- We're on the cusp of something big.
Artificial intelligence is entering every place
where there's a decision,
often one done on autopilot,
and turning it into the optimal one
done with an AI co-pilot.
Today I'm sitting down with Pratap Ranade,
CEO and co-founder of Arena,
and he's gonna show us one way
all pricing will go from the domain
of a person taking wild guesses in a spreadsheet
or using a clipboard
into one that is driven by instant optimization
and having an always-on AI
means billions of dollars in extra revenue
for some of the biggest companies in the world.
Let's get started.
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Most people seem to think about business processes,
you know like pricing,
the way they wanna make a home-baked chicken at home,
like in that old infomercial.
- He had his rotisserie oven
and he said, "Set it and forget it."
- Set it and forget it.
- But business is not a rotisserie chicken
and shouldn't be run like a mechanical process
where there's no room for decisions.
Back in the '80s, Toyota came along
and showed us what you could do
by making a vastly better car,
pushing decision-making
into the people who actually do the work.
They called this at the time the Toyota production system.
In 1986, Toyota became the first import automaker
to sell more than one million cars in the US
in a single year.
Kaizen or continuous improvement made Toyota
one of the world's highest quality manufacturers.
Today we're hanging out with Pratap Ranade,
CEO and co-founder of Arena AI,
a company funded by Initialized,
and he's also a YC alum I've known for almost a decade.
Pratap's company has found a way
to make massive improvements in business.
Think double digit percentage growth,
not just a percent here and there.
These changes are so significant,
I think they have the ability
to change the trajectory of entire industries.
- We focus a lot on the few decisions that we do make
or we can make at a high level
and try and get the perfect answer, the perfect decision.
And I think your Toyota point is spot on,
which is instead, what if you could have autonomy and agency
to make millions of little micro decisions,
precision adjustments?
You don't know what's happening,
but you can adjust when the assembly line stops?
And I think that hasn't made its way out
to a lot of other industries.
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- So how does it work?
Here's Pratap showing what his software actually does,
enabling micro decisions and precise adjustments
to make those decisions happen continuously.
- With pricing, for example, what you might do is say,
"I'm gonna run a 50% off on Black Friday."
That's a consumer example, as you said.
So that's basically the fixed point for everybody.
But instead, Gary right now
might actually not care about that.
Maybe it's actually he's considering subscription
and a discount on a subscription purchase
is the right thing for Gary.
Could be an entirely different setup where you could say,
"Great, I wanna have a bundle offer.
I wanna have loyalty points."
And so what happens
is you have this incredibly wide action space
of possible decisions,
and because of our own human cognitive capacity,
we only make a subset of them.
- Building great software
is about empowering humans to be cyborgs
instead of brainless robots in a black box.
Pricing is just one of the most profitable examples
of a decision that is normally poorly optimized
and made by humans.
Pratap and I met at YC as he was going through the program
and I was a partner there.
He sold that startup to Palantir,
which is where I got my startup start too in 2006
as employee number 10.
One of the things we used to talk about
at Palantir all the time
is everyone wants a button that you can press
that would just make you money,
that would just make you a decision.
And the reality is that's not possible,
nor should you want it,
because it gets rid
of the human intelligence part of the equation.
In contrast, what Arena's doing
is actually extending human capability,
turning people into cyborgs.
- It's so much about human augmentation
versus sort of human replacement.
If you're gonna be a cyborg,
you need to control your cyborg suit or your Ironman suit
and then you need to trust
that it's going to do what it's done.
And especially for something like this, it's so new,
why would you trust it?
And so a lot of the attention that we've put
into building our products
is to solve those two problems of control and trust.
You could give as much or as little agency
to the machine as you want.
So I could just turn on discounts and say,
"All you can do is move discount between 50% and 70% off,"
or I could turn on discounts and bundles,
let it time when they're going out,
let it time how long the offer is, let it adjust in.
I could give it as much or as little.
So that's the control piece.
But then the second piece
is you're handing over a set of decisions
that maybe you weren't making before
or were kind of getting made implicitly
to a machine.
So how is it making decisions?
And a huge part of this is understanding that.
Well, what happens if, you know, we have a prediction
the consumer's going to buy my product at that discount?
What if they don't?
So what if they don't?
Like, you want to see, what are you gonna do?
You want some sort of trust
that in an environment that's changing and dynamic,
how is your machine gonna respond?
It's not enough in the business world
to have something that will work
only when things are on rails
because, as we know, just living life,
life goes off the rails all the time.
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- The F-22 is arguably the most advanced fighter jet
in the world,
but it can't be flown by a human without assistance
due to its very design.
It's so unstable that a flight computer must make
1,000 flight corrections per second
to keep it in the air.
There's still a pilot,
but in many ways, the pilot tells the plane her intent
for where to go or what to do
versus exactly how to fly.
- When you think about even the fighter jet example,
you still have a pilot
that's sending the intent of where they want to go.
You have a flight computer
that's making all the little decisions.
They're extremely maneuverable, they're really agile,
and oftentimes the flight computer is actually making
thousands of little flight corrections per second.
So when you sort of joystick left,
you're kind of sending the intent that you want to go left,
but the little decisions required to implement it,
they're autonomous.
- The most powerful thing about running a company
like an F-22 fighter jet
is the ability to dive down to a specific customer
and offer a hyper personalized decision tree
for every single customer.
- That's the beauty of this,
is at the top level, you get a summary.
You see, oh, overall, like, what's my strategy?
You can see I'm using, you know, quite a few
just very shallow discounts,
quite a few heavy discounts, not much in the middle,
tend to dial down my heavy discounts over time.
But then I think the beauty is really like,
what is the right answer
for each customer at each moment in time?
Recognizing that moments in time are different.
It's not just, you know, tomorrow.
It's tomorrow with heavy rain,
or it's tomorrow and it's bright and sunny,
or it's tomorrow and there's a really big game,
and those are completely different situations.
And you really want to get that feeling
of a few different customers.
And humans are so good at this,
we're so good at that common sense,
and it creates this really wonderful interplay
with the human and the AI
where, A, human starts to trust the machine,
B, the machine gets better
because it's being coached by a person.
- The cool thing is this kind of thing
has already been happening with AI across the board.
GitHub Copilot has already been a literal co-programmer
for legends like Karpathy.
Here's a recent tweet where he says,
"I don't even really code.
I prompt and I edit."
Can you imagine this kind of technology fully realized
in every business and every business decision,
a co-pilot that can be everywhere you can't?
Arena's working on this.
So if you need this in your business,
you can reach them at arena-ai.com.
You can also follow Pratap on Twitter.
Link in the description.
He's an absolute expert and leader in this space.
The future is so bright for software,
especially one that extends human capabilities
and turns us not into robots, but into cyborgs.
Today was about highlighting one leader in the field,
bringing groundbreaking techniques
to businesses that could normally never get it.
And literally, that's what an enterprise startup
in the space is.
This is all inevitable,
but especially when building
great enterprise software that works,
it just happens a decade earlier.
I can't wait to see what you build.
I'll see you next week.
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