3 reasons why most AI startups will fail
Laurie Hérault
14 replies
AI startups have become increasingly popular in recent years, but despite the hype, many of these companies will fail.
There are 3 main reasons for this. This 3 reasons are taken from Peter Thiel's book Zero to One. A must-read for anyone who wants to start a startup.
First, let's talk about the importance of creating a monopoly. A monopoly is crucial for a successful startup. A monopoly is a company that has no competition and is able to charge higher prices for its products or services. Many AI startups focus on developing products that are similar to what's already on the market, rather than creating something truly unique.
The second reason why AI startup may fail is failing to think differently. Thinking differently means going against the mainstream and finding unique solutions to problems. Many AI startups focus on developing products that are similar to what's already on the market, rather than creating something truly unique.
Many startups today are using pre-existing tools and APIs to create their products. The greatest value is the artificial intelligence algorithm. The interface around this AI adds very little value in the end.
What do you think about the future of all these artificial intelligence startups?
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Might Wilson product @mightma
Don't say that most AI entrepreneurs will fail, in fact, most entrepreneurs in any industry will fail. None of the things you mentioned taught me anything new.
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I think these reasons are way too broad for why a startup failed. There are millions of startups are successful specifically because they did x a little better than the competition but had nothing unique about them.
This is also not to mention that first movers that are entirely unique have to deal with the fact that there's no one to learn from in that field because it's so new.
I agree most of the AI hype startups will fail, but I don't think it's because of the reasons outlined.
@richard_gao2 It is clear that there are still other reasons that can cause these startups to fail. Thank you for the added value of this comment!
Hi, I've been following the discussion about this and I wanted to add my perspective.
One major obstacle that many AI startups will face is insufficient funding. AI companies require significant resources to develop, test and scale their products, and without enough funding, they may struggle to attract and retain top talent and to develop and market their products effectively.
@ariqnnrrs The lack of funding is a consequence of the lack of added value I think. Personally I would not invest in a startup that does not have its own technology but uses a third party technology.
@ariqnnrrs @laurieherault
Shouldn't this be solved by open source platforms? The existing tech would solve the huge investments. This would enable commercial products to customize the code and provide a better UX.
Say, would it be bad to build a product based on ChatGPT? For example, a limited ChatGPT for creating e-commerce websites. You wouldn't need a lot of engineers who understand the underlaying technology.
They focus in the technology, not the applicaiton
I agree with the points made in this post. Monopoly, unique solutions, and creating value beyond existing tools are all important factors for a successful AI startup. However, it's also worth noting that the market and industry can also play a role in the success or failure of a startup. Despite these challenges, I believe the future of AI startups is bright as long as they focus on solving real-world problems and creating genuine value for customers.
I really like Zero To One but I think it's dangerous to use it as a bible to determine the future success/failure of companies. There are so many companies that are succeeding despite not having stellar technology, but due to distribution, branding, and other types of advantages.
A lot of AI startups, and startups in general will fail due to lack of clear or big enough use case to apply their technology against as part of their product offering. There's going to be a lot of commoditisation in the space now that AI is becoming "one API call away" and enables companies to infuse their products with this new technology.
But a company can still find its way to success if it's able to leverage the AI for a killer use case and build a strong lead in the marketplace. Over time this winning company to switch to developing some of the AI in house because it has accumulated a lot of data. Data is the oil that makes these AI models so performant. The more relevant data a company has amassed the more accurate its AI models can become, and the more value it can deliver to its customers.
In my opinion, a better mental model to use to evaluate the long term success of a company is the "7 Powers" framework devised my Hamilton Helmer (https://www.strategypunk.com/7-p...)
These powers are:
1. Scale Economies
2. Network Economies
3. Counter Positioning
4. Switching Costs
5. Branding
6. Cornered Resource
7. Process Power
Completely agree and the way the tread is going I believe people has already started on taking challenges to concure fields that are not touched yet so you will see good products in market which will replace some of the existing products like copy.ai
Lack of a clear market: Many AI startups may have a great technology or idea, but they may not have a clear understanding of their target market or a viable business model. Without a clear market, it can be difficult for these startups to generate revenue and attract investors.
Insufficient funding: Developing AI technology can be costly, and many startups may not have access to the funding they need to bring their products or services to market. Without sufficient funding, startups may struggle to hire the necessary talent, develop their technology, and market their products.
Difficulty in scaling: AI startups often face challenges in scaling their technology and operations. This can be due to a lack of infrastructure, technical limitations, or difficulties in integrating their technology into existing systems. Without the ability to scale, startups may struggle to reach profitability and attract investors.
Lack of expertise: AI startups may lack the necessary expertise and experience to navigate the complexities of the AI industry. This can lead to costly mistakes and delays in product development, which can negatively impact the startup's chances of success.
Lack of regulation and ethical concerns: As AI is a emerging field, there's a lack of regulation and ethical concerns. This can create challenges for AI startups as they navigate the legal and ethical landscape, which can negatively impact their chances of success.
These are some of the reasons why most AI startups may fail, it's important to note that startups face challenges and risks regardless of the industry. But it's more prevalent in AI startups because of the complexity and novelty of the technology.
I strongly agree with the part about using existing solutions. In most cases, you cannot build a competitive advantage if you just add an interface to the ChatGPT. You need to develop your models if you want to build a serious company that will last long.
However, I think you can still build small yet profitable projects with only a good interface to GPT3. Imo the clue is to be creative with your use case and audience. For example, I can see think that approach works when you target someone a little bit less tech-savvy who won’t write prompts to chat GPT or just want to solve one particular problem.
Lack of market fit: Many AI startups fail because they are not solving a problem that is important or relevant enough to their target market. This can be due to a lack of understanding of the market or a lack of validation of their product or service before launching.
Limited funding: Many AI startups require significant funding to develop and scale their technology, but may struggle to secure the necessary funding from investors. This can make it difficult for the startup to continue to develop and grow its technology, and may ultimately lead to its failure.
Technical challenges: Developing and implementing AI technology can be extremely complex and challenging, requiring specialized expertise and resources. Many startups may not have the necessary technical expertise or resources to overcome these challenges, which can ultimately lead to their failure. Additionally, the rapid pace of technological advancement in the AI field means that startups must constantly innovate and adapt to stay competitive, which can be difficult for smaller companies with limited resources.