How can  Investors overcome the defensibility dilemma and Bet on AI Startups for the Long Haul?  Proven Strategies from Tech Giants and How Mentally.ai is Fortifying Its Market Position

Spotify, Airbnb, and Tesla were once seen as indefensible in their respective markets. The prevailing expectation was that established market leaders would eventually overtake them, much like traditional car manufacturers supplanted early providers of air conditioning retrofits for vehicles.

Contrary to these predictions, these three companies continue to thrive two decades after their inception.

Spotify, founded in 2006, now boasts over 356 million monthly active users and 158 million premium subscribers as of 2023. Notably, Spotify reported approximately $15.04 billion in annual revenue for the twelve months ending March 2024, with a quarterly revenue of $3.95 billion.

Airbnb, launched in 2008, has served over 1 billion guests across more than 220 countries and regions. Reflecting its extensive reach and market penetration, Airbnb reported $10.24 billion in annual revenue for the twelve months ending March 2024, with a quarterly revenue of $2.14 billion.

Tesla, established in 2004, has become a leader in the electric vehicle market, delivering over 1.3 million vehicles in 2022 alone. Tesla’s strong market position is underscored by its financial performance, with an annual revenue of $94.75 billion for the twelve months ending March 2024, and a quarterly revenue of $21.30 billion.

These achievements extend well beyond the point where investors have recouped their investments. This enduring success prompts a critical question: Why have these companies remained resilient and prosperous, defying initial expectations?

The Investor Dilemma on A.I. Startup Defensibility, Will this startup be there 5 years or 10 years from now? 

When it comes to A.I., investors today are rightfully concerned about defensibility. This concern applies to all types of innovators, from deeptech companies like OpenAI and Anthropic to mid-tech firms such as Mentally.ai, and even low-tech applications that mimic ChatGPT at a cost of $5 to $19 per month.

Despite initial skepticism, companies like Spotify, Airbnb, and Tesla have demonstrated that sustained success is the result of continued adaptation to a variety of customers’ needs and market dynamics. 

Let’s briefly summarize a few…:

• Vertical Integration: Spotify curates its own extensive music library, Airbnb expertly manages its vast network of rental listings, and Tesla builds its own cutting-edge batteries and charging infrastructure. This seamless command over their value chains not only enhances their adaptability but also propels them to leading positions in their respective markets.
• Product Personalization: Spotify excels in offering personalized music recommendations, Airbnb customizes stays to meet specific guest needs, and Tesla provides a range of customizable car options. Personalized experiences, after all, seem to be the key to securing customer loyalty.
• Network Effects: Spotify’s large user base significantly influences music discovery and sharing, Airbnb leverages its extensive network of hosts and guests to enhance its service, and Tesla’s ever-expanding charging network grows with each new vehicle sold, making its ecosystem more robust.
• Brand Recognition: Each of these companies has built a powerful brand synonymous with innovation and superior user experience. This brand equity is a crucial asset in maintaining customer trust and attracting new users.
• Continued Innovation: A relentless commitment to research and development has allowed these companies to stay ahead of competitors. Whether through advanced algorithms, new product features, or cutting-edge technology, continuous innovation keeps them at the forefront of their industries.

In today’s fast-paced technological landscape, the ability to maintain a competitive edge through multifaceted strategies is what sets enduring market leaders apart from fleeting players. 

Fortifying Our Position: Essential Defensibility Dimensions for Mentally.ai

What insights can we gain from the achievements of trailblazers like Spotify, Airbnb, and Tesla?

We, at Mentally.ai, we have identified several critical dimensions of defensibility to adeptly manage the complexities of the AI startups and A.I. integration market place and build a sustainable business.

These strategies  stem from an in-depth understanding of customers needs and market dynamics, gained over a 3 years period of research, product testing and experimentations in the marketplace. 

Market Complexity: International bookkeeping is inherently complex, with numerous regulations and local specificities. CPA firms and companies in the markets we engage with tend to be more loyal to their suppliers compared to the more fluid US market. Retention is inbuilt in the customers’ way of life. 

Electronic Invoicing: Despite perceptions that data might count less with single-shot learning in AI, data remains crucial. Access to a large database of electronic invoices across different accounting software providers will enable Mentally to create and train algorithms for a broader range of business use cases than individual accounting software providers typically can. This will attract new customers, as they will see their business processes  benefiting from the extensive experience of others. Notably, many US investors are not familiar with electronic invoicing.

Employee Knowledge Retention: Just as companies are reluctant to lose a knowledgeable employee, they are equally hesitant to part with an AI system specifically trained on their data. We have implemented a CPA firm-specific AI learning process, which, while operationally more expensive and complex, creates a significant barrier to exit.

Ecosystem Effect: My vision for this company is to balance partnerships with incumbent CPA firms, accounting software providers, and SMBs. Mentally.ai can assist CPAs with marketing and sales, provide accounting software companies with strong retention incentives, and deliver high-quality, dependable workforce  to SMBs at a fraction of the cost.

Product Innovation Core: To achieve the goals described above, we must develop versatile AI digital robots that can integrate with any ERP software in international markets. This requires a combination of R&D and trained resident experts, or “robot master sergeants,” who can command a fleet of specialized robots tailored to each specific accounting software in each market

Product Integration and Service Evolution: There are countless ways to integrate our product into customers’ business processes. A system that seamlessly communicates with users, understands their business needs, and performs tasks on their behalf will be difficult to abandon. User experience and convenience are crucial for making the product indispensable.

Continuous Learning Organization: The secret to long-term defensibility is the service integration described in the previous bullet and the ecosystem effect. A stagnant organization cannot react well to changes and adapt. Building an organization designed for continuous learning and evolution from the start is key. Our vision is to instill the ability to learn throughout the organization and dispose rapidly of employees that resist learning as a way of life. 

Ambitious long term vision: In the long run, new service companies powered by intelligent digital robots,or using a current a.i. jargon intelligent digital coworkers, will emerge, similar to KPMG, PWC, Accenture, Cognizant, and McKinsey. While these established firms may adapt to serve new market needs, similar predictions were made about Spotify, Tesla, and Airbnb. Mentally aims to provide worldwide digital contractors and a highly flexible workforce for business operations, featuring digital employees that are extremely competent and well-trained.

Vision and Risk: My Take on Achieving Defensibility

These are my thoughts on defensibility. With the right amount of capital and consistent, improved execution, defensibility is achievable. It is possible, and yes, it carries risk—but every endeavor does, even something as routine as driving to work. Risk does not equate to impossibility.