The Neon Show
00:07:42 · Siddhartha Ahluwalia, Bhaskar Ghosh
[00:07:42] S0: Can you give some examples? [00:07:44] S1: I mean, you can think of... If you take a software example, you can take a managed service IT provider. What does a managed service IT provider do? It sets up IT and solves IT problems for say small to medium businesses. And you get tickets. Somebody's password has to be changed. Somebody's Google Drive has to be set up. Somebody has to be added to an email group. So there are various levels of difficulties of these tasks. If you do look at just creating a new account and changing somebody's password, it's actually very simple workflow. You can do that actually automatically. And meaning with some human supervision, so you can do it in what we call a co pilot form or an autonomous agent form. But it can be done with a very high degree of precision, correctness and speed with an LLM today. On the... If you now go and look at... And [00:08:35] S0: before today, why can LLM do this? How can LLM do this?
00:08:39 · Bhaskar Ghosh
[00:08:39] S1: I am not a statistician. LLMs, the new models are all about something called Next Token Prediction. If you ask me the statistical reason why they can do it, I will not be able to answer. You should... We should just keep in mind that this class of models based on transformers can do very clever reasoning based and pattern matching based stuff for multimodal data. You know, so they can do better stuff for images, can do better stuff for text. Lot of these models do amazing stuff with text. Even though the core logic is around next token prediction, they can figure things out in a much more realistic correct way. So that was a partial answer. So anyway, I gave an answer about the software product, software business MSP. You can go look at and think about you want to do invoice processing for supply chain. Well, it so happens that a lot of these invoices are written by hand and they go and it is written by somebody, then it goes to somebody who is in charge of accounts payable, accounts receivable, they have to look at it, copy it into a spreadsheet, put it into some financial software. A lot of this done including the logic of the step by step. So that is the workflow. And this extraction of data can now be done automagically. So I'm giving very simple examples. Then there are much more sophisticated things called agents, which actually with the right set of inputs and watching inputs and outputs can also reason about what's the right thing to do. That's an even deeper level of sophistication. Anyway, coming back to the services industry, a lot of these basic workflows can now be automated. Now the question is what does that do? Well, at the minimum, all the human beings who are assigned to the services industry, in those workflows, they can become much more productive. So they can do... The easier things happen much faster, maybe some harder things have to be done with more human in the loop environment. So in the context of the services industry, first and foremost, AI can help increase productivity. So you can do more with the same set of people. Maybe you don't even need that many people. That's a very contentious point that that, you know, there's the there's the there's the numerator question of more business being done. There's the denominator question of how much resources do you need.
00:11:01 · Bhaskar Ghosh, Siddhartha Ahluwalia
So to make things very simple, if you sit down and think about it, with the judicious use of generative AI, you can increase margins in these industries. There's the technical why now and then there's the outcome of what we are calling AI enabled services. I'll just stop now for a second. [00:11:19] S0: Okay. So you are saying human dependent work. Services what? Human dependent. In the loop. Human dependent work. Where a human had to execute certain tasks, maybe across the same workflow that's doing on your spreadsheet or on multiple things, spreadsheet, a word doc, calling people, this all can be now done with the new set of agents that are getting built and that's why the services economy is very important as we step into building new companies with the AI agent framework. Is that right? [00:11:56] S1: Indeed, it is about redefining what the services economy and these companies will do. It's also rethinking how will this massive existing economy work. So if you look at any services business, you will have a front office aspect, you will have a mid office aspect, a back office, you will have an IT aspect. It so happens that a lot of the headcount in these services businesses is in the front and the mid office, where they are actually dealing with customers. Anyway, I'm overgeneralizing. It is likely that a lot of these offices within these businesses can be made much more productive and can probably even be made much more lean. That's kind of the central thesis. [00:12:39] S0: So front office means a doctor's front office. Can
00:12:42 · Bhaskar Ghosh
