AI investment is missing a huge opportunity in the form of industry-specific AI apps designed to integrate with legacy business processes in medium-sized firms in trad industries. This investment should go into industry-specific incubators that bridge the capability and capital gaps that prevent startups from building these real-world AI solutions that drive immediate impact.
several possible ways to slice, but maybe a good proxy is whether it is big enough to have a chief procurement officer. that issue by sarah is excellent and highlights one dimension of the problem. on the data integration issue, there will be midsize firms where the issue is that a human is doing something that a machine should do — like receiving manifest information in various digital and hardcopy formats and transferring it into a master manifest table. that is likely to be the low-hanging fruit
One obstacle to this approach is that historically getting the sales approach right for organizations of this size has been quite challenging.
- Direct sales of more than $100 on anything that is not a standardized product used the same way by everyone is tough to do without some sort of salesperson involvement (either direct or through a retail/reseller)
- Phone-based selling can work well for tailored offerings up to about $10K, but beyond that buyers typically want to interact with someone in person (even post-COVID)
- Field-based sales forces typically need offerings above $100K to be sustainable
Midsize organizations budgets for this kind of thing tend to fall in between, which is one of the reasons why they struggle to find solutions tailored for them. It's not obvious to me how AI tools change this dynamic, as this is primarily about psychology rather than technology.
yes — this is one of the big hurdles and as you say it isn't about AI. the way over the hurdle is maybe to get the ops and procurement people in potential clients involved in the incubator itself.
This gap in the market makes sense and has huge potential. Do these incubators make a solution though? Is there any evidence they actually produce good companies or move the needle in industries? There are hundreds of these around the UK for example but hard to see much impact.
the type of incubator i'm suggesting is pretty specific too: it should only fund startups that have a business model predicated on very industry-specific applications AND which are designed from the ground up to stay small and not attempt to become unicorns. (there are other incubator design principles too, but they're gracenotes)
Interesting - would love to find an example where this has been effective. I see lots that are industry specific in theory but when you scratch the surface they are just a retread of old ideas
What size constitutes medium?
The amount of effort to build the amount of data engineering, data negotiations (as stated brilliantly by Sarah Constantin at https://sarahconstantin.substack.com/p/the-great-data-integration-schlep)
is almost the same as a large enterprise, so might as well go after the big one
I can see someone doing the same thing for the medium sized firms for no other reason than
1. client's leadership is desperate and see the benefits of this AI integration,
2. these medium sized clients are the biggest firms where the supplier knows the leadership personally.
3. the supplier's costs fit these medium sized firms' budgets
several possible ways to slice, but maybe a good proxy is whether it is big enough to have a chief procurement officer. that issue by sarah is excellent and highlights one dimension of the problem. on the data integration issue, there will be midsize firms where the issue is that a human is doing something that a machine should do — like receiving manifest information in various digital and hardcopy formats and transferring it into a master manifest table. that is likely to be the low-hanging fruit
One obstacle to this approach is that historically getting the sales approach right for organizations of this size has been quite challenging.
- Direct sales of more than $100 on anything that is not a standardized product used the same way by everyone is tough to do without some sort of salesperson involvement (either direct or through a retail/reseller)
- Phone-based selling can work well for tailored offerings up to about $10K, but beyond that buyers typically want to interact with someone in person (even post-COVID)
- Field-based sales forces typically need offerings above $100K to be sustainable
Midsize organizations budgets for this kind of thing tend to fall in between, which is one of the reasons why they struggle to find solutions tailored for them. It's not obvious to me how AI tools change this dynamic, as this is primarily about psychology rather than technology.
yes — this is one of the big hurdles and as you say it isn't about AI. the way over the hurdle is maybe to get the ops and procurement people in potential clients involved in the incubator itself.
This gap in the market makes sense and has huge potential. Do these incubators make a solution though? Is there any evidence they actually produce good companies or move the needle in industries? There are hundreds of these around the UK for example but hard to see much impact.
there's undoubtedly high heterogeneity!
the type of incubator i'm suggesting is pretty specific too: it should only fund startups that have a business model predicated on very industry-specific applications AND which are designed from the ground up to stay small and not attempt to become unicorns. (there are other incubator design principles too, but they're gracenotes)
Interesting - would love to find an example where this has been effective. I see lots that are industry specific in theory but when you scratch the surface they are just a retread of old ideas
yea — there are lots of [vertical X] or [company Y-sponsored thus implicitly verticalised) incubators/accelerators.
my 2c is the incubator needs to be structured around the sales cycle, with several early and late touch-points with procurement functions.
I like that - would love to see someone doing this properly
me too! working on it rn in fact. also need a way to experientially support learning a new set of ways to think about product
Good luck with it - let me know if I can help
I agree!