Why AI will eat McKinsey’s lunch — but not today

Navin Chaddha, director of the 55-year-old Silicon Valley Venture Firm MayfieldIs gambling great on AI’s ability to transform people-heavy industries, such as consulting, rights and accounting. The experienced investor, whose victories are Lyft, Poshmark and Hashicorp, was recently discussed at WAN’s StrictlyVC evening in Menlo Park Why he believes that “AI teammates” can create software-like margins in traditional labor-intensive sectors, and why startups now have to focus on neglected markets rather than competing with accenture, so he acknowledged that disturbing outfits and trust measure is sometimes more difficult than Silicon Vallei. This conversation is light and clarity slightly processed.

You think that law firms, consultancy firms and accounting services will be a market of $ 5 trillion-complete displayed by AI-first companies that work with software-like margins. Prove it. What have you seen further than PowerPoint presentations?

I think an advantage of a company that has been active for more than 50 years is that it has seen all trends, from mainframe to mini computers to PCs, to the internet, to mobile, cloud, social and now this AI era. The example I would give is in the late 90s, this concept came from e-business, that was: if I am a physical company, I cannot survive if I am only brick and mortar; I have to click and be mortar. Then Outsourcing became a trend and offshoring became a big trend. You could not build a software service company without presence in India or one of the emerging markets. The same happened with supply chains and production – China and Taiwan Rose. So what is this new era with AI? It is clear that AI is a 100x force, and AI works with people, hopefully to make them better. And I think it is, and it will again introduce the company.

Many of the repetitive tasks are done by AI … and there will be two models. One is that you grow organically. The second is that you grow inorganically. . .

Can you give a specific example of how this will work?

What are the kinds of things that an LLM or AI can do? Suppose I have to implement Salesforce. Who wants to work that? Man will come in and say: ‘I am your customer manager. You must implement Salesforce. “It’s the same series of things. Use ai as the horse to do it, and what AI cannot do, have the human being in the loop.

Now, suddenly, when you start doing things like this, you can have less work done by people and more work done by AI, and [customers] Only pay for AI when [they] Use it.

And the market [entry] should not be to go after [big consulting and IT companies] Such as Accenture, Infosys or TCS. Go after the neglected masses. There are 30 million small companies in the US and 100 million worldwide that cannot pay knowledge workers. Offer them service as software. They say: “I need a receptionist. I need a planner. I need someone to build my website …” Ai should be used to [create] Start -Up financing forms, with some people [involvement] For negotiation. You do not compete with the emphasis in the world. You go after fragmented markets, where you can charge you instead of per hour instead of per month for a contractor, per event.

So on outcome -based prices instead of invoicing on time.

This is based on the outcome, yes. . . Cloud invoicing is so; Electricity is like that. . If 80% of the work is done by AI, it can have a gross margin of 80% to 90%. People can still have a margin from 30% to 40%. You could have mixed the margins from 60% to 70% and produce 20% to 30% net income. And believe me, most service companies earn money. Tech companies don’t do that. They live on daring money and then government money.

You just led the Serie A a few weeks ago for a company called Gruve. It is an AI Tech Consulting startup. What have you seen in his early customer pilots?

I think this is where the combination of inorganic and organic happens. [Gruve was founded by] Very successful founders who had previously done two service companies [and] Bootstrapped, and each brought them to $ 500 million in income, and $ 50 to $ 100 million in profit. They started this time and said, ‘What do we know? We know security. “So they have taken over a $ 5 million security advice company [that offers managed security services]. And they said: “Let’s look at the people. All growth from this point will take place via AI.” And they grew that [$5 million in revenue] Up to $ 15 [million in revenue] In six months. They literally have a gross margin of 80%. It is based on a outcome. Customers love it. Cisco thinks it’s great. They say, “Hey, I’m not hacked. Why am I paying for all these security people?” If you outsource, [a vendor has traditionally charged] $ 10,000 a month. [Gruve] say, ” [You pay us] zero. If you are hacked, if there is an event, when I look at it, you pay me. ‘

Can companies such as McKinsey not just buy these AI options? They have large companies they don’t want to lose.

