The battle between startups and incumbents comes down to whether the startup gets distribution before the incumbent gets innovation, and AI changes the equation because incumbents can now innovate faster—but many categories like healthcare admin never had an incumbent software company at all.

22:40crap like there really aren't if you build something I call this the to problem and to famously to and replay TV both invented the digital video recorder so you could pause online television >> which is an amazing innovation but a terrible company because you really have very few outcomes that are good. you either end up selling to one of the the big guys like a Comcast or Time Warner

23:02Cable, but they're not going to pay you that much partially because if if Comcast bought you um you you start Teo, Comcast buys you. Well, all of the comp all of the competitors to Comcast, they're like, "Well, we're going to not allow this to work." So, like uh you you have what what I call a control discount versus a control premium. So, that's option one. Option two is they copy what

23:24you've done many years later. are much crappilier if that's a word because they have all the customers. Um or you know may maybe number three you do a licensing deal with them >> and uh they take all the economics because they have all the customers. So that hence you know my my recognition was like the thing that a lot of startups should do is they should do the

23:44boring thing like they should build like the raw pipes the raw like just own the customer and then you get to build the fun feature on top. Um which I still stand by. I mean I like the vast and and this is why like maybe four years into trial pay I realized what I should build is this thing called stripe and this was not like revisionist history because

24:02stripe had five people it's like wow we should we should do boring payment processing which is a commodity business because if we do that then we own the customer chronologically you get them first it's a very very boring thing but then we had this other thing which in my case was offerbased payments which was very lucrative but you can only do that if you control the pipe just in the same

24:22way that you can only build the digital video recorder if you have digital video to record. Um, so how does this change with AI? It changes with AI because in many cases these are non-categories like there is no incumbent. So for most categories like imagine that I say I have a great idea. I'm going to do background checks for new employees as part of onboarding and I'm going to

24:42integrate with workday. Workday being the b the biggest HR information system. That's a great idea. Um however um it's such a great idea that it's a very obviously great idea that this thing called workday might copy and they own all the customers and that's where it's like you know battle between startup and incumbent it's like the incumbent might win there because their ability to add things and I feel like that is actually

25:03magnified in the AI era because you can have like why are big companies not good at replicating small companies? There are lots of different reasons, but the ones that one of the reasons is they hire very bad engineers and they have lots of process, but now AI kind of makes a bad engineer into like a pretty good engineer, you know, kind of. Um, so that excuse kind of goes away a little