84. What do DeepMind & Demis Hassabis teach us about the new era of Category leadership?

Speaker A: Welcome to the Difference Engine, the show for tech founders, investors and innovators. Today we'll be analyzing the anatomy of hype and how it can be used for category creation. Should you chase the noise or just ignore it? But first, what does the Google reshuffle teach us about a new way to create category leadership? Today we're looking at a story that on the surface is about an executive reshuffle at Google DeepMind. But I think there's much, much bigger questions beneath it. Um, are we seeing the emergence of a completely new model for achieving category leadership in technology? Because historically big tech's instinct has been pretty simple. Find the world's best talents, acquire them if necessary, give them enormous resources, and then try very, very hard to keep them inside the organization. But what happens when the reality is that you simply can't keep them forever?

Speaker B: Right, so that brings us neatly on to Demis Hassabis, uh, UK entrepreneur, some would say category definer, certainly a major scientist in the world of AI, um, who's not really leaving Google DeepMind. Um, what they say is he's stepping away from the day to day CEO position, uh, and moving into a chairmanship role. Uh, but he's also keeping his chief scientist title at Alphabet and, and uh, beginning to build out Isomorphic Labs, which is the AI of the real world as it's fashioned. Um, so rather than saying I'm out, we've um, done everything we need, I'm, uh, going to be CEO uh, somewhere else. He's actually saying something slightly different. Uh, and Google sort of said to him, I guess, what's your next challenge, Dennis? Um, we'd like to help you with that. And that's a very, very different philosophy to what we've seen in the world of software heretofore.

Speaker A: Yeah, and uh, it's about talent management, but it's also about category creation because I guess if you think about it, DeepMind itself was essentially the original example of this model. Hasabis founded DeepMind, then built it into one of the world's most important AI research organizations and then Google acquired it. Now the traditional acquisition playbook would be bring the founder in, integrate the company and eventually make that founder part of the corporate machine. Now I've never really believed in that because people are entrepreneurs by nature and they never do particularly well being a large corporate servant. So at least now we're seeing something different. Um, and it's the realization that, you know, when you've got a real, you know, and let's face it, let's call Hassabis, what he is, he's a genius. Um, running the machine is really not the best use of his time.

Speaker B: Well, um, that's really, I guess the problem here. It's like when you've got global talent like Hassabis and um, you know, one wonders what, what would uh, anyone do to keep Elon Musk on board? Another genius. But the question wasn't um, how do we retain Demis services? Traditional employee, employer relationship. It's more like how do we keep Demis doing something that's important to us and to him strategically? And those are two slightly different questions.

Speaker A: Indeed they are. And I think this is where the category leadership, uh, argument gets really interesting. Because if you're Google and the size you are, the influence you exert, the money that you make, um, you don't necessarily uh, need to have every great scientist spending the next 20 years climbing the corporate hierarchy. Um, what you need to remain in place is, is to be the place where the world's best people can take on the world's hardest challenges. I mean that's ultimately what you're there for. Um, and that should be extended to the idea that even if that means that their relationship with you, the company actually changes quite considerably.

Speaker B: Yeah. And um, I can't help but thinking about sports analogies and how folks at the top of the game, um, your Messi's, your Ronaldo's in the soccer world, for instance, how people bend and change the rules to give them a different cut of their fees to work collaboratively with them in terms of setting up other clubs. Another example here is Jeff Dean. Jeff Dean, a, uh, lot less known than Demis, uh, has been at Google for three decades. He's paid his dues and now he's leaving with a group of very senior executives to do something called Discovery Loop. But guess what? Google's investing in the company. That's fascinating because in the um, old model they have to part ways. Um, people will be saying, is he pushed, did he jump? Now we've got something more subtle and the question becomes, will Google be the right place and the right partner to help Jeff Dean build his next thing?

Speaker A: The basic philosophy is a profound shift. I mean if you think through our decades in tech, what tended to happen to people that were acquired and we've seen some real big bust ups here, is that ah, if you decide you're going to leave even after you've completed your earn outs or whatever strictures you were under when you joined the company, even as a long term employee like Dean, Um, okay, so if you leave and we think you're going to take some intellectual capital with you, uh, we're going to sue you and we're going to slow down your company and destroy it if we can. Now it seems that at least at Google, there's an emerging mindset here which is, well, if you're going to leave, um, let's make sure you leave to do something ambitious and um, let's find a way for us to participate and of course benefit in the long term.

