The dawn of a new startup era
The startup landscape is evolving, with increased competition and market saturation diminishing the potential for outsized returns, particularly in AI-driven products, leading to a fragmented entrepreneurial environment.
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the overall landscape for startups is shifting. The era of generational companies, characterized by significant outlier returns, is becoming increasingly difficult to navigate. As more individuals enter the tech space, consensus on successful ideas grows, leading to a regression of capital returns to the mean. The influx of venture capital and the democratization of technology have lowered barriers to entry, resulting in a saturated market where incumbents can compete effectively with startups. This shift has created a new startup environment where the focus is on AI-driven products, but the potential for outsized returns is diminished due to high competition and low defensibility. Startups today are categorized into AI frontends, infrastructure, and full-stack products, with AI frontends facing challenges in establishing a unique market position. While building small, profitable businesses is feasible, the fragmentation of entrepreneurship may not yield the same level of success as previous tech eras. The future of startups will likely require innovative approaches to differentiate in a crowded market.
- The startup landscape is evolving, making it harder to achieve outsized returns.
- Increased competition from both startups and incumbents is leading to lower capital returns.
- AI-driven products are becoming the focus, but market saturation poses challenges.
- Startups may find success in niche markets, but overall growth potential is limited.
- The era of generational companies may be giving way to a more fragmented entrepreneurial environment.
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5 comments> I expect the true market crushers of the next two decades to be companies that are willing to venture into doing something that few would bet their professional lives on: applying the data flywheel to the world of atoms. That can range from defense tech, to biotech, from space tech, to robotics, from consumer hardware, to anything in between.
and also
> There are not many success cases I can mention to support my argument: these companies are being built right now. It will take many years to see them flourish and thrive. I don’t think it’s a coincidence, for instance, that some pure software companies like Midjourney seem to be getting ready to make a consumer hardware play.[16] Conceptually, the archetypical company that I think will win the biggest will look like Waymo. Hardware-first, ultra-high capex, more than a decade of R&D and deep technical work before seeing the light at the end of the tunnel, but an incredibly defensible position that will be very hard to attack. And the moat is not simply technical. It’s a data advantage too, as they are not a car company, they’re an AI company that is constantly harvesting data and improving their models. Physical companies applying AI to their verticals will be a marvel to witness, and at the risk of being proven completely wrong, I don’t think they run the risk of being disrupted in a hypothetical post-AGI world.
I guess it's cohesive: we're about to enter a compute/programming-as-commodity world. So your next moat is something physical that can't be replicated/made irrelevant overnight.
I personally think this is a little overblown, do we really think the era of SaaS is over? Maybe those companies are not getting the price premiums they used to, and I think thats partially the market itself maturing. But the article says:
> The more obviously good an idea is, the more competition there will be, the more an entrepreneur's likelihood of succeeding will eventually regress to the mean — in this case, average market returns.
This has always been true, and perhaps you could argue that until the early 2000s there wasn't much competition in some given arenas online, but that surely isn't true anymore. I can't think of a single emerging major startup that I can't also think of a few major competitors for, often huge companies.
>By definition, if everybody agrees that something is worth investing in, the return on that investment will correspond to the market average. Formally, “market” is simply “consensus on correct pricing”. It’s the average, the norm, the wisdom of the crowd. Generational companies are outliers, happening several deviations away from that norm. If we accept this definition to be true, it must follow that consensus and successful startups are antithetical.
Um, but then who is investing that makes a company "Generational company"? If you're hugely successful and your market value huge ... someone will be investing and there will be demand for more investment, so it's not like you're entirely disconnected from the market...
Or are we talking about everything BEFORE the market invests a lot of money?
The later section on AI and wrappers and competition made more sense to me (not to say I agree, I think I got it), but the whole idea that you should be heavily concerned with potential competition in the context of a start up is interesting to me as I think most start ups fail ... because nobody wants their product, not because of direct competition.
Generally the post felt like a blob of "start up speak" to me, and I couldn't really pick out what the big insight here was overall other than maybe something like 'bet big / weird'. But maybe that's just me.
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