THE FOUNDERS AI-FIRST PLAYBOOK

Introduction

The word “playbook” in the business world has become synonymous with startups. It implies a method and formula for business success that's repeatable. Startup incubators and accelerators like Y Combinator, Techstars and other similar regional models have adopted the idea that there is a process to “startup” that is now widely recognized and utilized across various sectors. Building a playbook may be a good method for startups, but it’s important to acknowledge the nuances in business and general risk associated with not getting the playbook right the first time. In this paper, we explore playbook methods, the failure rate startups face in spite of the methods, unconventional ideas, as well as advantages for founders of having AI in this process.

Playbooks: A Blueprint For Startups

First, we will start by saying there is no shortage of articles on the art of the startup. There was a compelling book on how to start a business called the “Art of the Start” by Guy Kawasaki, first published in 2006 and revised to “The Art of the Start 2.0” in 2015. The revised book for the modern era is encouraging for founders and suggests that getting started in business has never been easier, cheaper, and more democratic–largely due to technologies like cloud computing and the methods of marketing being shifted from PR agencies to social media platforms. There is a wild suggestion that starting up is so easy, business plans are no longer necessary.¹

Sam Altman's Y Combinator, a well known startup accelerator, has put many founders on the map. The concept of a founders playbook as a formula, outlines there is a known and repeatable way to start up a business, particularly technology companies. The common elements are building blocks to get to market, product development, achieving product market fit, product led growth, go-to-market strategies, growth marketing and the basic fundamentals of a technology business broken down into KPIs tracked in what's called unit economics. In a startup environment where days matter, we recognize there is tremendous opportunity for emerging technologies to expedite the process of creating and executing a winning strategy. Various resources for building a founder's playbook are available for free online.

Many successful cloud service providers, otherwise known as “hyperscalers” have invested heavily in startups including providing advisors to ensure successful adoption of technology enabling the business. Their role as technology advisors who provide valuable technology services enable the rapid build of applications ready for scale, at a much lower cost than having to build and support IT infrastructure. In the historical context of starting a business, cloud computing was a game changer for startups. Promising startups sometimes benefitted from investments beyond technology discounts from large cloud computing companies who had a vested interest in the success of these startups. This idea, to capture young companies and nurture them, was not limited to cloud infrastructure companies. Companies like Salesforce began solely as an application service, though evolved into a platform other independent software providers (ISVs) could build capabilities upon extending the Salesforce platform. Tech providers share the benefit of the success of startup companies to utilize their services, often at a low price point to capture a new buyer, knowing revenue will increase with growth.

Founders often apply to get invited to startup bootcamps and have a long list of advisors. Some of these models for founders are fee-based, either based on cash or a share of equity. Advisors with experience in various industries and types of businesses are valuable, though matching the right experience for the right company can be challenging. There is no free lunch in any of these models. You pay to play, and sometimes advisors even invest to play, with a seat at the table.

Across the landscape of start ups, the theme of speed is paramount to success. Time to market is a metric many understand is important to optimize resources and to not let a market moment pass. Despite this understanding, Startup Genome’s 2023 Global Startup Ecosystem Report showed that early-stage startups need to spend up to 3x longer validating their target markets than founders anticipate.² While the importance of time to market is apparent, it should not take precedence over making data-informed decisions, as precision is one of the largest promoters of speed per the saying, “go slow, to go fast”. This idea is contrary to the scrappy garage style start-up Silicon Valley rhetoric made famous by Facebook, “Go fast and break things”, which essentially became a license for recklessness romanticized and embedded into startup culture. When everyone is making money, who cares. However, it is hard to maintain quality, adhere to regulatory compliance, maintain customer loyalty with a “fluid roadmap”, make thoughtful decisions and sustain a business with the mindset of figuring it out along the way. Employees as essential to business do not function well when burned out and run down by winning at all costs.

