Why will I eat McKinsey’s lunch – but not today

Navin Chaddha, who heads the venture capital cabinet of Silicon Valley, 55, Mayfield as managing director, bets great on the ability of AI to transform people’s industries such as council, law and accounting. But as he recognized at Techcrunch Strictly In Menlo Park, California, recently, where Chaddha played a co-host, disturbing companies from services where human relationships and confidence are often more difficult than Silicon Valley does not plan.

The veteran investor, whose victories include Lyft, Poshmark and Hashicorp, explained why he believes that “AI teammates” can create software type margins in traditionally high-intensity sectors, and why startups should target neglected markets rather than competing with giants like giants. This conversation was modified slightly for the duration and the clarity.

You think that law firms, consulting companies and accounting services – collectively a market of 5 billions of dollars – will be completely redesigned by AI -first companies operating with software type margins. Prove. What have you seen beyond PowerPoint presentations?

I think that an advantage of a business that has been in business for more than 50 years is that it has seen all the trends, from mainframe to mini-managers, including PCs, Internet, Mobile, Cloud, Social and now this AI era. The example I would give is at the end of the 90s, this concept of electronic commerce came, which was: if I am a physical business, I cannot survive if I am only brick and mortar; I need to be a click and a mortar. Then, outsourcing has become a trend, and relocation has become a great trend. You could not create a software service company without presence in India or one of the emerging markets. The same thing has happened with supply chains and manufacturing – China and Taiwan Rose. So what is this new era with AI? Obviously, AI is a 100x force, and AI is associated with humans, let’s hope it to improve them. And I think it is, and that will help reinvent business.

Many repetitive tasks will be performed by AI … and there will be two models. The first is that you grow organically. The second is that you grow inorganically. . .

Can you give a specific example of how it will work?

What are the types of things that LLM or an AI can do? Well, let’s say I have to implement Salesforce. Who wants to go doing this job? Humans will enter and say: “I am your customer manager. You must implement Salesforce. It’s the same set of things. Use AI as a horse to do it, and everything that cannot do, have humans in the loop.

Now, suddenly, if you start to do this kind of thing, you can have less work done by humans and more work done by AI, and (customers) pay only for AI when (they) use it.

And the market (entry) should not be to continue (large consulting and IT companies) such as Accenture, Infosys or TCS. Go after the neglected masses. There are 30 million small businesses in the United States and 100 million worldwide who cannot afford knowledge workers. Provide the service as a software. They say, “I need a receptionist. I need a planner. I need someone to build my website… ”AI must be used to (create) start -up forms, with a little human negotiation (involvement). You do not compete with the accentures of the world. You will after fragmented markets, where instead of invoicing per hour, instead of invoicing per month for an entrepreneur, you charge by event.

So the prices based on results rather than temporal invoicing.

This is based on results, yes. . . The billing of clouds is like that; Electricity is like that. . If 80% of the work will be carried out by the AI, it can have a gross margin of 80% to 90%. Humans can always have a margin of 30% to 40%. You could have mixed margins from 60% to 70% and produce 20% to 30% net income. And believe me, most service companies earn money. Technological companies do not do so. They live with corporate money and then public market money.

You have just run the A series for a company called GROVE A A few weeks ago. It is an AI tech advice startup. What did you see in his first customer pilots?

I think this is where the combination of inorganic and organic. (Grove was founded by) Very successful founders who had made two constantly evolving (and) service companies, and allowed them to $ 500 million in revenues each and $ 50 million in profits. They started this time and said, “What do we know?” We know security. They therefore acquired a security consulting company of $ 5 million (which offers managed security services). All growth from this moment will occur through AI. And they increased ($ 5 million in revenues) to $ 15 (millions of income) in six months. Why do I pay for all these security people? If you outsource, (a seller has traditionally billed) $ 10,000 per month. If you are hacked, if there is an event, if I look at it, then you pay me.

Can companies like McKinsey just buy these AI capabilities? They have large companies that they do not want to lose.

