Why ChatGPT will be the next big growth channel (and how to capitalize on it) | Brian Balfour

Lenny Rachitsky:Everyone's always complaining SEO is dead it can't grow word-of-mouth is so hard

Brian Balfour:All of the ingredients for a new distribution platform are essentially happening my prediction the new distribution platform will be ChatGPT there's a bunch of signals that they're about to launch that

Lenny Rachitsky:This is a huge opportunity for companies to get on

Brian Balfour:It it ends up being a prisoner's dilemma don't trick yourself into thinking that you can't play the game the cycles seem to be getting shorter and shorter so you actually have a smaller amount of time if you don't do it your competitors are gonna go to the new platform and your customer expectations change there is no opting out of

Lenny Rachitsky:The game this is the opportunity to disrupt an incumbent

Brian Balfour:But if you're a late stage company you place multiple bets for start ups it's a totally different ballgame you have to choose one

Lenny Rachitsky:And go all in think about companies like Zynga that grew on Facebook and then became massive companies

Brian Balfour:Building a great product is one of those things that's necessary but not sufficient and actually the separation is between those that build really great distribution

Lenny Rachitsky:What would be the backup

Brian Balfour:If not ChatGPT my hypothesis of who's best positioned would actually be

Lenny Rachitsky:Today my guest is Brian Balfour Brian is the founder and CEO of Reforge a company that I've been a longtime fan and advocate of historically Reforge has focused primarily on teaching courses on product and growth but more recently they've transitioned to building their own products including a product called Reforge Insights and a bunch more really cool stuff coming very soon prior to Reforge Brian led growth at HubSpot and over the course of his career he has seen the rise and fall of every major distribution channel including Facebook's ad platform Google Ads and SEO and the Apple App Store. Based on what he's seeing he is predicting the emergence of a brand new and powerful distribution channel that will likely arise in the next six months centered most likely around ChatGPT. It is really rare for a new growth channel to open up. It's been a long time since the last one appeared and the people who recognize this and hop on it early are the ones that reap the most rewards so this is a huge deal. In this conversation Brian shares what he's predicting what he's seeing why this is a big deal and what you should be doing about it right now. I highly recommend you listen to this full conversation and discuss the ramifications with your team. If you enjoy this podcast don't forget to subscribe and follow it in your favorite podcasting app or YouTube also if you become an annual subscriber of my newsletter you get a bunch of incredible products for free for one year including Lovable Replic Bold N Eight N Linear Superhuman Descript Whisperflow Gamma Perplexity Warp Granola Magic Patterns Raycast Chappyrd and Mobin check it out at Lenny'snewsletter.com and click product pass. With that I bring you Brian Balfour. Today's episode is brought to you by DX the developer intelligence platform designed by leading researchers to thrive in the AI era. Organizations need to adapt quickly but many organization leaders struggle to answer pressing questions like which tools are working how are they being used what's actually driving value DX provides the data and insights that leaders need to navigate this shift with DX companies like Dropbox Booking.com Adyen and Intercom get a deep understanding of how AI is providing value to their developers and what impact AI is having on engineering productivity. To learn more DX's website at getdx.com/leni that's getdx.com/leni. This episode is brought to you by Basecamp. Basecamp is the famously straightforward project management system from 37 Signals most project management systems are either inadequate or frustratingly complex but Basecamp is refreshingly clear. It's simple to get started easy to organize and Basecamp's visual tools help you see exactly what everyone is working on and how all work is progressing keep all your files and conversations about projects directly connected to the projects themselves so that you always know where stuff is and you're not constantly switching contexts running a business is hard managing your projects should be easy I've been a longtime fan of what Thirty Seven Signals has been up to and I'm really excited to be sharing this with you sign up for a free account at basecamp.com/lenny get somewhere with Basecamp

Lenny Rachitsky:Brian thank you so much for being here

Brian Balfour:And welcome back to the podcast yeah thanks for having me excited for this one I'm really excited

Lenny Rachitsky:To have you back we're just gonna dive right in essentially you've uncovered a a really important trend or insight about how products are going to grow differently in the future how growth is changing and this is something that I think a lot of people need to hear so I asked you to come on to share what you're seeing I also think it's just very timely I think you said like in you're gonna say in the next like six months things might significantly change so I'm really excited to do this we're gonna spend this whole conversation on this on this insight to set us up what is just the

Brian Balfour:Big idea what's the high level idea here just like you I've spent my whole career just like really passionate about startups you know figuring out how to build products that win that emerge in new markets and one of the things that I have you know learned over time or one of the things you hear a lot is from a lot of folks is to win you have to really build a great product a lot of the advice kind of boils down to that and one of the things that I feel like I've banged my head against the wall in a lot of ways in my career is actually telling people that building a great product is one of those things that's necessary but not sufficient and actually the separation is between those that build really great distribution and so this general partner his name's Alex Rampell he's at Andreessen Horowitz actually wrote this blog post ten years ago back in like 2015 in the essence of the blog post he basically says one thing which is that startups is a game of trying to get distribution before the incumbent can copy right so it's this kind of concept of escape velocity and and so you know on that note right which I think is like a very good summary of like what you're trying to do in a startup in distribution is that we're right now living in this environment where that game of startups kind of getting distribution faster than the incumbent has gotten way harder in a lot of ways and in some small cases has gotten a little bit easier but if we think about this the way that it's gotten harder and some of the things that probably a lot of founders or or folks working on the growth side have probably feel is that one is that incumbents can copy faster these days right so that window that you have to get that escape velocity has actually shrunk it's decreased the second thing is that a lot of the organic distribution that we've had especially over the past few years has really shrunk as well so everybody's talking about the decline of SEO and you know clicks declining but you also see it in some other cases right a lot of these social platforms don't really let you send as much traffic to sites you know LinkedIn just changed their algorithm which has really dropped organic distribution obviously the the Twitter to X transition that happened right like TikTok's almost always been like that and then the third way that it's gotten harder is that AI is really good at writing software right in code generation and so everybody's kind of feeling this infinite increase of competition especially at the startup level and YC's pumping up six of the same thing every single cohort right like that's what that's what it literally feels like so it's gotten way harder this game this escape velocity game has gotten a lot harder it's gotten easier in some very exceptional cases like a Cursor or something where AI has kind of been like the spark you know I know you wrote the blog post about the race car engine and I think you said like there's like the spark plug in the engine right and and so AI kind of really created that a new type of spark a new type of interest of early adopters to to to fuel some some new players in a short period of time right and so it's amazing to see something like Cursor overtake market share of something like GitHub Copilot in nine months or less right like that's how fast it happens it's kinda crazy but the main thing that people need to understand is okay well if that's the game I'm playing right how to get to steep velocity before the incumbent like what are all the ways to do that and and to really figure that out and there's multiple ways that this can happen but one of the major ways one of the major major ways that we always see is that this can happen when new distribution platforms emerge and because when new distribution platforms emerge startups are usually the fastest to take advantage of them it's slower for the incumbents to move it gives startups this opportunity essentially to play this game so Casey Winters wrote this blog post about two years ago maybe like eighteen months ago about the AI technology shift and his key point was the AI technology shift has been a technology shift that has not come with a distribution shift yet so if you look historically we've had a bunch of technology shifts from you know the internet to the cloud to mobile to social like all of these different types of things and some of them come with distribution new distribution platforms new ways to distribute products and some of them don't but the most powerful ones the most impactful ones are the ones that do come with these new distribution platforms and so his second key point was that these two things don't actually happen at once usually you get the technology shift then you get the distribution shift a little bit later so now we're a couple years from that post we are a couple years into AI technology shift and one of the things that I am seeing is all of the conditions all of the ingredients for a new distribution platform to emerge are essentially happening and so I think we're at an inflection point where we're going to see this emerge really fast and the key thing for everybody to know is that as new distribution platforms emerge they follow the same four step cycle and it's kind of a game that you're playing that everybody's playing and so just like any game you kinda need to know the rules of the game you need to know the steps of the game in order to have any sort of opportunity to win and that's kinda like the the the thing that the that I've lived through once again both painfully and also in good ways and it's something that I'm keeping my eye on and something that I've been talking about so before we go into that you know four step cycle I figure I'll I'll pause there to see if you you have any follow-up questions on that

