THE PUFFERFISH PHENOMENON: HOW AI IS RESHAPING BUSINESS SCALE AND POTENTIAL

Introduction

In the vast ocean of business, there’s a new species emerging, one that’s redefining the traditional metrics of size and capability, call them Pufferfish companies. Just as the pufferfish can inflate to appear much larger than its actual size, businesses, powered by generative AI (GAI) throughout their operations could demonstrate capabilities disproportionate to their company resources. While the narrative of AI as displacing human work has dominated headlines,¹ there is also an opportunity to talk about GAI as the great business equalizer.

Historically, the scale and reach of a company have been directly correlated to its resources, manpower, and infrastructure. There are a few industries like energy and healthcare that have disproportionate revenue to employee ratios suggesting a mix of high profit margin and/or efficiency of output, measured as revenue and shareholder value.²

Larger corporations with vast resources typically dominate markets and overshadow smaller entities who may struggle to carve out a niche. However, the advent of GAI is defining a new era where the playing field is being leveled representing a radical shift in market dynamics. It has never been an easier time to start up³ and compete differently with limited resources. While some GAI naysayers will be fixated on the false safety of outdated frameworks for guidance,⁴ others will seize tremendous opportunities to charge ahead to outpace competitors.

These companies, though perhaps modest in physical size or traditional resources, are leveraging GAI as a powerful capability to amplify their presence, reach, and impact in ways previously not possible. This is an important moment in business history, where technological prowess can eclipse traditional measures of company strength to compete in the market.

The Rise of the Pufferfish Company

GAI has ushered in a new era where businesses can produce content, deliver services, and operate at a scale that belies their actual size. The Pufferfish company understands they can punch above their weight and are implementing GAI throughout their operations with speed and purpose.⁵ They are not waiting on existing vendors to develop capabilities- they don’t have time.

These companies are nimble, efficient, and meet market demand despite the lack of resources based on their desire to win. Their constraints drive their efficiency enabled by leadership who embraces the advantage of GAI to accelerate business.

In short, they have no fear of failure.

Presumably in the future, a high revenue to employee ratio may not be an outlier for an industry but a performance metric for efficient use of GAI as part of operations. While it is early in this new paradigm, it is clear GAI can be utilized to produce high quality content, develop new capabilities faster and embed efficiency throughout operations⁶ in understood processes.

Content Creation Revolution: Content creation, which once demanded extensive human resources, time, and effort, is being revolutionized. AI-driven tools and techniques combined with expert marketing processes as well as standards, can enable a handful of individuals to craft content that resonates with target audiences. Whether it’s blog posts, marketing campaigns, or presentations, the quality and volume of output are no longer constrained by team size. This means that a startup with a smart lean cross discipline marketing team is no longer constrained by lack of budget. While a small company may not rival the content production of giant corporations, they have a fighting chance to be heard in the market.

Accelerated Capability Development: One of the most transformative aspects of GAI, is the pace at which companies can develop and deploy new capabilities. In traditional business models, the introduction of a new service or product often involves lengthy research, development, and testing phases. However, with the integration of GAI throughout product management and development operations, businesses can more quickly identify market gaps, prototype solutions, define personas, and refine offerings based on buyer feedback. This agility as part of development can reduce the time-to-market, accelerate product market fit⁷ and enable companies to stay ahead of consumer demands and industry trends. The ability to develop new capabilities faster gives these businesses a dynamic edge to seize new opportunities.

Operational Mastery with AI: Efficiency is at the heart of this new generation of companies with GAI as part of the fabric of operations including sales, marketing, HR, product, legal, etc. By streamlining every facet of their operation they can reduce their SG&A.⁸ While GAI can be utilized throughout business, it is important to note, humans are the driver of work outcomes with GAI as part of enabling and enriching the work to its maximum potential. This operational efficiency means that resources are utilized optimally, overheads are reduced, and companies can deliver exceptional value to their customers, stakeholders, and employees.⁹

In essence, Pufferfish companies are AI-First in their approach to business. They are setting the new standard to empower their creative processes, operating differently without the stigma and burden larger companies have to defend and solve for displacement of workers. While having fewer resources, they also have fewer constraints on where and how they can deploy GAI in their operations, a distinct advantage in this enormous shift in business, if done thoughtfully.

Business Strategy Remains Key

It is worth noting that GAI is a strategic advantage in the intricate dance of market dynamics, but does not discount the importance of business strategy. While businesses can use GAI to accelerate their position in the market, achieving an early mover advantage is completely dependent on strategy to establish a leading position, as well as keeping it. In the arms race of GAI capabilities, understanding business and architectural control points are important to capture an advantage. Essential components to this end concern respect, moats and talent.

Commanding Market Respect: While perception carries significant weight in the business world, expertise cannot be understated in one’s ability to earn market respect. When a company projects an image of being more proficient than competitors, in spite of the size of the company, this can translate into tangible benefits through growth and recognition in an industry. Customers are more likely to engage with a brand that is authoritative and reliable. Suppliers view such companies as valuable partners, leading to better terms and collaborations. Moreover, the ability to set premium pricing comes from the trust and value associated with the brand, allowing smaller companies to enhance profit margins and invest in further innovation.

The Significance of Moats in the AI Era: In the world of business, moats represent sustainable competitive advantages that protect a company from its competitors. Even in the era of GAI, where technological advancements can provide a market edge, the enduring strength of a well-established moat cannot be understated. We have seen examples of start up companies wiped out by feature releases from large companies, akin to a giant walking over a moat. While GAI can amplify a company’s capabilities, it’s the strategic moats like proprietary technology, data, unique customer relationships, or brand loyalty can ensure long-term market dominance. These moats act as barriers, safeguarding businesses from potential threats and ensuring they maintain their market position even as competitors adopt similar GAI tools.

