Lenny's Podcast: Product | Career | Growth
00:06:57 · Brian Balfour
And then the third way that it's gotten harder is that AI is really good at writing software, right, in cogeneration. And so everybody's kind of feeling this infinite increase of competition, especially at the startup level. And YC is pumping up six of the same thing every single cohort. Right? Like, that's what that's what it literally feels like. So it's gotten way harder. This game, this escape velocity game, has gotten a lot harder. It's gotten easier in some very exceptional cases, like a cursor or something where AI has kind of been like the spark. You know? I know you wrote, the blog post about the race car engine, and I think you said, like, there's, like, the spark plug in the engine. Right? And and so AI kind of really created that, a a new type of spark, a new type of interest of early adopters to to to fuel some some new players in a short period of time. Right? And so it's amazing to see something like Cursor overtake market share of something like GitHub Copilot in nine months or less. Right? Like, that... That's how fast it happens. It's kinda crazy. But the main thing that people need to understand is, okay. Well, if that's the game I'm playing, right, how to get to steep velocity before the incumbent? Like, what are all the ways to do that? And and to really figure that out. And there's multiple ways that this can happen, but one of the major ways, one of the major major ways that we always see is that, this can happen when new distribution platforms emerge. And because when new distribution platforms emerge, startups are usually the fastest to take advantage of them. It's slower for the incumbents to move. It gives startups this opportunity essentially to play this game. So Casey Winters wrote this blog post about two years ago, maybe, like, eighteen months ago about, the AI technology shift. And his key point was the AI technology shift has been a technology shift that has not come with a distribution shift yet. So if you look historically, we've had a bunch of technology shifts from Internet, to the cloud, to mobile, to social, like all of these different types of things. And some of them come with distribution... New distribution platforms, new ways to distribute products, and some of them don't. But the most powerful ones, the most impactful ones are the ones that do come with these new distribution platforms.
00:09:13 · Brian Balfour
And so, his second key point was that these two things don't actually happen at once. Usually you get the technology shift, then you get the distribution shift a little bit later. So now we're a couple years from that post. We are a couple years into AI technology shift. And one of the things that I am seeing is all of the conditions, all of the ingredients for a new distribution platform to emerge are essentially happening. And so I think we're at an inflection point where we're going to see this emerge really fast. And the key thing for everybody to know is that as new distribution platforms emerge, they follow the same four step cycle, and it's kind of a game that you're playing, that everybody's playing. And so just like any game, you kinda need to know the rules of the game. You need to know the steps of the game in order to have any sort of opportunity to win. And that's kinda like the the the thing that, the that I've lived through once again, both painfully and, also in good ways. And it's something that I'm keeping my eye on and something that I've been talking about. So before we go into that, you know, four step cycle, I figured I'll pause there to see if you you have any follow-up questions on that.
00:10:24 · Lenny Rachitsky, Brian Balfour
[00:10:24] S0: Okay. This is amazing. So, essentially, what you're saying is we've all these ways to grow. There's SEO. There's paid growth. There's sales. All these channels have been around for a long time. They're extremely saturated. Everyone's always complaining. SEO is dead. It can't grow with SEO anymore. It can't grow. Word-of-mouth is so hard. There's so many amazing things now. That's hard. Paid is so hard. It's just... It... Like, all this money Taxi rising. [00:10:48] S1: Yeah. All these things. [00:10:49] S0: Yeah. So all these saturated channels. And what you're saying is there's an emerging new channel that has not yet been saturated, and this is a huge opportunity for companies to get on it. And you'll talk about timing because it's a little tricky to even know exactly when to go big on this. That's right. Yeah. But that's a huge deal. This has been a long time since there's a new way to grow that you can actually use as a lever for growth and not just hope for the best. Okay. That's right. You get into the cycles, do you want to tease what the answer is just to give people a little hint, or do
00:11:21 · Brian Balfour, Lenny Rachitsky
[00:11:21] S1: you wanna keep it secret? Well, to be clear, right, like, okay. So, my prediction will... We don't we don't have a clear winner yet. My prediction of the new distribution platform will be ChatGPT, in some ways that people probably already think it's happening, in some ways that it won't. But the thing that is less important or like that is more important than whether I have predicted the exact winner correctly. The thing that's more important is to under the... Stay in the cycle and and evaluate, like, how to determine where you want to place your bets and how to place those bets, which I know which I know we'll talk about because I... I'm... I could be wrong about the ChatGPT prediction and what's gonna happen there. There's... I think there's gonna be two parts of it. There's going to be what they do with, like, a ChatGPT search experience, but I think the bigger thing will be whatever they do with launching a third party platform on top of ChatGPT. There's a bunch of signals that, they're about to, that they're about to launch that. I'm pretty sure it's gonna be ChatGPT. The thing I'm way more sure about is that some new distribution platform will emerge, and it will follow the same four step cycle. That that... That's kinda that's kind of the key. So could be wrong on the first piece. I am very confident on the second piece. [00:12:40] S0: Okay. Excellent foreshadowing. I completely agree. If it's anything, it would be ChatGPT at this point. Let's get into it. What are the what are the cycles that, platforms generally follow?
