Silicon Valley's 'Tiny Team' Era is Here

Startups used to brag about valuations and venture capital. Now AI is making revenue per employee the new holy grail.

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Episode Transcript

Speaker 1 (00:00):
Silicon Valley's tiny team era is here by Walter Frick
read by Mara Finnerty. In the era of start up blitzcaling,
which lasted roughly from Facebook's IPO in twenty twelve until
we Work's bankruptcy filing in twenty twenty three, market capitalization

(00:20):
and total capital raised were prized metrics. The ultimate milestone
was reaching Unicorn status, a one billion dollar valuation that
was often accompanied by rapid hiring. These days, bragging rights
are going to entrepreneurs who keep headcount the lowest. If
the blitz scaling boom was powered by smartphones and cloud computing,

(00:43):
to day's faster, leaner growth comes courtesy of AI assistants, advisors, coders,
and marketers. Last year open AI, Sam Altman said his
tech CEO group Chat had a bedding pool for the
first year there is a one person billion dollar company.
The idea would have been unimaginable without AI, Altman said,

(01:06):
and now it will happen. Jeffrey Buskang, a partner at
Flybridge Capital Partners and a lecturer at Harvard Business School,
says that the new holy grail metric isn't a billion
dollar valuation, but revenue per employee. In talks, bus Gang
sites a website called the Tiny Teams Hall of Fame

(01:28):
that lists companies with just a handful of employees claiming
tens or even hundreds of million in annual revenue. He
refers to it as scaling without growing. Goodbye blitz scaling,
Hello bot scaling. But if AI can effectively fill nearly
any role at a company, what is the human in

(01:50):
charge really bringing to the table. The mantra of Busgang's
recent book, The Experimentation Machine Finding Product Market Fit in
the Age of Ai Damn Gravity Media March twenty twenty
five is essentially, do what you do best and let
AI do the rest. Busgang wants to fund startups that

(02:12):
use AI for coding, for customer research, for marketing, for pitching,
even for coming up with their initial idea. He also
writes about entrepreneurs who decline to partner with a human
co founder, opting to rely on AI instead. Busgang isn't
the only one providing a playbook for AI native startups

(02:33):
in Cofounder dot Ai, a website and accompanying book book
Baby Self, published March twenty twenty five. Clarence Wooten, an
entrepreneur in residence at Google's ex Moonshot factory, urges founders
to consider building a billion dollar startup by yourself, me,
my customer, and AI. The New Rules of Entrepreneurship. Le

(02:56):
Sega Books August twenty twenty five by auto entrepreneurs Henrik
Wordlin and Nicholas Thorne, argues that AI will democratize entrepreneurship,
albeit with slightly more focus on small businesses than on
tech startups. These are not thinky, big idea books, and
they engage only sparingly with the wider societal impact of

(03:19):
creating hyper productive, low employment companies. All three are how
two guides aimed squarely at current or aspiring entrepreneurs, and
together they provide a useful window into what work looks
like when you go all in on AI, a philosophy
around which companies are already being built. Take software. Ten

(03:42):
years ago, the first task for a tech entrepreneur who
couldn't code was to find someone technical to build a prototype.
But large language models LMS are particularly good at coding.
Even their mistakes are less of a problem for a
prototype that isn't intended to be perfect. All of a sudden,
we could write a ten paragraph essay on what we

(04:04):
wanted to build, then plug it into these demo tools
and say, go show me what you've got, which was
very strange as an engineer, says Rue Harrigan, co founder
and head of Engineering at Portrait, a network for creative professionals.
It's not just coding. Portrait also used AI to research

(04:25):
the subscription market, and it maintains an ever lengthening AI
prompt describing its ideal customer, which the founders used to
solicit advice and discuss strategy. Mayas Lazaro, CEO of matchmaking
app Addie, said he relies on AI for branding and marketing.
He shared his pitch deck as well as competitors with

(04:47):
open AI and asked for ideas to improve it. Chris Mannon,
who founded a workforce planning startup called Meander, uses AI
to tailor customer outreach. It suggests which p features a
potential user will find most valuable based on their public
profile and background. As I talked to entrepreneurs about how

(05:08):
they use AI, I came to think that the approach
in these books mostly made sense. New ventures are almost
by definition short on resources and need to try out
lots of different approaches to see what works, instead of
hiring a marketing assistant, only to realize a few months
later that what you really need is a head of

(05:29):
sales and l M can write marketing copy one day
and outline sales strategy the next. Entrepreneurs have long balanced
out their skills by finding a co founder who compliments them.
Visionary Steve Jobs had hardware guru Steve Wozniak to execute.
Designers Brian Chesky and Joejebia co founded Airbnb with their

(05:52):
developer roommate Nathan Blacharzik. But as AI improves, it can
provide an ever growing number of complementary skill sets, even
the business concept itself. In his MBA class at Harvard,
bus Gang instructs students to prompt chat GPT to act
as a co founder to come up with start up ideas,

(06:15):
and in a recent study, researchers at Harvard and the
University of Pennsylvania assigned some employees at Procter and Gamble
to come up with new product ideas using AI, while
others did so without it. The first big aha was
that an individual with AI was as good as a
team without AI, said Karim Lakhani, a professor at Harvard

(06:37):
Business School and one of the studies authors teams using
AI did better still, as judged by a panel of professionals.
The researchers also found that AI helped the employees come
up with ideas outside their areas of expertise. I would
never consider bringing on a co founder at this point,
said Han Rozick, a medical and MBA student at Harvard

