Dr. Jekyll and Mr. Hyde
How AI is transforming service businesses into high-efficiency tech companies
I was recently speaking to one of our portfolio founders, Pau Sabria, who’s building Remotely.Works. Remotely is, by most accounts, a services company that helps U.S. companies source and hire offshore talent in modular, scalable ways. Remotely helps assemble full-scale remote engineering teams, facilitating all of the complexity around remote hiring, human resources, compliance, and cross-border payment.
A few years ago investors would have shrugged and said, “nice lifestyle business.” In many ways, Pau and his co-founders, who had all sold OlaPic for $130 million in 2016, were actually looking to build a lifestyle business. They wanted to build a company that had some returns to scale, but more than going after huge venture rounds, and the frenetic chase of a billion dollar exit Pau and team wanted predictable cashflow. They wanted a “default-alive” business that wouldn’t take a ton of VC dollars to scale, and something that could afford them all a steady stream of profits over time.
But with AI, everything has changed.
In 1886, Scottish author Robert Louis Stevenson wrote the Gothic novella, The Strange Case of Dr. Jekyll and Mr. Hyde. The novella, which flew off shelves, was one of the late nineteenth century’s “Shilling Shockers” or “Penny Dreadfuls” as these cheap, quick, serial paperbacks were dubbed. The story was an account of a well heeled Dr. Henry Jekyll and his friendship with a London legal practitioner, Gabriel John Utterson, who was investigating the dark murders by a Mr. Edward Hyde. In time, it’s come to be known that Dr. Jekyll and Mr. Hyde are in fact the same man. Dr. Jekyll has been taking a serum he’s created to compartmentalize his own darkness in the form of Mr. Hyde, but eventually Mr. Hyde overpowers Jekyll, and ends up ruling his actions to the point that Jekyll is lost, and ultimately commits suicide.
While we won’t go so far as to draw the dark analogy all the way through, AI is providing service companies with somewhat of their own serum to draw out their more efficient qualities. Whereas a services business might once have been dubbed a relatively tame Dr. Jekyll, the tools of AI enable them to undergo a full transformation. For example, a traditional services business would scale linearly with per-employee efficiency remaining relatively constant. To secure growth, most services businesses need to add headcount, or FTE. More people means more output, and there are not necessarily a ton of scale efficiencies to getting bigger. As Pau states, however, today “AI is the transformer” or the “multiplier” that enables a few counterintuitive things to happen. For example, as Remotely gets a larger client base:
AI and automation allow for new efficiencies
Because of these efficiencies, Remotely is able to reduce, rather than expand, FTE
Constant growth % on an expanding client base means revenue acceleration
Revenue acceleration on reduced FTE means exponential efficiency growth
In other words, his services business has an expanding client base, a fixed growth rate, a reduction in the number of people necessary to perform tasks, and therefore an explosion in efficiency gain. This AI transformer is like the serum that allows for Dr. Jekyll-like formal services businesses to transform into Mr. Hyde efficiency monsters. The inputs are being reduced, and yet growth and outputs continue to expand.
In many ways this is a new revelation vis-a-vis a piece I wrote in August 2023 which highlighted the AI choice being one between “Strong” versus “Skinny.” There I made the point that on fixed inputs, AI enables an expansion of outputs, i.e. "Strong." Or AI enables a reduction in inputs, and a maintenance of the same output, i.e. "Skinny." Managers therefore had the choice to opt for either "Strong" or "Skinny" by optimizing around growth vs cost. But what is now becoming possible looks to be actual expansions in efficiency in this form of AI as transformer from Dr. Jekyll services businesses into Mr. Hyde AI companies, where both inputs go down, outputs go up, and efficiencies go through the roof. The AI Mr. Hyde serum is now enabling both Strong and Skinny, both expanded growth and reduced cost.
This is why we’re seeing, and will continue to see firms like Sequoia Capital and General Catalyst perform private equity-style roll-ups of traditional services businesses in areas like accounting or legal, and why at Everywhere Ventures, we will continue to invest in companies transforming traditional industries.
Scott Hartley is a Co-Founder and Managing Partner of Everywhere Ventures. Check out Everywhere with Scott on LinkedIn.
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