Invest Like the Best with Patrick O'Shaughnessy
Episode: Ravi Gupta - AI or Die - [Invest Like the Best, EP.411]
Release Date: February 18, 2025
Host/Author: Colossus | Investing & Business Podcasts

Introduction

In Episode 411 of Invest Like the Best, host Patrick O'Shaughnessy engages in a profound conversation with Ravi Gupta, a partner at Sequoia Capital and host of the Glue Guys podcast. The episode, titled "AI or Die," delves into the transformative impact of artificial intelligence (AI) on businesses, investment strategies, and organizational structures. Drawing from Ravi's recent essay of the same name, the discussion navigates through the rapid advancements in AI, the necessity for companies to adapt or risk obsolescence, and the evolving landscape of investing in this era.

The Genesis of "AI or Die"

[06:01] Ravi Gupta:
Ravi begins by recounting the inspiration behind his essay, "AI or Die." He describes witnessing firsthand the unprecedented capabilities of AI models through interactions with founders of cutting-edge companies. A pivotal moment occurred when a founder used an AI model to seek clarity on instructions, prompting the model to ask for further clarification—a surprising and advanced behavior. Additionally, Ravi observed the accelerated pace at which AI advancements are compelling professionals to switch platforms rapidly, underscoring the dynamic nature of the present compared to past perceptions.

Defining "AI or Die"

[07:55] Ravi Gupta:
Ravi elaborates on the intense form of "AI or Die," referencing a quote from his essay by Dario, envisioning a "country of geniuses in a data center." He emphasizes that powerful AI will democratize expertise, enabling companies to achieve more with significantly smaller teams. The concept suggests that traditional metrics like headcount and rigid processes may become detrimental, while organizational agility and the ability to adapt swiftly to AI-driven changes will be paramount.

Personal Adaptations to the AI Surge

[09:52] Ravi Gupta:
Reflecting on his personal response to the AI revolution, Ravi shares several strategies:

• Educating the Next Generation: He discusses the importance of fostering ambition, curiosity, resilience, adaptability, and high agency in children to prepare them for an AI-integrated future.
• Utilizing AI for Real Work: Ravi provides an anecdote where he used an AI model to prepare for an impromptu business dinner, resulting in a highly productive conversation despite minimal preparation time.
• Enhancing Customer Focus: Emphasizing the need to automate and optimize roles within organizations to ensure that senior leaders can focus more on delivering value to customers rather than being bogged down by operational complexities.

The Small Team Advantage

[18:07] Ravi Gupta:
Ravi introduces the "Small Team Meme," inspired by Dharmesh from HubSpot's redefinition of SMB (Small and Medium Businesses) as "Small and Mighty Businesses." He argues that smaller teams can achieve more with fewer hidden costs, such as reduced coordination efforts and streamlined decision-making processes. This shift leverages AI to maximize productivity and magic per employee, fostering an environment where each team member can deliver significant value without the burdens of large organizational structures.

Case Studies: Exemplary Customer-Focused Companies

[20:58] Ravi Gupta:
Ravi cites examples of companies excelling in customer focus:

• ServiceNow: Under CEO Bill McDermott, ServiceNow prioritized customer meetings, amounting to approximately 10 meetings per day in the initial phase, ensuring an in-depth understanding of customer needs.
• Sierra: Highlighted for its relentless focus on customer satisfaction and optimal use of AI to enhance service delivery, demonstrating how AI can be fully integrated to solve real customer problems rather than being used superficially.

Inversion of Traditional Startup Dynamics

[24:16] Ravi Gupta:
The conversation shifts to the changing dynamics between startups and incumbents. Traditionally, startups compete by gaining distribution faster than large companies can innovate. However, with AI making products feel "magical," the speed at which startups can distribute innovative solutions has accelerated dramatically. Ravi notes that even formidable giants like Microsoft find it challenging to compete with the nimble distribution capabilities of AI-enhanced startups, emphasizing the necessity for large companies to remain vigilant and proactive in leveraging AI.

Operationalizing AI in Large Organizations

[26:18] Ravi Gupta:
Addressing how large, publicly traded companies can become more AI-native, Ravi offers strategic recommendations:

• Re-underwrite the Business Model: Reevaluate the purpose of the company and innovate pricing models to align with AI advancements, such as shifting from seat-based pricing to value-based pricing.
• Role-by-Role Analysis: Assess each role within the organization to determine how AI can either augment or replace responsibilities, ensuring optimal alignment with AI capabilities.
• Enhancing Customer Focus: Conduct audits to measure and increase the percentage of time senior leadership and employees spend on activities that directly benefit customers.
• Pursuing Ambitious Innovations: Encourage the development of products and services that were previously deemed impossible or too costly, leveraging AI to break new ground.