Speaker B: Yeah. And to your point about lawsuits, there's one flying at the moment between Apple and OpenAI about former employees and taking IP, that's just nastiness. It's a distraction from cracking on. And in this world of AI, with uh, new inventions, new models, uh, and new takes and almost um, trillions of dollars changing hands almost weekly as announcements are made, this is a different situation than we've ever seen before. Um, so from a Google perspective, you get the capital, you get the infrastructure, you get compute, you get the talent and you get the networks. And from the employees point of view, that's also a good outcome.

Speaker A: Ah.

Speaker B: And just in case anyone wants to see what a less good outcome looks at, you can see the recent, um, you can see the recent piece that's going on with bending spoons and airtable and you've got disenfranchised, frankly, pissed off former employees saying this was a terrible outcome. Now that's not what the founder thought, but that's what they thought. They didn't understand that they were just salaried employees. But at this top level that you're talking about, we're talking about here, the real category creators, there's a different thing going on, something perhaps we haven't seen before with both sides seeing some upside. I guess the question is how does this new kind of close spin off architecture look? We've not seen it before. Uh, will it work?

Speaker A: We sort of don't know, but it would appear to be a way that uh, innovation can be accelerated faster than if somebody was nailed into an organization. I do think there is a counterargument and of course this plays to um, both Paul and Ari's past where we will think about what's the actual narrative behind this. Um, it's been very cleverly spun, this certainly. Um, but could it actually just be a rather clever way of putting a positive spin on a talent exodus? Because Google is also losing some extraordinarily important AI people, um, guys like Naam Shazir and John Jumper and others. Um, and Google is of course operating in an environment where OpenAI and Anthropic are moving incredibly quickly. Um, so you could look at this and say, um, this isn't a new model to deliver category leadership. Um, it's a company with actually an ever more weakened core trying to make the best of actually losing people.

Speaker B: Right. So to develop the sort of, let's say, the bear case here for what's going on, um, you know, maybe it's true that there is a talent retention problem. And I find it ironic because one of the accusations, uh, largely at Google, but at other places too, and, uh, you see it in the sitcom Silicon Valley, um, nicely portrayed is that these guys were going out aqua hiring just to put people on the bench. They were not so much hiring talent that they really wanted as starving their competition, but, uh, of talent that they didn't want to be competing with them. And maybe here is something analogous because if they lock up these people, uh, into a loosely affiliated organization structure, um, they might be, um, denying competition from happening. That would be negative to them. So look at Hassibas. His comparative advantage is that he thinks a lot about AGI. Now, whether or not you believe in that is very contentious. But having him spend every day managing an enormous organization that you own maybe isn't as valuable as having him work on something. And if that works out, hey, there's upside. And if it doesn't work out, at least he's not competing against you.

Speaker A: Yeah, but, you know, at least he's possibly doing what makes him happy, I suppose. And I think that's an important lesson for category leaders generally. Um, it's, you know, and I've been through this a number of times, is that it's a m mistake to believe that the person who is great at creating the category should necessarily run the organization forever. And actually it requires different skills to do that. Um, the person that has the mindset that can see the future and can see the opportunity and then go out and create it, um, isn't necessarily the person who should run the operating machine that ends up delivering it.

Speaker B: Right. And so what happens to those who remain? And I'm going to m murder this name. But perhaps that's where, um, Karai Kavakuglu. Hope my Turkish is okay there. Um, you know, the operation, leadership, moving to someone else who's been deeply embedded. This is important, uh, because if the message is all the talent's exited, then you've got a real issue. But if some of the talent stays behind, then you've Got a shot. Um, and somebody else running the engine can also, uh, often reinvigorate that engine. So in many ways the HR move here is super clever.

Speaker A: It's sort of, you know, it sort of sounds obvious when you say it like that, but it's. I think if we look back over the history, it's really quite radical in founder led technology companies because we tend to equate in tech leadership, uh, with control. And the CEO of course is and should be the person with the most control. But perhaps the next generation of category leaders will be less interested in control and more interested in optionality.