While many resources for startups are built on the idea of playbooks and repeatability, the high failure rate of startups persists, suggesting there is something missing in the business of starting up worth examination. While investors typically are on the side of their founder's success, they have a portfolio strategy to their business of investing. On average, VC actuals show only 50% of their portfolio to be successful with roughly 6% achieving a unicorn status.³ There is not the time nor inclination to to study the nuances of a market for a specific product or service, which is why playbooks make sense as a methodology for general success for founders. Think of founder playbooks as a vanilla flavored blueprint for business. In an economic climate where money is cheap, this is good enough. Alternatively, in a stormy economic climate, good enough, isn't enough. As emerging technologies mature and are utilized throughout business accelerating productivity, intelligence, operations, to strike the balance of completeness of a business plan and speed, the founder playbooks must evolve as well.

The Risky Business Of Startups

In good times, money is cheap and therefore so is time. The expectations for startups to capitalize on the market opportunity with speed drives the playbook agenda. The lean startup method is in alignment with investors looking to realize a return in 3-5 years. While generally founders and business leaders understand they have some runway, at the same time, they also understand time is their enemy, particularly now, when fundraising is increasingly difficult.

Defining a company's value proposition, unique differentiators, buyers, market segment, minimum viable product (MVP), roadmap, accurate market scan of competitors, sales strategy, routes to market, etc. is a lot to work though and can take a significant amount of time. As such, the mindset of figuring things out along the way and changing strategies as necessary is more acceptable in an easy money climate. The concept of “pivoting” is baked into the startup culture, as companies pursue product market fit, the mission, business model, and understanding customer needs while at the same time pursuing funding rounds based on realizations or projections.

The data suggests that even in good times, the success rate of startups is low. As discussed in our Product Market Fit article, “the failure rate of startup companies to progress with each round of funding is staggering.” The chart below by Michael Dzik, an expert in growing organizations, demonstrates the issue. Tom Eisenmann, a business professor at Harvard Business School who leads The Entrepreneurial Manager describes the phenomenon ’entrepreneurs are like sprinters who jump the gun: They’re too eager to get a product out there. The mindset of the lean start-up movement—for example, “launch early and often” and “fail fast”—actually encourages this “ready, fire, aim” behavior.’⁴

The new AI gold rush could not exemplify this more with growth of the AI market by 48% in 2022 to $143B.⁵ In early 2023, AI startups arrived on the emerging tech scene in force, many building purpose built AI applications adding basically a new UI to existing large language models (LLMs) that could be easily replicated by others or worse, wiped out in a feature release from a large tech company, like Microsoft, with existing applications widely deployed in business. The sheer number of AI startups in such a large market, suggests investors will do well, even if only a handful of these startups are successful.

Examining the issues, an analysis from CB Insights⁷ and HBR⁴ points to the top reasons why startups fail. Lack of product market fit, disharmony among team members, flawed business models, false starts, inadequate funding, as well as 3rd parties like investors or strategic partners. Since the market has been flush with easy money for a decade, there are also examples of companies who lacked many of these items, but were funded anyway due to prior success.⁸ Let’s assume this will no longer be the case and competition for capital will drive different investment expectations in terms of who and what is funded, as well as measures for success.

It is for this reason, founders and startups could benefit from the rigor and methods to fully build out the details of the playbooks including their markets, hypothesis, value proposition and a business plan with rigor, demonstrating thorough understanding of the solution, the market, and their company’s place in it. While small companies cannot usually afford the skills of a big four consulting firm or experienced talent from a top company, the game has changed in the post generative AI era. Now, the need for speed coupled with completeness of a business plan that goes a step further than the playbooks from the era of cheap money, is within a founder's reach. The use of AI in business resembles a time machine, one that can be leveraged to fully build the details of a business in a way that was not possible before due to time and expense constraints.

Getting It Right The First Time, With A New Agile Team Member

Building out a company playbook is a critical step that sets a blueprint for a company. Think of this as a foundation that if not built right can set a company in the wrong direction with limited ability to course correct, particularly when investors lose confidence in the founding team. Seeking additional funding rounds is easier with demonstration of success driven by clear metrics for revenue, usage, adoption, retention, and NPS, as well as other important factors. While the core elements of a playbook are common across companies, the nuances of the specific solution, industry, buyer and market are the details that are most important and time consuming to build out. From idea to launch, each component of a playbook becomes a step that shapes the next, usually with guidance from experts and advisors sometimes in an exchange for equity.

