Navin Chaddha, managing director of a 55-year-old Silicon Valley venture firm, is betting big on AI’s ability to transform people-heavy industries like consulting, law, and accounting. The veteran investor, whose wins include Lyft, Poshmark, and HashiCorp, recently discussed why he believes “AI teammates” can create software-like margins in traditionally labor-intensive sectors, and why startups should target neglected markets rather than compete head-to-head with giants like Accenture. However, he acknowledged that disrupting sectors where relationships and trust matter is sometimes harder than Silicon Valley anticipates.
“An advantage of a firm that has been in business for over 50 years is that it has seen all the trends, from mainframe to minicomputers to PCs, to the internet, to mobile, cloud, social, and now this AI era,” Chaddha said. “In this new AI era, AI is a transformative force, teaming up with humans to reimagine business. A lot of repetitive tasks will be done by AI, and there’ll be two models: organic growth and inorganic growth.”
Chaddha gave an example of how AI can handle repetitive tasks in the implementation of Salesforce, allowing humans to oversee as client managers.
This reduces the amount of human labor required and allows businesses to pay for AI only when they use it. He advised startups to target neglected markets, such as millions of small companies that can’t afford knowledge workers and need services like receptionists, schedulers, or website builders.
Ai’s impact on consulting firms
AI can provide these services at a lower cost, and instead of time-based billing, businesses should adopt outcome-based pricing. Chaddha highlighted the success of Gruve, an AI tech consulting startup founded by successful entrepreneurs who had previously built profitable services companies. They acquired a $5 million security consulting company and grew its revenue to $15 million in six months using AI, with a gross margin of 80% and customers only paying for outcomes.
However, big consulting firms may face the innovator’s dilemma when it comes to adopting an outcome-based AI model, as it changes their revenue structure. They’re busy serving their current clients, leaving opportunities for new entrants to target underserved markets. Chaddha emphasized the need to address job displacement head-on as AI becomes more prevalent.
“While AI may initially focus on cost-cutting, it will also enable market expansion and revenue growth,” he said. “Historical technological advancements, like the introduction of Microsoft Word and Excel, initially threatened jobs but eventually expanded markets. Similarly, AI will open new opportunities where human labor is scarce.”
Chaddha’s insights highlight the transformative potential of AI in reshaping industries and creating new market opportunities, provided we address the challenges and adapt innovatively.