Speaker B: Wow, I love that. But that is quite a change. I mean, if you think about your classic, uh, tech leaders, um, Ellison and Jobs, they were all about control. And the technology companies that they, uh, invented did look quite like a pyramid in many cases. If now things start to look less like pyramids to be climbed and more like networks to be maximized, that's a brand new model. And you always want the best people connected and you lose them when they leave your ecosystem. But, uh, the point I think you're trying to make is your talent doesn't need to necessarily report to you in that model. They don't necessarily need to be on the payroll. Uh, they can still be regarded as founders, investors, and importantly in this AI world, as AI researchers. Who knew that word would be so, um, valuable? Uh, you can talk about spin outs, they can be your partners, they can be your suppliers, they can even be your frenemies, um, if you stay on the right side of the law. And so the strategic asset there almost becomes that network itself.

Speaker A: Yeah, and why is that particularly important right now? Because guess what? AON accelerates that. Uh, the half life of any organization is inevitably going to get shorter and shorter and shorter and shorter. And the reality can be maybe you can spend five years maybe building a world class AI team, uh, and then suddenly the frontier you're aiming for and frankly your ambition moves somewhere else. And so you may get an AI researcher who is perfect for developing foundation models, suddenly might go, actually, I'd like to work on the application of AI to biology. Or another one suddenly decides they become really fascinated by software engineering, they want to automate that. Or another one has seen what the CEO has done and decides they want to build a company. But if the parent company says, no, no, no, no, no, you're staying here doing exactly what you want to do, um, because we need you to do it. Sorry, they're just going to walk, the talent is going to walk and yes, that's down to like the footballer analogy and the musician analogy which we've seen over the years.

Speaker B: Ah, yeah. So I suppose in contrast that if the response is, how can we help? What's the biggest problem you want to solve? Uh, then that's just a nicer conversation and you might actually get more out of the relationship. Um, not necessarily the employee, but the relationship. And you think about the logic of stuff that's not possibly worked as well as it should have done, like carve outs, spin outs, corporate venturing, all of those things where they're trying to keep the best of both worlds. This seems to be just a more thought through, human centric version of that. Um, so, yeah, I'm fascinated to think of this distinction between what you can get out of an employee and what you can get out of future relationships. If you strike a deal like this, what that means.

Speaker A: I really feel this is going to become incredibly important. And I think the whole history of the IT industry has been leading up to this. And I think it can help us define what it is, what it takes to create category leadership. Um, weirdly, not actually the obsession with owning the category, but being the organization that continuously creates the conditions for new categories to emerge. You're constantly reinvigorating talent.

Speaker B: Yeah, yeah, yeah, yeah. So go create something new backed with the money that you'd have to go out and raise anyway. Which was sort of where corporate venturing I think went a bit wrong because it was a bit safer than that. Um, you know, these guys, Demis et al, have got reputations to uphold and you know damn well they're going to give it everything they've got. I suppose that's a real test for Google. Can it keep all its. Some would say boring, some would say failing, some would say it's, um, yet to shine. Gemini Core AI business moving while it's allowing all of its ambitious researchers to go plow their own furrow.

Speaker A: Yeah, there is a danger in that, isn't it? If you turn every departure into some form of spin out, um, you do end up hollowing out the core. Of course you do. Unless you're constantly bringing in new people. Um, at some point you need to go, hang on a minute. There are people we need to keep inside the organization who are actually building the products in the mothership. You know, you can't suddenly decide that you're going to turn into some form of venture capital arm. Um, uh, for former employees.

Speaker B: Yeah, but I should imagine there's a, there's a. I know there's a queue around the door to join most of these AI companies and even, even quote unquote Google. I'm sure there's a, you know I should imagine being a recruiter there is like shooting fish in a barrel as they say. But category leadership requires more than just talent. You got to have a infrastructure, you've got to have amazing products. It helps and they say distribution always wins. It helps if you've got the distribution uh and a commercial engine meaning not just a founder but someone who can go out and sell that vision.

Speaker A: Um, I'm m beginning to wonder if what we're thinking about here is that we're moving towards a two speed model. So you've got different things which matter inside the company and around the company. So sort of inside the company you've got uh, scale, products, infrastructure, structure, uh, and of course good old execution. And outside the company you've got the research, the spinning out, the founders, the moonshots and entirely new categories.