Founders are limited in this process by their own knowledge, experience and resources which becomes a dependency for working with startup incubator programs that lend advice and capital. In the absence of both, so-called bootstrapping is an option, though time to market among other important metrics can be a challenge with limited resources. There are both risks and benefits in going alone as a founder. We touched on earlier the idea that third parties can introduce risk into a company's success, and this could not be more true when founders are trading equity for advice and end up with too many cooks in the kitchen. Even with a limited number of investors, CEOs and founders often struggle in a power dynamic of leading the company, versus being told how to lead a company when interacting with a powerful investor with experience and a portfolio of other possible unicorns. Not all companies need to be unicorns, go to IPO, or get acquired for billions for a founder to realize a successful exit.

In either case, a founder seeking investment or a bootstrapped founder, it has never been a better time to be an entrepreneur with tools that democratizes access to information at scale through the use of generative AI. Building the playbook for a business is the most time consuming step of any company, though getting it right the first time is important.

The time of cutting corners to get to market is over and continuous pivoting is simply not viable, because the cost of money is high and because generative AI gives us another option.

Use of generative AI in the process of developing the playbook for a startup can accelerate the research and content to develop the thoroughness that was once more difficult and resource-intensive. Research by Mckinsey⁹ suggests that companies are beginning to realize this, as “product and service development, service operations, and marketing and sales are the business functions leading the adoption of AI.” In some ways, we can shift from the generic SaaS blueprints from the cloud era, and move towards blueprints better reflecting the details of what makes a business unique. AI utilized as an agile team of experts and advisors who can gather and synthesize the details of a new business using accepted business frameworks, is a distinct advantage for founders.

The AI-First Playbook For Founders

The key components to proven playbooks take a company from idea to stability to capture additional value from investment or as a flywheel for growth. Y Combinators’ framework for this process follows these steps: Idea, Product, Team, Execution, Business Strategy, Sales and Marketing, Growth and Fundraising. Each of these elements contains details involving research, data, and content development to support the premise of the business.

Use of generative AI to augment the playbook development process set forth by startup accelerators is disruptive when thought of as a method for accelerating time, preserving capital and protecting equity, provided expertise in working with AI as well as experience in business are central to the work. Many experts talk about “humans in the loop” in terms of working with AI, however, it is more accurate and responsible to talk about “AI in the loop with humans” in the context of AI for business, to accelerate formation, startup and to launch a new business. A recent Mckinsey report has shown that 79% of survey respondents saw their costs decrease with the adoption and ongoing use of AI, while 69% of them reported a revenue increase.⁹

The detailed elements of a playbook require extensive research, including concept viability, market size, serviceability, buyers, users, value proposition, market scan and other GTM considerations. AI as a subject matter expert for this part of the process is a viable persona on the startup team to contribute to establishing the playbook. Due to the corpus of available information through LLMs and their plug-ins, AI as a subject matter expert for specific markets, buyers and industries is also possible. Companies in early stages often do not think about blindspots or key aspects of business risk that can be silver bullets on the road to success.

While many argue about the biases of AI, humans are limited by direct experience and knowledge, which is why advisors from diverse backgrounds have been key resources for startups in many different scenarios. It is unlikely that AI will replace this depth of experience, however exploring the risks and unknowns earlier in the playbook creation process utilizing AI could be a distinct advantage for founders. AI as a mechanism for exposing previously unknown areas of risk to explore, to get educated and to mitigate barriers is accessible now more than ever before.

Development of content for brand building, product marketing management as well as to support the sales and marketing processes is within this past year broadly accessible with AI for founders who have limited resources and content design skills. Sophisticated use of AI for this purpose reduces the need for multiple specialty teams when the creative functions are thought of as an interdisciplinary skill set across multiple lines of business. This has the potential to drive thoroughness and integration across the business that often gets siloed as more people engage in the shaping of a startup. Development of strategic brand messaging, brand voice and marketing content is often time consuming and expensive, making the prospect of reiterating difficult for new companies who outsource various marketing functions. In the early stages of company development, particularly for bootstrapped founders, accessing new technologies to accelerate these processes has never been easier using new AI methods for business.