Lenny Rachitsky:Okay this is amazing so essentially what you're saying is we've all these ways to grow there's SEO there's paid growth there's sales all these channels have been around for a long time they're extremely saturated everyone's always complaining SEO is dead it can't grow with SEO anymore it can't grow word-of-mouth is so hard there's so many amazing things now that's hard paid is so hard it's just it like all this money tax arising

Brian Balfour:Yeah all these things yeah so all

Lenny Rachitsky:These saturated channels and what you're saying is there's an emerging new channel that has not yet been saturated and this is a huge opportunity for companies to get on it and you'll talk about timing because it's a little tricky to even know exactly when to go big on this

Brian Balfour:That's right

Lenny Rachitsky:Yeah but that's a huge deal this has been a long time since there's a new way to grow that you can actually use as a for growth and not just hope for the best okay

Brian Balfour:Yeah that's right

Lenny Rachitsky:Before you get into the cycles do you want to tease what the answer is just to give people a little hint or do

Brian Balfour:You wanna keep it secret well to be clear right like okay so my prediction will we don't we don't have a clear winner yet my prediction of the new distribution platform will be ChatGPT in some ways that people probably already think it's happening in some ways that it won't but the thing that is less important or like that is more important than whether I have predicted the exact winner correctly the thing that's more important is to under the stay in the cycle and and evaluate like how to determine where you want to place your bets and how to place those bets which I know which I know we'll talk about because I I'm I could be wrong about the ChatGPT prediction and what's gonna happen there there's I think there's gonna be two parts of it there's going to be what they do with like a ChatGPT search experience but I think the bigger thing will be whatever they do with launching a third party platform on top of chat ChatGPT there's a bunch of signals that they're about to that they're about to launch that I'm pretty sure it's gonna be ChatGPT the thing I'm way more sure about is that some new distribution platform will emerge and it will follow the same four step cycle that that that's kinda that's kind of the key so could be wrong on the first piece I am very confident on the second piece

Lenny Rachitsky:Okay excellent foreshadowing I completely agree if it's anything it would be ChatGPT at this point let's get into it what are the what are the cycles that platforms generally follow

Brian Balfour:Yeah and I'll give some examples of this but let me explain the four the first four step the four steps of the cycle first and then we'll go through a bunch of examples of all those individual steps so the the four steps are essentially one is like I call a step zero it's it's the the conditions of the market have been met step one is about a moat step two is about a platform opening and step three is about the platform closing for control and monetization so let me kinda briefly explain each one step zero is about the competitive market being met the conditions being met and there's a few part piece of this one is that typically what happens is that a there is consensus that there is going to be this new huge category right think social think mobile like all those types of things and in this case right these AI like chat platforms a ChatGPT or a clock so there's consensus about that but there's no clear winner yet and you typically have somewhere between five to seven you know major players really battling it out right so and they're all kind of looking for what is the edge what is the thing that is gonna that is going to to help me win because all of these dynamics you in in all the history they either end up in monopolies or duopolies right and so the the stakes are really large and so the competition is fierce so that's kind of step zero and I I think we could all agree that we are in that mode you know right now we've got we've got openai battling with claude battling with gemini and google with whatever meta comes out with new their new team you know so on and so forth like and there's huge amounts of capital there's consensus like all the type they are in a fierce composition so that's step zero step one is then these players somebody essentially identifies whatever the moat is the thing that is going to help build them defensibility and help them hit escape velocity and become that monopoly or duopoly in that single category and once they figure out what that moat is then they need to press the advantage right they need to figure out how to gather that moat as fast as humanly possible and it tends to be that you can't do that by yourself and so you kinda need the help of an ecosystem in order to gather more of that moat and that typically comes down to third party content creators or app developers and other businesses and so they all establish like a third party platform right that has some incentives built in and usually the value exchange is hey you develop on top of my platform right you add more use cases you know more engagement like all of these things to my platform and in exchange I'm gonna give you something in return and usually that thing that's in exchange is I'm gonna give you some new form of distribution for your application and for your business but what essentially happens as we go over time is that we go into step three which is the closing period which is at some point all of these companies end up starting to lock down the platform and this tends to happen for reasons of monetization and growth they either competitively don't want somebody to use their own you know platform to disrupt themselves like we saw that in the early twitter days with things like vine and periscope right like shutting those things down unceremoniously right or they need to find ways to monetize at a deeper and deeper level because all these companies like they have to grow and you know Google's the classic example here of just more and more real estate has either been taken up by either ads or their own you know first party applications and so that's the key is like they close it down by doing one of two by one of a few things they either shut it down entirely two they develop their own first party applications to absorb the the highest use cases or three they artificially depress the organic distribution that they gave you in the step prior to push you towards paid mechanisms in order to monetize and so I think we should go through like multiple examples here but that's kind of like the core essence of of the four steps and so I'll I'll pause there awesome

Lenny Rachitsky:So it's essentially figure out what's gonna make create defensibility long term what's your moat bring everyone in hey everyone welcome to to Facebook everyone joins Facebook and that okay and all the developers build on Facebook to bring in more people on Facebook and then they're like okay now you gotta pay there's a toll and but you love this so much and you're so hooked all your friends are here you may as well stick around that's right

Brian Balfour:That's right

Lenny Rachitsky:Amazing okay so yeah a few examples would be great

Brian Balfour:Yeah so you you just hit on the first one the fur this is the first one that I always think about because this is where I learned about this cycle very early in my career like my one of my first companies was during the whole the Facebook platform boom you know social gaming all of those applications and I lived the full cycle in a very short period I lived the the glory days and the the absolute horror days and and it was very painful but this is exactly what happened so let's go through the four steps so step zero Facebook was in a brutal battle with Myspace Friendster and a few others people forget this people forget that there was actually like a bunch of competitors at that time and in fact those competitors were bigger than Facebook at the time they had more users back in 2007 when Facebook launched their third party platform but one of the key things is that Facebook was very early to the insight about the direct network effects and that there's going to create real lock in that the more friends the more of the global network that was on there the more that it was just gonna feed and and hit this escape velocity and so at the time they launched their platform I think they were maybe like one fourth one fifth the the size of you know something like me Myspace or even Friendster Orchid like some of these are some of the names at that time but they opened up their third party platform and what was the value exchange they went to third party developers and they said okay we've created this canvas they used to call it the canvas and they were like you could put anything in the canvas that you want an app a game whatever you can monetize in any way you want we just want this sidebar real estate on the ads that's that's what we're really interested in and so there is this mass mad gold rush on that Facebook oh sorry the other part of that was not only will you put it there we're gonna give you access to all of these notification channels and feed to get distribution for your application that was that was the other piece of it and so you had this mad rush of developers coming in and you had this huge like social application social gaming boom people just grew incredibly virally very fast but eventually essentially what happened over time is they kept peeling back that value exchange they first were like ah actually you know that those dollars that you're you're making inside that canvas area well we want a percentage of that right and so they changed that and then they figured out their like their ad systems and then they started peeling back you know they started suppressing access to all of the organic channels that they had eventually they went all the way towards absorbing the highest you know use case into their own first party platform things like first party applications things like events photos all those types of things and basically shut down the platform for dead and these companies that are basically built on top of this platform you know the other thing is by the time they started closing all those things down all those competitors that we talked about they were so far ahead at that point because they had built off the back of all these developers coming adding use cases bringing more users onto the platform like all like identifying that moat they were so far ahead it didn't matter it didn't matter what the other what the other folks did at that point and and that's what kind of really gives you confidence to start closing down but there's so many other examples of this right if if we go through it right so

Lenny Rachitsky:Before you get other examples just something I'll highlight here one is the moat they they identified in theory was the friend graph I imagine just like once we have all your friends you're not gonna wanna go anywhere I imagine it's also important to note you may not this is kind of like a natural thing that would happen if you build the thing and it grows and you're like oh maybe we should change strategy I imagine not everyone even knows this is what will happen and they kind of organically evolve their strategy or do you think everyone's just like this is our gonna be our plan step one two three four I think

