Rapid improvements in AI create new vectors of attack and new moats of defensibility.
While much has been written on how AI revolutionizes products, there’s relatively less focus on how it transforms the way products go-to-market.
AI has the potential to create entirely new go-to-market paths.
But amidst the current AI hype, we’re susceptible to over-predicting where this is going to happen and under-appreciating where the opportunity actually lies.
To understand where AI can and cannot create new paths to the customer, we need to understand the fundamentals mechanics of a new form of growth: AI-led growth.
Let’s get stared!
But first…
The core focus of my work this year is the intersection of platforms and AI.
I’m traveling on a speaking tour of the US coastal states during July and August 2024 to speak on this topic.
Ok, let’s get back to AI-led growth.
To understand that, we need to start with how B2B channels work today.
In How to win at Generative AI, I call out three sources of advantage in B2B ecosystems.
- Relationship advantage: Do you have primacy of relationship with the key stakeholder?
- Workflow advantage: Do you own the core workflow?
- Intelligence advantage: Do you inform the core decision?
The evolution of B2B platforms (and products) over the past four decades has progressed along these three advantages.
Enterprise software providers primarily operated on a relationship advantage.
They would build large sales teams, arm them with wining-and-dining budgets, and engage in long sales cycles to sell millions of dollars worth of software contracts. Enterprise-level buyers would buy software and force it onto users in the enterprise.
Around the mid-2000s, the rise of the cloud and the ability to host software in the cloud started creating another form of advantage – a workflow advantage.
Unlike enterprise software, which was clunky, took years to implement, and provided relatively low flexibility once implemented, cloud-hosted software (as-a-service) could be updated and versioned without worrying about individual implementations. User experience could be constantly improved. Most of all, cloud hosting enabled a fundamentally different path to market. Users could try out the software before buying it. They could get on to pay-as-you-go pricing programs and scale up or scale down their usage.
This shift in advantage was accompanied by a shift in the dominant growth model. Enterprise software was dominated by sales-led growth. Cloud-hosted software could leverage product-led growth i.e. the product itself was sufficient to drive growth for the business.
Product-led growth positions the product as the primary driver of customer acquisition, retention, and account expansion.
I’m not a big fan of the term ‘product-led growth’ – but it caught on largely because it pitted this new breed of startups against the old guard. The new breed didn’t need salespeople in suits traveling business class and racking up credit card points on company budgets. Instead, all you needed was engineers in hoodies working with designers who were constantly focused on improving the trial experience, improving conversions, reducing churn, and so on.
We’re now entering a new phase where the growth model is poised to shift again.
But if you’re largely focused on the ‘sales-led’ vs ‘product-led’ distinction, the shift may not be all that obvious.
However, going back to our original framework of three primary sources of advantage:
- The first shift from sales-led growth to product-led growth was largely a shift from leveraging a relationship advantage to leveraging a workflow advantage.
- Underpinning the next shift is a shift to a new form of advantage – a shift from workflow advantage to intelligence advantage.
Here’s how to think about what really changes with AI-led growth:
Viewed purely as a distinction between sales-led and product-led, the distinction may not be clear – AI is essentially embedded in the product.
But the shift is important for another reason. If AI can help capture the core decision that your customer engages in, it can create a new path to the customer.
AI-led growth involves
(1) gaining the right to inform the user on their core decision (or entirely absorbing the decision away from them) and
(2) leveraging that right to expand across a range of other use cases.
AI-led growth creates a new opportunity to gain customer adoption.
- Product-led growth shifted focus away from capturing buyer relationships to gaining user workflows.
- AI-led growth shifts focus away from capturing user workflows to developing the intelligence to inform the user’s most important (and underserved) decision.
This has important implications.
In industries where relationships are still critical to gaining customer trust and closing the sale (e.g. reseller relationships), AI can unlock a new sales channel if it creates a new path to the customer.
These industries typically still operate on a sales-led growth model because sales agents and resellers possess specialized knowledge about the product and/or the customer context based on which they continue to own the right to sell, and the product is too complex to be sold on a try-before-you-buy model.
AI-led growth attacks these industries when a sufficiently sophisticated AI sales assistant, empowered with product knowledge (trained by the company) and customer knowledge (trained by resellers) can take over the sales channel.
This plays out in four stages:
- Stage 1 – Assistant augmentation: The company converts its product knowledge into a ‘sales assistant’ – an AI assistant which assists salesforce and resellers with the product.
- Stage 2 – Salesforce expansion: The reseller/salesforce dramatically increases as learning curves go down for new resellers who no longer need extensive training to sell the product.
- Stage 3 – Assistant learning: This widening base of salesforce and resellers using the AI sales assistant rapidly create data about different customer needs as they work with the assistant to address them.
- Stage 4 – Salesforce contraction: Once sufficient customer data has been captured, the assistant is sophisticated enough to replace sales channels and serve the customer directly.
At various points across these four steps, the actual ‘product’ form of AI may take one of two shapes:
- Replacing the current channel (prospective customer interacts with AI assistant) or
- Embedding in the current channel (AI assistant augments sales manager).
Essentially, across the four stages, we’re moving from a relationship advantage towards an intelligence advantage, which we then leverage to gain back and create a new relationship advantage.
Of course, if a competitor already has customer knowledge through some other mechanism, they can directly attack and collapse the above process down to Step 4. But in most cases, a shift from sales-led growth to product-led growth – in the absence of ‘unfair’ data advantages – will follow this path.
To the extent that relationship advantages are based on specialized knowledge, AI-led growth launches new attack vectors to create a new path to the customer. Firms that resist these channels may find their path to the customer taken over by firms that do.