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AI Startup
Strategy
A Blueprint to Building
Successful Artificial Intelligence
Products from Inception to Exit
―
Adhiguna Mahendra
 AI STARTUP STRATEGY

A BLUEPRINT TO BUILDING SUCCESSFUL

ARTIFICIAL INTELLIGENCE PRODUCTS
FROM INCEPTION TO EXIT

Adhiguna Mahendra
AI Startup Strategy: A Blueprint to Building Successful Artificial
Intelligence Products from Inception to Exit
Adhiguna Mahendra
Nodeflux, Jakarta, Indonesia

ISBN-13 (pbk): 978-1-4842-9501-4 ISBN-13 (electronic): 978-1-4842-9502-1

https://doi.org/10.1007/978-1-4842-9502-1

Copyright © 2023 by Adhiguna Mahendra

This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or
part of the material is concerned, specifically the rights of translation, reprinting, reuse of
illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way,
and transmission or information storage and retrieval, electronic adaptation, computer
software, or by similar or dissimilar methodology now known or hereafter developed.
Trademarked names, logos, and images may appear in this book. Rather than use a trademark
symbol with every occurrence of a trademarked name, logo, or image we use the names, logos,
and images only in an editorial fashion and to the benefit of the trademark owner, with no
intention of infringement of the trademark.
The use in this publication of trade names, trademarks, service marks, and similar terms, even if
they are not identified as such, is not to be taken as an expression of opinion as to whether or not
they are subject to proprietary rights.
While the advice and information in this book are believed to be true and accurate at the date of
publication, neither the authors nor the editors nor the publisher can accept any legal
responsibility for any errors or omissions that may be made. The publisher makes no warranty,
express or implied, with respect to the material contained herein.
Managing Director, Apress Media LLC: Welmoed Spahr
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Paper in this product is recyclable
 To my parents, whose unwavering support has been
the bedrock of my journey, I dedicate this work to you.
To my wife, Anissa, your love, patience, and under-
standing have been my steadfast companions, making
this journey possible.
To my children, Farrel, Rafale, and Xavier, your
boundless energy and joy illuminate my life and fuel
my endeavors. This is for you.
And to my colleagues at Nodeflux, who’ve shared the
triumphs and transformative power of our work in the
toil, this book is a testament to our collective passion
and persistence.
Contents
About the Author vii
The Praise for AI Startup Strategyix
Introductionxiii

Chapter 1: Fundamental of AI Startups 1

Chapter 2: AI Startup Landscape 23
Chapter 3: Product-Market Validation for AI-First SaaS 47
Chapter 4: Product-Market Validation for AI as a Service (AIaaS) 97
Chapter 5: AI Product Strategy 137
Chapter 6: Human-Centered AI Experience Design 169
Chapter 7: Human-Centered AI Developer Experience Design 213
Chapter 8: Building an AI Platform 259
Chapter 9: Go-to-Market Strategy for an AI Startup 311
Chapter 10: AI Startup Exit Strategy 369
Index 411
About the Author
Adhiguna Mahendra, with his extensive academic and industry experience,
brings a wealth of knowledge to this book. He obtained his MS degree in
Computer Vision and Robotics from the University of Heriot-Watt, UK, in
2008 and his PhD in Machine Learning and Computer Vision from the
Universite de Dijon, France, in 2012.
Currently, he serves as Chief of AI, Business, and Products at Nodeflux,
Indonesia’s leading AI vision company. At Nodeflux, he has spearheaded the
development and commercialization of AI products, overseeing everything
from product design and algorithm development to operationalization
through MLOps.
His 20+ years of experience span across global and national companies, devel-
oping intelligent systems across various sectors. Alongside, he serves as a
lecturer at Swiss German University and Central Queensland University, hon-
ored with the Best Lecturer Award in 2018. Adhiguna is also the founder of
the AI Business Institute, an online platform offering courses in deep learning
and AI product management. Adhiguna is also a key contributor to AI policy-
making in Indonesia and serves as an AI trainer and technology advisor.
Adhiguna has a robust academic footprint with publications in esteemed plat-
forms like SPIE, ICME, ICoDSE, and IEEE. He also balances his work with his
love for Muay Thai, jazz piano, and soccer, which he enjoys with his three
boys. In this book, he shares valuable insights on building AI startups, drawing
from his extensive experience and knowledge.
www.linkedin.com/in/adhigunamahendra/
https://twitter.com/Adhiguna_AIaaS
www.aistartupstrategy.com
www.aibusinessinstitute.com
The Praise for
AI Startup Strategy
This book helps to understand the concept using simple and thorough method
for those who explore on how AI can improve his business processes or how
AI-based startup positioned Coming from his academic, professional back-
ground and his researches, the book covers examples from different indus-
tries, such as logistics, manufacturing to marketing, and using those real cases
to identify room for improvements.
—Alexander Sufjan
Founder, Logicnesia
Whether you dream of becoming a product manager or excelling in business
development in the AI startup space, “AI Startup Strategy” equips you with
the tools and knowledge needed to succeed. Don’t miss out on this invaluable
resource from one of Indonesia’s leading voices in artificial intelligence.
Whether you dream of becoming a product manager or excelling in business
development in the AI startup space, “AI Startup Strategy” equips you with
the tools and knowledge needed to succeed. Don’t miss out on this invaluable
resource from one of Indonesia’s leading voices in artificial intelligence.
—Williem Pao Ph.D
Founder, Verihubs, YCS21
While we’re all trying to wrap our heads around the potential of AI for our
businesses, Adhiguna wrote the guidebook for creating new AI-powered inno-
vations. Thorough, actionable, and instantly relevant; make sure you read AI
Startup Strategy before your competitors can get to it.
—Étienne Garbugli
Author of Lean B2B & Solving Product
Key headwinds for humanity that may be remedied with the help of AI include
issues of climate change, financial exclusion, and lack of democratization or
equalization of opportunities. While it is obvious how economically value
x The Praise for AI Startup Strategy

