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With all the talk around AI, my favorite way of thinking about it is building software to “Iron Man” a job function. “Iron Man” is a famous movie and superhero where the idea is that an inventor creates a suit that gives them superpowers. The inventor is productive on their own, but when adding the Iron Man suit, they gain the ability to fly, battle enemies, analyze situations much faster, and control other systems. All these abilities get integrated into the person, becoming the proverbial man and machine combination. 

Just like with the industrial age, where the invention of machines helped increase productivity, we’re now in the AI age. We’ve had computers, software, and technology for a long time, but AI fills in that missing piece around intelligence. AI enhances decision-making, decision support systems, and analysis, allowing us to look at volumes of data and find patterns in ways that were never previously attainable.

When we think about different categories of software, the most obvious ones are the big employment centers like sales, marketing, support, engineering, operations, finance, and HR. But, just like these mainstream categories, there are thousands of long-tail categories of employees or job functions that also need their own Iron Man AI system. 

Take healthcare, education, and the legal profession, each with its own specific job functions. Every single job function will have both general-purpose AI tools, like ChatGPT, as well as job-specific AI tools that create the Iron Man capabilities for that job function. So when people say they want to build AI for vertical SaaS, one way to think about it is whether it’s for vertical SaaS across the business or a job function. Are you building software for dentists to run their whole dental practice, or is there a better opportunity to build an AI Iron Man suit for one specific category of employee like the new patient coordinator, one specific job function, and then go really deep with that as the wedge into the market? 

Every market is different, and every opportunity has to be evaluated on its own. One recommendation is to go to the individual job function and think through the AI Iron Man suit functionality to make that person ten times more productive or to enable the employer to fulfill the mission of that role in a way that is more scalable, more distributed, or more economical. Build software to Iron Man the power of a job function.

Once an entrepreneur has gained some traction, product-market fit, and the beginnings of a repeatable customer acquisition process, one of my favorite exercises for them is the 10X scale. The tenet of this scale is the idea, “What would the business look like at ten times its current scale?” So, we’re talking ten times the size, ten times the revenue, ten times the customers, and ten times the opportunity in the market.

As entrepreneurs, it’s easy for us to get caught in the weeds, to focus on the thing that’s right in front of us. It’s also easy to neglect allocating time to the bigger picture, to where we’re going, and what it will take to get there. This 10X exercise is designed to slow down our day-to-day tactical work and really back up to look at it from a longer horizon.

Some questions to ask when doing the 10X exercise: 

What does our employee org chart look like with ten times the scale? 

What will our customer mix look like at ten times the revenue? 

What types of funding sources and capital stack will I need to fund the growth of the business to achieve this scale?

What types of partnerships, infrastructure, and geographic locations will be necessary to 10X the business?

Often, entrepreneurs think more linearly, such as where they want to be next quarter or the quarter after that, maybe as far as their plans for the following year as part of annual planning and budgeting. However, the exercise of thinking about being 10 times the size, about having 10 times the customers, and about having 10 times the revenue forces a longer-term perspective on things. What I’ve found is that entrepreneurs, when going through this exercise, often see that certain executives on the team might not be the right people for 10X the scale. They might be suitable for doubling in size, but when you start thinking about 10X in size, it’s a gut check, and there’s a sense that this person might not be the right one. When you start looking out at 10X the scale, you might realize that we need more internal management programs, more focus on employee development, and more emphasis on developing our internal skills so that our employees can grow as fast as the business grows.

One of my favorite entrepreneurial adages is, “The startup only grows as fast as the entrepreneur grows.” In the companies that I’ve seen achieve the most success, the entrepreneur has grown as fast, if not faster than the business, and continues to do so for many years.

Once entrepreneurs achieve product-market fit and have the start of a repeatable business model, they should undertake the 10X exercise. Thinking through what the business would look like at 10 times the scale, 10 times the revenue, and 10 times the customers is crucial. Going through this exercise will help foresee some of the challenges, start conversations on potentially challenging elements of the business, and overall help the entrepreneur orient more towards a long-term horizon.

Jeff Bezos once said, “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people… Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

Recently, we’ve seen two SaaS unicorns announce acquisitions to grow their total addressable market. In the first instance, announced last week, HubSpot said they are acquiring Clearbit. HubSpot offers software for marketing, sales, and customer support teams, and they’ve already experienced tremendous platform expansion. With this most recent acquisition, they’re entering the contact data space, providing people’s names, company demographics, various types of email addresses, phone numbers, and other data sources to help sales and marketing teams be more productive.