Brian Balfour:A different version of that question is I think some people could sit here and interpret this as all these folks are evil right and and that's not what I'm saying like that's actually not what I'm saying I wanna be very I wanna be very clear on that because I think you know a lot of the a lot this cycle happens because of competitive and capitalistic like dynamics and pressures it's it's the same environment that enables like creating amazing new companies right here in the US so and and there's there's like two sides of the coin and so you go through this cycle because it's a competitive environment you're trying to figure out how to beat competitors and this is one of the strategies to beat competitors but at some point like you just have to continue growing you still have you have to grow those dollars like the the market does not reward flat companies if anybody's noticed like you have to keep growing and so they have to keep finding ways to grow as well as prevent their own disruption right they they can get so big and they can give access so much access just of distribution to new developers they don't want to enable their own disruption as well as like that they need to keep growing and so my guess is anybody who is kind of sitting in their shoes you know owning their platform is gonna follow the exact same playbook and the in in the exact same reasoning and you know look sometimes it happens also because it's actually is the best thing for the user Facebook's channels did get super spammy and like all of those things and that was part of the reason you know they they play this but let's be honest it wasn't the only reason right like a lot of it was a lot of it for for these other reasons and so I don't think it's evil it's just you need to know how to play the you just need to know how to play the game that that's competition that's business they're playing you so you need to play them like felt like that that might be a little little sadistic or something but but that is that is business that's you're you're in a game of competition

Lenny Rachitsky:Yeah essentially the incentives are pointing you in this direction capitalism this is how capitalism works yeah and so it'll pull everyone in this direction even if they they don't they wanna avoid it let's do a couple more examples

Brian Balfour:Yeah we'll go through them quick you know I I think everybody's probably Google's an interesting one because it played out over a much longer period of time you know Facebook happened over the course of about in five ish years something like that Google kind of did it like very slowly over years but same thing right massive early massive competition against Yahoo I don't know Altavista I like because you name them all right that was even before my that that was even before my time right they were first to really identify these data moats and incentivizing essentially web developers content folks to optimize you know for their search algorithms it create this great distribution mechanism everybody's building content and everything for them but over time slowly but surely they did two things one is more and more of that real estate became ads that they were monetizing so they're suppressing organic distribution in order to push people towards the ads as well as absorbing a bunch of of the highest value first party use cases things like travel you know as an example or even like you know like search and like all those types of things you know the Yelp former Yelp CEO and founder has has been you know been out there saying a lot a lot of things about about these practices so same same exact cycle mobile went through the exact same cycle right iOS created a new distribution mechanism they were in massive they they had a ton of competition among different phones when they first started on they found the defensibility was more about the apps they got in all the developers created the the app store like all of these types of things but over time we've seen more and more restrictions there on that front and then most recently right like we've seen this happen in smaller places too LinkedIn as an example first went through this wave with company pages right they were like ah companies you know come on promote your company page bring in more users like all that type of stuff and then get get all these followers and then of course they get almost no distribution now through your company page because they're pushing you towards ads and then they recently just did this with personal profiles too which is they really boosted distribution for individuals to create content for that platform they then introduced the thought leader ad format a way to monetize those those individual posts and now you've seen them really pull back on that organic distribution so this happens in big forms it happens even in in smaller use cases as well but once again the steps of the cycle are exactly the same and the key part about this too is it the broad trend is that the cycles seem to be getting shorter and shorter and shorter and shorter so you actually have a smaller amount of time to play the game

Lenny Rachitsky:Okay and the big here is yes this will end maybe not great for you but there's this magical period when they're open to yes customers and users where you can grow like crazy because they want everyone to come and they give you a distribution and what you're saying essentially is chatgpt potentially some other platform maybe is about to enter this mode

Brian Balfour:Yeah well let me first before we get to chatgpt I think the natural reaction when when you first realize this is screw them I'm not playing that game right like that that that's what I feel like most people like how how they react right because because the unfortunate truth is is that a lot of companies don't predict that last stage and end up in a really hard hard position right so many companies got completely killed during you know the crash of the the Facebook social platform Apple's 30% tax you know basically destroyed a bunch of types of types of applications and business models because it just you couldn't you feel like it was just wasn't like margin effective like all so many companies built on you know SEO loops right that are in serious serious trouble right now if that's their only channel so so all of these things right and so I think the natural reaction is yeah like like why would I play this game if I'm a startup or or a company like and you can even see this with like chatgpt as an example right they just launched these like deep research connectors one of them was my former company HubSpot and you know if you sat inside HubSpot and you were just thinking in isolation you would be like well why would I want to make all of my data accessible through chat gpt and have like all of the usage you start to accrue there right like it doesn't really make sense in isolation but we don't operate in isolation once again we operate in a competitive environment and what's going to happen is that if you don't do it your competitors are going to certainly go to the new platform and your customer expectations change and you have to rise to those customers' expectations they're going to start expecting you to be in these new experiences and all these things and so it ends up being a prisoner's dilemma which is there is no opting out of the game you have to play the game and and so it's better to be early than than to be super late to this game especially especially if you are a startup right that that that's kind of like the the the key that that's kind of like the key opportunity and so we'll talk a little bit more about how to play the game more but it's it's it's better to be early as well as than than the key the harder part about it is is anticipating that last stage of the cycle and figuring out how to sequence away from something before that last cycle comes so I think that's the key part but let me pause there and then I'll talk a little bit about chat gpt and and some of my reasoning behind that

Lenny Rachitsky:Cool so what you're saying is not only is there going to be this big opportunity to grow if you don't take advantage of it somebody in your space will exactly so it's not only there's an opportunity but this is something you need to do because you might miss the boat I think about companies like Zynga that grew on Facebook and then became massive companies and you know if they didn't do that they would have missed the boat someone else would have eaten at lunch I don't know I'm thinking about the Technology Bros podcast on Twitter right now TPPN where they basically figured out on Twitter you can create this like live stream and you see it all day in your Twitter feed just like hey they're broadcasting and it's a really cool distribution channel so so I think there's like a big call to arms here on most of just the opportunities emerging and you basically need to pay attention you can't opt out that's right

Brian Balfour:That's right okay exactly

Lenny Rachitsky:Chat yeah so let's talk chat gpt

Brian Balfour:So look like like let's go through this cycle we right now we're in that competitive environment like we said like all those players we've talked about chat gpt Claude Gemini all these folks they're they are battling it out right and and we've seen this with you know the talent wards especially over the past you know month or so and so there's no clear winner yet but there's consensus around the category the second thing is then okay what's the moat has the moat been identified and who seems to have identified it the first or as furthers along I think there's my hypothesis and I think there's a lot more consensus around this now than there might have even been three months ago is that the mode is really about is about context and memory these models you know by themselves if you compare them side by side you know they they kind of generate the same result and so that the actual difference maker is which one has more of your context and and and because it's the context plus the model that produces the best output and then and then that kind of starts to accrue to this loop around memory the more you use it the more it's able to store memory around you which kind of feeds more personalized context which produces better outputs right and it ends up being an you know another one of those flywheels another one of those another one of those loops and so if you look at who's farthest on this it definitely is chatgpt right like they were kind of the first ones to memory they've been investing a lot in these different types of data connectors essentially context connectors you know gathering all of this context and and and so you can really start to see it in the usage but the second thing is is and one of the pushbacks I've gotten on my prediction has been well what about like Google and Gemini like they have so much distribution through Chrome and like all of this other stuff right but it was Didi Doss who's a VC at Menlo Ventures actually published some good data on retention of all of these different ones and I think the second reason I predict chatgpt is like if you look at history once again it was never the person who had the biggest distribution at the moment of time it was the one that had the best retention and engagement Google had the best retention and engagement over the others Facebook had was smaller but had way better retention and engagement over the others right so on and so forth and so the the data that Didi published clearly showed that both the retention curves which I know you and I have both written about you know an exhaustion level off at significant portions higher than all the other platforms as well as those retention curves have been shifting up dramatically over time you can start to see the effects of memory and they have the very elusive smile curve the ones that you just like and the only other times I've seen all of those dynamics very few times in my career and they tend to be the folks like Slack and and like all of the big winners it's there it's just like so elusive

