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Why AI isn't helping businesses make more money (strategy breakdown) — Transcript

by Alex M H Smith · 3,281 words · 497 segments · language en · Watch on YouTube

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0:00They told you that AI is the biggest
0:02opportunity of your lifetime, right?
0:04They told you that it's going to
0:05transform your business and your
0:07productivity and your innovativeness,
0:09that it would help you build these
0:11incredible things, game-changing things.
0:14And they told you that if you're not
0:15doing this, if you're not all in on it,
0:17then you are already behind. So, what
0:20did you do? Well, you you went all in,
0:22like like most of us did. But, now that
0:25dust has settled, I've just got one
0:27little question for you.
0:29Is your business actually earning any
0:31more money
0:33because of this?
0:34Hmm. Now, I was I was curious about
0:36this, so I actually asked this question
0:38on a private WhatsApp group full of CEOs
0:41the other day. Do you think that your
0:42business would be earning more or less
0:45today if AI had just never existed? And
0:48do you know what they told me?
0:50Every single one gave the same answer.
0:53They said, "Yes." They said, "Yes, I
0:55believe that my business would be
0:57earning more now if AI had never been
1:00dropped on the public." And you know,
1:02they're not alone. You know, MIT found
1:04that 95% of AI pilots, they showed no
1:07measurable difference to profits.
1:09Everybody's facing this thing. Everybody
1:11is using the tech. Everyone's doing the
1:13thing. But, nobody is richer. Except for
1:16of course the people selling the stuff,
1:18obviously. The end user, nobody is
1:21richer. And this seems Well, this seems
1:23like a paradox, doesn't it? It's almost
1:25a mystery. How could this possibly be?
1:26But,
1:27let me tell you, if you understand
1:29strategy and how businesses actually
1:32make money, well, it isn't a mystery any
1:34longer. It's actually
1:36well, it's actually grimly predictable.
1:38And in this video, I'm going to show you
1:39why it's happening and how a few people
1:42out there are indeed going to be able to
1:44use it to actually grow, not just save a
1:48bit of money and save a bit of time like
1:49most of us are. So, let's start by just
1:52solving this puzzle. Why is nobody
1:56making more money from this thing? Well,
1:58there are actually three big reasons why
2:00AI isn't helping people do this. The
2:03first is the most obvious one, the
2:05second is the most powerful one, and the
2:08third is the most depressing one. So,
2:11let's run through them real quick.
2:13Number one, the way companies are using
2:16it. The way companies are using AI. To
2:19put it bluntly, it pretty much, as we've
2:21seen, comes down to just doing the same
2:22stuff that they were doing before, but
2:24cheaper, faster, and
2:26>> [gasps]
2:27>> and probably, let's face it, a little
2:28bit worse. Like, this has basically
2:30become the default AI use case, hasn't
2:32it? Not to explore what new
2:33revenue-driving things it might enable
2:35us to do that we couldn't do before, but
2:38instead to just get it to do the things
2:40that we were actually already doing.
2:42Now, the best case scenario here, I
2:43guess, is that businesses essentially
2:45save money. And certainly, in
2:48repeatable, predictable, measurable
2:50niche use cases like customer service,
2:52stuff like that, this is indeed
2:54happening, although not quite as widely
2:56as maybe we would have thought. But, the
2:58thing is, like,
3:00>> [gasps]
3:00>> saving money, it isn't making money, is
3:03it? Now, you might well think, well,
3:05that's more profit that we can plow into
3:07R&D, or more time to dedicate to upside
3:10activities. But, but of course, this
3:12isn't This isn't how most companies
3:13think, is it? They They don't think,
3:15"Wow, we just freed up 5,000 people to
3:18work on revenue-driving activities."
3:20Instead, they think, "Wow, we've just
3:22freed up 5,000 people that we can make
3:24redundant. Hey."
3:25I mean, this is basic company
3:27psychology, right? In all but the most
3:28kind of outlier of cases. So, when it
3:31comes to our mystery, this accounts for,
3:33obviously, a huge chunk of it. Companies
3:36aren't actually innovating. They aren't
3:37actually making new stuff. They aren't
3:39actually creating new value. They're
3:41just remaining themselves, but with AI
3:44shoved into their workflows somewhere.
3:47Is this worthwhile?
3:48Yeah. Yeah, may maybe. It sometimes is,
3:51for sure.
3:52But, is this transformative?
3:54Not at all. Not at all.
3:56So, what about the deep-less players?
3:58That would be the ones who are actually
4:00thinking a bit bigger with the
4:02technology. Surely they are seeing
4:04results.
4:05But typically, sadly, no. Thanks to the
4:08second reason this is happening, which
4:10is the competitive advantage problem.
