functionality. Selling that code by subscription may soon be viewed as quaint practice.

If your product is hand-coded, you need to start thinking very seriously about exploring AI assisted offerings for the code, testing and maintenance functions. But that may be the least of your concerns.

AI, or more precisely and importantly, Foundation Model based products, where unique data sources are the differentiator, are going to be the major winners, indicating not just functional differentiation, but major changes in the business model, i.e. creating communities or walled gardens around those unique data collections.

Monetizing these communities is going to demand re-thinking the business model entirely. Give very serious and creative thought to how your requirements are created and what is the data, the real data, is that drives those requirements, and how to realize the value of that data.

There is almost no field of human activity that is not likely to be altered, even at this nascent stage of the AI revolution, leading to an explosion of startups in fields never considered before, and profound challenges in existing business models. If you have an existing product set, re-examine the very foundations of your product, business model, methods, and be a disruptor of your own enterprise.

The AI revolution is real, and unlike any that we have experienced since the dawn of the industrial age. If you are doing business as usual in the software industry, it is akin to spinning yarn in your cottage home while gigantic mills deliver tons of fabric to the global markets.