In the second example, Clari announced their acquisition of Groove. Historically, Clari has operated in the sales forecasting and pipeline space, and Groove is a provider in the sales engagement space. The products are complementary but not competitive, and again, Clari is working to grow their total addressable market.

Over the last 10 to 15 years, the main conversation in SaaS focused on doing one thing really well. The idea was that if you were a best-of-breed product, a point solution, you provided tremendous value to the customer and stayed in your lane. Partly due to the incredible amounts of funding in 2020 and 2021, there are dozens of unicorn SaaS companies and hundreds of non-unicorn SaaS companies that are solid businesses but have slowed growth rates. Their teams and boards are looking for ways to grow faster and create more value, thus entering complementary markets primarily through acquisition.

The big idea is that while point solutions worked in the past when the markets were newer, now that the markets are more mature and competitors are established, companies that are still performing well have to find new avenues for growth to grow into or exceed their previous valuations.

From a consumer perspective, as an end user of these software products, there are definite pros and cons. On the pro side, there’s the potential for fewer vendors. Imagine having to support your sales and marketing functions with 10, 20, or 30+ vendors, and being able to simplify that number as companies add more products or modules to their platforms. You’re able to reduce the number of products you pay for and hopefully get some economies of scale or better pricing by buying more from the same vendor. Salesforce.com, having done this for over 20 years, has become the expert, acquiring many products and building a huge platform. However, with scale often comes significant challenges in maintaining agility and supporting the customer.

Are we seeing the beginning of the next platform companies that will become the Salesforce.com of the future, or will Salesforce.com itself acquire some of these emerging platforms?

On the con side for the end-user, fewer competitors can mean product functionality may not advance as quickly. The opportunity to influence the product roadmap or be a customer that acts as a sounding board will be more limited. The main downside is that it’s simply harder for a company to do many things well. The more products they add to the platform, the more likely it is that those products will not be as innovative as they were when they were the sole focus.

Expect this consolidation to continue, especially where platforms are emerging, and complementary products integrate well. Over time, we’re going to see more consolidation, but not as much as some might think. The nature of SaaS, with its predictable cash flow, recurring revenue, and great gross margins, means that companies can remain in a “zombie state”—not growing rapidly but not dying off either. They don’t have to transact, and they don’t have to be acquired. So, the majority will not consolidate, but for those that align well with a larger platform, look for more M&A activity, especially over the next two to three years, as larger, well-funded platforms look to expand their total addressable markets more aggressively.

Last week, I spoke with a tech entrepreneur about AI and its potential to make software companies, among others, more efficient in the future. What will happen when many of the functions done manually today become semi-automated? Let’s take a look at a few ideas.

• Software Development: With “Copilot” type software from GitHub and other new tools entering the market, software developer productivity has increased dramatically. While there will always be a need for software developers and a demand for more software, these productivity gains mean we can amplify the output of existing talent, perhaps making them ten times more productive.
• Quality Assurance (QA) and DevOps: QA usually involves a mix of manual human testing and automated tests. Imagine an AI bot that observes real product usage, generalizes user activities, and then automates those tasks. Such AI can also introduce its tests based on usage patterns as well as random guesses. We will still need a QA department, but human roles would shift towards managing and coordinating AI.
• Customer Support: Think about all the trouble tickets, support calls, message boards, and routine check-ins related to offering a superior customer experience. With AI, we might be able to handle 70-95% of these experiences through natural language processing, ensuring correct and accurate responses. Humans will still be essential for edge cases, quality control, and providing feedback to AI. Still, from a productivity perspective, we can support customers much more efficiently.
• Sales and Marketing: On the marketing side, AI with large language models can generate content with a specific tone, style, and voice. This content can be utilized for email templates, landing pages, websites, and social media campaigns. In sales, AI can draft email templates for outbound activities, produce content for slides, and customize presentations for potential clients or requests for proposal. While human involvement remains crucial, AI can reduce the labor intensity of these tasks significantly.
• Back Office Functions: Consider areas like finance, HR, and operations. We’ll see AI enhancements in collections, bookkeeping, controller functions, and financial planning and analysis. AI will also play a role in talent recruitment, applicant tracking systems, and candidate evaluation. All these sectors will benefit from AI-driven improvements.

