The Ledger
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Joe Schmidt says targeting 85 percent AI gross margins is a mistake
“I think that's a tremendous mistake. Like I think it's actually probably the biggest mistake you can make right now.”
Schmidt: Well-trained AI agents match or outperform hungover human SDRs
“There is almost no difference. Oftentimes between a very well-trained kind of AI agent and a very poorly trained, a 22 year old who's hungover from the night before sitting in a crowded sales floor. And oftentimes you're gonna get much more like you're gonna g…”
Schmidt: The AI shift enables selling big platform software again
“There's a moment right now to go sell You know, big software again. Right. And to go sell platforms and it's because of this moment. And so I think people need to be studying kind of the 15 years ago models of like how people build this and the ecosystems arou…”
Schmidt: Not charging enterprise clients for AI implementation is a mistake
“I think that's a huge mistake that a lot of the early stage companies can make is you go out there and again, like, you know, you're like, I don't want to charge for implementation. Like these big companies, they won't like that. Like, you know, they just want…”
Joe Schmidt: Danaher and Tyler Technologies rely on financial engineering, not AI
“One is a very well-known company called Danaher. There's another one called Tyler Technologies based out of Texas. These are like probably the best examples of these businesses historically, but again, they're not AI native, right? And I, and they're basically…”
Schmidt: AI automation expands small agency profit margins from 5% to 30%
“Leveraging AI agents to basically have some of those conversations with the customer, whether it's on new business On renewal or on client servicing and then actually resolving these claims in real time or like resolving these service issues in real time. Now,…”
Schmidt: Treat small business acquisitions like enterprise software customer acquisition
“The way to think about this in my mind, or the way that I think about it is, Hey, if you were running an enterprise software company, right. And you were like on the pub in the public markets and you're saying like, Hey, I could have You know, 1820, 24 month p…”
Schmidt: AI automation will eliminate traditional SDR early-stage prospecting roles
“We're starting to see that process, like basically disappear with certain customers, which is really, really exciting. And frankly, like frees up humans to do the things that they're best at, which is like sell. Right. And so I think we're gonna see things lik…”
Schmidt: Founders do not need industry backgrounds to execute lighthouse sales
“And I think like sometimes people think that you have to be from a given market to do a lighthouse strategy. And maybe there's someone sitting at home and they're like, oh, like if only like I worked at this company, I could go do this. And it's like, no, the …”
Schmidt: Vertical AI automation startups are growing faster than any previous category
“And so I think we're seeing a bunch of these applications pop up and frankly have growth rates on like anything I've ever seen again.”
Joe Schmidt: Private equity optimizes for short-term IRR over long-term value
“Private equity firms typically are optimizing for IRR, internal return. And they're less focused on like ultimately like a multiple on money, basically saying like they're not focused on the biggest possible version of the company that they can build.”
Schmidt: Acquiring legacy businesses drives software adoption faster than selling SaaS
“They just aren't accustomed to running their companies this way. I've gone and I've tried to sell software to a mom and pop insurance agency in Columbia, Missouri. Trying to drive adoption is super tricky. And so in buying the business, instead of like Trying …”
Schmidt: AI-native systems will bypass legacy CRMs by capturing data directly
“Instead of a human being sitting out at their computer and entering something in, we now can have basically AI always on and recording that conversation in real time Or frankly, having that conversation. And so you start to think about all of the legacy system…”
Schmidt: The market shows unprecedented demand for AI intelligent pipeline tools
“There's insatiable demand right now in demand. And frankly, in which I've never really seen for products in that intelligent pipeline layer.”