Speaker B: Yeah I got to admit m from a European perspective a little bit of m nervousness about the duopoly uh that's forming uh, keeping Google out of it for a minute. Um but big tech's got all the advantages. They're enormous, really enormous. Look at their balance sheets. Um, they bought the compute and the power and the distribution. They uh, comes with their established place in the market. Clearly they are able to convert um customers into ARR very efficiently and in many cases they've got decades of winning. So that institutional knowledge that comes from which are the bets I want to make. So you know, why would they, why would an ambitious researcher want to risk um that when they've got all those advantages And I worry about competition, you know, globally uh, if this works and it freezes out genuine innovative um, disruptive companies from coming at these guys again

Speaker A: this could be a natural extension of capitalism which is just a new way of concentrating power. Um, so even if they go the third option which is really go build the next big thing and we'll will back you. Um, but that would form ah a real change in the psychology of talent management um, because it really does come down to stop worrying about stopping your stars from leaving. It's how do you make your ecosystem so attractive that exiting a position in a company doesn't mean leaving the company behind.

Speaker B: Yeah, it sounds like winning it both ways. What we know from tech is that a new wave will come along whether that's quantum computing or whatever. So this may be a short term solution to the talent drain problem that AI Causes. What are the bigger lessons do you think we've learned from the departures of, um, Hasibis and Dean?

Speaker A: For now, I think, you know, what we're seeing is if you look at the individuals, one is moving further into the scientific future while remaining deeply connected in Alphabet. Well, you know, that's the spin. And the other is leaving to build something new, but with Google as an investor, and of course that is the spin. Now think about it, they're pretty much two different versions of the same idea. That relationship can survive. Uh, the employment contract or the traditional employment contract, which was a sort of master peasant relationship. Um, it's much more equal, it's much more networked. Um, and that could be the new model for attaining category leadership. You know, don't try and own every great person, own the ecosystem in which great people can do their best work. Because in the next decade of technology, the category leader might not be the company with the biggest team. It will be the company with the strongest gravitational pull around talent, capital, technology and ideas. Building a technology company is brutal. We know that. It's years of early mornings, late nights, working weekends, long hours, lost sleep and neglected loved ones. You keep going because of a relentless belief in what you're creating. At Hambleton Partners, our senior advisors have walked that path, uh, experiencing at first hand the challenges that technology leaders face every day. We know selling your tech business isn't just a transaction. It's one of the most important life decisions you'll ever make. That's why we take a different approach to technology M and A. We combine deep transaction expertise with hard won industry savvy, helping founders navigate every stage of the transaction process with empathy, insight, and the confidence born of deep experience. When the time is right to explore what's next, work with advisors who understand every step of the journey. Hambleton Partners. We'd just like to do a bit of tackling of one of the questions that technology has been arguing about for decades. Well, certainly as long as I've been involved in technology marketing, um, can the hype around a company or technology actually lead to category leadership? Or does chasing hype actually distract you from building something much more enduring?

Speaker B: Well, yeah, the word hype I think causes some confusion and certainly I'm looking at a lot of hypey words, let's just say, uh, that are out there right now and things that, uh, come to mind just off the top are ROG, AI. That's a big one. Token maxing tokenomics. Um, AI control planes, industry 6.0. Guardrails I mean you can tell uh, this tech sector is just rich with the little buds of new categories.

Speaker A: Yeah. But I think the thing is when are those buds important and how do you identify them?

Speaker B: That's all about that. Yeah.

Speaker A: We came across recently a really interesting little bit of uh, research, um, done this summer by top ranked VC Sequoia. And what they did was that they chose to start digging into about 20 years worth of hype data. The way they defined this HAP data was what were the projects that generated the most attention in hacker news? Um, and they went right back to 2007, um, which of course is pretty much two decades worth of evidence.

Speaker B: Yeah, I love these um, COD science type research projects. Um, if you think about some of the data points in the original play, bigger book around that there was a lot of subjectivity around which were the category defining companies. Uh, nothing wrong with it, it's a uh, valid research format. But um, what these guys have done is they put the most valuable company according to them in each year, uh, alongside the most hyped uh, topic. So let's get going. That should let us compare a little bit to um, what Hacker News thought was uh, hype versus uh, what actually happened. What have you got for us?

