The Era of Scaling Without Growing

As smaller companies modernize using a new AI-native stack of technology, they no longer need to grow their team proportionally to scale their ambition. What a wild concept, but it will be increasingly true. Small teams will gain superpowers once limited to just the world’s largest organizations — from how marketing is conducted and inventory is managed, to transcending the constraints of geography and language. As a result, small teams will increasingly be able to run — and compete with — big businesses. Notably, this trend will not only be powered by new AI tools that allow teams to stay small, but also by a shift in consumer preferences toward human-crafted brands and experiences (the magic that a business often compromises as it scales their team). Allow me to explain, and let’s explore some of the implications…

• Every function of an organization will be refactored in ways that allow small teams to scale their reach and ambition without growing headcount proportionately. Within a few years, small business owners will be able to pose simple questions to their data using natural language. Their business tools will advise on pricing, optimization for taxes, converting leads to sales, and will offer various forms of “autopilot” for operating a business. Small teams will be able to make sense of data and gain enterprise-grade security that was never possible without large teams. For example, the small teams I meet using modern AI-infused marketing tools like Adobe Express don’t think about building a “marketing team,” they think about achieving intended outcomes. They want to drive more sales using marketing. If they could just “push a button,” they would. While most of these small businesses could never afford a marketing team of their own, new AI tools unlock these capabilities. We will see the same story emerge across other functions. It is exciting to imagine what small businesses will be capable of and whether this makes owning a small business more lucrative for more people. Will we see 1000x more small businesses that make $10M+ (or $100M+?) in revenue over the coming years? In the era of AI, the small get the advantages of the big.

• A modern “intent-driven” AI tech stack will replace the classic functional-driven stack of tools. Rather than hire out teams of specialists for every function, companies will have the opportunity to purchase AI capabilities — often in the form of agent-based tools or “AI teammates” — that (or is it who?) automate parts of a process or entire workflows within individual functions. What does this mean? Instead of buying a sales tool and hiring a proportionate number of sales people, or a procurement tool with an ever-growing procurement department, you’ll engage specialized AI to optimize revenue, and specialized AI to source vendors and optimize spend. Rather than buy “seats,” you may pay personified AI agents or teammates for work completed or results. A few examples from those I am involved with: 11x develops “Alice,” an AI-powered sales development rep that leverages trillions of datapoints to help generate meetings for a salesforce. Thanks to Alice, sales people can focus more on the less scalable and more human process of building relationships with warm leads. Another example is Globality, where “Glo” helps you source, compare, and optimize the entire procurement process (and is now in place with some of the world’s largest enterprises). In both instances, the AI is oriented around intent rather than a function, technical specialists are freed up for more general and non-scalable work, and stakeholders beyond the function are able to engage with the work. Incumbents have an incredible opportunity to deliver intent-driven AI offerings within existing workflows — and are in trouble if they don’t. Here’s how I would juxtapose the old with the new:

• The modern intent-driven AI tech stack will unleash a STBB “Small Team, Big Business” Wave. No doubt, we should expect massive growth in the number of small businesses started or refactored with revenues in the millions and healthy margins. Some of these businesses will sell software, and this great post by Anu Atluru on the rise of the Silicon Valley small business covers what we might expect (thanks Semil Shah for the reference). But most of these businesses will be refactored versions of previous era small businesses (and large businesses) with a modern AI intent-driven stack. We’ll see countless new STBBs and brands emerge that would have either (1) always been constrained by size, or (2) required massive capital to scale. I discussed this a bit with Sam Lessin on a recent “More or Less” podcast, and Sam made the point that the proliferation and indispensability of AI tools would likely yield a barbell outcome — where we’ll have massive growth of small businesses, and also a discrete set of “AI winner” trillion-dollar behemoths that power this transformation. One implication here is the marginalization of the middle. Will medium-size companies beleaguered by a large cost basis and a dependency on the AI winners get crushed as this future unfolds?

• Consumer demand for smaller scale and human-crafted versions of everything will grow in an AI world. While the future of work might lend itself to small business creation, let’s not forget the demand side of the equation. We are going to crave artisanal and story-driven sources and experiences. Why? As every big company floods the zone of our attention with increasingly enticing marketing and cheaper and more personalized versions of everything, we — as consumers — will crave more scarce and authentically human experiences, often provided by a small business run by passionate people. In response, more artisanal-like and privately-owned businesses will emerge, powered by AI-driven tech stacks. Their products and their vision will be intensely personal, but the mechanics of their billing, marketing, etc. will be machine-driven. Quick side-note: Whenever I’m in Tokyo, I am blown away by the highly crafted experiences — from eight-seat restaurants and tiny bars to tiny manufacturers of home goods, owl cafes, and artisanal cotton candy shops. I often ponder, why aren’t there 1000x more of these experiences across all societies? In the US, are potential small business owners discouraged by the basic startup and operating costs, frictions of incorporation, and compressed margin profile of small businesses? Perhaps this, combined with a culture of insatiable desire for growth, make small businesses less desirable? But all this is changing. As functions like marketing, HR, accounting, and security become automated, will the value proposition of operating such a small business change? Especially as the labor force shifts out of bloated big companies, will more people become entrepreneurs?

• What new businesses must be built to enable the “scaling without growing” era for small businesses? This new world we imagine will require new tools tailor made for STBBs, new ways of stitching these tools together, new ways of hiring and incentivizing top talent, and even new ways of incorporating or acquiring a small business. I am seeing a fascinating array of startups emerge, like: (1) Modern marketplaces for small businesses to be bought and sold — facilitating the transition of these businesses from non-tech-savvy founders to digital-native owners, (2) Valuation services for SMBs, and new forms of dashboards that mount all sources of data and surface insights in natural language. (3) New platforms like ShareWillow, that help a business motivate employees by issuing “equity” in the form of compensatory units without the business owner actually having to sell any of the business — as well as enable a level of transparency that helps employees see the impact of every expense or incremental revenue on their own compensation. (4) A new breed of “stack management tools” for small businesses that stitch all of these AI tools together, often using APIs that abstract that actual tools away from the end-user interface. (5) And, of course, myriad AI-infused content creation and marketing products from companies like Adobe as well as many startups, and the same for productivity from companies like Notion, Airtable, and Microsoft, among others.

No doubt, small companies will have the tools they need to scale their ambition without growing their teams.

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This highlight was selected from IMPLICATIONS, Edition 20

IMPLICATIONS is a ~monthly analysis is written for founders + investors I work with, colleagues, and a select group of subscribers. I aim for quality, density, and provocation vs. frequency and trendiness. We don’t cover news; we explore the implications of what’s happening. My goal is to ignite discussion, socialize edges that may someday become the center, and help all of us connect dots. To get the full Implications newsletter upon first release, subscribe here.