accretive AI will be to the various business verticals, one must also be cogni-
zant of AI’s potential pitfalls. AI can be construed as a process of hallucinations
that must be shepherded in a multi disciplinary manner as to involve as many
non-technologists as possible. This is to prevent the journey forward from
becoming dystopian.
“AI Startup Strategy” is a key tool for all stakeholders concerned, particularly
in the developing economies.
—Gita Wirjawan
Chairman, Ancora Group, Indonesia’s former minister of trade,
Visiting Scholar, Stanford University
AI is rocking the world of tech and everyone is suddenly interested and
excited in relation to its potential impact on business, but what is AI and how
can we really harness it to bring about amazing innovation?
Adhiguna Mahendra is no stranger to me and has advised my company on
areas of product development around AI as well as been a partner on joint
ventures. In this book he brings together his nearly 20 years of experience
operating in an area that for most is just new. In over 400 pages he looks at
multiple case studies and produces one of the most comprehensive books on
this vital subject, available in the market today.
The book is a must read for aspiring AI professionals through to technology
leaders. By looking at real case studies Mr. Mahendra cuts out a lot of the
jargon and gets to the nuts and bolts of a subject which is likely to be one of
the most important technology advancements of the coming decade.
—Martyn Terpilowski
Founder and Investor, Bhumi Varta Technology
The book is a thoughtful, engaging and game-changing read for any entrepre-
neur, technology leader, decision-maker, product manager/business strategist,
developer/AI enthusiast, investor/venture capitalist, researcher or student. I
appreciate the opportunity to collaborate with Dr. Mahendra at this level and
his consideration of me in an association. Personally for me, as I continue my
career in venture capital and entrepreneurship, the book will serve as a desk-
top resource for the basis of my critical thinking and decision-making. With
so much fairy tale and melodramatic hype surrounding AI at this time, this is
a must–read that brings some reality into the reader’s perspective from a
builder’s insight to a consumer’s insight. The book unwaveringly pulls no
punches and gives its readers the proper thinking about what AI means for
society and how we can safely and successfully implement and consume it.
—Paul Claxton
Managing General Partner, Q1 Velocity Venture Capital
 The Praise for AI Startup Strategy xi