Taking all these factors together, one must wonder about the efficiency gains for a software company. Will it be 20% cheaper or even 50% less costly to run a software company? This will undoubtedly impact the costs, scalability, and efficiency of running a business. Will it lead to the creation of more software companies or result in more mergers and acquisitions? Will the market competition offset these efficiency gains?

The exciting aspect of technology and considering the future is that these advancements are inevitable. From the perspective of software companies, using AI to enhance business operations, not just the products they offer, will be an intriguing area of innovation over the next decade.

Last week, I had a great conversation with a fellow entrepreneur. We debated various challenges in our industry. Eventually, our discussion centered on an issue I find particularly daunting: talented entrepreneurs working on the wrong ideas.

Over the years, I’ve met hundreds of entrepreneurs. While I don’t have an answer on what guarantees success, I’ve seen certain indicators related to customer adoption, market readiness, and business model. When I engage with an entrepreneur whose business doesn’t exhibit these indicators, I often suspect their venture is misaligned with the market.

It’s so hard when a clearly gifted entrepreneur possesses drive, passion, grit, resourcefulness, and tenacity, yet their venture is unlikely to succeed without significant changes. How can we help them realize that their current path might not yield the desired results?

Many tools help in entrepreneurial development, such as the simple one-page strategic plan and the business model canvas. These resources help structure a business and the quest for product-market fit, and beyond. However, if the market isn’t receptive, or there isn’t enough demand or opportunity, success remains elusive.

I often evaluate ventures based on two criteria:

• Mission Criticality: How essential is the product to a client’s operations?
  For instance, during the great recession, a fitness center faced a dilemma: pay the electricity bill or their SaaS subscription. They prioritized the latter, underscoring the software’s importance to their business.
• Path of Revenue: Does the product directly impact the client’s profitability?
  The best examples are products that offer clear, patently obvious return on investment (ROI). If a customer purchases and implements a product that boosts their profitability or has hard savings, the product’s value becomes self-evident.

For entrepreneurs focused on an unworkable idea, my advice is to challenge their assumptions. Encourage them to visualize a venture with stronger market traction. Instead of feeling like they’re pushing a boulder uphill, they should feel like they’re guiding a snowball downhill, gaining momentum. When things click, the experience changes dramatically. It becomes exhilarating. Those who haven’t felt it won’t appreciate the difference, but it’s profound.

One question for entrepreneurs to ask prospects and customers: does this solution solve your most pressing issue? They might see this as a nice-to-have while a must-have is on the tip of their tongue. Prospects and customers are always the best source of ideas. 

There’s a paradox, however. Entrepreneurs with abundant grit and resilience might persist with an ill-fated venture. To assist, it’s crucial to broaden their perspective. Encourage them to consider adjacent markets or variations in their idea. The better market might be right around the corner.

Many talented entrepreneurs work on startups that will never succeed, no matter the circumstances. If we can guide them toward more opportunity-oriented thinking and encourage ways to find even better needs in the market, everyone will benefit. Entrepreneurship isn’t a zero sum game and we need to move the world forward, faster.

Last week, I spoke with an entrepreneur who had just secured funding at a post-money valuation of $100 million. When I inquired about his thoughts on the funding round and investor mix, he explained that his aim was to de-risk personally, strengthen the balance sheet, and position the business for an attractive exit in 3 to 5 years. I brought up the possibility of an IPO or pursuing a unicorn valuation in the future, and he expressed no interest. After evaluating startups broadly and crunching the numbers, he felt that a $100 million valuation, though significant, would still pave the way for a favorable exit, potentially to a strategic or private equity firm. He believed that targeting an IPO or a unicorn valuation in the future might jeopardize the value they’d already created and would raise expectations he wasn’t prepared to meet. However, if the business landscape changed or a new related opportunity arose, he would consider revisiting things. Based on his experience and the years spent building his business, he deemed it wise not to raise money past a $100M valuation.

Even raising at a $100M valuation signs the founders and team up for an exit goal of 3-5x that. How many $300M+ exits occur per year? Not many. Now, play it out even further, and think about raising money at a $300M+ valuation to continue aggressively investing in the business. From there, the goal has to be an IPO or unicorn round. 