Speaker A: One of the things that jumps out almost immediately when you look at this inverted commerce data, um, is how rarely the idea of category leadership and hype actually tie ah up. So if you think about Airbnb, uh, founded in 2008, um, what was the top hype topic at the time? Anything to do with Google. Uber arrived in 2009. Um, while the conversation was all about low level programming, um, and anthropic founded in 2021 and all everybody was talking about was crypto.

Speaker B: Yeah. So pretty um, powerful counter argument to the idea that the smartest founder looks at the hottest topics and builds there. We've seen cloud washing, we've seen greenwashing, we've seen AI washing. Uh, if you define chasing hype, building what everyone is talking about right now, historical evidence says that ain't great.

Speaker A: Hang on, let me push back on this for a moment. Um, perhaps we're looking at this through a survivor uh, bias lens. Um, maybe it was that the companies that successfully chased hype aren't obvious from this particular comparison. Or maybe even the relationship between hype and the company creation is much, much more indirect.

Speaker B: That's an important uh, caveat and I hate myself for doing this. But um, I'm sort of going to query the data. The data doesn't really Prove that hype has no causal relationship with company creation. It shows the most valuable company formed in a given year is rarely a direct response to that year's most popular topic.

Speaker A: But we're not saying that hype is useless. We're saying that build whatever is number one on the Internet chatter today is probably poor company building strategy.

Speaker B: Yeah, you don't necessarily need to chase today's hype. And of course we would never recommend that in any category discussion. We're looking for the thing that's just over the horizon. The unmet need, uh, is a key part of how you build great categories. And you definitely, though, don't want to, uh, ignore hype signals. They can help you come to the conclusion of what's next.

Speaker A: Yeah, because if you think about it, new trends often announce themselves years before they become mainstream. We love our history here. But on this one, if you look at LLMs, um, they first cracked the top 15 of discussion topics back in 2016 and they didn't reach number one until 2022.

Speaker B: Yeah, it feels a bit like Top of the Pops. That's a five or six year lead time, uh, which is remarkable. AI coding. Uh, my friends were doing that back at university several decades ago. But it entered at number 12 in 20 and now it's top of the list in 2026. Its time has come. Crypto appeared in 2011 before its major, uh, tension peaks with NFT, et cetera, 2017 and 2021. I would argue it's better. Its best days are ahead of it.

Speaker A: Ooh, that's really, really interesting. Um, so I guess what can we get from this, uh, at this stage is that today's obvious trend at some point was like yesterday's niche conversation, which sort of suggests to us, I think, that Internet sub communities, if you know where to find them and follow them, will act as an early warning system for technological change and what is going to go on in category creation in future.

Speaker B: Yeah, and I'm sure that all the hedge funds and VCs out there have got all sorts of systems to detect that now that are AI driven. Um, let's go back to crypto for a sec. So crypto is a great example because the underlying idea of blockchains and systems, record systems of proof of work, all of that great stuff, uh, were generated and actually almost perfected years before Coinbase, uh, and Bitcoin, and all of that stuff became known in the public psyche. So being early to a trend isn't necessarily the same thing as getting your timing right, basically.

Speaker A: So it makes me think perhaps the right question isn't what's the hottest topic? It's really what's moving and it's that vector which is most interesting. So, you know, if something goes from nowhere into the top 50 and then the top 20 and then the top 10 over several years, that progression may be a lot more informative than simply looking at what's number one today.

Speaker B: Right. Don't study just the peak, study the slope. Um, could be a much more interesting signal than something that suddenly became number one just three months ago.

Speaker A: Yeah, yeah. But that I think in itself brings us to possibly a third observation, um, which I' I think is particularly fascinating. Long term hype actually appears to be a durable signal. Just stay with me on this. So what we laughably call the musk verse, um, has been a top 15 topic on Hacker News for every one of the last 14 years. That's an elong time. See what did it.

Speaker B: I do actually, sadly, see exactly what you did there. So sustained attention, uh, is unusual. Um, I would add another category which is misunderstood. Um, hype. Um, you know, the crowd gets it directionally, right. And they get excited about a technology, perhaps too excited, but more complex. But something goes slightly wrong in terms of timing. Um, the application doesn't fulfill its expectations or uh, the business model gets disrupted by something newer. For instance freemium SaaS, for example.