Yes, I think what is going to happen, this is where the dilemma of the innovator enters. When Enterprise software companies, which were perpetual license companies, saw Saas companies coming up, they did not want to adopt [the model] because [SaaS companies] Bring companies monthly instead of five years in advance. The company companies have also collected maintenance costs of 20%. It was difficult [for them] To get rid of that medicine and say, “Oh, I’ll charge you every month.” The innovation of the business model was the most important thing. They didn’t. So McKinsey and Accenture, with so much dislocation, they will be busy serving their customers [which is why I advise founders to] Go after the neglected masses. Find a unique go-to-market strategy and service someone they [an Accenture can’t come down market to serve].

But they are also conceived again. So these small companies that do not compete with them today mark my words: in 10 years they will compete with them. And those large companies – McKinsey, BCG, Accenture, TCS, Infosys – all have the dilemma of the innovator [and are asking themselves]: When will I do it? [When do I switch to an outcome-based AI model?] Because as a public company my income falls from predictable income to income companies -based income.

You have carved $ 100 million Of your recently collected funds to devote “AI teammates” last fall. What makes a real AI teammate versus an AI tool?

There are many fashion words in the industry. First they were Copilots, then AI tools, AI agents, AI teammates. So the Mayfield thesis is that an AI teammate is a digital companion who cooperates with a person on shared goals and gets better results. The technology on which it may be built can be agent technologies or Copilots. The manifestation is: “I am an HR teammate. I am a sales technique teammate.” The goal is not to replace; The goal is to work together and work together.

When people started talking about teammates and assistants, it sounded new, but I wonder if it looks eeltig as more people lose their jobs. Does Silicon Valley have a marketing problem?

Absolutely right, and I think we shouldn’t sugar. We have to tackle it frontally. . .Yes, there will be a job displacement, but people are smart. They are the jockey. The horse here is ai. We will introduce ourselves again. We will reinvent ourselves. Nowadays the emphasis is on reducing costs, but we will find out how we can expand our markets, how to increase sales. This happens with every who comes that comes. When Microsoft Word came to PCs on the desktop, people thought [executive assistants] were bankrupt. Then Excel and accountants came to do those calculations – everyone thought they were bankrupt. We saw the same with Uber and Lyft. People thought that taxi drivers would disappear. But what happened instead? The markets are extensive.

My thesis is, the way in which emerging markets such as India, China and Africa never had fixed lines – you could not dig copper, so they became wireless, mobile – that is what will happen to many markets. AI will do the work where people are not even available to serve that customer. So, long term, I am very, very bullish. In the short term there will be pain, but no pain, no profit.

Spoken about coding, a recently announced ‘Vibe coding ”Deal was aimed at a six-month-old Israeli company that had just reached 250,000 users per month and $ 200,000 in monthly income. It was purchased by another Israeli company, Wix, for $ 80 million in cash. Is that mathematics useful for you?

In fact, there is no mathematics logical nowadays. We are in the AI ​​era. You don’t know what will happen. I am surprised by $ 2.4 million [annual recurring] They only sold income for $ 80 million. I thought it would be $ 800 million, right? [Laughs.] You don’t know in today’s world. It is a marketplace.

How do you invest in that market?

That is where the secret recipe comes from people who are proven investors. They cracked the code. It is not science; It’s an art. It is just like the 10,000 hours [rule]: the more you practice this, the better you get. And the companies that have been around for 50 or 60 years- we have seen all kinds of bubbles.

The number one rule is, you have your own North Star. Have discipline and don’t have a fomo, because FOMO is for sheep. And if you have those two or three things, your own strategy and no fear, [you’ll do well]. Remember only one thing: for people [in this audience] those VCS are, we are in the money management industry. We are not about collecting logos. We are about taking small amounts of money and making them bigger.

During this part [of the cycle]A lot of money is earned. But I think 80% of people will lose money. They don’t know what they are doing.