AI: Startup Vs Incumbent Value - Forcing Function

AI: Startup Vs Incumbent Value - Forcing Function

Introduction:
The distribution of value from AI has been different for startups compared to incumbents in various waves of technological advancements. While incumbents have historically captured a significant portion of the value, startups have also made their mark in certain industries. This article explores the dynamics of value distribution in previous waves, the potential impact of AI on startups, and the importance of forcing functions in achieving success.

The Dynamics of Value Distribution:
In the first wave of the internet, startups like Google, Amazon, and Facebook emerged as dominant players, capturing a substantial portion of the value. However, incumbents such as Microsoft and IBM also extended their franchises onto the internet, securing their share of the pie. This wave witnessed a relatively balanced split between startups and incumbents, with a 60:40 or 70:30 ratio.

The mobile wave, on the other hand, saw most of the value going to incumbents like Apple and Google, with startups like Uber and Instagram making significant contributions. The split in this wave tilted heavily towards incumbents, with a 20:80 ratio favoring established players. Interestingly, the crypto industry has been almost entirely driven by startups, with little participation from existing financial services or infrastructure companies.

The Rise of AI Startups:
In the AI space, incumbents like Google, Facebook, and Amazon have been at the forefront of major AI applications. However, there has been a surge in "AI first" startups over the last decade. To compete and succeed against incumbents, startups need to either build a product that is significantly better than what the incumbents offer or focus on untapped customer segments or distribution moats. In other words, startups need a 10X better product to overcome the advantages held by incumbents.

The Changing Landscape:
The dominance of incumbents may be attributed to their data advantage, which is slowly diminishing as companies leverage the broader internet as an initial training set and adopt models that work effectively with smaller data sets. This, coupled with the current technological advancements, makes it easier for startups to create products that are exponentially better than what incumbents provide.

The Role of Forcing Functions:
For startups to thrive in the AI space, they need to adopt forcing functions that push them towards their goals. A forcing function is an external stimulus that compels individuals or organizations to take action. By creating these stimuli, startups can overcome their fears of failure and drive themselves to achieve what they set out to do.

Creating forcing functions can be as simple as setting deadlines, committing publicly to specific milestones, or creating accountability systems. These mechanisms tap into our fear of letting ourselves down and provide the necessary motivation to stay focused and productive.

Actionable Advice:

1. Embrace innovation: Startups should leverage the current technological advancements in AI to create products that are significantly better than what incumbents offer. By focusing on innovation and pushing the boundaries, startups can disrupt established markets and capture a larger share of the value.

2. Identify unserved markets: To stand out from incumbents, startups should identify untapped customer segments or unmet needs in existing markets. By addressing these gaps, startups can create unique value propositions and establish themselves as key players in the industry.

3. Focus on user needs: It is crucial for startups to prioritize the actual end-user needs when developing AI-powered products. By understanding and addressing the pain points of their target audience, startups can create solutions that truly resonate and deliver value.

Conclusion:
The distribution of value from AI has historically favored incumbents, but the current wave of technological advancements presents new opportunities for startups. By leveraging forcing functions and adopting innovative approaches, startups can level the playing field and capture a larger share of the value. The key lies in creating products that are exponentially better, identifying unserved markets, and focusing on user needs. Exciting times lie ahead for startups in the AI space.