Pablo Srugo (00:00.142)
So I was thinking more about this whole distribution versus product, startups versus incumbents race. You know, on the one hand, this is something that is always the case for startups. Like new entrants always have to take on incumbents. That's happened forever. And that's the case in every single technological shift and every single revolution. But as I was thinking through this, I realized there's actually a major difference between the shift that's happening in AI and
the shift that happened in the last few revolutions. So if you look at mobile, if you look at web, the internet, and if you look at PCs, and the difference is this, if you think about it, with every single one of those technological shifts, right, so when mobile came along, when the internet came along, or when PCs came along, what you also had at the very same time is a new distribution channel. So take the iPhone, right? The iPhone is a new distribution channel. So what does that mean? If you think about, for example, a new entrant like in mobile, like Uber,
Right? So when Uber came along, it had to face incumbents, it had to face taxis, right? There were taxis everywhere. That was the norm. That's what you normally used. But taxis, they didn't have an app. And so what Uber got to ride and in a way kind of levels the playing field is that it got to ride the wave of iPhone adoption, smartphone adoption. They got an app in your phone before any of the taxi companies did. And obviously that's a huge tailwind for a new entrant to kind of...
come in at the same time as a new distribution channel starts, where everybody kind of has to start from zero. So they say that a taxi company even would build an app, they'd also have to start from zero. They'd also have to go from zero downloads on the app store and grow. And that's huge for an entry, because what Uber got, it got some of the most important real estate. They got an app literally on your phone. And they did that before any of the incumbents could do that. And that goes for every single major tech revolution before. So if you think about, for example, the internet, and you take Amazon versus Walmart,
Like how come Amazon was able to build a trillion dollar business in e -commerce when Walmart had been around for decades, already had stores, already had inventory, already had distribution. Walmart was the incumbent and it took them five years to get into e -commerce. Five years later, by the time Amazon was literally a $30 billion company in the 2000s, that's when Walmart started in e -commerce. Why was that? Well, because the internet, the web was a new distribution channel. The reality is that
Pablo Srugo (02:28.206)
Walmart had stores, it had infrastructure, but it's not like it had a website. So when the internet comes out and browsers like Netscape and then Explorer come out, everybody's got to start from zero. Everybody's got to start from a blank slate. It's effectively a blue ocean for everybody. Entrance and incoming to like. Sure, Walmart has a brand and Amazon didn't, but neither of them had a website. So there's a new distribution channel that's born at the same time as a technological revolution is. And again, levels the playing field between
entrance and incumbents. Same thing in the PC era. You look back at PC era, well, PCs, personal computers, they're a new distribution channel. When the PC comes out, everybody's got to go and build an app from scratch. There is no software that's already built out to work on a PC. And that's the sort of thing that helps Microsoft, because guess what? IBM doesn't have an OS already pre -built for a PC. It's a new distribution channel. And they end up finding a partner and that partner is Microsoft and the rest of the space history. And that is not the case in AI. It's a huge, huge difference. If you just think about it for a second,
AI is not a new distribution channel. It's a huge technological shift. It's a huge innovation, but it doesn't lead to a new distribution channel. If you look at all the AI companies, guess what? They're either a website or they're mobile apps or they're web apps. They're not starting on an even playing field against incumbents. Take Perplexity as a very, very clear example. Perplexity is just a website. It's literally just a website. So sure, Perplexity launches two years before Google launches like AI Overviews, but at the end of the day, both are literally just a website.
And so they're not at all starting from an even playing field was the case in the last few technological revolutions. And this actually aligns. If you think about there's this book, obviously everybody is very famous book that I'm sure you've read called the innovators dilemma by Clinton Christensen, where he talks about disruptive versus sustaining innovations. And the two concepts really come together here, because if you think about AI, AI is a sustaining innovation. Whereas all the other tech revolutions I'm talking about take mobile, like a mobile app is literally at the beginning. It's just a smaller.
worst version of a PC app. It's got less compute, it's got less memory, it's got less space, it's got fewer features. And those are the sort of things that throw off incumbents because incumbents are fully optimized for the world as it is. They're fully optimized for the PC. So when mobile comes along, even if they want to move into it, they can, but all of a sudden they've got to rethink everything from first principles. And what are those first principles? And so while the mobile phone is worse on all of the kind of axes that matter at the time,
Pablo Srugo (04:54.83)
It also opens up completely new things. It opens up, for example, the fact that there's a camera. And so Instagram is born. It's got a headphone jack. So Square is born. It's got GPS. So Uber is born. And these are differences that new entrants can take advantage of maybe even faster than incumbents can. Go back to the last one, right? You go back to e -commerce versus commerce. E -commerce when it comes out is a worse version than in store commerce. You can't sell nearly as many goods. You have way less selection.