AI Startup Strategy” is a must-read for anyone navigating the AI startup land-

scape. It’s a true “Handbook for the AI Entrepreneur”, providing a unique
framework that bridges the gap between the allure of the science for tech-
nologists and the practical, revenue-boosting solutions sought by clients. This
book has prompted me to reflect on my work experiences and consider
implementing new processes. It’s not just insightful, but also thought-provok-
ing, offering a structured approach to tackle the intriguing dilemma of aligning
interests in the AI field. This book is an invaluable guide for those looking to
harness the potential of AI in business.I wanted to express my appreciation
for the insights your book has provided and the impact it has had on my per-
spective towards AI in business.
—Federico Moreno
CEO&Co-Founder, Optima
Introduction
In the Fourth Industrial Revolution realm, where artificial intelligence (AI) is
the bedrock of technological innovation, we are on the precipice of a new
age – the age of artificial general intelligence (AGI). In this fascinating epoch,
the rise of transformer-based large language models (LLMs) such as OpenAI’s
GPT-4 marks a profound shift in the AI landscape. These models, which form
the backbone of advanced language understanding and generation, are being
seen as a precursor to the dawn of AGI, a time when machines will possess
the capacity to perform any intellectual task that a human can.
As we move deeper into the AI era, it becomes increasingly apparent that all
technology companies must transition toward becoming AI companies to
remain competitive and relevant. However, the democratization of AI – largely
due to the proliferation of open source platforms and the vast number of AI
research publications – means that every organization, regardless of size, now
has equal access to this transformative technology. In this landscape, even
tech behemoths like Google can no longer rely on the exclusivity of AI tech-
nology as a competitive moat.
This new reality brings us to a critical realization: the key differentiator among
AI companies will no longer be merely technological superiority or ground-
breaking AI algorithms. Instead, it will be a deeper understanding of the cus-
tomer’s context – their pain points, buying processes, stakeholders, business
processes, and value chains. Coupled with a solid technology architecture and
operationalization strategy to solve these problems, this understanding will
be the driving force behind successful AI startups.
This book is designed to guide you through the intricate journey of building
an AI startup, from inception to exit. It is not a technical manual on how to
code AI algorithms; plenty of such resources already exist. Instead, this book
offers insights into the human and business aspects of running an AI startup.
It will help you comprehend and navigate the complex business environment,
understand your customers on a deeper level, and use this understanding to
drive your AI solutions.
The following chapters will delve into the fundamentals of understanding an
AI startup, validating your AI product idea, and building a robust strategy
roadmap. We will explore various business models best suited for your ven-
ture and delve into designing user and developer experiences that resonate
with your target audience. We will also discuss building a robust platform,
xiv Introduction

mastering the operationalization of AI, and assembling a team that shares

your vision and can bring it to fruition. Finally, we will outline strategies for
market penetration and discuss potential exit strategies.
The world of AI startups is dynamic and filled with opportunities. You can
navigate this landscape successfully with a deep understanding of your cus-
tomers and a clear vision. This book is your guide on this exciting journey.
Let’s begin.

This Book Is for You If…

• You’re an entrepreneur who is passionate about
leveraging AI technology to solve pressing business prob-
lems and build a successful startup.
• You’re a technology leader or a decision-maker
seeking to integrate AI into your existing business frame-
work and pivot your company toward an AI-first
approach.
• You’re a product manager or a business strategist
looking to understand how AI can be used to enhance
product offerings, improve user experience, and create a
competitive edge in the market.
• You’re a developer or an AI enthusiast curious
about the business aspects of AI technology, keen to
understand how to translate technical expertise into a
successful AI startup.
• You’re an investor or venture capitalist seeking
insights into the dynamic world of AI startups to make
informed investment decisions.
• You’re a student or a researcher aspiring to step into
the entrepreneurial world, aiming to use your knowledge
and skills in AI to make a tangible impact in the industry.
This book is for anyone excited about the prospect of blending AI technology
with business acumen to create innovative solutions that address real-world
problems. If you see AI as more than algorithms and code and believe in its
potential to transform business landscapes, this book will be an invalu-
able guide.
 CHAPTER

Fundamental
of AI Startups
Artificial intelligence is a machine that can reproduce human cognitive
capabilities and perform better than humans in scale, speed, endurance, and
accuracy. Such capabilities include vision, speech recognition, natural language
processing (NLP), learning, planning, and strategy. They are made possible by
the availability of large amounts of data, growing computing power, and
improved learning algorithms.
Artificial intelligence (AI) is the backbone of many daily software applications
and services. The technology behind these programs – machine learning (ML),
neural networks, decision optimization (DO), etc. – has been around for
decades, but it’s only recently that it has started to be applied in such vast
numbers to products with AI at their core.
In a world where AI is rapidly being adopted in every single industry, it’s
predicted that by 2030 this will have contributed about $15.7 trillion and
boosted local economies by around 26%.1
As the book is being written, generative AI, led by platforms like ChatGPT
and Midjourney, has swept the world, revolutionizing interactions, content
creation, and problem-solving. These large language models (LLMs) have