The use of data, analytics, tables and diagrams shapes the story of the founders playbook that supports pursuing the opportunity, necessary capital investment, operating costs and projections. While data and analytics services have been broadly available for decades to support storytelling of empirical information, it is only recently that AI as an interpreter of data can present insights without a human building the visualizations for the higher order function of storytelling. While it is essential for founders and executives to understand the math of the business, building a playbook that takes advantage of AI as a data translator for visualization is compelling.

Critical Issues Inhibiting AI First Playbooks For Founders

There is no question, generative AI is an emerging technology in the early phase of adoption in spite of millions of users, with varying results depending on the user, the conversation context and use. It is not uncommon to hear negative headlines about unreliability of AI or users having poor experiences. This is likely due to users lacking understanding that these systems are different from "search" and are most definitely not question and answer systems. There are no standards at this point or best practices in business that are widely accepted. Generally, there are issues with every technology in early adoption phases though the scale at which LLMs have been deployed to millions in a new business model, has opened the dialogue for broad discussion on the use, purpose and impact of the technology. Generally, there are concerns about trust of information, ethics, impact on jobs, and how society will adjust to changes in how this technology shapes the work, life and education systems we have known until now. These points are all important and worth our attention.

It is also important to consider how this technology can and will impact people who can now pursue their dream of entrepreneurship, even if they don’t have access to resources, advisors, and a startup accelerator by understanding the frameworks and how to apply AI as a powerful technology. In November of 2022, diversity VC reported that only 1.87% of venture capital is allocated to women and minority-owned startups.¹⁰ Historically underfunded startup founders who are in minority groups potentially have a new mechanism to level the playing field provided they understand the frameworks for business, methods for accessing information through enablement working with emerging technologies, particularly AI. While AI does not solve funding, it can certainly assist founders with scarce access to expert knowledge.

Conclusion

The startup landscape is continuously evolving, therefore the playbooks that guide them must do the same. Traditional methods, while still valuable, have not yet factored in the current economic climate and the emergence of advanced technologies like AI. Democratizing information and resources through AI offers a unique opportunity for founders to build more comprehensive playbooks, preserve capital and equity as well as reduce time to market. It’s important to remember, however, that AI is a tool to augment business processes, and support the work versus do the work.

Human oversight is essential in the company’s strategy development and consideration of low-level details, including but not limited to the value proposition, differentiators, buyers, market segment, competitor analysis, sales strategy, routes to market etc. Successful integration of AI into the founder’s playbook requires a deep understanding of business frameworks, the applicability of AI, and the governance over its use.

As we navigate this new age of generative AI, the playbook for startups is not solely designed to move fast, rather it’s about promoting speed because of meticulous accurate planning. AI is the medium which helps walk this line to build stronger, more resilient businesses finding their market edge. Our advisory, consulting and fractional services can assist founders on this journey whether they are starting up or seeking additional funding by utilizing AI-first approach.

References

¹ Guy Kawasaki: "Art of the Start", cited in June 2023

² Startup Genome: “The Global Startup Ecosystem Report 2023”, cited in July 2023 (Source)

³ Toptotal Finance: “3 Core Principles of Venture Capital Portfolio Strategy”, cited in July 2023 (Source)

⁴ HBR: "Why Start-Ups Fail", cited in June 2023 (Source)

⁵ Statista: “AI Market Growth”, cited in July 2023 (Source)

⁶ Executive Leadership: Running A Better Company, Michael Dzik, Pavilion CRO School, 2023

⁷ CB Insights: “Why Startups Fail: Top 12 Reasons”, cited in June 2023 (Source)

⁸ 50 Folds: "25 startups that raised without a product", cited in July 2023", cited in July 2023 (Source)

⁹ Mckinsey: “McKinsey Technology Trends Outlook 2022: Applied AI”, cited in July 2023 (Source)

¹⁰ Venturebeat: "Diversity VC reports 1.87% of venture capital allocated to women and minority-owned startups", cited in July 2023 (Source)