Notorious: AI and the Dawn of the 10x Founder (Jeff Bussgang)

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Dec 05, 2024

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AI and the Dawn of the 10x Founder

Today we have a special guest blog post by HBS Professor and GP / Co-Founder of Flybridge Capital Partners Jeff Bussgang. Jeff is brilliant and is a mentor. He's also the author of a new book: The Experimentation Machine: Finding Product Market Fit in the Age of AI. Enjoy:

In February 2024, OpenAI co-founder and CEO Sam Altman made an audacious prediction during an interview at a JP Morgan conference:

“We’re going to see 10-person companies with billion-dollar valuations pretty soon…In my little group chat with my tech CEO friends there’s this betting pool for the first year there is a one-person billion-dollar company, which would’ve been unimaginable without AI. And now [it] will happen.”

Startups are defined by their constraints: they have limited time, money, talent, resources, and opportunities compared to established businesses. But their main advantage—their ace in the hole—is their ability to move fast. Speed is imperative as startups search for a functioning business model. And now with the power of generative AI, founders will be expected to move even faster. Welcome to the era of the 10x Founder.

The startup world has long mythologized the 10x developer: the computer engineer who is so good that they can do the work of 10 average engineers. 10x developers were once the difference between a startup becoming a unicorn and fizzling out.

10x Founders have their own superpowers: the ability to recognize the next most important task and deploy the right AI workflow to execute it efficiently. They can build and scale their startups faster, with fewer resources and less capital than traditional founders. They integrate AI throughout their organization, from product development to sales and marketing to operations. They run more experiments to out-learn and out-iterate their competitors. They scale their companies without necessarily growing headcount. They use AI in creative ways to improve every function of their business.

The best way to understand a 10x Founder is to introduce you to a few of them. At Flybridge’s recent Founders Week 2024 Conference in NYC, we featured portfolio company founders who are using AI to grow rapidly and efficiently.

AllSpice: Scaling PLG with AI. Hardware engineering startup AllSpice demonstrates how 10x Founders can grow rapidly with minimal resources. When co-founders Valentina Ratner and Kyle Dumont saw that hardware teams were losing billions on mistakes due to poor version control, they built a "GitHub for hardware teams." With a successful bottoms-up sales motion and early signs of product-market fit - top cohorts spending 40 hours per month on the platform with over 100 weekly interactions - the team faced a critical growth challenge: scaling customer acquisition with limited resources and avoiding the PLG Trap.

*Kyle Dumont and Valentina Ratner, founders of Allspice.io*

Instead of building an expensive outbound sales team, Ratner and Dumont leveraged AI to nurture their strong inbound demand. They use tools like Eleven Labs and Heygen to create thousands of customized demonstration videos from a single recording. Their customers are engineers who often prefer these (AI-generated) video demos over live sales calls – and AllSpice can use these tools to move customers further down the funnel. They also use AI to automatically generate and maintain product documentation, ensuring it stays current as their platform evolves. This AI-powered approach has allowed AllSpice to efficiently convert both small teams and enterprises through multiple sales motions while maintaining a lean team focused on product development.

Topline Pro: Unlocking a Fragmented Market. Topline Pro demonstrates how AI unlocks previously impossible business opportunities. Co-founders Nick Ornitz and Shannon Kay initially launched a video chat service for plumbers, but pivoted when they discovered these businesses needed help finding customers. Using GPT-3, they built an all-in-one marketing platform for home service providers.

*Shannon Kay and Nick Ornitz, founders of TopLine Pro*

With its promise to provide pros with “More customers. More jobs. Less bullsh*t”, Topline Pro is remarkable in how they use AI to serve a highly fragmented market efficiently. They use ChatGPT to analyze small business profiles in local markets and identify qualified leads, create personalized sales content based on those profiles that achieves 10% response rates, and provide 24/7 customer support through AI chatbots. The AI chatbot has become so popular with pros that with fewer than 40 employees, Topline Pro has helped generate $180 million in new business for thousands of pros across the country.