Lenny Rachitsky:And the smile curve just to just so people haven't done with that is essentially retention goes up over time it goes down a little bit and then you come back to it and you

Brian Balfour:Use it more yeah that's right and it's usually the result of some type of network effect or or something else and and it and it's it's a early indicator that these folk that that that platform is on a trajectory to to hit escape velocity the third piece is that and they haven't really hidden these but there's all sorts of signals that they're about to launch a third party platform they've they've been hiring for a bunch of roles I've seen multiple postings on like product manager engineering roles all that kind of stuff for you know quote unquote agent platform and all those pieces and so it feels pretty inevitable that they will one of these players will need to launch a third party platform in order to you know serve all the possible use cases you know on these tools there's gonna be some value exchange which is like hey for your agent to be effective you probably need access to the context and memory and distribution right so there'll be some value issues of integrate to us and we'll give you those three things right is gonna drive more users and more usage and and we're gonna go through the steps of we're gonna go through the steps of the cycle and you can already see this right like you know they're starting to form preferred partnerships right with some of the bigger players which paves the way for smaller third party players it kinda gives lens credibility to the platform it's like well if HubSpot and XYZ are doing it then I should probably do it too it's it's it's like that type of that type of mentality but that's why I think out of all of these platforms chatgpt has the the best shot right now and and then a bunch of folks are always like well what about Claude I really like Claude I use Claude well the problem with that is like I think chatgpt at this point has like at least a 10x difference on MAUs so if you're a developer right and you're comparing those two platforms and you're saying and you're looking at it and you're like well chatgpt has 10x the number of users and better retention engagement it's like what's the what's the logical choice of which one you're going to prioritize your scarce resources on right and so so those are just some of the reasons that my prediction is on chatgpt and in in the blog post that I wrote about this I actually then played my own devil's advocate and said okay here are some reasons why it might not be chatgpt but but I think we're in that part of the cycle that's my prediction I might be wrong in the prediction of chatpt chatpt but I really think I feel very confident we're gonna see this cycle play out again

Lenny Rachitsky:Two follow-up questions here one is what's your what would be the backup if it's not chatpt sounds like it might be Gemini Google

Brian Balfour:My hypothesis of who's best positioned but is not executing on it right now would actually be Apple through the the devices they basically can see everything so they have the ultimate view into your context right they're they're they're sitting at that they're sitting at that level but I don't know what they're doing it's like from an execution standpoint maybe they're gonna surprise us with something crazy magical but oh I haven't we haven't seen any external signals around this so so that's probably just based on on what real estate and where people live in the stock would own and then I think right behind that I would probably put I would probably put Google because of owning the context of things like email and the the distribution points of search and Chrome and Android and and those types of pieces but and a lot of people point to them but my experience with all of their products is like going back to the retention engagement thing is is that if we could take a look inside their metrics I think what we would see is a bunch of flyby users in their mouths like they're kind of sprinkling the Gemini bucket everywhere and I'm I've I've like literally clicked on it accidentally multiple times and so my guess is a huge portion of their mouths is is exactly that of like what what's happening right now and so you know look they just they they just acquired a very team from from Windsor

Lenny Rachitsky:Just the team just the team

Brian Balfour:Part of the team yeah we'll see and and things are things are changing dramatically you know on a on a week to week basis so we'll see if they're able to press those advantages in a very clear way but I think the window is very small for them if if if chatgpt plays their cards right because they clearly have the escape velocity right now and if they just keep pressing that advantage in in the right way I think it's going to be very hard for Google to counter in in the amount of time that's left

Lenny Rachitsky:On the Claude piece I'll just throw this nugget out. I had Mike Krieger on the podcast, head of product CPO at Anthropic, and asked him just you're losing to ChatGPT, how do you approach the future of Claude? And he very specifically said yes, they've caught lightning in a bottle. This is just going to win based on what I've seen with Instagram and so we are specifically focusing on what is Anthropic and Claude incredibly good at which is developer tools, coding, back end stuff. So they're actually leaning more and more into that and if you've seen their revenue recently, they're making I don't know like approaching $10,000,000,000 a year or some crazy amount of money. So they're actually doing super well just in a different use case.

Brian Balfour:Yeah, I'm glad you mentioned this because this brings up something that we skipped which is there are smaller platforms that have existed and will also emerge in this environment as well and that's kind of like what you're alluding to is that this tends to happen is like things end up growing into more niches even if you look at social, right, like LinkedIn emerged as a subset of the social world but even on these smaller platforms these new distribution channels they go through the same cycle. I'll give something really a very opposite example of the ones that I gave like look at the platform Udemy right they are a platform for course creators. I don't know if most people know this but when they started their rev share to creators was something like 80% to creators they started very high and that brought on all the course creators got their whole marketplace going. I believe it was about a year ago they announced that they're essentially pushing that rev share down to something somewhere between 15-20%, they're somewhere at 25-30%. So another example of they closed down organic distribution in order to monetize all that kind of stuff and the same thing will happen in this AI world. I believe Cursor it's very clear Cursor's on a path to also probably create some type of agent platform for developers so that'll be a smaller ecosystem to play in for some products. There's all sorts of, it feels like everybody has the same strategy at this point as everybody wants to launch an agent platform. I imagine some of these other horizontal productivity tools will do the same thing maybe like a Notion or an Airtable or like a Monday.com or something like that. So there will be smaller platforms that will emerge and they will follow the exact same cycle that I am also discussing. But yeah, in terms of like the biggest kind of consumer one, that's where I think ChatGPT has probably the most escape velocity and yeah, others will focus on different areas. And just to be clear I love Claude, I actually use both Claude and ChatGPT for different things. I have lots of love to go around for all these tools. My prediction has no bearing on which product I like the most right now.

Lenny Rachitsky:I also love Claude. So I think with so the key point here you're making is that there's almost a number of distribution channels emerging, many of them will be niche. So I think of LinkedIn if I want to, like LinkedIn for me is a very targeted audience for folks that listen to this podcast. So yeah even though it's not, I don't know, Google or Facebook or whatever, it's still incredibly valuable for this specific thing that I

Brian Balfour:For sure.

Lenny Rachitsky:So I think this is even more interesting that there's gonna be a number of distribution channels that emerge out of this whole AI wave. The other thing I'll note real quick you mentioned this idea of everyone's building agents. I just had Brett Taylor on the podcast who's building Sierra and we actually he made me realize why everyone's building agents. Partly one is because the outcome based pricing that you can charge with agents is incredible because one you can actually attribute their impact on your business' ROI. You can actually see this is saving an agent $15 because it solved the case and it's attributable and it's autonomous, it's just doing it on its own. So with that you can charge per outcome. You can say we'll charge you a dollar every time it solves an issue. So the monetization opportunity is huge and the margins go up like crazy.

Brian Balfour:Do you can I just ask a question?

Lenny Rachitsky:About do?

Brian Balfour:You think that has longevity in the sense that that makes sense in the current environment that we're sitting in right now because people are kind of comparing these outcomes relative to what it costs them today with pure humans but once again competition comes in at some point and so that feels like that creates a pretty ripe opportunity to, you know, undercut and come into and then you have like whole all like the disruption theory kind of playing out as well and so it obviously depends on like the infrastructure costs and compute costs to run these things but I just wonder how much of that is temporary versus something that'll be long term.

Lenny Rachitsky:So you're saying that dollar will come down to like 50¢, 25¢ or are you saying someone's gonna come with a whole new business model and disrupt that whole approach?

Brian Balfour:More the first, yeah. Like it's just competition erodes that away essentially, right?

Lenny Rachitsky:Yeah, that's a good point so margins will be higher for a while and then they'll come down.

Brian Balfour:There's something else that creates like durable pricing power.

Lenny Rachitsky:Right, I wonder if that, yeah so I wonder if what

Brian Balfour:That is the second piece of this. Yeah, yeah, that's probably the second piece of that hypothesis I feel like, yeah.

Lenny Rachitsky:Yeah, I think I guess the opportunity there the moat would be the data like similar to how Cursor is collecting more feedback on what is people want in their code suggestions maybe in theory CRFN has more and more data over time and there's kind of this network effect. Yeah, that's right.