1
PwC’s Global Artificial Intelligence Study: Sizing the prize

© Adhiguna Mahendra 2023

A. Mahendra, AI Startup Strategy, https://doi.org/10.1007/978-1-4842-9502-1_1
2 Chapter 1 | Fundamental of AI Startups

revolutionized the way we interact, create content, and solve problems across
various domains. LLMs are a subset of generative AI, which uses deep learning
techniques to generate human-like text based on a given input or context.
Transforming industries like marketing, entertainment, and education enables
personalized content, automates tasks, and enhances creativity. This
technology fosters efficiency and innovation and redefines human-machine
boundaries, reshaping life, work, information search, and communication in
the digital era. If you are reading this book, you are probably ready to be part
of this revolution. Maybe you are already a product manager interested in
building an AI into your product, or perhaps you are a data scientist who
aspires to build an AI startup.
You may also be an experienced Software as a Service (SaaS) entrepreneur
willing to join the AI bandwagon. You wonder how an AI startup with fewer
than 30 employees can scale its solutions globally and exits for multimillion or
even multibillion dollars.
In this chapter, you will learn about the fundamental concepts of AI startups.
We will explain the foundation of AI technologies, the AI startup landscape,
and AI product management and wrap it up with the patterns of successful AI
startups.

Historical Perspective: The Fourth Revolution

Over the last three decades, we’ve seen new platforms emerge that have
created tremendous opportunities for startups: the PC platform in the 1970s,
1980s, and 1990s, followed by the Web Revolution two decades ago.
Then mobile came around as the broadest computing device enabling people
to do more than one thing at once – like checking email alongside reading
news articles on their phone while listening to podcasts while answering
messages. Yahoo, Google, and Amazon followed and rode the Internet and
the World Wide Web Revolution.
In 2007, Apple released the iPhone, which defined the birth of the new era,
the mobile wave. Facebook rode the wave, followed by some new companies
that emerged and disrupted market leaders that did not innovate and adapt.
Amazon disrupted Barnes & Noble before becoming the largest ecommerce
platform, and Netflix disrupted Blockbuster before eventually also disrupting
cable companies.
In the business software landscape, with the Web and Mobile Revolution
enabling the SaaS proliferation, many cloud-based SaaS startups are born in
multiple industries serving multiple value chains. The SaaS constituted business
digitization and replaced Excel and papers with web-based applications.
Enterprises are adopting SaaS at a rapid pace.
 AI Startup Strategy 3

Then, the Fourth Revolution is coming.

In the 2010s, the advent of cheap GPU-based computing and cloud technology,
which leveraged Internet-based compute, storage, and network, enabled new
methods of scaling a deep neural network fed by a massive amount of data.
This marks the new era of big data and AI/ML.
Artificial intelligence and machine learning (AI/ML) enabled by big data
technology have become game-changing technologies that are set to disrupt
a wide range of markets due to their capability to imitate some cognitive
aspects of humans to accomplish some tasks.
Artificial intelligence and machine learning (ML) are used interchangeably, but
artificial intelligence is an umbrella for the replication of human intelligence in
the form of software with machine learning as a subset. Machine learning is
defined as a modern software development technique and a type of artificial
intelligence (AI) that enables computers to solve problems by using examples
of real-world data.
Around 2013, open source deep learning frameworks like Chainer, Theano,
and Caffe were released, followed by TensorFlow by Google in 2015 and
PyTorch by Facebook in 2016. These frameworks are an important factor in
AI democratization, enabling startups to infuse some kind of intelligence into
their products and transform themselves into AI startups.
With cloud technology adopted by enterprises, software giants like Amazon,
Google, and Microsoft Azure started to look at data as the fundamental
proposition and position themselves as big data and analytics providers.
In 2014, Amazon started to push Elastic MapReduce (EMR), while Google
pushed BigQuery as a data warehouse on the Web. Microsoft took a different
route by partnering with Hortonworks, a Hadoop-based big data startup, to
release Azure HDInsight, a managed Apache Hadoop service in the cloud.
They also launched Azure Data Lake Storage and Analytics.
Riding the AI/ML hype, they also released low-code machine learning services
such as Amazon Web Services (AWS) Machine Learning in 2015, Google
Cloud Machine Learning in 2016, and Microsoft Azure Machine Learning in
2018 to make it easy for a nonspecialist to design, implement, and deploy a
machine learning model in the cloud.
The tools and platforms mentioned are responsible for the birth of a new
generation of startups, AI-powered or AI startups for short. Some entrepreneurs
find creative ways to use these tools in their business models and products.
The rise in interest in artificial intelligence and machine learning over
2012–2014 has led to a dramatic increase in funding for these technologies.
The venture, corporate, and seed investors started heavily funding AI startups
in 2013 onward.
4 Chapter 1 | Fundamental of AI Startups