TalkTastic: Scaling Founder-led Support. As a self-taught, “pseudo-technical” founder with a background in AI, Matt Mireles created an elegant solution when his voice-first neural interface startup TalkTastic needed a customer support system. Instead of a traditional chat system, he built an AI-powered workflow in just four hours that begins with a personal welcome video and allows customers to leave voice messages or text questions. These messages are transcribed by ChatGPT, analyzed by Claude AI to create personalized responses, and automatically flagged if they indicate bugs. The entire system runs without human intervention, yet customers regularly praise the support experience as "stellar."

Startupland is quickly being divided into old world and new world thinking. Old world thinking says that Mireles has to purchase an expensive, generic chat-based support system because he doesn’t have the time or resources to build something better. New world thinking—10x Founder thinking—says “give me four hours.”

Old world thinking says you need hundreds of salespeople, organized by region, to attack a fragmented industry. New world thinking says, “I can send personalized emails to thousands of people per week without hiring anyone.”

I share these stories because it’s hard to break out of the old world mindset, even when you come into contact with the power of AI. We need to see 10x Founder thinking in action to fully understand the leverage we now have at our fingertips. And here’s the most magical part: these modern tools keep getting better. The more you can instrument your product development, sales and marketing, and customer support processes with AI – even using the imperfect tools today – the faster you’ll be able to adopt the improved tools as they become available.

Here is one more story that exemplifies the 10x Founder shift, this one from a friend’s startup still in stealth mode. This founder recently lost his technical cofounder. In the past, that would have been an existential crisis. Today, though, my friend has opted to use ChatGPT to build his MVP. ChatGPT has become the perfect co-founder.

As he shared with me, “The result is that my burn rate is incredibly low, and velocity—the speed at which I can build and iterate on my product—has shot through the roof.” He has been able to test out his initial hypotheses while searching for a new technical co-founder on the side.

Traits of a 10x Founder

Let’s try to deconstruct the anatomy of a 10x Founder. What makes Nick Ornitz, Shannon Kay, Matt Mireles, and my stealth founder friend different? There are several traits they embody. I encourage every founder to emulate and develop them:

Scaling without Growing

When I was a founder, success meant hiring—more capital meant more headcount. That era is over. Going forward, startups will be less obsessed with hiring and more focused on deploying AI to enhance their organization's ability to scale without growing. As Adobe executive Scott Belsky says, "We are entering an era of scaling without growing... Every function of an organization will be refactored in ways that allow small teams to scale their reach and ambition without growing headcount proportionately."

Topline Pro and TalkTastic demonstrate this mindset. Rather than hiring hundreds of sales reps and support agents, they use AI to automate outreach and customer service with minimal staff. And while my stealth founder friend isn't at scale yet, he chose to build his MVP using ChatGPT rather than hire an expensive technical cofounder.

Building AI-Forward Startups

At Flybridge, we invest in AI-Forward startups - companies that use AI to build faster, better, and more efficiently. Building an AI-native organization takes intention and a commitment to reinvent how startups operate. Look at any core elements of the business model – customer value proposition, go-to-market, technology and operations, profit formula – and you'll find dozens of startups building AI tools to help founding teams become more efficient. One friend who runs a public software company tells me he's tracking 44 companies just in the AI sales development space as he looks to bring automation and AI to his go-to-market motion.

Not all these tools will survive, but soon some combination of big and small companies will provide an extraordinary suite of AI tools to enhance productivity across organizations. Lower R&D, Sales & Marketing, and G&A costs will eventually translate into higher profits.

Preserving Capital and Driving Profits Margins

As a venture capitalist, I can't help but think of the financial implications of generative AI tools. Next time a founder tells me they need millions for a sales team, I'll point them to what AllSpice and Topline Pro accomplished with good tooling. If they can't comprehend how to use such powerful leverage, they may not survive in VC-backed startups. Money will follow founders who take full advantage of AI, and results will be close behind.

