The AI Wildfire Is Coming

Dion Lim wrote a pretty good angle on what the market correction will actually do:

The first web cycle burned through dot-com exuberance and left behind Google, Amazon, eBay, and PayPal: the hardy survivors of Web 1.0. The next cycle, driven by social and mobile, burned again in 2008–2009, clearing the underbrush for Facebook, Airbnb, Uber, and the offspring of Y Combinator. Both fires followed the same pattern: excessive growth, sudden correction, then renaissance.

Now, with AI, we are once again surrounded by dry brush.

I think in one of our discussions before our Hot Fix episode, Scott Werner and I used the same analogy—that a recessionary fire will be necessary to clear the overgrowth and make room for companies better-adapted to the post-AI world to innovate—and the author seems to have picked up that metaphor and run with it.

I think the important thing to take away here is that most people hear this and their instinct is to hide. "Well, a fire is coming, I should sit on the sidelines and wait things out." Apart from the foolishness of trying to time the market, this is especially bad advice amid a market wildfire. One of the most actually-useful pieces of advice I've offered founders and investors over the years is the importance of investing through into and through the downturn.

My preferred way to do that is, of course, profitably. However, if you're ever going to tolerate operating at break-even margins or (God forbid) a loss, the best time to do that is when everyone else is cashing out, laying people off, or closing up shop. Hunker down through the cleansing and the act of persevering will generally see a company emerge as a far more resilient operation that finds itself in a far less competitive environment.

I learned this during the Web 2.0 during the Great Recession. Pillar Technology started hiring some of the most talented, most engaged developers in central Ohio and southeast Michigan throughout 2009-2011 when other firms were still hobbled by downsizing. And they paid a premium, too (I nearly doubled my salary to work there!). But when they came out the other end of the recession, they were five times the size, sold into half a dozen verticals, had developed a national profile of clients, and the owner was able to cash out to Accenture for a high-eight figure exit.

When other people get scared, get aggressive.