4:14So look, a bit of strategy 101 for you
4:16here, okay? Businesses, they earn money
4:19not from what they do, not from their
4:22activities, but from the advantages
4:26that they have, from the qualities that
4:29they have that their competitors don't.
4:32Like in commodified markets, i.e.,
4:34markets where all the players basically
4:36sell the same thing, nobody earns any
4:38money because the only way they can
4:40compete is on price, and it all becomes
4:42a race to the bottom. The way businesses
4:45actually are able to make money is
4:47simply by doing things that others can't
4:49do, which then gives them a leverage,
4:51and then allows them therefore to
4:53generate a profit. And by the way, to
4:55get a much deeper understanding of all
4:57of this, you can read or listen to my
4:58free ebook, The Strategy Instinct, via
5:01the link in the description. So check
5:03that out at the end. So, the crux of
5:05this thing is that in order for AI to
5:07actually help a company earn more money,
5:09it needs to help them get a competitive
5:11advantage. It needs to help them do
5:12something their competitors can't do. It
5:15needs to help them create new value. And
5:17this, unfortunately, is something that
5:20>> [gasps]
5:20>> well, most of the time AI is completely
5:23incapable of doing for the unfortunate
5:25reason that it is already the ultimate
5:29commodity in its own right. Because it
5:31is so abundant and so cheap and so easy
5:34to use, and all this
5:36all this stuff that we think is really,
5:37really good, there's almost nothing that
5:39you can actually do with it that your
5:40competitors won't be able to copy very,
5:42very quickly, of course, you know, using
5:44AI to do so. And this means that while
5:47you can make these incredible gains in
5:49capability relative to what you were
5:51doing before, commercially, you still
5:54end up standing still because all you're
5:55doing is actually just really keeping
5:57pace with market norms, or doing
5:59something that someone copies like that
6:01as everyone starts to integrate the
6:03technology. Now sure, of course, there's
6:05going to be some first mover advantages
6:07here because people aren't all
6:08implementing at the same pace, but
6:10strategically, this is like pretty weak
6:12sauce with something that's well, with
6:14something that is all about speed in the
6:16first place, right? And this is all
6:17really like obvious stuff. If we just
6:19take like a just sort of classic use
6:22case scenario, which we can just map we
6:23can map this pattern over so many
6:25things. If we look at the web design
6:27industry, for example, like first of
6:29all, a couple of early adopters, of
6:31course, they managed to use AI to build
6:34websites faster and better and cheaper,
6:36and it was happy days
6:38for a couple of months. But then,
6:40everyone who wasn't totally brain dead,
6:43they started to use it, and customers
6:45noticed, and then prices collapsed. Now,
6:47nobody's making any money because people
6:49are just going straight to the source.
6:50They're just going straight to Claude or
6:51whatever. You see, capability,
6:54this is the thing that people seem to
6:55just they can't get their head around.
6:57Capability does not earn you money.
7:00Relative capability is what earns you
7:03money, and there is no or very, very
7:05little relative capability to be had
7:08here. In fact, it's much it's much worse
7:10than that, really, because while AI is
7:12unable to give businesses a competitive
7:14advantage, one thing that it certainly
7:17can do is take your competitive
7:19advantage away. Like, if your company
7:21used to get its competitive advantage
7:24from stuff that AI is good at, like
7:26coding or expert knowledge or writing or
7:30design or repetitive online tasks, that
7:33kind of thing, then I'm sorry, but as
7:35I'm sure you're aware, you know, you're
7:37screwed. You probably don't need me to
7:39tell you. Like, to some extent, I was
7:41one of these people. Like, back in 2023,
7:44good old times, I was making a killing
7:46for the basic reason that I was able to
7:48produce good quality content on LinkedIn
7:52like far quicker than 99.9% of other
7:54people. Like, this was one of my core
7:56sources of competitive advantage. But as
7:59soon as
8:00ChatGPT dropped, though,
8:01bam, that that was over. My advantage
8:03rapidly diminished, and I had to think
8:06very, very carefully about how to
8:08reclaim it.
8:10So look, this this advantage stripping,
8:13this is happening the world over in all
8:15sorts of industries. Like basically we
8:17can we can place all businesses in in
8:19one of two buckets here. Bucket one is
8:22businesses whose source of advantage
8:25isn't really anything that AI massively
8:28affects or influences. Like you got
8:31manufacturing, brand, physical
8:33distribution, real estate, you know, all
8:35these kind of things that are sort of a
8:36bit outside of what AI does. Now for
8:39these guys, you know, the technology it
8:40doesn't really hurt them and it probably
8:42gives them some sort of operational
8:43efficiency gains like we talked about.