From an entrepreneur’s standpoint, it’s easy to become engrossed in the thrill of securing funding, expanding the team, and growing the business. Yet, more growth doesn’t always equal a better business. Some markets just aren’t that big. Some markets take longer to develop. Furthermore, personal priorities evolve, and one’s perspective on opportunities can shift over time. And, every round of funding shifts the goal posts further out. 

Recent market downturns have indicated that IPOs now face higher scrutiny. Take Klaviyo’s public offering, for instance. Despite its immense value, the standards for them were exacting, given they reported over $600 million in annual recurring revenue and a 50% growth rate. Companies positioned to achieve such scale should consider it, but those that don’t meet the threshold (e.g. $200 million ARR with 30% yearly top-line growth) would benefit more from focusing on the private equity path, or simply growing organically without more fundraising. An IPO is increasingly unlikely. 

Entrepreneurs shouldn’t keep raising money just because they can, especially after a $100M valuation. Instead, entrepreneurs should continually evaluate what they’re signing up for and what outcomes are required to be successful.

Last week, I had a conversation with a successful entrepreneur about how to help other entrepreneurs. We exchanged recommendations and lessons learned, and he shared a concept I had never encountered before, which really resonated with me.

Many entrepreneurs forecast their growth in a linear manner. They might say, “I aim to double our revenue next year,” and consequently map this out on a chart with a left-to-right approach. So if they’re generating $1 million in revenue this year and hope to double it the next, they plot a 100% year-over-year growth on their chart.

However, he suggested that entrepreneurs should think differently. Instead of focusing on short-term, incremental goals, they should envision much greater ambitions and then plan backwards to the present. Start with the end in mind. 

For instance, an entrepreneur aims to grow their business tenfold in three years with much more than 100% annual growth, they should identify that future target first and then strategize backwards to their current position. This approach, working from the right side of the chart (representing the future) to the left side (representing the present), encourages an innovative mindset that breaks from traditional, incremental growth patterns.

This notion of “right-to-left” thinking aligns with other ambitious growth strategies, like the “triple, triple, double, double, double” approach championed by Neeraj Agrawal. The underlying message is clear: set ambitious goals, understand what’s needed to achieve them, and then work backwards to make them a reality.

Adopting this right-to-left methodology where you work backwards from exponential growth is an invaluable approach for entrepreneurs. It emphasizes expansive, long-term vision over incremental, short-term gains. The most significant accomplishments stem from the boldest ambitions. 

Last week, I was listening to a podcast from “Invest Like the Best,” where guest Miles Grimshaw discussed a concept I’ve encountered before, but never described in the same manner. The concept revolves around the in-market search for product-market fit. Historically, product-market fit has been discussed in contexts where new ideas and markets were explored. Entrepreneurs would develop a minimum viable product or minimum respectable product, then iterate and adapt it to the market based on customer feedback.

This notion of market search for product-market fit diverges slightly. The premise here is to launch a product to initiate dialogue with customers and use their feedback to potentially discover even better product ideas. It’s often challenging to engage potential customers without a tangible, functional product to present.

An instance of market search for product-market fit is Pardot. Initially, our product was a Google AdWords integrated landing page designed to generate leads to sell to companies. After building the MVP and generating several leads, discussions with prospective customers revealed a preference for a platform to generate and nurture their own leads. This revelation steered us from a lead generation system to a marketing automation platform, ultimately contributing to the business’s success.

Another example is Salesloft. The first product, “Job Change Alerts,” focused on tracking key contacts and prospects. It failed but led to the development of “Prospector,” a tool to gather contact information from the internet. Although more successful, “Prospector” did not fully meet the goals, prompting the creation of a third product: a comprehensive sales engagement and revenue workflow platform. This suite included a cadence engine and a range of tools designed to enhance sales team productivity, and it proved to be the ultimate success.

In both examples, an initial product was built, failed, leading to successful iterations. The original ideas didn’t pan out, but they paved the way for subsequent innovations, shaped by customer feedback and in-market adaption. Entrepreneurs should embrace customer feedback and be willing to adapt or pivot their products accordingly. Often times, launching an initial product to enter the market and build relationships with customers, while maintaining flexibility to pivot, is the path to product-market fit. The first product idea is almost always wrong.

