The AI startup dilemma: To pivot or perish
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In the last few weeks, four Indian AI startups have announced that they are shutting in the face of challenges such as scaling up, raising funds and pivoting as technology shifts rapidly. This includes two Y-Combinator companies Wuri and CodeParrot as well as Subtl.ai and Locale.ai. This is not unusual in the world of startups. According to the US Bureau of Labor Statistics, more than 50% of the startups fail within five years.However, unlike the previous cycles, beyond operational challenges, these closures are coming amid rapid technological development in artificial intelligence.'Startups are shutting down quicker compared to before,' said a Bengaluru-based investor. Unlike previous technology cycles during which founders could continue running businesses for longer until they found the right fit, many now realize it's better to shut down and start afresh than burn money. AI startups for instance are being rendered obsolete, Tencent Investments managing partner Jeffrey Li told a recent conference.Case in point, the sheer number of AI tools that are going out of the market. AI tool aggregation platform Dang.ai said that of the 4,956 added, 1,301 have been terminated. In 2025, 227 AI tools ceased operations. In order to win in the age of AI, startups should pivot fast as the technology becomes more commoditised, experts said. While technology is important, it's key to focus on the problem that's to be solved.'Right now is a very difficult time to be a founder because the developments are happening at such a rapid pace,' said Akshay Megharaj, founder of Wuri. People always seek inspiration from past experience, which is not possible due to the sheer nature of how the technology is developing, he said.'As much as artificial intelligence has made it easy to build products, the rapidly evolving technology is also making it challenging for startups to have a right to win,' said Naman Maheshwari, co-founder, Tune AI, an orchestration platform that closed recently. This means that companies need to pivot and fast, to stay relevant.Speed, more than anything, is a primary moat in the world of AI, said Sanjay Nath, co-founder and partner, Blume Ventures. He explained that even if a startup has a great product, if they don't keep pace with technology, they will be left behind by competitors, who may have 20% inferior product but execute 50% faster.Gandhi said, 'A large percentage of companies that we back at seed end up pivoting, and the ones that are agile and keep evolving are the ones that are likely to succeed in this crazy, fast-flowing environment.'The key is to find the right problem to solve.To build enduring companies, startups need to solve fundamental issues in the areas of healthcare, climate and sustainability, Google country manager Preeti Lobana said at the recently concluded Google I/O event in Bengaluru. A Bengaluru-based investor said, 'For most startups, AI is mostly an add-on. They need to ask themselves this question — are you solving a problem even if you take AI out of the equation.'
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