Schmidt: AI startups do not always need to sell to notable San Francisco logos
“The reality is you don't always have to do that. Like you don't always have to sell to the same companies in San Francisco. And so what I wanted to try to do is tell founders like, Hey, here's the framework for evaluating which playbook should you be following…”
Schmidt: Enterprise AI sales divide into lighthouse and land-grab markets
“And so, you know, if you think about like the top right would be proof travels in this market and it's high buyer exposure and high, you know, high buyer risk. And that's a lighthouse market, right? Just to be clear. And the bottom left would be, you know, low…”
Schmidt: Board-level urgency driving enterprise AI adoption mandates will inevitably end
“There are AI Boards at every enterprise right now saying like, here's what we need to buy and we need to do it by X period of time. And that surely will go away, but there is this moment of like crazy, you know, kinetic energy inside of big companies.”
Schmidt: AI startups must distinguish product guarantees from customer usage
“I think this is actually a really important topic for founders and for early stage revenue leaders today to figure out how you're educating your customer on like, here is the thing we are signing up for. We are not signing up for, you know, maybe you are, mayb…”
Schmidt: Applied Intuition operates permanently as a lighthouse sales business
“There are certain companies, I think that actually do just stay lighthouse the entire time. And like, that would be like, I'm trying to think of like the best example might be like applied to tuition in our portfolio. Like there's, there is a very, you know, s…”
Schmidt: Next PE era involves tech-automated small businesses acquiring rivals
“I see, like, the next evolution of private equity being possible where small businesses can leverage technology to basically, like, automate parts of their services organization and then go and use a better business model to acquire other small businesses.”
Schmidt: a16z invested in 11x as sales automation demand reaches record highs
“Obviously recently announced our investment in 11 X, which is automating like the sales function. And I don't think I've ever really seen demand like what we're seeing for basically automating the role of an SDR.”
Schmidt: Building AI-native services requires sacrificing short-term IRR for enterprise value
“And to do so, you need to have a very different view on returns and you need to have a very different view on short term earnings. Because what will end up happening is like, turns out engineers, Pretty expensive. Right. And it requires like significant invest…”
Joe Schmidt: AI acquisition models build compounding cash flows without PE debt
“Buying one of these small companies that I just described, like isn't actually like that expensive of an endeavor. And if you can do what I'm talking about, you impact earnings and all of a sudden, like the first one, two or three, maybe you don't immediately …”
Schmidt: Legacy service businesses cannot be fully automated with AI
“A lot of these legacy services businesses, while they may be bits oriented, like at some point there's like an atom involved, someone has to like go do the business development. Like it's not like you can just fully automate these companies.”
Schmidt: AI rollups of mom-and-pop businesses will build massive enterprises
“If you can find one of these end markets where there's like, you know, a significant number of mom and pop businesses where you can go and run that, like, CAC minded playbook of like acquiring and implementing and building a repeatable motion around that. I th…”
Schmidt: AI acquisition founders must prove earnings impact before scaling
“The way that I would run it is I would go find a design customer, start building software and then show yourself and frankly, everyone else that you can actually start to move the needle on earnings. And then that's when I think, you know, you've got the tiger…”
Schmidt: AI will not replace high-quality enterprise sales processes or human elements
“AI is not going to replace like a very high quality sales process. Like you need to figure out who your customer is. You need to figure out what they want and you need to build the best product and the right process around that to be effective. And so like tha…”
Schmidt: Harvey's early marquee law firm wins de-risked enterprise legal AI adoption
“You know, another example on the lighthouse side would be, you know, we highlight Harvey in, in our article and they just did a fantastic job of winning the right law firms for this very new, very, you know, theoretically high risk initiative where you're augm…”
Schmidt: Decagon excels at onboarding by committing to and hitting support benchmarks
“I mean, I think like Decagon has done an amazing job at this. Like, I think they go in, they basically evangelize that they're doing customer support better than anyone else. And then they're very good about saying, here are the benchmarks that we are signing …”
Schmidt: Traditional PE does not fundamentally alter business operations
“Traditionally, private equity isn't focused on fundamentally shifting the way that the business works.”
Schmidt: Prime AI targets are human-heavy workflows processing unstructured data
“The way to kind of just zoom out and think about this opportunity is like, where are there a bunch of humans that are basically dealing with whether it's voice or paper processes, where there's a bunch of unstructured data that they need to basically synthesiz…”