[00:12:42] S1: mean Yes, a doctor's front office, dentist's front office. Where in offline, you are sending reminders to patients, you are sending an email to patients. That's all happening automagically. You're interacting with them through text, you can interact with them through WhatsApp, any channel. And you are getting right answers, you're being able to reschedule stuff, you're being able to ask PII related questions maybe as long as you have the right security and stuff. All of that. Now, of the people in the mid office sitting in a doctor's or a medical office who are having to get data after a visit and deal with insurance, deal with follow ups. All of that, if you think of it as a co pilot setting, can be done automagically now, to a large extent. Which is why we are seeing so many companies getting started in each of these areas in a very, very high demand driven way because Applied AI founders, when they go into a domain, are finding many of these workflows are ready to be mechanized, maybe even disrupted. So that is kind of the software aspect of service. I think you and I have spent some time today talking about and where we have constructively disagreed on some things is, where... What happens next in these services industries? If you bring this Silicon Valley and Bangalore view of SaaS, you bring in, you write good software, you start a seed company, you start selling software to say these dentist offices, as an example, or these invoice processing offices for supply chains, second answer. What happens next? Do you build this out of the software business? One of the key thesis that we are all thinking about is we're going a little bit out of the box when it comes to software. It's reasonable to start reconsidering whether a pure software business will scale here. It is reasonable to start asking, if you sell pure software into these industries, how much of the economic pie will you get? It so happens if you look at most of these industries, they don't spend most of their money on software. So the question to ask is, are we envisioning that these services companies themselves will be mostly software and AI? That... So that's where things get murky. That's where things get exciting. It is reasonable to assume at some point in time in the five, seven, ten years that might happen.
00:15:04 · Bhaskar Ghosh
Question is, how does this industry start innovating and kind of transforming itself? One of the bets a lot of us are making, a lot of them from Silicon Valley, some funds from New York are making, is you're saying, I will now take over these legacy services businesses and I'll own the business, I'll run it also. It so happens I'll also bring in my software to run it in an AI first way, software first way. This is the whole concept of roll ups that is being played out in the context of AI services thesis. And I am personally looking at it in a big way. We have done some investments whether it's in, let's assume, I think, in the area of cloud data migration or in the area of MSP IT services, in the area of legal, in the area of clinical trials. You can... You... We have gone and started thinking about maybe the company which has been building software till now should be owning the services companies. And a lot of the large funds are making progress there, if you think about it. Then we come to the point where the Silicon Valley founders, these technical founders now start buying these companies. Something you and I talked about is what next? What happens now? Well, the simple narrative is you buy enough revenue base, enough scale Yeah. And then you insert AI into it in a judicious way, making certain assumptions around digital transformation of the business itself, that there is enough software that you can replace. And then you basically expand margins. Yeah. Or you expand top line also, I mean, because you can do things better. Let's assume you want to buy one, two, three of these companies. I think the part where our discussion got really interesting is, what is the nature of this business you're getting into? It so happens if you sit down and think about it, This is not a pure software business anymore. You have written great software. You have this great tech team. You've sold a bit of software, let's say, into design partners. Then you went and bought two of these design partners. Assume that. And you bring in like $100,000,000 of revenue, but you also inherit 700 people. Random number. I think the new thing for us Silicon Valley folks for VCs, know, who are also builders like us. At 8VC, we both build companies, we incubate, but we also invest massively. Is I think the nature of the firm, the company which will do this will fundamentally change.
00:17:30 · Bhaskar Ghosh, Siddhartha Ahluwalia
Because you know this... You need this deep operating chops to go run these companies now. Do you keep the old founder of that company? Does she or he stay on with incentives? Are they excited to increase margins? Would... Do they want their company, their services government to become tech first? These are the deeper questions that I don't think Silicon Valley venture has grappled with, or Silicon Valley founders have grappled with. Private equity has grappled with it. There's always been this concept of operating partners. But what we are trying to do is something new that private equity has not done before. Which is private equity generally is more about the cost structure. After you buy companies, you take a very strong look at that data and analytics, you cut costs, so on and so forth. It's not like you build new products. What we are trying to do here is, we are trying to fundamentally change the way in that business operates. You can think of that new Tech enabled business as almost like a new product you're building, which is not all software. [00:18:36] S0: So what is a product now, if not software? [00:18:38] S1: Well, in that case, the product still remains that you are doing an MSP IT play, you're doing a dental services play, you're doing... But with a lot of AI thrown in. So it is still about dental services. But the nature of how you are delivering those services is changing, which is AI first. But I feel Silicon Valley leaders, technical leaders going and running, [00:19:05] S0: and