8:46But even so, crucially it doesn't give
8:48them new competitive advantage. So their
8:50position it kind of ends up in a sort of
8:52wash. Then we have bucket two where we
8:54have businesses whose source of
8:55advantage is something that AI does
8:57affect like agencies or music or
9:00translation services or IT. For these
9:03guys, the advantage is either flattened
9:06with their competitors or maybe even
9:08drained away altogether. The net effect
9:11then of both of these buckets and
9:13therefore the entire business universe
9:15is broadly negative. And and that brings
9:18us to the most depressing reason no one
9:21is earning money from AI. That is value
9:24capture. Now look, at at the risk of
9:26stating the obvious, let's just ask
9:29why have people sort of floated around
9:30where they think Anthropic is worth like
9:32two trillion dollars? Like
9:35in in a sense, where is this value
9:37coming from? What does this two trillion
9:39dollars actually represent? Well, in in
9:42one very real sense, it actually
9:44represents them swallowing value that
9:46used to be distributed across thousands
9:48of other companies. There is in some way
9:51less money sloshing about out there,
9:53less trade because it's either being
9:55evaporated or eaten by the AI industry.
9:59A part of this is people just using AI
10:01to do things that they used to pay
10:03companies for. That obviously reduces
10:05trade. Another part of it is people
10:07being less willing to spend or having
10:10like lower price tolerance because they
10:11just expect things to be cheaper because
10:14they AI is sort of trained them to think
10:16that way. They know AI is being used and
10:18so it lowers their perception of value.
10:21And finally, of course, part of it is
10:22just a general sense of economic malaise
10:24and and pessimism that that all of these
10:26forces are contributing to. I mean, like
10:28to me it's it's pretty bloody clear that
10:31we've been in a global recession for
10:32some time and it's just not showing up
10:35in the numbers because of the falsely
10:37positive optics being driven by big
10:40tech. Like the S&P 500 might look okay,
10:43but if you just speak to real CEOs out
10:45there and founders running real
10:46businesses, which I do all the time,
10:48any of them are going to tell you that
10:49it isn't okay out there and a big part
10:51of this is down to value just being
10:54compressed and hoovered up by these
10:56companies with actually in the end
10:58financially limited reciprocal value
11:02being given in return. I mean, yeah, I'm
11:04sure that like we're assuming we're
11:05going to have the cure for cancer and
11:07unlimited abundance for all, right?
11:09Okay, but until then, you know, AI is
11:12going to take more than it gives for the
11:14reasons that we've covered and this is
11:16why
11:17this is why I'm inclined to refer to AI
11:19actually as a new form of tax. You don't
11:21have any choice here, right? You have to
11:23embrace it in order to avoid being
11:25crushed by others who are using it. You
11:27can't be the one who's not using it. You
11:29got to integrate it wherever you can,
11:32but you're not going to get much from it
11:33in return other than being sort of
11:35allowed to survive. So, that that we
11:38have it basically, right? That is the
11:39mystery solved. Now you know why despite
11:41your best efforts, this miracle tech and
11:44it, you know, it really is a miracle
11:45tech.
11:46This is why it isn't earning you more
11:48money.
11:49No matter how slick and advanced you are
11:51with it, it just doesn't it doesn't pan
11:53out that way.
11:54And therefore, now that you understand
11:56this, well, maybe you might be prepared
11:58to do something about it. There are
12:00three moves here that I recommend to
12:03claw back a piece of the pie and
12:05actually get AI to start helping you
12:07make more money rather than you helping
12:10it make more money, okay?
12:12So,
12:13move number one, let's keep it simple,
12:15do a straightforward audit of your AI
12:18implementation. I want you to look at
12:20all of the things that you're using AI
12:22for, make a list, put them into columns,
12:25two columns. Column number one is
12:27cost-saving activities, and this means
12:29that you're using it for things that you
12:30were doing already in order to do them
12:33cheaper or faster or better, something
12:36like that. Now, there is absolutely
12:37nothing wrong with this. You should be
12:40doing this. AI at its best can improve
12:42profitability, like we said, but it's
12:44not really going to move the needle in
12:46any sort of super meaningful way. So,
12:49nothing wrong with these things, but
12:50just categorize them.
12:52Column two is more interesting. Column
12:54two is revenue-driving uses of the
12:56technology. This means using it for
12:58things that you were not doing before or
13:00things that you were not able to do
13:02before, which you can actually sell, or
13:05perhaps which result in you being chosen
13:08above your competitors for some reason.