In 2022, a groundbreaking revolution emerged within the realm of artificial

intelligence. The birth of ChatGPT, powered by advanced transformer
technology, marked a turning point in the capabilities of AI. This state-of-the-
art innovation facilitated a paradigm shift in natural language processing,
fostering more nuanced, context-aware, and sophisticated interactions
between humans and machines. As a result, ChatGPT has contributed
significantly to enriching AI applications across various industries and domains,
setting a new benchmark for the future of intelligent systems. The emergence
of ChatGPT has ushered in a new era in the quest for artificial general
intelligence (AGI). As AI systems progress, the pursuit of AGI – where
machines exhibit human-like intellectual capabilities – becomes more feasible.
Innovations like ChatGPT equip researchers to tackle AGI development
challenges, signifying a notable milestone in AI research.
In just a few short years, artificial intelligence has gone from being something
that was seen as far-fetched and unrealistic to becoming one of the biggest
trends, if not the biggest, in today’s world. Every day we read headlines about
new advancements within this field, which brings it closer to reality than ever
before. Whether you believe AI will happen sooner rather than later seems
irrelevant because here we are at least taking steps toward its fruition! The
United States alone invests $9 billion in funding for AI startups each year.
Artificial intelligence (AI) will remain a major trend in the coming years.
According to Forbes, AI will contribute $15.7 trillion to global GDP by 2030.2
The fundamental premise is that every company now strives to be an AI-first
company, not just a data-driven one.
Historically and still widely practiced in many companies, the data always
means transactional data stored in a relational database, which translates into
a few dashboards for fundamental analysis of what happened to the business
recently.
But to become AI-first, the data and artificial intelligence must be integrated
into a set of business processes for analytical and operational purposes. This
lays the groundwork for transforming into a smart, automated, and self-
governing digital enterprise – where business metrics undergo real-time
analysis, sales leads are processed automatically, inventory forecasting and
ordering are automated, staff and vehicle scheduling is streamlined, AIOps
monitors IT systems round-the-clock, customer churn is anticipated, and ad
placements are optimized automatically. This disruptive AI-first movement
has been enabled by close integration between data technology (i.e., big data
infrastructure, streaming data architecture) on one side and AI (especially
machine learning and deep learning) on the other.

2
www.forbes.com/sites/greatspeculations/2019/02/25/ai-will-add-15-trillion-
to-the-world-economy-by-2030/?sh=4be73fba1852
 AI Startup Strategy 5

AI Startups vs. AI-First Companies

Let’s go back to the definition of AI startups and how it differs from another
hype terminology, AI-first companies.3 An AI startup is defined as a technology
company that leverages AI and data as a core differentiating factor to solidify
its position and maintain an edge over competitors. Examples of AI startups
are AI-first SaaS and AIaaS (AI as a Service). We will learn more about this in
the next chapter.
AI startups should be differentiated from an AI-first company in different
verticals that leverage valuable data from day one, use that data to train
predictive models, and then use those predictions to automate and scale
their work.
The main difference is that AI startups have the following:

1. The ultimate dependence on AI algorithms such as deep

learning, reinforcement learning, evolutionary algorithm
and Large Language Model (LLM) as their main products
as well as their core technology.
2. AI infrastructure and tools, such as hardware, end-to-
end data, and an analytics platform or machine learning
optimization tool, to accelerate and/or augment the
implementation of AI-based solutions

While AI-first companies use AI to leverage their main products and services,
which can be anything from movie streaming and insurance to education
platforms, AI-first companies usually do not develop their own AI platform.
They just use ready-made AI platforms and tools and customize them to
match their needs.
So AI startups sell AI as their primary commodities (sell side), and AI-first
companies use AI to empower their value propositions (buy side).
An AI startup cannot function without AI. In contrast, an AI-first company is
doing very well because of AI. AI-first companies can be traditional/tech
companies selling products or services to consumers and businesses.

Understanding Enterprise AI
Successful AI startups understand the nature of AI technology and how to
package to a customer and sell it. They understand that AI is an enabling
technology – just like the World Wide Web or microprocessor.

3
www.theaifirstcompany.com/
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