Terra Security chose to sell its AI pentesting solution directly to end customers rather than licensing it to existing pentesting firms. This strategy provides direct product feedback, builds brand equity, and creates market pressure on incumbents, forcing them to adapt or be replaced.
Related Insights
Conventional wisdom suggests attacking an incumbent's weak points. Serval did the opposite with ServiceNow, targeting its core strength: configurability. By using AI to make customization drastically faster and easier, they offered a superior version of the feature that locks customers in, creating a compelling reason to switch.
Established industries often operate like cartels with unwritten rules, such as avoiding aggressive marketing. New entrants gain a significant edge by deliberately violating these norms, forcing incumbents to react to a game they don't want to play. This creates differentiation beyond the core product or service.
Startups often fail to displace incumbents because they become successful 'point solutions' and get acquired. The harder path to a much larger outcome is to build the entire integrated stack from the start, but initially serve a simpler, down-market customer segment before moving up.
Prepared realized it couldn't win against GovTech incumbents on their terms of sales relationships and lobbying. Their strategy was to fundamentally shift the competition. By offering a free, easy-to-use product, they forced the purchasing decision to be about technology quality, an arena where they could excel.
Economist Bernd Hobart argues that large enterprises are too risk-averse for early AI adoption. The winning go-to-market strategy, similar to Stripe's, is for AI-native companies to sell to smaller, agile customers first. They can then grow with these customers, mature their product, and eventually sell the proven solution back to the legacy giants.
Instead of fighting incumbents for their entrenched "hostage" customers, startups should focus on "Greenfield Bingo." This strategy involves building a better product and selling it to the steady stream of new companies that are not yet locked into a solution. This approach thrives in markets with high rates of new business formation.
Instead of trying to steal entrenched 'hostage' customers from incumbents, startups should focus on a 'Greenfield' strategy. By building a superior product, they can capture the wave of new companies that are not yet locked into a legacy system and will choose the best available solution.
An AI-native service provider goes directly to the end customer, bypassing intermediaries. They offer a superior result (e.g., faster, cheaper cybersecurity) at a lower price, making the switch an easy decision by solving the entire problem.
Instead of pure SaaS, Terra Security uses an "AI-enabled service" model. This hybrid approach allows them to tackle complex problems that fully autonomous AI can't yet solve, while still benefiting from software scalability and replacing existing, large budget items for manual services.
Shure challenges EOR giants like Deel by re-architecting their manual back office with AI agents. This vertical integration creates a moat, as incumbents with established processes and reseller models cannot easily adopt this approach without cannibalizing their existing business.
