How AI startups offer a 100x + cheaper disruptive value prop that unlock new markets (think: HeyGen, ElevenLabs, DeepL)

A common trope repeated in the media and behind closed doors is that incumbents, not startups, are best positioned to take advantage of AI. In this line of thinking, AI is a sustaining technology that reinforces the positions of existing players, rather than a disruptive force that empowers new entrants. There is certainly some truth to this perspective, particularly for startups that focused on increasing the productivity of employees pursuing their existing work — just look to companies like Adobe and Notion and the lightning speed with which they integrated AI features. In the classic race of a startup needing to figure out distribution before an incumbent figures out innovation, for too many use cases, it has felt like incumbent innovation is just an OpenAI API call away. But like all tropes, it is too simplistic. We're now seeing a class of B2B AI companies unlock tremendous revenue momentum by leveraging a timeless recipe from the consumer world: providing a 10x better experience at a fraction of the cost.

Amazon, Netflix, eBay, Uber, Airbnb - when each launched, they seemingly targeted small markets, and yet had insatiable demand for their offerings. The secret, obvious in retrospect, was that they provided a 10x better experience than the incumbent substitute, and provided that service cheaper by using technology to have a structural cost advantage over the incumbents. 

In each case, almost everyone underestimated the potential opportunity of these companies. The “miss by a mile” mistake is that when you use technology to create a step-function improvement in an experience and are able to provide that service at a markedly lower cost, the demand and potential use cases for that product explodes. 

Which brings me back to AI. 

What if, instead of having to find an artist on a freelancer website, go through alllll the effort of selecting someone who has the style you like, has great reviews, actually responds to you, and then iterating with that person to get to the design you want over days if not weeks, you could quite simply describe what you want with words, and in seconds, an image is generated at a small fraction the cost? That’s MidJourney. 

Or what if, rather than having to find, hire, and manage human translators, you could instantly have your documents or application translated as quickly as words are written in whatever languages you want, at a price impossibly cheaper than hiring a human. That’s DeepL (a Benchmark company). 

HeyGen opens up a market that few would have bothered with given the cost and friction - hiring an actor for your company. The hours and hours of effort of hiring an actor, staging the production and post-production of a shoot…. Compressed into five minutes, with limitless iteration on scripts and other control mechanisms moving forward. 

Companies like ElevenLabs provides a 10x better experience than hiring voice actors (instant audio, none of the overhead of hiring, none of the cost of recording). And because it's built with AI, it provides that experience significantly cheaper than hiring humans, thus dramatically expanding the market opportunity for voice acting.

What’s critical in each of these cases is that these are not explicitly productivity improvements to existing employees for existing workflows. Instead, they take markets that were constrained by all the effort, friction, and cost of hiring and working with people, and unlock them. Exactly the type of market that gets overlooked by an incumbent.

If the last couple waves of startups felt like 10x improvements, AI provides what feels like a 100x better experience than the incumbent substitute (humans!) by compressing what is almost always the significant effort of hiring and managing another person, into a near instant experience that will only get better over time. To do this at a small fraction of the cost of hiring/managing that human dramatically opens up limitless use cases and therefore dramatically expands the market. If people underestimated the size of Uber's market initially, we're all underestimating the size of many AI startups' opportunity.

The fun question to ask is which categories are next?As I wrote about before, it’s easy to go down this list of Service sector value added to the Gross Domestic Product (GDP) of the United States of America in 2021, by industry, and start to imagine where the startups might emerge within each of these high level categories… And as always, if you are building one of these companies, I’d love to meet you. Sarah at Benchmark dot com.

As I write this, I am once again aware of the 3rd rail I am touching – the fear that AI will replace humans over time. With every new technology, there is this fear. And time and time again, we see that while the new technology does indeed take on the work that humans used to do, it also creates new work for humans that lets them take advantage of what is most special about being human - our originality and creativity. As much enthusiasm as I know I have for AI, the reality is that we are still very early with this technology, and there is still near infinite work that only humans can do. AI gives humans even more space and bandwidth to achieve those pursuits.