Brian Balfour:Yeah so so let me revise that yeah it's like I believe in that as long as it's paired with samote this this second piece otherwise it gets competed away.

Lenny Rachitsky:Yeah good tangent okay one more question what's the what is your prediction on timeline for when things when the opportunity appears and what do you predict as of the day we're recording what do you predict will be the next couple things that open that chat should be t and let's just focus on that releases to start to open up this platform to get everyone in there.

Brian Balfour:Yeah well look I'll I'll first give the disclaimer that I feel like any thoughts on timing in the AI market very have been very hard to predict it it's always shorter that's where we should bias it's always shorter than you think of like when something's gonna happen like that's what it's felt like from the seat that I've been sitting in and but my guess is this we're going to see the the next major steps of this play out over the next six months and so I think we just saw one of the pieces drop around this which was their re which was Chat GPT's recently launched agent mode and so it's kind of a general purpose agent you know and and I think that starts to introduce all of the users to to to using agents and they're kind of figuring out and placing it in the different different tiers and business models all all of those pieces but but it's likely that no general purpose agent is going to fulfill all of the infinite use cases successfully and there's two reasons for this right users struggle with horizontal tools they can do everything and that's exactly why they struggle to adopt and so they typically need more specific entry points but also the more specific use case you get sometimes you need specific UI specific data like other specific ingredients you know to properly fulfill that use case for you know for a given audience and so I think their agent mode was a step in this direction what I would expect to see play out next is that they will they will either launch they will announce the platform or what they're gonna now with preferred partners or what they're gonna announce first is is basically a set of preferred partners the the guinea pigs you know an initial 10 to 20 folks that are like bringing agents to their platform and and what that does is it essentially once again it's a credibility card right you you do special deals with some like right brand names to give the platform credibility and it kind of creates this desire from everybody else to come on you know to the to the platform and then the step after that is starting to open up the platform and this is where the real you know where we're really start to figure out what this game is gonna look like because they basically have to define what the value exchange is what are they giving you access to right and like what are what are they incentivizing you with to to come on to platform so that's one version of it the other version of it is just like the replacement to search there will probably be you can also see them starting to make more moves here which is like deeper attribution in some of the results like those types of pieces they're bringing in shopping right like that's one of their recent announcements as well kind of made of into the UI essentially they will form new monetization mechanisms around that stuff as well and that's actually gonna be very important because for them to going back to the moat around memory and context is that you know they they will want to incentivize as many people to their free tier as possible but given the cost of AI they have to cover it somehow so they're gonna need some monetization mechanisms so the more that they can cover that free usage with things that aren't subscriptions I think that probably also kind of feeds them out so I think it those are some of the next steps on two different vectors more of a like third party developer platform and more of the you know kind of content whatever you wanna call it aeo geo I don't know what acronym is we've all decided on yet let me know if we have and I think those will be the next steps that we'll see now that's what I think for jet GPT think the thing that we should talk about is essentially what I would advise folks especially startups is you're placing bets at this part of the cycle you're placing bets we don't the winner is a 100% guaranteed as I mentioned and so you essentially at some point will need to make some decisions about you know where to where to place your bets in the Facebook days all those other all those other social networks they also came out you know with their own platforms right and ios had android and some failed initiatives from windows I don't even remember what that platform was called right like and you can look back and whoever placed their you know the iPhone was actually a very and ios is a good one which is if you had only aligned your bets to android you probably lost if you somehow find found a way to play on both ecosystems you could be a winner but if you only aligned to ios you could also be a winner right so like that's just right like you you had to have ios as part of your betting strategy in order to win so everybody right now like you're probably at the cycle in in trying to figure out well y'all need to everybody will need to figure out where are they gonna place their chips how how are they gonna bet and depending on how you bet really depends on what your current position is in the marketplace you know if you're a late stage startup let's start with that or like a late stage company you can afford the luxury to place multiple bets and kind of spread your chips and and kind of wait it out a little bit to see who the winner is and then really throw your muscle you know behind that winner you you have that luxury a little bit and of course but the risk of that the the the risk of that is that sometimes the incumbents wait too long to to make that decision and and that's like kind of the key key question they will need to answer the key question for startups is totally different you don't have the luxury to spread your chips like you have to go all in you have to choose one and go all in you you have scarce resources scarce attention from the market and so it's a totally different ballgame higher risk higher reward for sure and that's part of the betting strategy for startups and so that's kind of what you have to do is you kind of have to figure out your betting strategy and then we can talk a little bit about how you might evaluate and pick the right course for you but but that's where we're all at right now is we're we're kind of we're we just entered the casino we just cashed put some cash in for some chips and now we now we've gotta figure out you know what tables and and where to to place those chips.

Lenny Rachitsky:I love this analogy okay so just to be crystal clear about what listeners should do what founders should do what product teams should do the advice here essentially is integrate with and chatgpt maybe gemini maybe if apple has something it's like actually integrate with with what they launch so it could be a a login thing could be a search thing could be a connect and suck up your memory in context the advice here is is you need to do this because this is potentially the way that most companies will start to grow and your competitors may overtake you.

Brian Balfour:Yeah yeah if we had to like really simplify it it's essentially play the game don't opt out of the game don't don't trick yourself into thinking that you can't play the game that's number one and then number two no matter who you bet on just make it a focused bet because the the all like if you look back all the failures are the ones that tried to you know play multiple games at at once with scarce resources and that just tends to never work if you're you're an early stage startup so those two things play the game put a focus bet.

Lenny Rachitsky:This episode is brought to you by Miro every day new headlines are scaring us about all the ways that AI is coming for our jobs creating a lot of anxiety and fear but a recent survey for Miro tells a different story 76% of people believe that AI can benefit their role but over 50% of people struggle to know when to use it enter Miro's innovation workspace an intelligent platform that brings people and AI together in a shared space to get great work done Miro has been empowering teams to transform bold ideas into the next big thing for over a decade today they're at the forefront of bringing products to market even faster by unleashing the combined power of AI and human potential guests of this podcast often share Miro templates I use it all the time to brainstorm ideas with my team teams especially can work with Miro AI to turn unstructured data like sticky notes or screenshots into usable diagrams product briefs data tables and prototypes in minutes you don't have to be an AI master or to toggle yet another tool the work you're already doing in Miro's canvas is the prompt help your teams get great work done with Miro check it out at miro.com/lenny that's mir0.com/lenny so you were head of growth at at HubSpot for a long time so and you gave that as an example HubSpot why would they integrate why would they give away all their data so that JGB can suck it up and you never have to go to HubSpot you're just working through their agent you're would you at HubSpot be like yes we gotta do this this is the game we gotta play.

Brian Balfour:Yeah a 100% and that's exactly what I think you see them doing and look to be very clear I had not talked to anybody at HubSpot about this I had not talked to Darmesh about this but Darmesh I think has also published publicly published about this but that the right thing to do is essentially even though you don't you you understand how the cycle plays out and you don't necessarily under what understand what your exit strategy is once you get out it's better to be early know that you need to figure out an exit strategy and figure out that exit strategy along the way versus waiting and then being super late and and then and then know what the exit strategy is and and I think that's essentially what that's exact that's exactly what you see them see them doing they're trying to be as early to this stuff as as possible and I think it's a I think it's a pretty smart play even though we might not necessarily see like what what the exit strategy is out of this cycle for them.

Lenny Rachitsky:So going back to that amazing quote that you shared at the beginning of the conversation by I think it was Alex Rampal yep of that startups win by finding a distribution channel before the incumbent copies them and what you're saying here is this is the opportunity for startups to disrupt an incumbent this is the opportunity for someone to disrupt Salesforce I don't know ServiceNow all these guys that have been around for a long time.

Brian Balfour:Yeah it's gonna be one of the major ones now look you've already seen players that are have been able to hit this escape velocity you know the the cursors and stuff of the world and and so there once again there's multiple ways to hit that escape velocity but this is gonna be one of this is one of the major ways to do it is to basically hit yourself to a new platform look you did it yourself actually you hitched yourself to Substack super early you took a focus say that yeah yeah I was like I don't know why that just hit me but you took a focus bet and you've benefited from it in a disproportional way than those that kinda came later and I think that's actually a great meta example here as as I sit here and think about this yeah that's actually the way.