Addressing Leadership Concerns

[30:45] Ravi Gupta:
Ravi provides counsel to leaders apprehensive about pivoting their companies towards AI:

• Conviction Over Convenience: Leaders should rely on their own conviction and thoroughly investigate AI's potential rather than adopting a passive or gradual approach.
• Treating AI as a Genius Collaborator: Envision AI models as highly capable team members, requiring proper context and prompting to unlock their full potential, akin to nurturing a brilliant new employee.
• Leadership Through Optimism: Embrace an optimistic and proactive stance towards AI, focusing on creating magic and delivering exceptional customer experiences.

Exemplifying World-Class Reactors vs. Predictors

[37:19] Ravi Gupta:
Ravi introduces a dichotomy between “world-class reactors” and “world-class predictors.” Drawing from a conversation with Coach Kate at Duke, he illustrates that being a reactor—responding swiftly and effectively to new information—is more valuable in the AI era than attempting to predict future trends. This perspective empowers individuals and organizations to focus on adaptability and responsiveness, ensuring they remain competitive amidst rapid technological changes.

Impact on Investing Strategies

[44:53] Ravi Gupta:
Discussing the implications for investing, Ravi emphasizes:

• Investing in Slope, Not Intercept: Focus on companies with steeper growth trajectories driven by AI innovations rather than those with high current valuations.
• Founder Attributes: Prioritize founders who exhibit ambition, curiosity, resilience, adaptability, and imagination—qualities essential for navigating the AI-driven landscape.
• Valuation Expectations: Acknowledge the widening gap between top-performing AI-native companies and their mediocre counterparts, adjusting valuation models to reflect potential exponential growth driven by AI.

Board Member Responsibilities in the AI Era

[50:55] Ravi Gupta:
Ravi addresses the evolving role of board members in public companies amidst AI advancements:

• Assessing CEO Capability: Board members should critically evaluate whether the current CEO is capable of steering the company through AI-driven transformations.
• Encouraging Proactive Leadership: Promote CEOs who are eager to embrace AI and navigate accelerating changes, rather than those hindered by past commitments or internal constraints.
• Asking the Right Questions: Utilize board meetings to probe how leadership is addressing AI integration and adapting to technological shifts, ensuring strategic alignment with AI opportunities.

Optimistic Outlook and Final Thoughts

[57:06] Ravi Gupta:
In closing, Ravi reiterates his optimism about the AI revolution:

• Boundless Opportunity: Emphasizes that the current moment presents unparalleled opportunities for ambitious and high-agency individuals and companies to achieve unprecedented success with fewer resources.
• Maximizing Ambition: Encourages leveraging AI to elevate company ambitions, enabling growth that was previously unattainable.
• Empowering Innovation: Highlights the democratization of excellence through AI, allowing even small teams to create significant impact and "magic" for customers.

[59:15] Ravi Gupta:
He concludes by emphasizing the importance of embracing optimism and forward momentum, asserting that those who choose to actively engage with AI will unlock limitless possibilities, transforming industries and elevating customer experiences to new heights.

Notable Quotes

• Ravi Gupta [07:55]:
  "If there’s something approaching right, there’s going to be dramatic changes that is going to come to any company, to any person. If we then think about the most intense version of that, you should be able to recreate what we have now with dramatically fewer people working on it."

• Ravi Gupta [10:07]:
  "There's no limit to what you can go and do. And that is the new standard."

• Ravi Gupta [37:19]:
  "What I do have in my control is the ability to respond quickly to new information. I can control being open-minded and reacting quickly. That is something that feels empowering to me."

• Ravi Gupta [57:06]:
  "This is a chance for you to be worth a hundred billion dollars. If your company's worth $3 trillion, it's a chance for you to be worth $30 trillion. ... You have to go and just be committed to being excellent, the world is available to you in a way that it's never been before."

Key Takeaways

1. Urgency of AI Integration: Businesses must adopt AI aggressively or risk falling behind, as AI capabilities are evolving rapidly and democratizing expertise across industries.
2. Small Team Efficiency: Leveraging AI allows smaller, more agile teams to achieve what previously required large organizations, reducing hidden costs and enhancing productivity.
3. Investor Strategy Evolution: Investors should prioritize companies and founders that demonstrate adaptability, ambition, and a keen understanding of AI's potential, adjusting valuation models to account for AI-driven growth.
4. Leadership Adaptability: CEOs and board members must embrace AI, fostering a culture of continuous learning and agility to navigate the accelerating changes and maintain competitive advantage.
5. Optimism and Opportunity: The AI revolution presents unprecedented opportunities for innovation and growth. Embracing AI with an optimistic and proactive mindset can unlock limitless potential for individuals and organizations alike.

Conclusion

This episode of Invest Like the Best offers a compelling exploration of the AI-driven transformation reshaping the business and investment landscapes. Through Ravi Gupta's insightful perspectives and real-world examples, listeners gain a deeper understanding of the imperatives for embracing AI, the advantages of small and agile teams, and the evolving criteria for successful investing in an era defined by artificial intelligence. The conversation underscores the necessity of adaptability, customer focus, and relentless ambition, positioning AI not just as a technological advancement but as a catalyst for profound organizational and economic evolution.