13:10They're going to be very careful here
13:11not to like give yourself too much
13:13credit, not to yourself,
13:14because there are of course many, many
13:15people out there who are building some
13:17bullshitty little AI tool that nobody
13:19wants to buy, but they pat themselves on
13:21the back for their innovation and their
13:23productivity. No, that's not how it
13:25works. The thing needs to actually
13:27produce traction to count, and that will
13:30probably mean using AI to enhance and
13:33accelerate your other non-AI forms of
13:36competitive advantage that that that it
13:38isn't able to erode. You need to be
13:41doing stuff that you weren't doing
13:42before and that your competitors aren't
13:45doing and that they won't be able to
13:47easily copy. Without ticking any of
13:49these boxes, who cares? Like, you know,
13:51it's all just busy work, right? These
13:53are the boxes you need to tick to get
13:54the money to come in. So, run this
13:56audit, see where you're at, and you're
13:58probably going to be horrified by the
14:00imbalance in these two columns, but at
14:01least then you'll know, and then at
14:02least you can start like filling up
14:04column number two. Now, move two, the
14:06second thing we can do, reinvest time
14:09saved into growth activity. Like, you do
14:13not actually need AI to be doing growth
14:15for you. It is also fine to simply allow
14:18it to save time and then to reallocate
14:20that time to growth and innovation
14:21activities that have got
14:24nothing to do with AI. Like one obvious
14:27example of this would be resisting
14:29cutting head counts. Yes, I know I know
14:32I know this is this is shocking, isn't
14:33it? Crazy crazy thought, but what if you
14:36actually kept head count the same and
14:38just redeployed those man-hours towards
14:42value creating new ventures? Hmm,
14:45interesting concept. As for yourself
14:47personally as the founder or CEO, what
14:50about finally doing something I've
14:52talked about in like other videos,
14:54carving out some time in the week to
14:56think strategically and to look at the
14:59big picture. Like if you are truly
15:00saving time with AI, then shouldn't you
15:02be able to do that? Like isn't that
15:05logical? You could even, you know, maybe
15:08like join my community in the link
15:10below, the Rare Might, where you can
15:11actually start to like think bigger and
15:13more progressively and forward-thinking
15:15about these sort of strategic
15:16opportunities. Hmm. But I mean look, I
15:18mean it's crazy, isn't it? Because we're
15:20all we're supposedly saving all this
15:22time, but do any of us actually feel any
15:24less busy than we were pre-AI? I mean,
15:26of course not. Supposedly time-saving
15:28tech throughout history, it it never
15:31works that way. It only ever adds to our
15:33workload, whether it's washing machines
15:35or emails or whatever. This is just just
15:37how the world works. Unless that is we
15:40consciously identify the activities that
15:42we'd like to be doing but are not and
15:44then deliberately create the time for
15:46them. Like you should be spending I I
15:49really believe about half a day every
15:51week
15:52thinking about your industry, about
15:55where your business is going, its next
15:57innovative moves, and it's AI that
16:00should be enabling you to do that.
16:03If not, then then then, you know, it's
16:05not doing its job, I don't think.
16:07Finally, move three. Interestingly, a
16:09little option for you here is to
16:10counter-position AI. Like as we've
16:13established, it's likely that your
16:14entire industry will be broadly marching
16:17in lockstep with AI adoption,
16:19implementing it in all the predictable
16:20places, and probably doing it with a
16:22cost-saving ethos in mind. This is
16:27good. This is good because this creates
16:31opportunities for you to exploit. Like,
16:33I want you to look at all of the
16:34standard forms of AI adoption in your
16:36industry, and I want you to consider the
16:39consequences
16:40of these things, the negative
16:42consequences of these things. What gets
16:45worse because of this? What breaks
16:49because of this? What do customers
16:52think about this? Like, often they don't
16:53agree much with it, right? Within this,
16:56you might find opportunities to
16:58counter-position, to do something a bit
17:00different, to undercut the blind
17:03lemming-like adoption patterns of your
17:05competitors. Like, this has nothing to
17:07do with being AI skeptic or not using AI
17:10purely for the sake of it or to like
17:12stand on, you know, principle or
17:14something. This is just looking for op-
17:15portunities within herd-like behavior in
17:18your own category, which is something
17:19that we should be doing for all reasons
17:21at all times. So, there we have it. It
17:24is undeniable that AI is helping us do
17:27more than ever, often cheaper, often
17:29faster, even often at a higher standard.
17:32It's just too bad that volume and speed
17:34and quality were never actually the
17:36levers that made money. It was only ever
17:40leverage. And unless you can use AI to
17:44help you find that, then
17:46it's going to be the thing using you,
17:47not you using it. So, to help the
17:49channel, please subscribe, and I'll try
17:52keeping them coming. I'll see you next
17:54time.

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