Lenny Rachitsky:I thought about when I was moving to Substack just like I feel like there's this wave rising and I wanna ride this wave even if it maybe it's not the best place or may you know they take a cut all that stuff yeah but it worked out really well that's right.

Brian Balfour:And I think it worked out very well it worked out really well.

Lenny Rachitsky:And to be honest it it felt like it was too late the when I started when you entered.

Brian Balfour:It felt too late yes oh say more about that.

Lenny Rachitsky:It always feels too late I think to people that join like Silicon Valley or sorry Marc Andreessen has this famous quote he's like I came to Silicon Valley in the eighties I thought it was over was too late I missed all the opportunities that's fair yeah so yeah there were just a lot of newsletters they were doing really well million subscribers I'm like wow and what do you say to.

Brian Balfour:People now who wanna join Substack.

Lenny Rachitsky:Let's learn from this example a lot of times when people think that it's too late it's definitely not too late and it's always only just getting started especially if you're like on Twitter all day listening to podcasts like this where we're surrounded with this bubble of everyone talking about something when in reality like 1% of people know anything about what you're hearing about every day.

Brian Balfour:Yeah yeah that's so interesting.

Lenny Rachitsky:Okay so coming back to the advice say someone is sitting there and talking to their manager Brian just shared all this mind blowing advice we gotta pick our battles we gotta pick our platform what would your advice be for them to decide where to where to place their bets?

Brian Balfour:Yeah so I think this is a great question because once again you know put my personal prediction aside for a second and I would encourage everybody to think about it from first principles from their like who their audience is what their product is what stage of company they're at like all the all those there's current strengths and weaknesses you gotta take all this into account but if I had to boil it down to a few criteria the main things I would think about is when you're looking at new distribution channels and new platforms to choose on one kind of going back to what we said before is the better signal is retention and depth of engagement of the users on this platform than it is like pure kind of user level like MAU or some some other like number of sign ups or you know one of one of those vanity metrics so look at that number one number two is there's some element of like user quality and and ability to monetize the users on this platform I think the starkest example here would be you know iOS and Android it's like even though even today it's something like Android has seventy seventy some percent of devices but only 30% of the market share by dollars and it's the exact flip for iOS so it kinda goes back to what we were talking about earlier which was if you bet on Android only you probably lost but if you bet on iOS only even though smaller user base you could you you were still able to parlay that into a win later the third thing to look at is as these platforms emerge just analyze what the value exchange is right so what are they giving you to incentivize you to develop on their platform and like all these platforms are a bit of a it's a bit of a game of whoever understands the rules and how to arbitrage the rules the best right tend to be the ones with the with the edge and figure that out and then and then finally fourth on my criteria would be pure scale right obviously even if you have those other three but there's you know 200 x difference in in scale and and momentum then like obviously you probably have to choose the the bigger platform but last but not least is as you go through these criteria this is this are how you think through entering the game you know and once you enter the game then you immediately need to move to starting to think about how do you exit the game knowing once again that that that last step is going to come at some point in the future that there's gonna be some closure for monetization then that's where you have to start thinking through your strategy to to exit and that comes down to things like okay well how are you gonna own a important part of the user experience or workflow or how are you gonna accumulate specialized data in context that the major platforms don't have or how do you create different types of micro network effects like all all of these types of things so just once again though there is the entrance criteria but once you figure that out and you feel like you're in the game you immediate immediately need to move towards okay you know what what what's my exit plan here knowing this is all coming.

Lenny Rachitsky:It's interesting that another way to think about this model you've described is building the strategy of building on top of LLMs and becoming a GPT rapper because essentially this tech allows you to say create a cursor that is incredible and then you could argue oh you're just going to be this rapper and why wouldn't anyone like they're getting all the money here everyone can copy you like what's your defensibility long term and the answer is what is the moat you will build over time sitting on top of this thing that will make you more and more valuable long term and not have to rely on this thing so it feels like you could use the same framework for building a GPT rapper business yep to use that euphemism yep so say someone is sitting there today is there anything they can do to start making a bet is it simply creating an MCP that allows LMs to suck in your data is that the one thing you could do today is there anything else that's available today to start using these platforms or is it just a little too early and they haven't released the good stuff yet it might be just like a.

Brian Balfour:Tad too early like we're like right on that edge but you know some of the questions I'm asking myself is I I'm kind of going through all of these these players and where our customers and target audience live and I'm asking myself you know the question okay if this player launched you know some type of platform like how would we evaluate it you know so on and so forth it's hard to you can also try to cozy up to these folks I would place a large portion of my net worth right now that if we could sit in the OpenAI offices like at that front desk that they are having you know meetings with potential preferred developers like talking about this that we could probably sit there and and and log it so I I do think some people are going to be in a place to develop preferred relationships and and make a note and if you're you're in that spot then you you should definitely play that card a lot of early stage charts won't be in that card place other than that I would say we we still need like once they launch these platforms it's like we you can't do much else until you really kind of know what the the value exchange is and what they're gonna expose for you but also just be prepared to turn your strategy on a dime and go all in I think that's probably one of the hardest parts of this is that these things emerge you have to capitalize extremely quickly and a lot of times it's just it's hard for leaders to do that because they don't want to create a feeling of whiplash into the unknown we've got all these projects in play they all you you know all the things so I think that's I think that's probably the the the last part of what what we can be doing right now versus just you know kinda staying on top of everything as as it emerges as you were.

Lenny Rachitsky:Talking this reminded me I recently noticed that ChatGPT is driving me to my newsletter more traffic than Twitter and I feel like that recently shifted I didn't even know this was a thing until I just started looking through my referrals I'm like ChatGPT what the.

Brian Balfour:Hell is.

Lenny Rachitsky:Going on there and I think it's like a different version of what you're talking about but essentially it's like in theory I could block ChatGPT from I don't know I don't even know if I can from the you can.

Brian Balfour:In you can in Substack now yeah I just saw that setting in there yeah.

Lenny Rachitsky:Okay oh interesting but that's the a similar kind of decision is like is it better for me for it to be recommending my stuff and telling people hey go check this thing out or is it better to block it off and I think per your point I and then this is how why I felt like take it all just like it's good it'll it's it in that it's better that it's like from Lenny's newsletter than something else so someone else will come in and eat that market share.

Brian Balfour:Yeah that's right yeah like if if you if you don't do it know somebody else's yeah and I think and and I think that's also kinda what all the major media publishers are really contending with right now.

Lenny Rachitsky:I guess I need a licensing deal in the ear check so anyway okay I I wanna go on a totally different tangent we weren't planning to talk about this I know that I said this we're gonna be fully focused on this one topic but something you mentioned to me before we start recording that I think will be really interesting to a lot of people so you guys at Reforge now building actual SaaS products that people can buy it's not just courses I don't know if people know that but let's make sure people understand this there's actually products for product teams so maybe just explain that briefly but the thing that I think is really interesting here is you work with a lot of companies now selling them AI tools and you have noticed a very big difference between the companies that are really good at adopting AI tools and seeing gains from them from those that don't talk about just what you see there because this is in theory gonna be really helpful to companies that are struggling with adopting AI tools and seeing gains.

