#42 — Cold Take: AI strategy beats funding

Our take: Startups don't need massive funding rounds to compete with AI giants like OpenAI—they need better strategic positioning.§

The big picture: Fundamental shifts in technology create asymmetric advantages that startups can exploit against well-funded incumbents. While incumbents like Google, Microsoft, and OpenAI dominate headlines with their multi-billion dollar investments, startups are finding strategic advantages through counter-positioning, domain expertise, and innovative business models.§

By the numbers:§

• Perplexity, a 2-year-old startup, is challenging Google's dominance with an AI-powered search engine that aggregates information into cohesive answers rather than just providing links.
• Granola, founded in March 2023, is an AI-enhanced notetaking application that's challenging traditional meeting tools by transcribing audio directly from your computer without joining calls.
• Wispr Flow, launched in September 2024 by Wispr AI (founded in 2021), is challenging Apple Dictation and traditional text input methods with AI-powered voice dictation that works across all applications.
• Gamma, founded in 2020, is challenging PowerPoint and traditional presentation tools with an AI-powered platform that helps users create polished presentations, documents, and websites without design skills.
• Ada Health, founded in 2016, is challenging traditional symptom checkers like KKR/Warburg Pincus-owned WebMD with an AI-powered medical assessment platform that provides personalized health information.

Key strategies for founders:§

• Counter-positioning: Startups are increasingly competing by charging based on outcomes rather than per seat, a model incumbents are reluctant to adopt as it undermines existing revenue streams§

• Domain expertise: Startups with deep vertical knowledge can build AI wrappers that leverage specialized processes "that you really know about what most people don't"§

• Data asymmetry: Targeting AI models that need data incumbents don't have—like discovery call execution and sales coaching—rather than competing in areas where giants already possess vast datasets§

• Nimble innovation: Startups benefit from fewer bureaucratic hurdles, allowing them to build and ship innovations that might take much longer to deploy in larger companies§

Between the lines: The most successful founders live "with one foot in the future," using emerging tools obsessively until they spot opportunities others miss.§

What's changing: Knowledge work is evolving from a "sculptor" model (hands-on crafting) to a "gardener" approach (creating conditions for autonomous growth)—a shift that favors those without attachment to traditional methods.§

The bottom line: AI is fundamentally changing startup economics, creating openings for smaller players with strategic vision to outmaneuver tech giants despite having fewer resources.§