Startups often discover the challenging reality that depending on OpenAI’s technology can be a double-edged sword

The recent enhancement to OpenAI’s ChatGPT, enabling users to upload PDFs and make inquiries about their content, has reverberated throughout the startup ecosystem. This development represents a notable, if somewhat predictable, challenge for numerous companies, particularly those known as “wrapper startups” that have structured their businesses around a specific gap in ChatGPT’s functionality.

This alteration serves as a crucial reminder to both founders and investors: There is no substitute for establishing a sustainable company with a robust, independent product.

“Wrapper products” offer services that wrap around an API like ChatGPT, leveraging the underlying technology to provide a service not directly accessible from the API itself. The recent ChatGPT update exposes the vulnerability of such startups, as their unique selling proposition can swiftly become obsolete due to a feature update from the technology provider.

This situation is not entirely novel or particularly groundbreaking. Startups often thrive by extending the capabilities of larger corporations and, in some cases, secure significant valuations in the billions of dollars. The ideal scenario is that these startups catch the attention of the larger corporations and are acquired, but this plan frequently falls apart in explosive fashion.

So, what does OpenAI’s move signify for startups and their founders?

First and foremost, it emphasizes the importance of constructing a business model on a solid foundation, one that does not rely solely on the shortcomings of a third party’s technology. Your startup’s value proposition should be broader and more substantial, offering solutions that are challenging to replicate or integrate into existing technologies. In short, focus on building a comprehensive company rather than just a single feature.

OpenAI serves as a reminder of the necessity for genuine innovation. Rather than hastily assembling a rudimentary solution and constructing a company around it, tackle challenging problems in an industry as fast-paced as tech. Resting on your laurels is not a viable option for startup founders; continuous innovation, evolution, and adaptation are necessary to stay ahead of the curve.

If a single feature update can erode your company’s value proposition, it’s a clear sign that a more robust and innovative solution is needed. Ultimately, differentiation in the market is paramount. Startups must inherently stand out, and it is your responsibility to ensure your company is headed in the right direction. There are numerous avenues to achieving this distinctiveness, whether through superior technology, exceptional customer service, innovative business models, or other means. Differentiation provides a competitive advantage and safeguards your company against the fluctuations of technological updates.

Investors should also take note. If a startup’s foundation is built around AI, they should consider developing their own AI technology. While it may be tempting to support startups that rapidly enter the market and offer compelling value propositions, it can backfire if the company’s core relies on another entity’s technology, especially in a rapidly evolving field like AI.

This ChatGPT update ideally acts as a wake-up call for both startups and investors. Neglecting the fundamental principles of running a business can leave startups and their supporting investors in a precarious position.