a16z explains how to sell in the gen AI era

If you’ve recently found yourself longing for 2020 and 2021, you’re not alone. I’m not talking about Covid, of course, but about how easy it was to sell software back then.

As the venture capital firm a16z has found, the net-new dollars available for software have almost been cut in half since 2021. 

A16z attributes this drop to three main factors:

• Macroeconomic uncertainty due to inflation, interest rate uncertainty, and the upcoming elections.

• A natural period of SaaS consolidation following the mania of 2020 and 2021.

• Because it’s still so early for gen AI, companies are hesitant to make large investments in any software until the technology landscape is clearer.

But, that doesn’t mean it’s all doom and gloom. As a16z says, “There are still pockets of opportunities for startups, if you know where to look.”

Considering, not buying

The first thing that a16z emphasizes is that although gen AI is extremely in style right now, gen AI products account for less than 20% of net-new software spending in the immediate term. However, they also found that most net-new dollars come from companies considering the impact of gen AI in the future. 

In other words, a CIO today might not purchase a gen AI product, but they do consider if whatever they do end up buying is likely to be disrupted or automated by AI in the future.

It’s this brand of company that accounts for over 85% of total IT spend. 

What CIOs want

According to a16z, selling to this type of business requires a sophisticated selling motion and a solid product roadmap that shows real ROI. In English, you need to really show how your product is going to save the buyer money, increase their revenue, or insulate them from AI.

This is a big shift from the previous regime dominated by product-led growth. Selling skill is what matters now.

So, it’s pretty important to know what software buyers are looking for. Thankfully, a16z was able to ask some major CIOs that very question.

I’m only going to summarize what they said, but if you want the full quotes, they can be found here. 

• The first CIO described their approach to buying software as very structured. If the investment is above a certain threshold, which has come down a bit recently, then the seller has to come to them. 

• The second CIO really likes sellers who understand their needs. Specifically, he’s looking for sellers who ask more questions than they ask the seller. 

• The third CIO is most receptive to software that saves them money.

• The fourth CIO also wants software that saves them money, but they also still expect a business case. However, they are less strict when it comes to emerging technology.

• The fifth CIO wants to see use cases, the value, utility, and a realistic roadmap.

• The sixth CIO wants to fully understand the provider’s capabilities in gen AI, and if they don’t have any, their roadmap to obtain those capabilities.

• The seventh CIO emphasized the importance of being on the same page as their outside software partners like Accenture. 

Overall, these thoughts can be summed up as:

• Be prepared to reach out to people and pitch yourself.

• Sell on value, not experimentation.

• Your product roadmap is more important than ever.

• Consider engaging channel partners like consultants and large platforms.

The cheat sheet

There’s a lot to take in here, but thankfully, a16z provided us with a nice cheat sheet for how to win in this market. 

This is especially important because, as we said earlier, over 85% of winnable IT spend is outside of the industries most immediately disrupted by AI. These are dinosaurs. They don't want to hear the latest buzzword. They want to hear how you're going to save them money, make them money, or make their life easier.

So, if you’re an AI founder, consider putting away the product-led growth hat and putting on the salesman hat instead.