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Will AI Replace Founders?

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Will AI Replace Founders?

Will AI soon make being a founder irrelevant? I share 8 ideas for AI-resilient startups

Michael Houck
Mar 25, 2023
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This was a big week for the startup world — OpenAI continues to ship changes that alter what a viable startup idea even looks like on a weekly basis.

i have been really struggling to figure out what to build today that is going to not be obsolete within 3 years and it’s distressing tbh

— Siqi Chen (@blader)
Mar 24, 2023

If GPT-4 can learn to create its own software and API documentation, does the world even need founders to build things anymore? Do any defensible startup ideas exist in the post-GPT4 world? Should we all just wait around for an AI-driven, UBI-induced blissful future?

LLMs are world-changing technology, but hype cycles lack nuance. There are still plenty of things for humans to build. With that said, the opportunities that will create tomorrow’s generational companies have definitely shifted.

I thought deeply about this this week and below you’ll find what I believe are the defensible areas to build something new in 👇

📖 What I’ve Been Reading

I love a hustler. Successful founders are scrappy and find strategic advantages wherever they can.

That’s why I read Just Go Grind, a free newsletter from Justin Gordon.

Each week he researches and shares a deep dive into the journey of a legendary founder like Sam Altman of OpenAI and the founders of Calendly, Canva, Flexport, and more.

I’ve found many of the stories to be inspiring and the lessons about fundraising, growth, hiring, and more to be timely. Recommended for sure.

👀 Want to get seen by 26,000+ founders? Go here

8 AI-Resistent Areas for Startups

It may be true that we’ve finally moved on from “software is eating the world” to “AI is eating software.”

There is a big “if” here, but in the category of big if true, given we are attacking services, the starting market size for the AI opportunity is larger than the entire current software market. -@gradypb at Sequoia AI Ascent https://t.co/cn4wozdJaQ

— sarah guo 🌱 conviction (@saranormous)
Mar 23, 2023

And I mentioned to a friend this week that I think OpenAI should build a phone to compete with Apple since the need for apps may soon go away.

What does that mean for startups? Where are the actual opportunities?

IRL Products + Experiences

Ok, so we know it just became 1000x easier to write software.

"Make me an app"—just talk to your @Replit app to make software https://t.co/U1v5m5Un1U

— Amjad Masad ⠕ (@amasad)
Mar 24, 2023

But despite startups like Figure that have the potential to bring AI into the real world via advanced robotics, AI is currently still limited to the digital world.

While you may be half-jokingly worried that this means humans need to all become manual laborers, I disagree. Instead, we should leverage AI software tools to help accelerate our progress towards real-world breakthroughs such as:

  • Nuclear fusion

  • Quantum computing

  • Energy storage

  • Space exploration

  • Gene editing

  • IRL experiences for humans

  • And, yes, augmented reality

I expect we’ll see some VCs publicly shift their strategy away from software as soon as the next few months.

Data

An AI is only as good as data it’s trained on. Not all data is publicly available on the internet, so even if an AI is able to search on its own it won’t have access to everything.

You could easily argue that startups are already valued based on the value of their proprietary data to a degree:

  • Facebook → User interest and social graph

  • Amazon → Purchase behavior

  • Tesla → Sensor data around driving

We’re going to see the value of proprietary datasets dramatically increase. Startups that are able to train models on their own data, without giving up access to it, will be able to approach a market uniquely and potentially have an unbeatable advantage.

Unicorns will emerge around how to acquire, organize, and protect data sets. If I were building a B2B startup, this is where I’d look. Additionally, many more unicorns will emerge who figure out who do those three things for their specific company in various verticals.

Distribution, Brand, & Reputation

This Justin Kan quote has basically turned into an accepted, meme-able truth in Silicon Valley in the last 5 years.

First time founders are obsessed with product.

Second time founders are obsessed with distribution.

