The Vulnerability of AI Startups

In the rapidly evolving landscape of AI startups, many companies are capitalizing on powerful APIs to deliver highly specialized services. Yet, the unpleasant reality is that around 90% will vanish within two years. Why? Their offerings are often mere extensions of existing technologies like OpenAI, making them easily replicable and vulnerable.

In short, if your startup is built primarily around a publicly available API, your unique value proposition is tenuous at best.

The Three Pathways for a Startup: Ubiquity, Acquisition, or Extinction

While not every startup aims for acquisition, there are fundamentally three paths your product could take:

1. Ubiquity: Your product outperforms the competition and becomes a leader in its domain.
2. Acquisition: Your product becomes so specialized and effective that a larger company finds it more economical to acquire rather than build.
3. Extinction: Your product fails to distinguish itself and eventually fades away.

For the first two pathways, solving a high-value, complex problem is imperative. This not only makes you attractive for acquisition but also solidifies your standing in the marketplace.

Adding Depth to Your Product

The concept of “adding depth” transcends merely tapping into an API. A multi-layered product could combine AI with unique data sets, proprietary algorithms, or domain-specific expertise.

Case Study: Capsule

For instance, consider Capsule, a startup that brings AI to video editing. It enables users to edit video by altering text in a transcript. On the surface, it might appear to be another app utilizing AI for text manipulation. However, the company layers on video editing technology, making it a deeply integrated, multi-layered solution. This complexity provides Capsule with a significant competitive advantage.

Takeaway: Aim for a product that marries AI with other technological elements, whether that’s a specific software space, hardware, or data. Your AI feature shouldn’t be an isolated function; it should be part and parcel of a holistic solution.

Future-Proofing Your Startup

To secure a pathway to either ubiquity or acquisition, consider these strategies:

1. Technological Synergy: Combine AI with other tech elements to offer a multi-layered, robust solution.
2. Economic Viability: Continually assess whether it would be cheaper for a big company to acquire you rather than recreate your offering.

Final Thoughts

As AI continues to proliferate, the startups that will rise to the top are those that go beyond the superficial layer of existing technologies. Whether the goal is market dominance or becoming an acquisition target, depth and complexity will be your allies. Creating a multi-layered product that solves a pressing, complex issue will not only make your startup distinctive but will also significantly improve its odds of long-term success.

Written by Jeremy Blaze, designer/founder at Never Before Seen and Marathon.