Transformation.. happening faster than ever before
It's already the year of AI Transformation for Startups
Welcome to the first edition of Cloudy with a Chance of Startups. I was going to publish a version of this back in January (2025). A colleague shared a vision for how they saw the year playing out for Startups and I (with enthusiasm but not as much conviction) quipped - “You’re not being bold enough, it’s gonna be the year we already reach rapid transformation!”. Now almost halfway through the year, my enthusiasm and conviction have both only grown.
If you’re reading my writing for the first time, this isn’t usually how I write. I’m usually very conversational but measured in my writing style. If you already know me, you know I write a lot, but had just taken a hiatus from public forums for a few years. You also probably know I love the movie (and book) Seabiscuit. So, given that this is such an exciting time, I’m borrowing the infectious energy of William H Macy’s Tick Tock McGloughlin and the complete opposite of his cynicism and hope you’ll follow along - or forgive this experiment and blame it on caffeine. Boy oh boy am I excited!
Remember Digital Transformation?
That thing every company spent the last decade scrambling to accomplish? Well, AI transformation is like that, but on steroids, Red Bull, and a shot of espresso. While digital transformation took years (and many companies are still working on it), AI transformation is happening at warp speed.
Let me take you back to the not-so-distant past. Digital transformation was this massive undertaking where companies had to:
Move workflows to the digital worls
Adopt cloud computing
Rebuild their entire tech stack
Retrain their workforce
Completely rethink their business models
Now look at AI transformation. ChatGPT hit a million users in just FIVE DAYS after launch. By early 2025 (aka now), it had over 400 million weekly active users. That's adoption at a pace we've never seen before.
Why is AI transformation happening so much faster? A few reasons:
We're already digital. The foundation is built - companies have data, cloud infrastructure, and digital-savvy teams.
The barrier to entry is dramatically lower. You don't need to be a PhD to use AI tools. My entire family uses Claude almost daily! (Some of them used to still call me up to fix the zoom on their browser window or if the printer wouldn’t work till a few months ago.)
The benefits are immediately obvious. Unlike some digital initiatives where ROI took years to materialize, companies are seeing measurable results from AI implementation within months or even weeks. I know, there’s more to be unpacked here and this is not the most popular opinion. If you do it right though, and there is an ROI to be seen, you see it quick.
There's an arms race mentality. When your competitor is using AI to grow 2.5x faster, you can't afford to wait.
What AI Transformation Looks Like in the Wild
In an oversimplified and overly broad classification of how startups are using generative AI, it falls into three buckets.
Supercharging Products
Remember when adding a "mobile app" was the hot feature everyone needed? Now it's AI. Startups are embedding generative AI into their products in ways that genuinely delight users:
E-commerce startups using AI for hyper-personalized recommendations
Design startups letting users generate unique assets on demand
SaaS companies using AI coding assistants to ship features faster
This category isn't just adding a chatbot - it's fundamentally rethinking what products can do.
Turbocharging Go-to-Market
This is where I'm seeing startups make ridiculous gains. When you're a small team trying to compete with big budgets, AI is the ultimate multiplier:
Generating personalized marketing campaigns in minutes instead of weeks
Creating entire content calendars with a few prompts
Scaling sales outreach with AI-crafted messages that actually sound human
Operational Efficiency (on nitrous?)
This might sound boring, but it's where the money is:
AI scribes saving thousands of hours and hundreds of thousands of dollars
Reduce product documentation time and improve quality and coverage
Finding insights from unstructured data and accelerate reporting
These aren't marginal improvements - they're transformative changes in how work gets done.
So where are we now?
We’ve gone from playing around to production
Here's what's fascinating about where we are in the AI adoption cycle. In 2023, most startups were just experimenting - building proofs of concept, running small pilots, using innovation budgets to play around.
Now? Companies are all-in. The number of startups with fully integrated, production-level AI systems nearly doubled between 2023 and 2024. Budgets are shifting from "innovation" to "core operations." This isn't experimentation anymore - it's existential.
Money talks (to AI even if it’s giving others the silent treatment)
They say (and I dunno who they are, but they say), if you want to know where things are headed, follow the money.
Global VC funding in AI topped $100 billion in 2024 with 5 US-based startups accounting for over $30 billiong in Q4’24
Almost a third of ALL venture capital went to AI companies
Funding for generative AI startups increased 20x since 2020
The market for generative AI solutions is projected to go from $16 billion in 2023 to $143 billion by 2027. That's not growth - that's a rocket ship.
The Open Source vs. Proprietary Dilemma
One of the most interesting tensions I'm seeing is the choice between open weights and proprietary AI models. Startups are wrestling with the tradeoffs:
Open weights gives you:
Chance to control infrastructure and costs
More control and customization
Transparency into how models work (to varying degrees)
But proprietary models offer:
Simpler implementation
Easier security and compliance
More support when things break
There's no one-size-fits-all answer here. As we’ve seen waves of model releases unfold, startups have had to adapt from fine-tuning, continuous pre-training, and other techniques for better results only to find that the next major release of SOTA models give better performance out of the box. Most moats are centered around data, evals, and customer experience instead of the underlying generative AI model.
The Future is Agentic
I bet you’ve heard that a few times now. These aren't just chatbots - they're autonomous systems that can plan, execute, and achieve complex goals with minimal human supervision. They can use tools, access databases, and even direct other systems.
Imagine a sales agent that doesn't just respond to inquiries but proactively finds leads, conducts research, crafts personalized outreach, follows up, schedules meetings, and negotiates terms - or a software engineering agent that drafts user stories, builds new features, reviews code, deploys and maintains applications - all while you sleep.
This isn't science fiction - it's happening now, and startups that embrace agents early will have a massive advantage. We’re seeing more revenue per employee, well at least human employee. We’re seeing the rise of the Vibe workforce. We’re seeing an explosion of MCPs. We’re seeing agent to agent frameworks, agents orchestrating other agents, it’s really turning into Matrix Revolutions (did I already say science fiction?).
So what should you take away
from my new rant…
Digital transformation took a decade. AI transformation is happening in real-time, right now, whether you're ready or not.
The startups that thrive will be the ones that move beyond experiments to strategic implementation, that overcome the very real challenges of data readiness and integration, and that focus on augmenting their teams rather than replacing them.
I've never seen a technological shift with this much potential to completely reshuffle the competitive landscape. The next unicorns will be built on AI foundations, and they'll get there in half the time it took the last generation or less.
So, founders, the forecast for 2025 and beyond is cloudy with a chance of AI - and I suggest stepping out and enjoying a good soak.
What AI transformation are you seeing in your industry? Hit reply and let me know - I'm collecting stories for my next rant!