— Justin Kan ❄️ (@justinkan)
Nov 7, 2018

It makes sense. A great product with no users loses to a worse product with scalable distribution every single time. Combined with the rise of no-code tools, creator platforms, ad saturation, and now AI we’ve seen products become easier to create while distribution becomes more competitive.

Rex Woodbury, a partner at Index Ventures who has built a combined 350k person following across Instagram, Twitter, LinkedIn, and a newsletter agrees and says it might not be a good thing.

Regardless, the best bet is to build this distribution channel through the founding team’s personal brands:

  1. People connect with people more easily than brand accounts

  2. Having a personal brand allows the distribution you build to travel with you as you build new companies throughout your career

Emotional Connections

Nike. Airbnb. McDonald’s.

The best brands make you feel something as soon as you hear their name or see their logo.

AI is going to take that to the next level.

The most successful and retentive AI-powered products will be the ones where users feel like they are actually forming an authentic emotional connection with the AI.

We’re already seeing this.

Replika’s decision to tone down the sexual messages from its “AI companion” app after pressure from some governments left some power users publicly contemplating on Reddit about how they could go on with their lives. Dark. Don’t Google it.

I have to imagine this is only the beginning of what we’ll see with this type of moat.

Exclusive Partnerships

As long as humans are pressing the buttons that makes AI do things, the decisions about who to work with (and which startups to kingmake) will still come down to “who do you want to work with?”

If AI allows anyone to create identical software quickly then a founder’s relationships will increasingly be the difference between gaining that distribution you need vs not.

Parts of a founder’s job like networking, sales, and partnerships will be much more resilient to AI than it may seem.

Unfortunately this may make it more difficult for founders who, like me, started off with few industry connections to break out unless they have truly novel ideas or other advantages.

Network Effects & Community

AI will make a network effects and community-driven moat less common but not less powerful. Basically, it will be harder to create network effects in the first place.

Imagine you find an attractive market to build a startup in. You have AI create some software and start marketing your product. Well, someone else sees your marketing and creates nearly identical software. They also start marketing. All of a sudden, you’ve got two fully formed competitors fighting it out very early on.

It’ll be challenging to reach the level of scale necessary for network effects to kick in. I worry you’ll simply need to outspend competitors, though I’m sure other paths to dominance will emerge.

My advice here for first movers? Do your best to avoid publicity if you find something truly interesting except with hyper-targeted marketing.

Patents & Regulations

Speed is a startup’s biggest advantage, and applying for patents and navigating complex regulatory environments can be big roadblocks.

But it seems likely that AI will be trained with a set of ethics and strict rules. This means it may not be easily able allow itself to take shortcuts around “the rules” like so many startups do in their early days.

Practically, this means that founders who are able to secure patents or work successfully in highly regulated markets will be better defended against AI-powered startups entering and gaining control of their market.

Help AI

In all of the situations mentioned above, there are viable startup ideas around helping AI conquer the barriers that currently exist.

To name one, helping AI interact with the real world like Figure is doing could result in many massive companies.

…or you could say forget the startup and build an AI church. Turns out they can be pretty profitable.

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📚️ Founder’s Library

  1. Two ex-Netflix engineers I know put out a guarantee that they can cut your dev time for an MVP by at least 1 month. They’re currently offering free intro calls. These guys are good — worth exploring if you’re at the MVP stage.

  2. Interesting read from Bill Gates about the impression new AI tools have made on him

  3. I’ve seen so many of these inspiring threads with people building entire apps from scratch while letting GPT-4 do all of the coding, even if they aren’t engineers! I may need to build something this weekend

  4. Are you a good negotiator? I stumbled onto a fun game where you negotiate against GPT-4 to buy a rug. See if you can get it for free

💡 How I Can Help

Whenever you’re ready, here are 2 ways for us to work together:

  1. Grab time with me for a 1:1 session on fundraising, GTM and growth, hiring, finding PMF, or anything else

  2. Promote your startup to 26,000+ founders by sponsoring Houck’s Newsletter

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