AI and the New Competitive Landscape. What Every Business Should Know

Magical realism is my favorite type of literary genre.

It infuses ordinary life with magical elements, but the “magical” in these novels is not fantastic to the characters, but part of their everyday reality.

These magical elements are not only delightfully fun, but they help express the ineffable qualities of being human such as consciousness, longing, love, and empathy.

One of the most famous novels that uses magical realism tells a story about family, history, obsession, and decline. It’s called, “One Hundred Years of Solitude” by Gabriel García Márquez.

In the story, the family patriarch, José Arcadio Buendía establishes the town of Macando where they are visited by Gypsies who bring “magical” technologies, like magnets, to the town.

José starts a friendship with the leader of the Gypsies, Melquíades, who teaches José alchemy.

José becomes obsessed with using alchemy to help unlock the mysteries of the universe, withdraws from his family, and loses his grip on reality.

Published in 1967, its themes are eerily prescient to our modern times.

In many ways, we are living in an age infused with magical technologies and cataclysmic change, much like the characters in “One Hundred Years of Solitude.”

Our lives are now touched by fantastic technologies that if misunderstood and/or misused could spell ruin.

I’m not being dramatic. I’ll give you an example.

Earlier this week, I attended a mixer of professional service providers, i.e., attorneys, fractional CFOs, commercial real estate agents, and so on.

Bellied up to the bar, everyone was talking about AI, but it was clear that only a few people truly understood it and what it could mean for their businesses.

In fact, one attorney I spoke with was convinced that he would be able to continue to charge $650 per hour for services because his customers understood his value.

I said to him, “Have you thought about competition in the form of vertical integration?”

“What do you mean?” he replied.

“I mean, when your customers use AI to bring the bulk of your services in-house, they will technically be your competitors,” I said.

“Oh, that won’t happen,” he said.

Really?

Get Ready for New Competition

We’re early AI adopters.

I’ve seen the impact and potential that AI can have firsthand on SMBs.

My team and I use it for ideation, research, building templates, and performing analysis.

Just two weeks ago, I used  AI to help build my Revenue Readiness Assessment. It literally saved me a day and a half of building it by hand.

We also work with a variety of technology companies who have been using automation and AI for some time. In fact, one of our customers has three engineers with Master’s Degrees in Artificial Intelligence on their staff.

I love AI for its efficiency. With it, we are able to ramp up our document production and postpone hiring a new person to the end of the year.

The downside is that AI will intensify the competitive landscape for nearly all professional service-based businesses and decrease profit margins.

As our society starts adopting AI tools at scale, and becoming more efficient as a result, I guarantee you that your customers will want those efficiencies passed along to them in lower service fees.

This is currently happening in software development, website development/marketing services, medical billing services, entertainment, and more.

Also, AI will lower the barrier to entry for service-based industry’s creating more competition.

This will serve to further commoditize services, adding more downward pricing pressure.

If you’re using AI hoping that your margins will increase, think again. In reality, you’ll need those efficiencies to stay competitive.

You’ll be doing more with less and making the same or less revenue.

Unfortunately, I’ve spoken with service providers who are in denial.

The smart ones are preparing as best they can.

 Things You Can Do to Protect and Grow Your Revenue

There’s been a big focus on the loss of jobs, but as business leaders, it’s your task to understand how to navigate this increasingly competitive landscape.

If you are not asking yourself how you can be more competitive and protect and grow your revenues, your business will be obsolete in a handful of years.

Every service-based industry will have new competitors.

In fact, some of your customers will start competing with you in certain areas as they bring outsourced knowledge in-house and create a type of vertical integration.

However, adoption of AI tools for work is stalling progress, which will give you time to plan and implement a keystone strategy.

7 things you could do right now:

1. Double-down on your value proposition. Make sure that your value prop is messaged from your customer’s point of view. A huge mistake businesses of all sizes make, is to base decisions on what the executive team wants, not what their paying customers believe about their company and brand.
2. Start thinking about efficiency at scale by documenting your internal process and adopting some form of automation in the areas that are repetitive and where people are prone to making mistakes. As you implement true AI and not just automation, the AI could make decisions for you based on usage, thereby amplifying your efficiency.
3. Document and replicate your revenue cycle. Just as you would do with all critical areas of your business, you should consider areas of your revenue cycle for AI automation. There could be key areas where your team has left money on the table due to lack of attention and resources.
4. Own the means of production. As your customers get more acquainted with the various uses of AI, you could provide them with use of your custom LLM (Large Language Model). Many marketing agencies offer this to their customers, and I could see a use case for many businesses to follow suit. For example, the lawyer I spoke about earlier could offer a service where once a contract is drafted the client will get a year’s access to his firm’s custom LLM for further renditions of the contract. This will help save the client money while helping the attorney and firm to retain the client, not giving the client a reason to use or invest in a different service. Should there be a dispute or other issue, the client will naturally go back to the attorney. This is a big topic, and I will include it as a separate newsletter article. But I wanted to touch on it here.
5. Make sure that you’re positioned to market to AI. We have found that referrals that come from the AI engine are more trusted than general ads. Keep this in mind as you craft your digital strategy.
6. Be the experts in your industry. As you know, most of your clients do not understand the complexity behind implementing a solution. Certain business solutions require historic knowledge to solve, and AI is limited in this area.
7. An educated client is a great client. Some business leaders fear giving away too much knowledge. This is a mistake. The better educated your customer is in your what you do (they pay for “how” to do it), they are more likely they are to pay for your services.

While it may not be true that the very best survive, it is true that those with a plan and who plan for luck will have the best chances of thriving during these changes.