Generative AI is making software companies more profitable while requiring less capital. Some argue that competition and lack of moats in an AI age outweigh the efficiency gains. Those headwinds are real, but they're not strong enough to slow down this productivity boom.

The age of the 10x Founder is here. The winners in this new era won't necessarily be the founders with the most capital or the largest teams, but those who best harness AI to run rapid experiments and scale efficiently.

Want to learn more about building startups in the age of AI? My upcoming book The Experimentation Machine provides a complete playbook for becoming a 10x Founder.

I share detailed case studies, specific AI tools and techniques, and a framework for running the experiments that will help you find product-market fit faster than ever. Pre-Order today to read the first three chapters. Use the code NOTORIOUS at checkout for 10% off.

Thanks for reading. By way of background, I am an early-stage investor at Wing and a former founder. Please reach out to me on X @zacharydewitt or at zach@wing.vc. Some of the early-stage PLG + AI companies that I have the privilege to work with and learn from are: AirOps, Copy.ai, Deepgram, Hireguide, Slang.ai, Tango, Tome and Workmate.

Operating Benchmarks (from PLG Startups):

I will continue to update these metrics and add new metrics. Let me know what metrics you want me to add (zach@wing.vc)

Organic Traffic (as % of all website traffic):

Great: 70%
Good: 50%

Conversion rate (website → free user):

Great: 10%
Good: 5%

Activation rate (free user → activated user):

Great: 50%
Good: 30%

Paid conversion rate (free user → paid user):

Great: 10%
Good: 5%

Enterprise conversion rate (free user → enterprise plan):

Great: 4%
Good: 2%

3-month user retention (% of all users still using product after 3 months):

Great: 30%
Good: 15%

Conversion from waitlist to free user:

<1 month on waitlist: ~50%
>3 months on waitlist: 20%

For more detail on acqusition rates by channel (Organic, SEM, Social etc), please refer to this prior Notorious episode.

Financial Benchmarks (from PLG Public Companies):

Financial data as of previous business day market close.

Best-in-Class Benchmarking:

15 Highest EV/ NTM Revenue Multiples:

15 Biggest Stock Gainers (1 month):

Complete Dataset (click to zoom):

Note: TTM = Trailing Twelve Months; NTM = Next Twelve Months. Rule of 40 = TTM Revenue Growth % + FCF Margin %. GM-Adjusted CAC Payback = Change in Quarterly Revenue / (Gross Margin % * Prior Quarter Sales & Marketing Expense) * 12. Recent IPOs will have temporary “N/A”s as Wall Street Research has to wait to initiate converge.

Recent PLG + AI Financings:

Seed:

/dev/agents, an AI agents operating system developer, has raised $56M. The round was led by Index Ventures and CapitalG.
Argil, a Paris-based AI video engine for content creators, has raised $4.16M. The round was led by EQT Ventures.
Circleback., an AI-powered platform intended to create a unified workflow that simplifies meeting management, has raised $2.5M. The round was funded by Transpose Platform Management, Rebel Fund, Pioneer Fund and Y Combinator.
PlayAI, a voice interface for AI, has raised $21M. The round was led by Kindred Ventures and 500 Global, with participation from Pioneer Fund, Trac, Soma Capital, Race Capital and Y Combinator.
Tempest, an enterprise-grade developer platform intended to provide a single surface for the entire software stack, has raised $3.2M. The round was led by Abstract Ventures, with participation from BoxGroup, Ascolta Ventures and Background Capital.

Early Stage:

Talus Network, a developer of a blockchain protocol to build autonomous AI agents for performing tasks, has raised $6M at a $150M valuation. The round was led by Polychain Capital, with participation from Strategxy Ventures, Foresight, Giggster, Alora Pharmaceuticals, Echo Capital Group, Animoca Ventures, GeekCartel, Zero Gravity and Fortune Tech Ventures.

Series A:

Wherobots, a cloud-native data analytics platform intended to help businesses process data in a geospatial context, has raised $21.5M. The round was led by Felicis, with participation from Wing VC, JetBlue Ventures, Prosperity7 Ventures and Clear Ventures.