To the business leaders hoping to sell one day: profitability is no longer enough. Against a challenging economic backdrop, competition for investment is at an all-time high, and no prospective buyer will put their stake in a company that could soon become irrelevant. Executives must prove their business can withstand the test of time by AI-proofing it – or risk never securing a deal at all.
The startup ecosystem is under significant strain. The US-Iran war has cost global businesses $25bn, and despite the recent peace framework, that is a figure that is sure to keep rising. It will take time for any geopolitical progress to ease inflation and household bills, which are keeping consumer spending appetite low, and hurting organisations across every industry.
These pressures make it far more difficult to secure capital or find a buyer, because in tight economic conditions, investors become even more selective. Last year, venture capital funding deal volumes slipped 17%, while private equity deal volumes fell 10.2%. With limited capital available, competition between startups is fierce, and investors need more persuading.
One of the only areas that has been sheltered from the slowdown is AI. AI & technology companies account for over a third of the S&P 500’s market value, and 80% of global investors say they are willing to invest more in companies that prioritise company-wide AI transformation.
However, AI also poses a serious challenge: it is changing the traditional template for success and forcing business leaders to constantly evolve. Any advancement could just as soon improve an organisation’s offering and revenue as it could make its business model obsolete. It’s a significant risk – one that startup and lower mid-market CEOs must now address.
These operators must put capital behind AI integration efforts and embed it across their business models. They must build it into robust multi-year strategies to grow revenue, attract investment, and keep pace with innovation.
If there is an AI advancement in your industry that allows a competitor to offer a product at a fraction of the cost, they will price you out of the market. Moreover, if you are offering a service that customers can suddenly access via an LLM for free, they are not going to keep giving you their business. It is as simple as that.
Investors are not going to fund a business if there is a chance it will not exist in five years’ time, and CEOs who fail to AI-proof will find themselves faltering at the same question: will AI make this company irrelevant? If a firm cannot prove its ability to stand the test of time, closing any deal will become increasingly difficult, likely pushing the company into a cycle of failed exits. One that is challenging to break.
What practical steps can executives take to avoid this outcome? First and foremost, AI integration is not simply about buying a chatbot subscription. The executives most likely to succeed are those who tailor AI integration to best suit their industry’s, and their business’s, specific needs.
That might look like hyper-personalised marketing streams that convert AI-gathered and analysed data into sales. Or using AI to speed up workflows that could be automated, augmented, or are no longer fit for purpose – in a fraction of the time it would take for a CEO to do it themselves. It might even take the form of offering customers free AI-produced work or products to generate interest before the sales and marketing team sell them other services.
Irrespective of the approach, it is likely to require significant capital. With recent headlines around tokenmaxxing, it is understandable that some are hesitant about how much AI-proofing might cost, but CEOs must not be put off or tempted to block innovation. It is far more expensive, in the long run, to spend money building businesses that soon become irrelevant, cannot secure investment, and eventually wind down.
By instead giving AI spend the same weight as any other fixed cost, executives can build businesses that stay current, attract investment, and deliver deeply impressive returns. They must make it a line item in annual budgets, factor it into headcount planning, and set usage expectations across the business – fully establishing AI as a serious, ongoing cost.
An organisation’s financial health will always be incredibly important, but the most successful operators go further than solely prioritising P&L. They create a five-year roadmap for success and future-proof their business at every level. For CEOs hoping to build a sellable company, that roadmap must now include artificial intelligence.
The bottom line is this: how successful CEOs are at AI-proofing will determine whether their businesses get stuck in a cycle of failed exits or secure a beneficial deal. They must act now if they’re ever to achieve the latter.