Speaker A: Yeah, I do think that's where founders can get themselves into trouble. You see this massive technological trend and assume that the obvious company attached to that trend will automatically become the category leader. That may not be the case.

Speaker B: Yeah, so category leadership requires a bunch of stuff, uh, to sustain it, basically product quality, distribution, customer adoption, uh, brand capital, um, capital itself, ecosystems that you build up, um, moats around switching costs as well as the ability to define, and probably the most importantly to define the category in the customer's mind. Which is sort of hype, right?

Speaker A: Yeah, we're sort of bringing ourselves around in a circle. I mean, hype clearly, clearly can help create the conditions for category leadership, but that won't necessarily determine who wins. Of course, if you got hype around your company, you're going to be able to attract talent, investors, customers, developers, press, um, and that's fine, that's lots of attention. But somebody still has to get practical. You've got to convert all that attention into some form of actually durable competitive advantage. A story is not a strategy in that sense.

Speaker B: Yeah, so hype's, it's not a moat. That's what we're saying here. Um, but the moment, ironically, the moment a potential category becomes obviously attractive, uh, the competition increases and so does quite clearly the hype. The two are, uh, linked.

Speaker A: Yeah. There's an interesting paradox here. I think hype can make a market more valuable while simultaneously making it harder for any individual company to win. So once everybody sees the opportunity, suddenly you've got dozens of startups, incumbents, investors, consultants and conferences focused on the same category. You know, blockchain. A few years ago, that was exactly what was happening.

Speaker B: Yeah. So I think we're saying don't chase the peak because it's often too late when you're chasing it. Study the trajectory, um, and look for those technologies and particular customer behaviors which are changing or about to change because there's going to be in there a compelling customer problem. And if you find one that's unmet, that is your gold. That's your North Star.

Speaker A: Yeah. Right. So, yeah, in other words, you know, the sweet spot is somewhere between nobody cares and everybody cares.

Speaker B: Hard thing to figure out, right?

Speaker A: Yeah, it's uncomfortable because you're making decisions before you have any form of certainty. But obviously that's also where the biggest opportunities are going to exist.

Speaker B: And just to maybe join the dots here a little bit, Hacker news, uh, again, I don't want to query the data because the data is the data, but is hacker News the right place to be looking for this? Um, engineers think a certain way, category creators think another way. Um, but maybe, um, you know, these Internet sub communities can sometimes see things, certainly technological things, uh, early. Um, whether they can weight them correctly, I have my doubts.

Speaker A: Yeah, yeah. And I mean, you know, other sources are available, such as, you know, X and LinkedIn. And um, you know, hacker news might be particularly good at servicing technical trends. X, I guess. On the other hand, Mike capture emerging probably quite sweary cultural conversations, um, and LinkedIn, of course, will tell us something different about enterprise adoption. Oh, uh, God. Not to mention self interest and so on.

Speaker B: Um, yeah, and the LinkedIn AI slot button, I mean, that's been created for a reason. Right. There's just so much nonsense on there. And so it's easy to create, um, fake hype, uh, fake interest with AI slot. Um, so it's a trick. This whole hype topic is a tricky one. And creating a hype score, I think, is, let's just say to the Sequoia guys, ambitious, um, communities tend to identify stuff early, whether they act on, it's completely different. Um, so let's bring this back to our original question then, maybe.

Speaker A: Yeah. So I Mean, can hyper and a company lead to category leadership? Um, I think my answer would be yes. But I guess, as any scientist will tell you, the causal relationship is much more complicated than people usually assume.

Speaker B: It's an important distinction. Uh, attention's obviously, um, not just important, but it's an extremely effective distribution strategy and it's extremely effective or has been heretofore for, um, investment attention. Um, so you often get the case where a company, uh, is riding a height wave and it's teaching the market what a category is, creates a language, defines the problems, establish the benchmarks, m and becomes a reference point, but misses out for some reason on category leadership and therefore the majority of the economics. Um, so it's a tricky, tricky one to figure out.

