Why A.I. Is Forcing Startups To Chase a Mirage

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If you’ve ever wondered why a new company with a ton of potential would suddenly start making moves that seem awkward and desperate, there’s usually a good reason. Actually there are four good reasons. But they all boil down to one root cause, and that root cause can change as trends come and go.

I’ve spent 25 years founding, working at, and advising startups. I’ve seen company priorities go off the rails more times than you might imagine. Another sad story dropped into my inbox last week, and this time the antagnoist of the story was AI. The founding CEO of a “Generative AI” company wrote in to me via my website. Long story short:

They launched their non-AI product to some very promising sales numbers.
Then they rode a series of Ai-fueled catalysts to even more success.
But ultimately, they came crashing down after just a couple years, looking nothing like the company that the founder initially set out to build.

Reading through the founder’s story, I felt an uneasy sense of deja vu. Because it’s the same old story I’ve seen over and over again, only with a different villain this time. Here are four ways that a change in a startup’s priorities can lead to some unpleasant changes in direction…Continue reading…

By Joe Procopio

Source: Why A.I. Is Forcing Startups to Chase a Mirage | Inc.com

Critics:

Startups may form partnerships with other firms to enable their business model to operate. To become attractive to other businesses, startups need to align their internal features, such as management style and products with the market situation. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or archetypes, for startups that are commercializing inventions.

The inheritor profile calls for a management style that is not too entrepreneurial (more conservative) and the startup should have an incremental invention (building on a previous standard). This profile is set out to be more successful (in finding a business partner) in a market that has a dominant design (a clear standard is applied in this market).

In contrast to this, profile is the originator which has a management style that is highly entrepreneurial and in which a radical invention or a disruptive innovation (totally new standard) is being developed. This profile is set out to be more successful (in finding a business partner) in a market that does not have a dominant design (established standard).

New startups should align themselves to one of the profiles when commercializing an invention to be able to find and be attractive to a business partner. By finding a business partner, a startup has greater chances of becoming successful. Startups usually need many different partners to realize their business idea. The commercialization process is often a bumpy road with iterations and new insights during the process.

Hasche and Linton (2018) argue that startups can learn from their relationships with other firms, and even if the relationship ends, the startup will have gained valuable knowledge about how it should move on going forward. When a relationship is failing for a startup it needs to make changes. Three types of changes can be identified according to Hasche and Linton (2018):

Change of business concept for the start up
Change of collaboration constellation (change several relationships)
Change of characteristic of business relationship (with the partner, e.g. from a transactional relationship to more of a collaborative type of relationship)

Startups need to learn at a huge speed before running out of resources. Proactive actions (experimentation, searching, etc.) enhance a founder’s learning to start a company.To learn effectively, founders often formulate falsifiable hypotheses, build a minimum viable product (MVP), and conduct A/B testing.

With the key learnings from market validation, design thinking, and lean startup, founders can design a business model. However it’s important not to dive into business models too early before there is sufficient learning on market validation. Paul Graham said: “What I tell founders is not to sweat the business model too much at first.

The most important task at first is to build something people want. If you don’t do that, it won’t matter how clever your business model is.” Some startup founders have a more casual or offbeat attitude in their dress, office space and marketing, as compared to executives in established corporations. For example, startup founders in the 2010s wore hoodies, sneakers and other casual clothes to business meetings.

Their offices may have recreational facilities in them, such as pool tables, ping pong tables, football tables and pinball machines, which are used to create a fun work environment, stimulate team development and team spirit, and encourage creativity. Some of the casual approaches, such as the use of “flat” organizational structures, in which regular employees can talk with the founders and chief executive officers informally, are done to promote efficiency in the workplace, which is needed to get their business off the ground.

In a 1960 study, Douglas McGregor stressed that punishments and rewards for uniformity in the workplace are not necessary because some people are born with the motivation to work without incentives. Some startups do not use a strict command and control hierarchical structure, with executives, managers, supervisors and employees. Some startups offer employees incentives such as stock options, to increase their “buy in” from the start up (as these employees stand to gain if the company does well).

This removal of stressors allows the workers and researchers in the startup to focus less on the work environment around them, and more on achieving the task at hand, giving them the potential to achieve something great for both themselves and their company.

After the Great Depression, which was blamed in part on a rise in speculative investments in unregulated small companies, startup investing was primarily a word of mouth activity reserved for the friends and family of a startup’s co-founders, business angels, and Venture Capital funds. In the United States, this has been the case ever since the implementation of the Securities Act of 1933.

Many nations implemented similar legislation to prohibit general solicitation and general advertising of unregistered securities, including shares offered by startup companies. In 2005, a new Accelerator investment model was introduced by Y Combinator that combined fixed terms investment model with fixed period intense bootcamp style training program, to streamline the seed/early-stage investment process with training to be more systematic.

Following Y Combinator, many accelerators with similar models have emerged around the world. The accelerator model has since become very common and widely spread and they are key organizations of any Startup ecosystem. Title II of the Jumpstart Our Business Startups Act (JOBS Act), first implemented on 23 September 2013, granted startups in and startup co-founders or promoters in US. the right to generally solicit and advertise publicly using any method of communication on the condition that only accredited investors are allowed to purchase the securities.

However the regulations affecting equity crowdfunding in different countries vary a lot with different levels and models of freedom and restrictions. In many countries there are no limitations restricting general public from investing to startups, while there can still be other types of restrictions in place, like limiting the amount that companies can seek from investors.