Attracting and Retaining Top Talent: The global intergenerational workforce, complete with post pandemic overtures, is undergoing a radical transformation whether companies believe it or not.9 There is a sea change afoot with many companies embracing the shift to GAI, while others are wrestling with the challenges as well as consequences to their workforce. Companies who are operating with an AI-first approach are realizing the advantages of GAI in market innovation which will be attractive for top talent who see their future clearly. These professionals seek companies where they have an opportunity to make the transition to a post GAI era and thrive for their future. Companies who are fully embracing GAI can communicate a position of market leadership as pioneers to attract top talent. Moreover, the dynamic and forward-thinking work environment employers offer ensures that talent remains engaged, loyal, and productive.

Capturing the GAI market moment as a strategic advantage is about being ready when others may not be, regardless of size by capturing mindshare, solidifying a defensible position while attracting and retaining top talent. While these areas may be obvious, for larger organizations making this transition is as much about leadership as it is about entrenched culture that can both enable and inhibit change.

The Risks of Ignoring the Pufferfish Phenomenon

For businesses that fail to embrace GAI and the potential it offers, the risks are significant. In today’s rapidly evolving business landscape, the integration of GAI is not a luxury but a necessity for companies aiming to remain relevant and competitive. While we can point to the graveyard of companies who failed to transition to cloud, this time, failures will look different because this tech is very different. Those that hesitate or neglect to incorporate GAI into their operations stand to face a multitude of challenges, some of which could be detrimental to their very survival as they encounter new market entrants.

Loss of Market Share: Businesses relying on outdated models without AI as part of their product strategy will find it challenging to retain their customer base. Companies may realize that their vendors’ capabilities may be a limiting competitive factor. New companies, smaller companies of inconsequential size may offer significant capabilities to these buyers who are concerned about their own position in the market. Both customers and vendors are under pressure to maintain a competitive position to protect market share which represents a new dynamic at a speed unlike anything the market has seen before.¹⁰ Agile companies are positioned to capture market share through emerging tech, particularly GAI.⁴ Businesses risk becoming less relevant, leading to a steady erosion of their market share unless change is part of their agenda.⁹

Reduced Competitive Edge: In the past, factors like brand legacy, physical presence, and capital might have been enough to maintain a competitive edge. However, in the AI-driven market, these factors are quickly overshadowed by the sheer efficiency and innovation that AI brings to the table. Companies with AI-backed operations can develop products and services at a lower cost while maintaining high quality, as well as embed intelligence in delivery and support. Businesses without the advantages of AI, will find it increasingly difficult to match these offerings. Over time, their inability to compete on these fronts will lead to a diminished market presence and reduced customer loyalty, as customers discover other available options.

Operational Inefficiencies: GAI as part of known business processes, optimizes resources, and provides insights that can lead to significant cost savings and enhanced productivity for workers. Businesses that shy away from GAI integration will operate at a disadvantage with higher cost structures leading to redundancies and missed opportunities. Companies who see the advantage to upskill all employees to higher value work will operate more like smaller agile companies.9 Similarly, manual processes that could be automated with AI will remain time-consuming and error-prone, leading to avoidable inefficiencies and therefore costs.

GAI offers clear advantages, challenging older ways of operating, particularly for new companies with an AI-First mindset. Companies that ignore the potential of AI, risk falling behind in a fast-paced market that values innovation. For continued success, businesses should integrate AI-driven approaches, to remain competitive and navigate challenges ahead.

Conclusion: Embracing the Future

In an age where technology is rapidly reshaping the contours of the business world, it’s easy to be swayed by the symphony of voices painting a bleak picture of GAI’s impact. Yet, as the Pufferfish phenomenon illustrates, there’s a brighter, more empowering narrative waiting to be told. This story speaks of a future where the size of a company’s ambition isn’t limited by its resources, but by its vision and its willingness to innovate with this powerful capability.

StartStak is on this journey as an AI-First company. With a deep understanding of the intricacies of emerging technologies, particularly the application GAI, we recognize the boundless potential. We see beyond immediate challenges, seek to understand and problem solve, while tuning out naysayers to focus on the long-term opportunities to enable others.

To the businesses of today and tomorrow, our counsel is unwavering. Don’t just adapt to change; be the catalyst for it. If you are starting on a new business journey, embrace the power of GAI, embody the spirit of the Pufferfish to capture your unfair position in the market. In this market moment, competitive dynamics are at best unstable and fair game for anyone. It’s no longer about a competition of resources or infrastructure, but how one uses and optimizes them for an advantage, to deliver on a vision and mission. Come with us to the future.

References

¹ Fortune: “IBM’s CEO, who froze hiring for thousands of back-office jobs and predicted A.I. would take up to 50% of new jobs, just piled into a $4.5 billion tech unicorn’s massive new $235 million funding round”, cited in August 2023 (Source)

² Qz: “Energy and healthcare dominate the list of top companies ranked by revenue per employee”, cited in August 2023 (Source)

³ StartStak: “The Founders AI-First Playbook”, cited in August 2023 (Source)

⁴ Mckinsey: “The economic potential of generative AI: The next productivity frontier”, cited in August 2023 (Source)

⁵ Mckinsey: “What is generative AI”, cited in August 2023 (Source)

⁶ StartStak: “Product Market Fit: Growth in the Era of AI”, cited in August 2023 (Source)

⁷ Forbes: “Three ways AI can protect revenue and bring costs down during challenging times”, cited in August 2023 (Source)

⁸ StartStak: “Gears of Change: Strategy, Culture, AI and the Future of Work”, cited in August 2023 (Source)

⁹ StartStak: “Emerging Technologies: The Hyper-Speed Evolution”, cited in August 2023 (Source)