Could a team of just three individuals build the next billion-dollar business?
James Currier, a general partner at NFX ventures, thinks so. In his recent article, Currier shares an intriguing proposition: the rise of the '3-Person Unicorn.' In a world transformed by Generative AI, businesses could scale exponentially with minimal human resources, sparking an inverse correlation between company size and revenue generated.
It discusses how Generative AI allows startups to automate workflows and efficiently manage their operations. "With the next generation of AI tools, teams of three very talented people will be able to grow software-centric businesses to $100+ million in revenue with automated workflows."
Currier observes, "We've seen customer service organisations drop 90% of their people after implementing good AI-enabled software. We've seen software engineers' and digital artists' output increase 100% with the right co-pilot AI tools." This reflects the savings AI-native startups can achieve and pass on to customers.
Deflationary much?
What happens when these AI-native startups pass these savings on to customers? An industry-wide cascading effect: lower prices lead to lower revenues, which could, in turn, lead to a dip in market caps.
"If you can have fewer people, every business operation gets easier, and as business elements get easier, you need even fewer people," Currier points out, highlighting how AI makes it possible to achieve more with less. The subsequent reduction in capital requirements and dilution to founders is reshaping business economics and, potentially, the value attributed to companies by the market.
This is not a drill. This is happening right now; the double-edged sword of generative AI—while ushering in efficiency, productivity, and innovation—also disrupts the market, leading to a deflationary spiral that could result in downward pressure on valuations and market caps.
Embrace this reality: 'AI won't replace you, but a human with AI will.' As we navigate an AI-powered future, it's critical to acknowledge this dichotomy. After all, the ability to recognise and adapt to change is what sets the visionaries apart from the crowd.
As investors and operators, we must grapple with these changes and question how they will affect our portfolios. More importantly, we must understand how to leverage this deflationary trend. I’d love to hear your thoughts: How do you stay ahead of the deflationary curve, create sustainable ARR and build a generative moat?
