How to Build a Defensible AI Startup in 2023

How to Build a Defensible AI Startup in 2023

In recent years, the AI industry has witnessed a surge in innovation, with startups like Midjourney, Runway, and Stable Diffusion capturing the public's imagination. What's interesting is that these delightful innovations are coming from the bottom up, not the top down. Open source horizontal models like ChatGPT have formed the foundation of the AI boom, but it is at the application layer where many more venture-scale businesses will be built.

Speed is perhaps the one definitive advantage that all startups have against incumbents. Midjourney and DALL-E were early to ship great horizontal platforms, but it is Midjourney that has come out on top, thanks to its quick product execution. This highlights the importance of getting creative and thinking about new product paradigms and interfaces that are now possible thanks to AI. It is these innovations that will be much more defensible than products or tools that existing software companies can easily add to their product suite.

One successful case study in the AI space is ChatGPT. While the underlying technology, GPT-3, already existed, it was the conversational interface built on top by OpenAI that made GPT-3 accessible to a mass market. This highlights the importance of using advances in natural language processing (NLP) to drive a shift change in UI/UX. Successful products in the AI space can start out looking like consumer companies, as seen in the largest Discord communities right now, such as Midjourney, Open AI, Blue Willow, and Leonardo.ai.

To build a defensible AI startup, it is crucial to grow mindshare by developing an online personality towards issues relevant to the AI community. This can involve actively engaging in discussions about development, regulation, and other pertinent topics. Offering perks to existing community members, such as gated access to beta users through platforms like Discord, can help foster customer evangelists and incentivize non-members to join. Additionally, appointing power users as moderators in branded community spaces can further strengthen the sense of community and loyalty.

Creating a product with shareability and virality in mind is another key strategy for winning in the AI startup space. Startups can initially gain traction by moving quickly, but long-term moats are built by going where big tech and incumbents won't. In a world where anyone can access large language models (LLMs), verticalized solutions based on a deep understanding of a target persona can be one of the best defensible ways to build in AI. Moats can be cemented by building with collaboration, integrations, permissioning, and workflow top of mind. It is important to evaluate the market and understand the buying power of your audience and their actual needs.

When it comes to achieving true product/market fit, it is crucial to understand Andreessen's definition: "The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can." This level of usage and demand is an indication that you have reached product/market fit. It is when you are overwhelmed with usage that major changes to your product become difficult because you are swamped just keeping it up and running.

Finding product/market fit requires choosing a market where users have a real, meaningful problem. Launching quickly and listening to your users are also crucial steps in the process. By focusing on the market first and finding problems that are so dire that users are willing to try half-baked, v1, imperfect solutions, you can increase your chances of finding product/market fit.

In conclusion, building a defensible AI startup in 2023 requires a combination of speed, innovation, and a deep understanding of the market and user needs. By leveraging open source models, focusing on application layer innovations, and building a strong community, startups can gain a competitive edge. Additionally, finding true product/market fit and constantly iterating based on user feedback are essential for long-term success.