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Why AI Does Not Provide StartUps With Advantages vis-a-vis Incumbents

In a recent article Hacker News explains how AI impacts start ups vs. established companies. Where in the past the narrative was startups have an advantage due to their ability to take risks and innovate quickly compared to established companies, AI is significantly reducing that gap, and on the contrary gives established companies an advantage.


My take away for startups is: do not make AI the "tail wagging the dog", but focus on a real problem that may not be large enough or interesting enough for big companies to solve, and solve it. AI is just a very power tool for bringing your solution to the market.


Here are the key points:


  • Disruption Theory Doesn't Apply in AI: Unlike other sectors, incumbents in AI are proactively engaging with new technologies and markets, not deterred by the lack of historical data to guide future decisions.


  • Incumbents Lead in Innovation: The competition isn't about startups finding distribution before incumbents innovate; in AI, incumbents already possess innovation and are leveraging it effectively.


  • Data is a Major Differentiator: Incumbents have access to vast amounts of data essential for AI, putting startups at a disadvantage since AI development heavily relies on data for training and benchmarking.


  • Attracting Top Talent: Incumbents are able to attract and retain the best talent in AI and software engineering by offering above-market rates, exciting projects, and the resources needed for significant impact, making them more appealing than startups.


  • The AI Market is Misunderstood: The belief in a vast, inclusive "AI market" is misleading. Competition is fierce, and sectors like chatbots and SEO tools face intensified rivalry, not expansion.


  • Startup Strategies May Be Ineffective: Traditional startup advantages, such as agility and disruptive innovation, are less effective against the entrenched strengths of incumbents in the AI space.


  • Challenges for AI Startups: Despite the ease of starting an AI company and generating initial excitement, truly competing and succeeding in the AI market is significantly more difficult due to these dynamics.


  • Need for New Strategies: Success in AI requires startups to fundamentally rethink their strategies, acknowledging the unique challenges of competing against well-resourced, data-rich, and innovative incumbents.


Full article can be found here

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