F2F #20: No life after the demo

Most products nowadays don't work beyond their demo and I think this is another sign of a frail market built on top of a shallow technology.

F2F #20: No life after the demo
Photo by Zakaria Ahada / Unsplash

One of the most relevant learnings of the AI era is that barely no product survives the demo phase.

I could stop the post here, because that's the TL;DR of what I want to say, but let me elaborate a bit more for those interested.

One of the best indicators for hot markets is the shallowness of its products. Whenever something is in extreme demand because is red hot, you can sell it with a powerpoint or a promise of a product. What's why most AI products nowadays barely survive the demo phase.

In the early 2000s, startups raised funds with a powerpoint, and sometimes very vague ones. According to Ron Conway, the initial Google investment deck had 10 slides explaining the features of the product, and instead of a closing slide with the financials, they added an abrupt "thank you" and that's it. You know the rest of the story.

A few years back, we saw the surge of NFTs and web3 pseudo-technologies. Stupid useless crap like .jpgs of smoking monkeys received absurd amounts of money from investors and customers. The former, speculators, the latter, mostly victims of this scam.

People exhibit herd mentality when investing in hyped new technologies due to several psychological and social factors:

  1. Fear of Missing Out (FOMO): Investors often rush to join the crowd out of fear of missing potential gains. When everyone is talking about a "hot" technology or investment opportunity, it's easy to feel pressured to participate. We've all heard stories of people buying lottery at work because "I don't want to be the only one not winning it".
  2. Safety in numbers: Following the crowd feels safer, especially during uncertain times. It's a natural response coming all the way from our pre-Sapiens stage. This psychological comfort stems from humans being social creatures seeking safety in numbers, and also because I really doubt that most humans on Earth have made it to Sapiens.
  3. Information asymmetry: Investors often lack complete information about market conditions, leading them to rely on others' actions as indicators of value or potential. When a particular technology is rising in popularity, the herd assumes there must be valid reasons behind it. Others index themselves to certain investors/friends to follow their investment strategies blindly. A few of my friends blindly invest in every startup I invest, and it's a fair strategy, to be honest.
  4. Confirmation bias: People tend to seek information that confirms their existing beliefs. When the herd moves towards a hyped technology, investors may selectively focus on data supporting that movement, reinforcing their decision to follow the trend.
  5. Social proof: Individuals often look to others to determine the right course of action. If a large group of people is investing in a particular technology, it can seem like the correct choice.
  6. Information cascades: In financial markets, information cascades occur when individuals base their decisions primarily on the actions and opinions of others, rather than on their own analysis. This can lead to a self-reinforcing cycle of investment in hyped technologies. I admit I have done this several times, and I find it hard to resist this impulse 🤷.

The current frenzy around investing in AI companies is a prime example of herd behavior. As AI technology continues to evolve and permeate various industries, investors have flocked to AI-related stocks, driving up their prices significantly. This trend is further evidenced by the projected growth of the AI market, expected to reach $826.70 billion by 2030.

As you know, I have been sharing stuff for founders since I started this newsletter two months ago. I wanted to share AI tools, mostly, but I find them to be super shallow. They pass the Twitter test: they impress a lot of people and go viral with one example that works really well (cooked or not) but in 100% of the cases, you sign up, battle-test the tool with real world needs and it utterly and disastrously fails.

In fact, they spend too much on marketing that they have to recoup with paid customers. If they fail, they will have to shut down the company, so they've got a time constraint on them. The ealier they started with the company, the better, but eventually the wave will die out, and out of the 100 companies doing exactly the same, only 4 or 5 will become viable and only one or two will become profitable, as it happened with the e-scooters, last-mile delivery companies, neobanks, and countless other speculative waves we've seen.

That's why I'm not sharing AI tools unless they're really good (and most of them aren't AI, to start with), so you'll have to excuse me!

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