(07:01):
and a former student of bus Gangs, who is launching
a health care start up called Pillar Square Health. Why
would I give away fifty percent of the company so
early on. I can get to a minimum viable product
on a seed round without a technical co founder. He
also noted that strife between co founders frequently brings down

(07:22):
start ups. I'm not willing to let my company be
contingent on that relationship. Manion is also happy staying solo.
I took Jeff Buskang's advice and built a co founder
in chatchee bt. He said, there's certainly no replacement for
a human co founder, but AI has given me an

(07:43):
opportunity to move forward with less doubt and less analysis paralysis.
Of the three books, Wooton's leans furthest into the idea
of AI co founders it's right there in the title,
but even he acknowledges it's not a total replacement. Whether
you opt for a human co founder, an AI assistant,

(08:05):
or some hybrid approach. The key is to build a
support system that amplifies your strengths and sures up your weaknesses.
He writes that tract with the entrepreneurs I spoke to
about pushing the limits of AI management. The bots were cheap,
always on, and willing to take a crack at anything.
The trick was knowing when to trust them and how

(08:27):
to put them to use. Throughout my reading and conversations,
I kept asking is AI a tool or a teammate?
Did it require constant human direction or was it closer
to a substitute for a person. The answers seemed to
be both and neither. Lakhani's paper dubbed it a cybernetic teammate.

(08:50):
Rozick bucketed his use into tool, teacher and thought partner.
Woodun describes it as a co pilot and as a
digital species. Lazaro said he used it as a mentor.
Harrigan called it a sidekick. But my favorite came from
gene Ellen Cowgill Portraits CEO who referred to the lms

(09:11):
as ghosts around you who are helping you do work.
One thing nearly everyone mentioned is that AI models can't
always be trusted. They lie confidently, said Max Parsons, Lazaro's
co founder and CTO at Addie. Even more common, they
can lapse into syncophancy. It kind of has a tendency

(09:33):
to want to agree with you, Rosick said. In April,
Open Ai acknowledged that a recent model of chat GPT
had this issue and rolled back an update to fix it.
In a separate study, Lacani and colleagues write that the
advantages of AI, while substantial, are unclear to users. It

(09:53):
performs well at some jobs and fails in other circumstances
in ways that are difficult to predict. In a they
dubbed this inscrutable set of aptitudes the jagged frontier. One
answer then, for what's left for a human founder to do?
As ais take on more and more work, they obsessively

(10:13):
figure out what AI is and isn't good at, and
delegate appropriately. On a recent podcast, the economist Taylor Cowan
asked Anthropic co founder and former Bloomberg News reporter Jack
Clark whether AI's coding ability meant the age of the
nerds was over. I think it's actually going to be

(10:34):
the era of the manager nerds now, Clark replied, where
I think being able to manage fleets of AI agents
and orchestrate them is going to make people incredibly powerful.
When Manion wanted help deciding between three versions of his business,
for example, he headed off any syncophancy by prompting his

(10:54):
AI assistant to predict the chances of success for each path,
a tactic I borrowed from a research paper that found
AI assistance improved forecaster's accuracy. As AI improves, the frontier
may become smoother, the technology may well improve across the board,
and different models might excel at different things. In coding,

(11:17):
for instance, Harrigan told me she now uses two full
time assistants, Claude and chat GPT, and I have chat
GPT check Claude's work all the time. If AI can
fill almost any role, and if it can increasingly act
as a check on another AI's work, what's left for
the human outside of delegation and bought management? In me

(11:42):
my customer and AI Wordlan and Thorn suggest the founder's
job is to know their customer better. Than anyone else.
All three of the bought scaling Bibles argue that human
judgment remains essential, But as I tried out some of
the prompts in bus Gang's book, I had doubts about
the importance of my own judgment. First, I used chat

(12:04):
GPT to come up with start up ideas. Next, I
created two custom GPTs, persistent AI personas to act as
my co founder and a prospective customer to help me
simulate a customer interview. The former came up with questions
I could ask the latter. AI is sometimes described as

(12:26):
providing the capability of infinite interns, but as I copied
interview questions drafted by one AI into the chat window
of another, I felt more like an intern than a
supplier of wisdom or judgment. My human task presumably included
evaluating what the AIS were saying, but the questions my
AI co founder developed were solid, and in practice I

(12:49):
was mostly copy pasting between two AIS that could have
interacted more efficiently without me. How hard would it really
be to cut me out of the loop. On another
one of his podcasts, Cowan asked Chris Dixon, a VC
at Indres and Horowitz, if he'd consider investing in an
AI pitching him on its own without a human co founder.

(13:13):
Right now, they're limited and they just can't do stuff.
They can't open a bank account, they can't send money,
Dixon replied, But yes, it's super interesting. We've been actually
talking about it semi seriously. Vcs are not safe either.
Of course, if AI enabled startups require much less investment.

(13:33):
Every time you think about raising money, ask yourself. Could
AI solve this problem instead? Writes Wooten Manion, the workforce
planning entrepreneur had an intriguing prompt that transferred some of
his judgment to the AI so it could better act
on his behalf. He'd uploaded some of his favorite writing

(13:53):
about startups to an LLM, including the twenty four step
approach to entrepreneurship that he was taught MI t He
was effectively providing his AI a syllabus to transfer some
of his world view into the bot. He was telling
a computer that had read everything to focus on this.
Not that Perhaps that's the last step for all of

(14:17):
US AI users and a way of seating the AI
only companies. Dixon and Cowan imagine, after we finish spinning
up agents to offset all our deficiencies and balance out
our skills. We write the final prompt that sums up
who we are and what our worldview is, so that
our AI Army can proceed accordingly.