Brian Balfour:Yeah just to quickly explain that transition so makes sense for people which is you know I started Reforge just with the interest that there was all these incredible leaders out there growing you know on the front lines of some of the fastest growing companies and they have all this amazing knowledge I wanted to encode it in useful and practical practical ways for others right and that took the form of courses and content and product and all that kind of stuff at the beginning along the way everybody kept asking us to essentially build the tools to implement what we taught because with anything it's like you can learn as much as you want you can listen to my podcast your podcast Lenny like whatever as much as you want but if you don't actually put it into action and implement it then it's not really going to create value right and so people kept asking us to really close that gap and we said no for the longest time and then about a couple years ago when AI really started to inflect it really created this moment that oh wow now there's this opportunity not just to encode this knowledge into content but also into the products the software the tools that we use ourselves so we started to take a really big bet on that and started to develop this new platform for AI native product teams the first product we launched was called is called Reforge Insights which acts like your AI product researcher kind of aggregates all the feedback from all the sources uses AI to analyze it helps you explore it but also we'll start to identify like what are the gaps the things that you don't have in your feedback today and auto generate the research to go gather all those net new insights so complete the full cycle we're gonna launch two other major products as part of this platform before the end of the year but we'll we'll save that for some some future episode so that's kind of been our our journey and so we've seen inside companies that are going through this transformation from two perspectives one is obviously selling in that tools but the other perspective is for ten years companies have been coming to us to help them drive some sort of transformation with our learning product you know most people most companies are not coming to us to just like throw a bunch of courses in front of them they're they're trying to solve some big business problem some transformation now that used to be things like we've got to figure out this growth thing right or I'm going from sales led to product led or you know I'm turning I have more project managers and I need to transition to product managers right like something like that like or there's some business problem they're going through some transformation and they they saw us as part of that transformation and we got to partake in quite a few of those types of transformation now of course the transformation that everybody's going through is okay how do I become more AI native how how do I adopt this and and so we've seen a pretty wide spectrum and from both perspectives of how companies are approaching this and I'm sure everybody's seen the like AI I call it we've been calling them the AI manifesto memos from CEOs out there that proclaim we are now AI native it's some grandiose way right and but there's behind the scenes there's actually some incredibly stark differences in the actual teeth of what backs up those memos and backs up those executive decrees that we should all be you know AI and and so just to kind of point out a few of them which is one is that there I think the most impactful thing that you can do is form really hard constraints so a lot what what you there's there's other parts of it's like okay you wanna communicate this you wanna establish an owner of who's going to drive this you wanna build in incentives and rewards and you see this all playing out in things like building it into your career ladders or some people are starting to introduce this as questions into their performance reviews all those types of pieces but the the thing that is actually moving the needle are the companies that are defining incredibly hard constraints so one company that we worked with developed this constraint that they benchmarked against other companies of their revenue size and the team sizes for those stages and they set a benchmark that we will be one fifth each of our functions will be one fifth the size and and what that did is it created a constraint that you couldn't hire above that level and it forced people to essentially find ways to adopt AI and and and do things to to to replace that so that was one you've seen these other ones I can't remember from what company this might have been Shopify or another who was like you are not allowed new headcount until you prove to us that you are not able to accomplish this with AI that's like another hard constraint and but you also see these other constraints on the smaller level which is you know executives saying I will not do a product review or review a PRD unless it comes with three prototypes you know some some something like that and so that's that's the hardest one those are the biggest constraints but I think the biggest change that I'm seeing is and and the things that separates out the the top few percent making this change and and everybody else is is essentially making the hardest decisions and that hardest decision is going to come down to exiting people so in every transformation what we see is essentially three groups of folks you see your we call them the catalysts the people kind of leading the charge the people who are experimenting doing this on their own time all that kind of stuff you then have what we call your converts these are folks that will make the transformation they will adapt but they need structure they need permission they need a clear outline they need a clear plan right and I don't say this in a negative way it's just that that's how some people operate right and so that's where things like all the things that we were talking about before which was like the decree the permission the clear budgets the rewards like all of those types of things but then inevitably have a certain percentage that are anchors right and they're dragging their feet they're kind of you know silently creating friction in the background and like all those pieces and there's a big difference in how I think companies are treating and thinking about their strategy for those folks one group is kind of like ah we're going to work with them very passively others have set a hard deadline they're like either make the they're gonna either make the transformation by X date or we're gonna exit folks and a lot of people look at this as being really harsh I think a lot of people would think that especially individuals but let me kind of explain it from a as more of like a CEO perspective a lot of these companies are seeing this AI transformation the the ones that are taking it more seriously as this isn't adopting new tools this isn't a light change this is a fundamental culture change of how we operate as a company right and you can't have 30% whatever meaningful number of it is of your company trying to operate in a completely different way in a in a completely different culture cultures thrive on density right and that's why they're sometimes the best ones feel like cults you know and and so as a result from that perspective it's like hey.

Brian Balfour:For us to be successful for this to be the best thing for all employees we all need to be operating around the same culture of principles and stuff and if that's not you anymore then we're defining a plan to exit it but I would say that less than 10% of companies we see are taking this hard stance but I would say they are probably the ones that are farthest along getting the most adoption and are seeing the most results of the ones that are taking those hard stances so there's a bunch of other stuff I could talk about but that's kind of the high level of kind of what we've what we've seen across a bunch of different companies

Lenny Rachitsky:That is incredibly interesting I'm glad we went there there's a I have a newsletter post coming out soon probably before this episode that touches on some a lot of advice along these lines I'm excited for you guys to keep seeing these insights into companies and sharing more of those because this is I think what a lot of people are looking for like things aren't quite clicking at our company we keep hearing everyone is getting so much more productive all these companies are running more efficiently and it's not working here so I think this is the kind of advice a lot of people are looking for so thank you for sharing all that Brian is there anything else that you wanted to touch on anything else you wanted to leave listeners with before we get to our very exciting lightning round

Brian Balfour:Well actually just a couple more points on this topic oh we should we should go is like is there's probably two more things I would say about this one is that so if you're a CEO listening to this I would say that most CEOs or most executives are incredibly disconnected from the actual AI adoption taking place in in inside their companies I think a lot a lot of executives who have done these decrees and all that kind of stuff think it's kind of happening naturally but we talk to both groups we talk to tons of end users and we talk to tons of executives the story we hear from the end users the PMs the hinge all that kind of stuff that we talk to kind of using all this stuff one of the main questions we ask them is you know if somebody if we're talking to somebody who's picked up a prototyping tool say well how many other people on the product and design team are using this almost 90% of the time it's like ah it's like me and this one other person and everybody else hasn't like taken it up right and so the there's a huge disconnect and we heard one story and I won't I can't say the name but the it's a company we all know it's a major tech company tech forward company CEO's been out there talking about being AI native we talked to one of their like print you know principal PMs person was early to the prototyping tools this person shared prototype with the designer the manager the designer and manager escalated it to the VPs it caused this whole conversation month later kind of the it was like kind of still stalling out this PM happened to then you know attend a happy hour where the CEO was at and approached the CEO and told the CEO about the experiment that they were running with prototyping and stuff the CEO was like this is fantastic like why you know like where is it at right now he was like oh well X you know X Y Z happened and the CEO had no idea and then the CEO was like okay let me take care of it and then the next day it it happened so there one is that there you have to go to the ground floor on this stuff some of the best companies like Shopify and others are measuring actual adoption and usage they've gone to the extreme like kind of on that on that front to to get a bunch of signals in close to the ground but it's just that it just goes to show that this is you know I don't think we wanna talk about quote unquote founder mode but the reality is is it's not just about getting into the weeds of your product but with something this sizable you gotta get into the weeds of the transformation to like really understand what's going on and adopt it so that that's point number one the second point I would say is Farid on we do this podcast called unsolicited feedback know Farid Masavat had this great quote on it he was like look the slowest your output is constrained by the slowest part of your system and and I thought that was that stuck in my head because it's absolutely true and so if you think about AI adoption as a system there's all parts of the system that could be slowing adoption it might be that people don't feel permission or they don't have the budget or they don't have the knowledge or like all these types of things right but in a lot of these cases it's things like IT legal procurement are the slowest part of the friction and are kind of setting the pace of all of this output and you can also see this in in just product teams which is you know a lot of there's been all this talk about you know product managers are becoming the new bottleneck because engineers are speeding up well that's because people are speeding up one part of the product system and not the other parts it makes sense like they adopted all of this tooling for engineers because they're the biggest headcount and the most expensive and like all that type of stuff but product is an output of design PMs and engineering the system is there not to produce code it's to ship product right and and shipping product is the function of those three things so if you just accelerate one part of the system you're just gonna move to the bottleneck to another part and your actual product output the output of the system doesn't accelerate either so I think you really got to people have to really understand those two things it's like what is actually happening on the ground floor and what is the slowest part what is the thing that is causing you know the slowest part of the adoption just like attack attack them ruthlessly if if you're really serious about making this transition