Several months ago, Auren Hoffman wrote a blog post titled Dual Threat CEOs where full-time founder/CEOs are also investing in startups with institutional money. At the time, I didn’t think about it too much and put it aside as another interesting theory without knowing too many people to whom it actually applied. However, after reading it, I’ve been socializing the concepts and asking around as I meet successful entrepreneurs. Last week, in Chicago, I asked a number of the entrepreneurs I met there if they did any side investing, angel investing, had a fund, or had any sort of scout program they were involved in. I was really surprised by the results. The majority of the successful entrepreneurs I talked to last week had been investing money on the side, and they had been extremely successful doing so. Now, this could’ve been a moment in time as part of the zero-interest-rate phenomenon, or this could be a trend that has the opportunity to continue indefinitely.

One of the questions that came out of this is, should entrepreneurs run their own company as the founder CEO, who often raises institutional capital, and at the same time be investing in startups on the side, especially using other people’s money? Is this just another side hustle, or is this something that’s going to be really distracting? My answer when somebody asked if I believe entrepreneurs should do this is yes. And the reason I think entrepreneurs should do this if they want to – they shouldn’t do it if they don’t want to – is that when you’re a startup founder/CEO, one of your best uses of time is meeting with other entrepreneurs and other executives, visiting customers, recruiting talented people, and spending time in the industry. Invariably, that leads to finding interesting deals, finding interesting angel-and-beyond investment opportunities, finding interesting ways to help create value in the world.

There are just so few venture-backed founder/CEOs that most startup communities need their talented people performing both roles: performing the role of growing the venture-backed startup and performing the limited role, maybe 2 to 3% of their time, being an asset allocator for high-risk capital. Most up-and-coming startup regions don’t have enough capital; they don’t have enough people deploying capital. And so, if going through the founder/CEO route allows the community to develop that muscle around deploying risk capital and seeing more flowers bloom from the seeds planted, then so be it.

Dual threat CEOs aren’t going to be commonplace, but I do think they’re needed in the startup community. Entrepreneurs that are building businesses are going to find great investment opportunities in the normal course of action, and by being a dual threat CEO, they’re able to deploy capital in a way that is a win-win for both them, the startup community, and the funding providers.

Last week, I was with a group of entrepreneurs in Chicago as part of the Endeavor organization. One of the topics that naturally came up was ChatGPT, and how we were using it inside our respective startups. After discussing the usual ways we use it, I shared my favorite use case: cleaning up longform text that was originally from me, but putting it through ChatGPT so that it corrects all the grammar, punctuation, and spelling, making it turnkey for publishing. In fact, it’s so powerful and fast that I recommend every entrepreneur do it.

Here’s how to do it. Start by going to your Mac and enabling voice-to-text through the fn shortcut key. To do this, begin with the Apple logo in the upper left, then System Settings, then Keyboard. Enable the fn key to start dictation. Scroll down on that settings screen, and you can turn on voice dictation. Now that you’ve enabled speech-to-text through a simple keyboard shortcut, the next step is to load up your favorite word processing application. In this example, I’m using the native Notes app on Mac and setting it to plain text.

With your word processing application open, it’s pretty straightforward. All you need to do is use the shortcut key to start the voice dictation, and then you can start talking. From a content perspective, my favorite way to create content is to reflect on conversations from the last week or two. These conversations with entrepreneurs are always insightful, and opportunities to learn something new. Quite often, it’s the best source of new information that I want to document and share as part of this blog.

Once you have your long form content through the voice dictation in your notes or word processor, the next step is to copy and paste it into ChatGPT and have it cleaned up for publishing. Now you can go ahead, copy and paste, and instruct ChatGPT with the prompt, “Turn the following content into a blog post.” It will quickly generate a blog post. The challenge we’ve seen with ChatGPT is that it can be verbose and tends to get wordy with adjectives. What I like to do is give it the following prompt: “Clean up the following blog post focusing on grammar, punctuation, and spelling without adding adjectives.“

By using this as the prompt for ChatGPT, followed by the content you copied and pasted from your voice dictation, ChatGPT will immediately respond with all the content cleaned up and ready to go, including paragraphs, punctuation, spelling, and grammar – everything turnkey. Now, once ChatGPT has returned its version of the article, I copy and paste it back into the original app, the Notes app or the word processor app. Then, I go through it and refine it to make it sound more like my voice wherever possible. 

The voice dictation plus ChatGPT polish entire process takes less than five minutes and is the fastest process possible to go from idea to content to polished content to ready to publish. This is one of my favorite use cases of ChatGPT, and I highly recommend it to all entrepreneurs as they build their content and brand.