What Happens when Other People get AI Right?

In business, risk is always on the radar. For me, over the last month it’s been particularly front of mind as I’ve been doing the Company Directors course through the AICD.

Some risks are more obvious and get a lot of airtime, like workplace health and safety, regulatory compliance or cyber security.

In my last newsletter I talked about a less obvious risk - concentration risk on a global scale, and how we need to look for the same patterns in our own businesses.

This week I want to look at another hidden risk related to AI. But it’s not the often-discussed risk of AI going wrong. It’s the risk of what happens when other people get AI right.

I’ve followed Warren Buffett and Charlie Munger for my whole adult life. One of Munger’s ideas that has stayed with me is what he called inversion thinking. Instead of asking how to achieve something, you ask the opposite. Instead of “How do I build a great business?” you ask “What would destroy this business?” and then you make sure you’re not doing those things.

I’ve always found it a powerful way to challenge my thinking. But lately it’s taken on a different kind of urgency.

Because when you apply inversion thinking to many businesses today, the answer has changed.

Five years ago, if you asked how a competitor could seriously threaten your business, the answer usually involved significant capital, a large team, years of development, and deep industry relationships. The barriers to entry were real and substantial.

Today, the honest answer for some businesses is two people with an open-source AI model could replicate your highest-margin service in sixty to ninety days.

This isn’t a reflection of your business or your team. It’s just that the cost of execution is collapsing.

Service businesses are feeling this first, but advances in robotics suggest manufacturing businesses won’t be far behind.

This is the shift that I think most business owners haven’t fully grasped yet (and to be honest, it’s hard to grasp given how fast AI capabilities are changing)

Building a website, developing a system, drafting a proposal, creating a product prototype, testing a service concept - these things used to require teams, budgets, and months of work. Now they require a person and an afternoon.

But the cost of coordination inside most businesses hasn’t changed at all. The meetings, the approvals, the email chains, the layers of discussion before anything gets tested are all still there.

I heard someone say recently that it’s now cheaper to build the feature than to have the meeting about the feature. And I think that’s one of the most important observations about business right now.

Because if that’s true, then the threat to your business isn’t coming from your traditional competitors. They have the same coordination costs you do. The same meetings, the same approval layers, the same legacy systems.

The threat is coming from someone with no coordination costs at all. Someone who can move from idea to execution in a day because there’s nothing slowing them down.

Now I know our natural response is to push back. They can’t produce our quality in an afternoon. We’ve got 40 employees, we’ve got contracts, warehouses, certifications, we’ve got relationships. And all of that is true.

But a new competitor doesn’t need to replicate your whole business to cause damage. What if they just go for the most profitable 20%? The service that’s the highest margin but that’s easiest to replicate or the part of the customer journey where convenience matters more than the relationship.

What would be the impact to your business?

So the real question becomes: what do you double down on that can’t be replicated in sixty days by two people with a laptop?

And when I think about that, a few things stand out.

Your relationships. The depth of trust you’ve built with clients over years. The fact that they know you, they’ve worked with you, and they trust your judgement. That’s not something AI can replicate. In fact, as AI-generated content, proposals and communications become more common, genuine trust may become even more valuable.

Your data. Not data in the generic sense, but the specific, proprietary understanding of your market, your clients’ needs, and your industry that you’ve accumulated through years of operating. The patterns you can see that a newcomer can’t. Businesses that own unique datasets and customer insights will have an advantage that is difficult to recreate.

Your customer experience. This isn’t just the service you deliver, but how it feels to work with your business from the first interaction to the last. The businesses that intentionally design memorable customer experiences will be much harder to displace because the experience itself becomes part of the product.

And your ability to move. To test things, learn from them, and adapt as the environment changes around you. The businesses that are still spending three weeks discussing whether to update a process are going to struggle against competitors who can test three versions of it in a day.

The challenge isn’t whether your business has a moat today. Most established businesses do.

The challenge is whether that moat is getting deeper or shallower. Because the advantages that protected a business ten years ago may not be the same advantages that protect it ten years from now.

One of the themes that came through repeatedly during the Company Directors Course was how closely strategy and risk are linked.

The biggest risks are often the assumptions that have gone unchallenged for years.

And right now, one of the biggest assumptions is that the advantages which made a business successful will continue to protect it.

The moats that many businesses have relied on such as expertise, infrastructure, systems and accumulated knowledge are getting shallower by the month. Those things are becoming easier to replicate.

But relationships, proprietary insight, exceptional experience, and speed of learning are becoming more valuable precisely because everything else is becoming more accessible.

The businesses that will thrive from here won’t be the ones that held on tightest to what they had. They’ll be the ones that understood what was worth holding on to and what needed to change.

They’ll be the ones who are crystal clear on who they want to serve and how they are uniquely positioned to deliver value in a very different competitive landscape.

This is not a time to be complacent. Nor is it a time for a five-year strategy that assumes the future will unfold at the pace of the past.

It is a time to be adaptable.

To paraphrase Darwin, it’s not the strongest business that survives, nor the most intelligent, but the one most adaptable to change.

If you applied Munger’s inversion thinking to your own business, if you seriously asked how someone could take your most profitable service and offer it for a fraction of the cost, what would the answer be? And what are you doing about it?

Until next week,

Kylie.