Speaker A: Yeah, there's all that danger of becoming too focused on attention and you're optimizing actually for being talked about rather than actually being useful. You can end up with a very valuable media company and a very mediocre technology company.

Speaker B: Yeah, I've seen that so many times, both of us. Um, let's move on to the investor side of things. That's your favorite subject. What do you think? Um, if you're an investor looking at a highly hyped company and lots of people listening to the POD have got companies they want investors to look at, what are the three questions you think that, um, you need to ask yourself?

Speaker A: Right. Um, so first thing is all about reality. Uh, is the underlying technological market, um, trend real? Um, is the addressable market expanding? Um, and even if the market becomes enormous, why does this particular company have a credible path to winning it? Get really specific there.

Speaker B: Yeah. Right. So let's take them in m order. So, huge market clearly doesn't necessarily produce a huge company. Um, something that the AI companies that are spending all of their money building data centers might want to remember, um, then the companies that um, create the most, um, with the largest tam, uh, they may not capture all of that value. So early category leadership, um, and enduring category leadership, two different things. Uh, and so almost the timing of the hype is really important. The company that gets the most attention in Doors isn't necessarily the company that ends up dominating. And you've got your examples here of Mosaic when Google took over, and there are m, many other browser companies, AltaVista, Lycos, et cetera, we could talk about from that example. Um, yeah, so hopefully that deals with the, um, TAM question. Um, yeah. Why is it that the companies founded in recent years are, uh, more interesting? We don't have the benefit of Hindsight yet. But why are we attracted to those guys? Is it hype? What's going on there?

Speaker A: We don't really know which of today's visible companies will become the enduring leader.

Speaker B: No, we don't.

Speaker A: What we do know is AI coding is the number one, um, hype data winner in 2026.

Speaker B: You're talking cursor, you're talking lovable, you're talking codex, you're talking a lot of things.

Speaker A: Yeah, I mean, classically, hyp. Um, five years from now, we may look back and discover that the biggest company from this wave was the company that everybody is talking about today. Or more likely, I think from the evidence, we'll discover it was a company that has barely registered on the radar.

Speaker B: That's an amazingly powerful and encouraging thing for folks who are chasing a category and are worried because of hype that they don't have a shot. Um, so I guess your message is don't build for the trend that's loudest today. Look for the trend that's becoming inevitable tomorrow.

Speaker A: I guess this really brings us back to the original thought, really. Should you chase hype or should you ignore it? I think we think both answers are wrong. Um, and the reason is because you shouldn't chase hype blindly, but you shouldn't dismiss it as noise. You really need to study it, understand where it comes from, particularly measure how it evolves. Because if we learn anything here, it's about the evolution and really just ask whether it's pointing to a deeper technological or market shift. Because short term hype can be noise, while long term hype can be signal. And the really interesting opportunity may m be the period when a signal is becoming stronger, but it hasn't yet become consensus. So that's what founders and investors have to exercise judgment about. The data can show you that something is happening, but it can't tell you exactly what happens next. And perhaps that's the most important lesson from the last 20 years. The goal actually isn't to predict the next number one topic. It's to understand which signals are early, which are persistent, and which can ultimately translate into durable company building opportunities. So the best founders are not the ones who chase the loudest conversation. They're the people who notice the important conversations early and understand where those conversations are going and build something valuable before everybody else agrees with them. You don't want to be agreed with at this stage. So hype definitely isn't the enemy of category leadership, uh, at all now. I don't think it is. The real mistake is confusing attention with inevitability, uh, or confusing a trend with a winning company model. That is the same as thinking you build a company because you're being talked about. You build a company because you've actually done something. Um, and if we can actually figure out which online communities consistently recognize important shifts first, um, we may have a much better way of thinking about the future. Um, that's what I'd be interested, um, for Sequoia, ah, to explore certainly with X and LinkedIn and potentially some other thoughts of, um, Internet attention. Um, because the question we're really trying to answer isn't simply does hype predict category leadership? It's something much more useful. Um, it's really when does the future first become visible and how early can we recognize it and how is it actually building over time? And those are the three things. And we think at the moment the best founders, those most likely to succeed, are the ones that are looking for the combination of those three clues. Thank you for listening. If you want to learn more about category design, head to be categorical.com if you need help designing and dominating your category, then get in touch. Contact details are in the show notes.