Prices are higher because you got to pay for shipping and shipping is crazy at that time and it's slow. Everything about it is worse. So why would Walmart even care? Plus the market is tiny. There's only so many people at that point that actually care about e -commerce. Tiny little market. It's a disruptive innovation and it makes it really hard for incumbents. Again, same thing with PCs. How come IBM launches kind of the world's first, let's say mainstream PC and gives the entire cake to Microsoft. It's because they didn't know any better. It's because they didn't figure it out. It's because it was a disruptive innovation. And even though they moved into the game,
They didn't actually know how to play it. What they were at the time was a hardware company. They were experts at hardware manufacturing and they thought PCs would just be a smaller version of mainframes. They'd be a smaller version of mini computers. And it turned out PCs were a completely different thing where the market all of a sudden shifted and where the value accrued changed. And all of a sudden, what was important was not the hardware, it was the OS. And so, and they'd given it away to Microsoft, but that doesn't happen with sustaining innovations. And that's the big difference between AI and all these other revolutions, which is that today,
Not only has all of the main companies, the big companies, right? We're not talking about Walmart or taxi companies. We're talking about Google. We're talking about Meta. We're talking about Amazon. We're talking about tech companies. They all understand the innovator's dilemma. Not only that, they're not even really facing it because again, AI is not a disruptive revolution. There is no new distribution channel. All they have to do is add AI to their main products and their products just get better. They don't have to think. They don't have to rethink everything like incumbents had to in the last revolutions.
This is obviously critical for founders because basically this why wouldn't X question takes on a whole new meaning. It's gotta be way more prescient than ever. There's always, like I said, always a worry about incumbents, right? New entrants always have to fight incumbents. But in this tech revolution, in the AI revolution, the playing field is not nearly as leveled out as it was the last few times. So as a founder, you have to go into it really thinking about what do the incumbents in my space look like?
Pablo Srugo (07:18.83)
And why do I actually believe that I'm going to win the race of product versus distribution? It's always the case that startups have better products, at least initially, they're earlier to launch products and incumbents have better distribution. And in this revolution, this is one of the most important questions that founders need to think about. And so the way I think about it is, there's effectively, the way I think about it is there's actually like three questions that you really need to think through, right? The first one is who are the incumbents?
because not all incumbents are made equal. Are we talking about a tech company like Google or Meta? Is that who you're competing against? A tech company that not only has incredible resources, brand distribution, just like all incumbents, but on top of that actually knows how to develop technology, can actually attract incredible talent. That's the first question versus if you're tackling some legacy player that's spending more time refactoring than putting out new features that doesn't have the ability to get the world's best engineers to come work for them. The second piece is how much power...
through the incumbent tap. There's a huge difference between taking on a monopoly, a duopoly, an oligopoly, and taking on a truly fragmented market. Because if you've got, let's say, 15, 20 players that all matter more or less equally, then as a startup, you can have a lot more power relative to them. It's obviously way different to do that than to go up against, let's say, a duopoly. Because in a fragmented market, what opens up to a startup is partnerships. All of a sudden, you have 15 players,
who are highly competitive with each other and who therefore have a lot more reasons to partner with you and give you the distribution that you're lacking. And the final piece obviously is, are you targeting a primary use case? So going back to that perplexity versus Google example, which is just so top of mind, if you go after Google and you go after search, you're in trouble. You can't just walk in through the front gates as a startup and expect to take on a giant. You've got to go around. You've got to find the side door. And the side door for Google is definitely not search.
So the reality is any incumbent has, most incumbents tend to have big products with many different features. They're playing in many different, let's say niche markets. They're playing across many different markets. Some are priorities, some are not. There's a huge difference between building something that is top of mind for the incumbents and building something that's a fifth, sixth, seventh priority. Because the reality is when you go up against Google, you're not necessarily going up against Google, you're going up against a PM at Google. And if,
Pablo Srugo (09:43.31)
That PM and that team is the team that's getting the most attention, the most resources, and you're in trouble. But if that team and that PM is not, if it's on the periphery, then you as a startup have a high chance of being, how much? Then you as a startup have a much higher chance of beating them. But I say all this because I've seen many startups already that rush to build out a product and are first to market with some pretty innovative AI driven features. They're not taking nearly enough time to think about what's going to happen.
when inevitably the incumbents come out with something similar. This revolution is not like the ones before. The playing field is not level. And so if you're a founder and you want to build something truly big, you've got to think this through and you have to position yourself in a way that you're likely to win the race. I just gave you content that you liked so much. You actually listened to the end and guess what? You didn't pay a single dollar. Not only that, I didn't even put any ads.
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