Yes, I think what will happen is there that the dilemma of the innovator comes into play. When corporate software companies, which were perpetual license companies, saw SaaS companies emerging, they did not want to adopt (the model) because (SaaS companies) charge companies monthly instead of five years. Corporate companies have also obtained maintenance costs for 20%. It was difficult (for them) to leave this medication and to say: “Oh, I will charge you monthly.” The innovation of the business model was the key. They did not do it. So McKinsey and Accenture, with so much dislocation, they will be busy serving their customers (this is why I advise the founders) to continue the neglected masses. Discover a single market strategy and serve someone they (an accenture cannot go down the market to serve).

But they will also be redesigned. So these small businesses, which are not in competition with them today, mark my words: in 10 years, they will be in competition with them. And these large companies – McKinsey, BCG, Accenture, TCS, Infosys – All have the dilemma of the innovator (and wonder): when should I do it? (When should I go to an AI model based on the results?) Because as a public company, my income will have foreseeable income from income-based income.

You cut $ 100 million From your funds recently collected to devote to “IA teammates” last fall. What makes a real AI teammate against an AI tool?

There are a lot of fashionable words in the industry. They were first of all copilotes, then AI tools, AI agents, AI teammates. Mayfield’s thesis is therefore that a IA teammate is a digital companion who collaborates with a human on shared objectives and achieved better results. The technology on which it could be built could be technologies or agents co -wing. The demonstration of this is: “I am a teammate of HR. I am a sales engineering teammate. ” The objective is not to replace; The goal is to team up and collaborate together.

When people started talking about teammates and assistants, it seemed to be a novel, but I wonder if it looks like more people lose their jobs. Does Silicon Valley have a marketing problem?

Absolutely right, and I think we should not make it sugar. We have to remedy it head -on. . Yes, there will be a movement of work, but humans are intelligent. They are the jockey. The horse here is ai. We are going to reinvent ourselves. We are going to reinvent ourselves. Today, emphasis is on cost reduction, but we will find how to expand our markets, how to increase income. This happens with each technological wave that comes. When Microsoft Word came on PCs on the desktop, people thought that (executive assistants) were bankrupt. Then Excel came, and the accountants who made calculations – everyone thought they were bankrupt. We saw the same with Uber and Lyft. People thought that taxi drivers would leave. But what happened instead? The markets have developed.

My thesis is that the way in which emerging markets like India, China and Africa have never had fixed lines – you could not dig copper, so they have become wireless, cellular – this is what will happen with many markets. The AI ​​will do the work where humans are not even available to serve this customer. So, in the long term, I am very, very optimistic. In the short term, there will be pain, but no pain, no gain.

Speaking of coding, a recently announced “”Ambient coding offer was centered on an Israeli company of six months which had just reached 250,000 users per month and $ 200,000 in monthly income. It was bought by another Israeli company, Wix, for $ 80 million in cash. Do these mathematics make sense to you?

In fact, these days, no calculation makes sense. We are at the age of AI. You don’t know what’s going to happen. I am surprised that with $ 2.4 million in income (annual recurring) that they only sold $ 80 million. I thought it would be $ 800 million, right? (Laughs.) In today’s world, you don’t know. It is a market.

How do you invest in this market?

This is where the secret recipe comes from people who are proven investors. They fell in love with the code. It is not a science; It is an art. It’s like the 10,000 hours (rule): the more you practice this, the better you get. And the companies that have existed for 50 or 60 years – we have seen all kinds of bubbles.

The number one rule is, have your own north star. Having discipline and do not have a Fomo because Fomo is for sheep. And if you have these two or three things, your own strategy and no fear (you will do well). Do not forget one thing: for people (in this audience) who are VCs, we are in the money management sector. We are not in the collection of logos. We want to take small sums of money and enlarge them.

During this part (of the cycle), a lot of money will be earned. But I think 80% of people will lose money. They don’t know what they are doing.