Lenny Rachitsky:What a wild time we're living through

Brian Balfour:It is a wild time it's just

Lenny Rachitsky:Like what

Brian Balfour:We have

Lenny Rachitsky:All these ways that we're all so used to okay this is how we do it

Brian Balfour:Yeah yeah it's it's exciting and exhausting at the same time man that's how that's how I think about it

Lenny Rachitsky:That's such a simple way of describing the road yeah oh my god okay Brian is there anything else before we get to a very

Brian Balfour:Exciting that's it let's do lightning round

Lenny Rachitsky:Let's do it

Brian Balfour:Here we go

Lenny Rachitsky:Ding ding ding alright Brian I've got five questions for you are you ready

Brian Balfour:Let's do it let's do it

Lenny Rachitsky:Okay what are two or three books that you find yourself recommending most to other people

Brian Balfour:My my god honest answer is that I have not had the time to finish an entire book since I had my second child uh-huh so from a complete book standpoint I have not I have not been able to things that I've been you know that I actively read on a regular basis just like other content out there that I'll throw out there is gosh Jamin Ball from Altimeter Capital writes this great newsletter called Clouded Judgment which is kind of a mixture of market thoughts as well as like market stats that like that's really useful to help me keep a pulse on the market you know I was just reading through some like stuff from NFX that was that that's been pretty good lately on all of this I know James Currier and I share we lived a lot of the same cycles through social and stuff so I tend to identify with that so I don't know those are two things that that I love reading and sorry I'll give one more shout out to a different podcast which is from from two guys at Spark Capital Nabil Hyatt which I know from my early Boston days and Frazier sorry I'm blanking on the last name right now who was head of product at OpenAI they've got a great format where it's just those two riffing on some ideas and stuff and I yeah highly suggest that one I I like that one a lot

Lenny Rachitsky:Here's my reading tip that has changed my reading habits Brian Johnson the Longevity Guy he has this advice for better sleep which includes before you go to sleep read for ten minutes

Brian Balfour:In bed does put you to sleep I don't feel like I retain anything that I read that close to bed do you feel like you retain it

Lenny Rachitsky:I do I do I'm reading fiction like it's nonfiction you wanna sorry yeah you wanna read something calm not like I'm learning so I'm reading I'm reading fiction and it's really nice and knowing that this is gonna help me sleep better makes me motivated it's actually

Brian Balfour:There's an incentive there's a reward there a reward yeah they're talking about rewards and creating behavior change

Lenny Rachitsky:Yeah exactly and the the reason to do it is this whole thing is you wanna get to a low resting heart rate and that helps lower your resting heart

Brian Balfour:So I've some other sleep tips on that front if you wanna go down that path but we'll save that for you

Lenny Rachitsky:That'll be for the third podcast okay next question do you have a favorite recent movie or tv show that you really see recently enjoyed

Brian Balfour:It's not new but I just rewatched Silicon Valley that I hadn't watched a number of times and it's it's painful because like the first few seasons I went through almost every one of those moments in my first startup like hiring the gray haired CEO the funding falling through at the last second like all the crazy stuff but kinda going back and watching that I like there is just some extra nuances and stuff that I feel like they wrote really well that that you know that I thought was that I thought was really good so I've I've really been watching that the other thing is that I've watched is just more of like a just pure entertainment kind of calming thing kind of turn the brain off is Owen Wilson's new show on Apple TV Stick which is about him as a former professional golfer and all that you know I I won't ruin the show and stuff but it's a nice it's a very nice calming little bit fun type type of show

Lenny Rachitsky:I've been seeing that on my Apple TV maybe I should check it out good tip do you have a favorite product you've recently discovered that you really love it could be a gadget it could be a app on your phone it could be something in your computer it could be nothing at all you can't see

Brian Balfour:It but I do have I just changed my whole setup so now I have a UltraGear super wide curved screen with a very nice standing desk from I believe it's called Ergonaufis er nice yes it's yeah Ergonaufis E R G O N O F I S and it's a very nice sleek standing desk very stable very quiet very much enjoying excellent tip

Lenny Rachitsky:And the and the current monitor very cool okay two more questions do you have a life motto that you often come back to and find useful in work or in life something you share with folks something that you think about when times are hard or just generally

Brian Balfour:Look it's a little cliche at this point but I used to somewhere around here I used to have the quote printed out about you know the man in the arena right it's just like just lots of lots of you know especially in times like this where so many things are changing and there's so much competition but so much opportunity for create I just I really both respect and enjoy you know the game and spending time with folks that are kind of in the arena figuring this stuff out tinkering with things and and just yeah that's that's kinda lot what I come keep coming back to especially you know been at Reforge for ten years that's a that's a good portion of my life and we've gone through some great periods and some tough periods and so I I tend to come back to that

Lenny Rachitsky:And that's what's always separated Reforge from so much other content advices it's people in the arena sharing their wisdom not just bunch of influencers and it's sad that Chamath made that quote so cringey

Brian Balfour:I know I know that's why I know that's that's why that's why I said it's a little cliche cringe right now

Lenny Rachitsky:Yeah yeah for everyone yeah final question Brian you don't know this but your parenting advice on Adam Fisherman's podcast really impacted my parenting philosophy specifically this line you had about independence oh yes I'd love for you to just share that insight about how you think about raising kids

Brian Balfour:Yeah and I wish I could remember where I grabbed this from so I could attribute it properly so but basically the philosophy is like your job as if you think about going from when they're born until they're essentially 18 and you know leave the home your job as a parent is to essentially make them more and more independent and so what that involves is continuously looking for opportunities for them to make even bigger and riskier decisions for themselves as they grow up and you're there as support to those decisions but letting them make those decisions on their own so that by the time they're 18 they are a fully independent person able to think through those decisions themselves and I look like my sons are young right they're five and three so it's not like I'm having them make you know life and death decisions or where we might buy our next house or or stuff like that but it's even small things at this age of you know my my oldest like five and a half is really starting to learn and get curious about like money and how you spend money and where new things come from and how you you earn money and and and so rather than just like buying things for him you know we've he's got like money from his grandparents and stuff saved up and we're trying we can be like okay like you can buy that thing but you're gonna spend this and try to like teach him the consequences and like all that kind of stuff and then when he breaks something right like so it's just small things like that but thinking about the time from zero to 18 as the spectrum of independence and being a supporting role in what you're essentially doing is you're trying to move as many decisions you as many the percentage of decisions you make for them down to zero by the time that they're 18 like and that's that's kind of something that I've kinda I've kept in the back of my head since since really seeing that thank you for sharing that

Lenny Rachitsky:I know I didn't tell you that I was gonna ask you about this so that was

Brian Balfour:A beautiful way of trying see it yeah I didn't know where I I couldn't remember that whole podcast I had no idea what I said but you you can that was it but that that's a good one yeah

Lenny Rachitsky:Brian two final questions where can folks find you if they wanna reach out what where can they find the products you guys offer whatever you wanna plug and also how can listeners be useful to you

Brian Balfour:Check out Reforge.com check out our new products like Reforge Insights they're on the website you can find me personally my writing including a bunch of the stuff that we talked about today now on Substack so I just recently moved so you can either go to my website BrianBalfour.com where I have some info or just blog.BrianBalfour.com where all of my new writing is taking place but those are the two major pieces last but not least is that as I mentioned Farid Masavat who I used to work with he used to slack we just have we have this fun podcast the two of us get on there and riff like we were having dinner every couple weeks about different like product and strategy types of things and so it's a it's it's a fun format for us so if that's something you enjoy it's called unsolicited feedback where we give feedback and advice to nobody that ever asked for it so

Lenny Rachitsky:Amazing yeah title Brian thank you so much for being here

Brian Balfour:Yeah thanks for having me again this is great

Lenny Rachitsky:Bye everyone

Lenny Rachitsky:Thank you so much for listening if you found this valuable you can subscribe to the show on Apple Podcasts Spotify or your favorite podcast app also please consider giving us a rating or leaving a review as that really helps other listeners find the podcast you can find all past episodes or learn more about the show at lennyspodcast dot com see you in the next episode