Founder Fridays No. 99
Avoid These AI Pitfalls -- The AI Workforce Is Here -- The AI Alignment Problem
Happy Friday.
Avoid These AI Pitfalls
Starting an artificial intelligence (AI) company is fraught with pitfalls that can lead to failure, but analyzing post-mortems reveals common mistakes to avoid. 1) Falling for Shiny Object Syndrome: Resist the temptation to pivot to the latest flashy AI model; stay focused on your target user and use case. 2) "It Works In The Lab": Turning prototypes into products takes massive investments in infrastructure, development operations (DevOps), user interface (UI), documentation and a go-to-market, so budget accordingly. 3) Irresponsible Deployment: Failing to put adequate safeguards in place around data privacy, security, fairness, transparency, and robustness can lead to major backlash and legal consequences. 4) Prioritizing Flash over Function: Focus on solving real-user problems rather than getting enamored with your own tech and churning out flashy demos. 5) Raising Too Much, Too Fast: Consider bootstrapping or raising a small seed round to get to product-market fit before scaling with venture capital. 6) Premature scaling can kneecap your runway, so validate a pricing model by ensuring strong customer love, healthy unit economics and a repeatable growth engine before scaling. Product Growth (7 minutes)
The AI Workforce Is Here
The rise of AI workers is creating a fusion of the software and labor markets, presenting massive opportunities for startups to emerge in areas not yet touched by traditional software. There are two dominant approaches to building companies in this space: selling "AI Colleagues" that work across an entire job description, and selling "AI Vendors/Services" that automate an entire workflow encompassing many different jobs. Startups are poised to dominate due to their ability to specialize and execute quickly to outperform unfocused incumbents. As the tasks being automated become more complex, startups that develop software with a "soul" — relatability, adaptability, emotional intelligence — will endure far beyond those that merely seek to automate repetitive tasks. NFX (10 minutes)
The AI Alignment Problem
The AI alignment problem is the challenge of ensuring that AI systems behave in ways that align with human values and intentions. So how do we try to align AI and humanity? Reinforcement learning from human feedback (RLHF) allows AI systems to learn from ranking or grading of their outputs by humans, incorporating human preferences into the reward model to generate preferred text rather than just predicting the next token. Companies like MarkovML are pioneering techniques to account for noise and improve data quality when training the underlying neural networks that power AI models. Despite remarkable progress, aligning AI with human values while advancing toward human-level intelligence remains an essential challenge requiring continued innovation and ethical consideration. The Problem Is (9 minutes)
Founder FAQ: What’s the Difference Between Stock and Stock Options?
Startup equity compensation can take many forms, but the most common are restricted stock and stock options. This article will help you understand the difference between the two. Restricted stock (sometimes called a restricted stock award or RSA) is a grant of common stock for a startup. It is often granted to founders or employees instead of or in addition to cash salaries. There are two main restrictions on restricted stock: 1) Vesting. Those who receive restricted stock typically earn their stock over time. 2) Transfer. Recipients cannot sell or transfer their shares except under certain conditions set out in the restricted stock agreement. On the other hand, a stock option in a startup is a form of equity compensation that enables employees to buy company shares in the future at a fixed price, usually the current fair market value. Unlike restricted stock, which grants ownership of the stock to the recipient, stock options simply grant the right to purchase shares in the future. This compensation is often granted to motivate and reward employees, providing them with the opportunity to profit from any future growth in the company’s value. Westaway (8 minutes)
Startup Funding Guides
I’ve put together a series of guides to equip founders to excel at fundraising. These guides break down the deal term by term and give you negotiation tips so that you can speak to investors with confidence.
Convertible Note: Guide / Video
Built By Founders for Founders
I co-founded my first startup with friends in 2007. As a founder, I struggled to find an affordable law firm that was designed for early-stage startups. So, I created one myself. Westaway is a law firm built by founders, for founders. If you're ready to ditch the outdated billable hour model and try a new approach to legal services that saves you time and money, let's talk. I'd love to jump on a 15-minute call to show you how we can make legal work smooth, fast and cost-effective for your startup. Schedule a call with me now.
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