00:12:49 · Brian Balfour
[00:12:49] S1: Yeah. And I'll give some examples of this, but let me explain the four, the first four step, the four steps of the cycle first, and then we'll go through a bunch of examples of all those individual steps. So the the four steps are essentially... One is like I call a step zero. It's it's the the conditions of the market have been met. Step one is about a moat. Step two is about a platform opening, and step three is about, the platform closing for control and monetization. So let me kind of briefly explain each one. Step zero is about the competitive market being, met, the conditions being met. And there's a few part piece of this. One is that typically what happens is that a... There is consensus that there is going to be this new huge category. Right? Think social, think mobile, like all those types of things. And in this case, right, these AI, like chat platforms, like a ChatGPT or a Claude. So there's consensus about that, but there's no clear winner yet. And you typically have somewhere between five to seven, you know, major players really battling it out. Right? So... And they're all kind of looking for what is the edge? What is the thing that is gonna... That is going to to help me win? Because all of these dynamics, you... In in all the history, they either end up in monopolies or duopolies. Right? And so the the stakes are really large, and so the competition is fierce. So that's kind of step zero. And I I think we could all agree that we are in that mode, you know, right now. We've got we've got OpenAI battling with Claude, battling with Gemini, and Google with whatever Meta comes out with new... Their new team, you know, so on and so forth. Like... And there's huge amounts of capital. There's consensus, like, all the types. They are in a fierce composition. So that's step zero. Step one is then, these players, somebody essentially identifies whatever the moat is, the thing that is going to help build them defensibility and help them hit escape velocity and become that monopoly or duopoly in that, single category. And once they figure out what that moat is, then they need to press the advantage. Right? They need to figure out how to gather that moat as fast as humanly possible. And it tends to be that you can't do that by yourself.
00:15:09 · Brian Balfour
And so you kinda need the help of an ecosystem in order to gather more of that moat, and that typically comes down to third party content creators or app developers and other businesses. And so they all establish, like, a third party platform, right, that has some incentives built in. And usually, the value exchange is, hey. You develop on top of my platform. Right? You add more use cases, you know, more engagement, like, all of these things to my platform. And in Exchange, I'm gonna give you something in return. And usually that thing that's in Exchange is I'm gonna give you some new form of distribution for your application and for your business. But what essentially happens as we go over time is that we go into step three, which is the closing period, which is at some point, all of these companies end up starting to lock down the platform. And this tends to happen for reasons of monetization and growth. Right? They either competitively don't want somebody to use their own you know, platform to disrupt themselves. Like, we saw that in the early Twitter days with things like Vine and Periscope. Right? Like, shutting those things down unceremoniously. Right? Or they need to find ways to monetize at a deeper and deeper level because all these companies, like, they have to grow. And, you know, Google's the classic example here of just more and more real estate has either been taken up by either ads or their own, you know, first party applications. And so that's the key is, like, they close it down by doing one of two... By one of a few things. They either shut it down entirely. Two, they develop their own first party applications to absorb the the highest use cases. Or three, they artificially depress the organic distribution that they gave you in the step prior to push you towards paid mechanisms in order to monetize. And so I think we should go through, like, multiple examples here, but that's kind of, like, the core essence of of the four steps, and so I'll I'll pause there.