Peter-Paul de Leeuw, Founder & CEO at Amberscript

Ever since LLMs gained popularity, the defensibility of AI-first startups has been questionable as LLM AI APIs are available to well-established SaaS players with existing competitive advantages. I am convinced that the answer can lie in building an AI-first service business that looks like a software business, and I am building our transcription and subtitling business Amberscript accordingly. We provide fully 100% correct transcripts and subtitles, with a small human check but automated to a large degree by generative AI.

In this approach, which I think can be applied to many industries, foundation models, and industry-specific data are used to rebuild a service business from the ground up. The business is automated to such a high extent that it can provide our service without (too much) human interference. Subtitling is well-suited for this: while previously the service was only available with a high degree of human involvement, using LLMs trained on specific industry and even client guidelines and data provides a workflow where a light human quality check (as hallucinations are limited but still exist) makes the process scalable at prices impossible before. Using proprietary data and finding a niche industry to train the LLMs in creates defensibility.

The key to this approach is to sell the work, not the AI-powered SaaS features. The market for software that can produce the end product is in this case, and many other cases such as customer support and accounting, much smaller than the market for the end product at the application layer. Therefore, you can choose a more specific niche that increases your service level and your data moat when collecting data to train a custom LLM. As performance curves of AI models are asymptotic (it is much harder to get from 80% to 100% than it is to get from 0% to 80%; the reason the self-driving car is not here yet), incumbents that cover the whole market are left with a subpar product.

As the services you will offer are most likely already being provided, there is no product-market fit challenge. The main challenge, however, is being able to scale without compromising on the quality of the service. This will oftentimes require a way of being able to include a human layer with a very light touch to do quality checks and light improvements for many customers at the same time, as opposed to current professionals in service areas providing the full service for a limited number of customers. A balance must be found in going after growth (more focus on the full service) and profitability (more focus on the software).

Looking to found an AI startup? Sell the automated service, not the software.

Pierre-Marin CAMPENON, Managing Director EU, Partnerships at Younited

Entrepreneurs today find themselves operating in a landscape transformed by a sudden shift from growth-centric to value-centric approaches over the past two years. This shift has ushered in a ‘new normal’ in 2024, characterized by a long-overdue emphasis on value creation and sustainability.

In this evolving paradigm, the hallmarks of successful companies are clear: a relentless focus on profitability, operational efficiency, and sustainable growth. These fundamental principles, often regarded as common sense, have surged back into prominence within the tech sector in recent months, now forming an integral part of every entrepreneur’s strategic framework.

However, it’s crucial to recognize that adhering to these principles alone is not sufficient to validate a business model. Entrepreneurs must also continue to innovate and cultivate their unique value propositions in this more rational environment. They must blend the profit-driven mindset of established corporations with the agility, innovation, and speed inherent to startups.

While there’s no one-size-fits-all formula for achieving this delicate balance, some fundamental guidelines can steer entrepreneurs in the right direction:

• Prioritize ruthlessly: Adopt OKRs (Objectives and Key Results) frameworks to streamline strategic decision-making and focus on core objectives.

• Cultivate a diverse team: Surround yourself with individuals who embody a mix of financial acumen and forward-thinking vision, ensuring a balanced approach to business strategy.

• Listen to the market: While staying true to your vision is paramount, remain receptive to market feedback and emerging trends (AI, circular economy…), adjusting your strategy accordingly to capitalize on new opportunities.

• Embrace pragmatism: In an era marked by frugality and focus, be prepared to make tough choices, such as discontinuing unprofitable projects or optimizing operational costs, recognizing that such decisions often yield the greatest impact.

As always, history is a pendulum where any excess (the previous period was excessive, blind idolatry of growth at any cost) is irremediably, brutally corrected with a shift to the other opposite (now we’re in a situation where we almost expect any venture to be profitable from day 1!). The key to success is to adopt a balanced approach, and a crucial tool to achieve that is common sense.