Successful AI SAAS startups will be..compound startups
Less 'focused'. More profitable.
Go deep in a vertical and you win big. Stay focused.
Well, this has been the traditional advice from every VC/startup operator over the last 10 years and like with any transformation, the GenAI era calls for new rules.
And the new rule of building startup is (probably)..to build compound startups.
First, what’s wrong with the earlier approach, i.e.more ‘focused strategy’?
In most of the verticals, there is a lot of competition for pointed solutions - and unless you are very lucky, most of the opportunities have already been sucked up by existing players.
Wanna go for breadcrumbs? Sure.
Introducing: Compound Startups?
Rippling CEO, Parker Conrad has an interesting theory around this.
He defines a compound startup as a company that builds multiple products in parallel that are deeply integrated and seamlessly interoperable with each other.
This approach allows companies to solve complex problems related to collaboration across different systems within a business.
Most importantly, compound startups solve for the coordination problem that exists in the teams (marketing doesn’t talk to sales which in turn, hates engg, which has a huge problem with QA, who always look at sales as dumbf**ks who sell anything..and so on).
Given the economic scenario out there where companies are trying to cut down on budgets and figure out how to make teams coordinate better, a compound startup fits the bill and has a strong timing-market fit.
Advantages of building a compound startup
This is a portfolio approach to building startups - but powered by a horizontal platform, so that building vertical experiences for newer use cases will be 10X faster as compared to building the same from scratch (as a matter of fact, this is what services companies do - they mostly have an inhouse platform that powers customer’s wider variety of requirements).
By building a compound startup, companies can unlock new product capabilities, simplify user experience, optimize pricing strategies, and ensure parallel execution across all their products.
The biggest advantages of building a compound startup are:
deeper product integration,
shared user experience,
platform component reuse,
aligned sales strategy, and
pricing optimization.
Of course, companies like salesforce, Hubspot have been doing this - but in the GenAI world, it is possible to disrupt larger forces by starting in one vertical and expanding into others - keeping in mind that all the product experiences are neatly integrated, refined (hubspot wins here).
For e.g. if marketing and sales have the visibility to THAT ONE DAMN CUSTOMER, the world will be such a better place. Right?
Or the other way to look at this is..FTW, i.e. Follow the Workflow.
Solve for 1 workflow. And the next. And the next.
Keep the UX and pricing consistent.
Thoughts? Here is the video that inspired this post