Finding a moat quickly is now the bottleneck for startups because of AI
Businesses are quickly coming to realize that the operations landscape has changed and what it takes to capture significant market share just became harder.
It is the volume problem, you make it significantly low-cost to produce something and that instantly reduces the profitability of building anything at any time.
Advancement in artificial intelligence (AI) has made building and launching startups months to years cheaper but it has, simultaneously, made it harder to defend the businesses.
The reality today is that in a matter of 24hrs, in many cases, a recently launched startup in a zero-competition market can have to deal with its first competitors due to AI making it cheaper to copy and build alternatives to just about anything.
This changes what founders should be optimizing for. Building the product is becoming less of a bottleneck because AI can significantly reduce the time, cost and expertise required to get something into the market.
The bigger question is what prevents someone else from building the same thing.
The end of first mover advantage
Being first is less valuable now if the second mover can reproduce your product in a matter of days or even weeks.
Previously, a startup might have had months or years before competitors caught up, giving them the first mover advantage to reach product-market fit and attain some level of moats as the customer base grows to use and integrate.
But AI has made it a poor decision to expect to gain retainable market capture by simply launching first.
Launching first still gives you an advantage, but the advantage is increasingly about what you are able to accumulate after launching.
If the core functionality of your product can be copied quickly, then the product itself may not be enough to retain the customers you acquired.
This makes the period between launching and building something defensible much more important.
Building is becoming a commodity
AI has reduced the cost of building software, but that reduction applies to everyone.
The same tools available to you are available to the next founder who sees your product and decides to build an alternative.
This means features are becoming easier to reproduce and, in some cases, entire products can be replicated much faster than before.
An AI assistant, workflow automation or software feature that once required a significant amount of engineering effort can now be built with much less time and capital.
So the advantage is no longer simply having a product that works.
The advantage is having something around that product that gets harder to copy as the business grows.
That could be customer relationships, distribution, proprietary data, integrations, networks (something I've discussed recently) or deeply embedded workflows.
The crucial question therefore changes from how quickly can we build this to what can we build that becomes increasingly difficult to replace or replicate, even with AI?
This is why finding a moat quickly is becoming the bottleneck.
The startups that win may not necessarily be the ones that build first, but the ones that can turn their early lead into something that compounds before everyone else catches up.
Posted Using INLEO