This week, Madrona Partner Vivek Ramaswami hosts Anagram Founder & CEO Harley Sugarman. Harley’s founder journey is a fascinating one — from magician to music video producer to engineering at Bloomberg and then to investor at Bloomberg Data before eventually leading to becoming an entrepreneur. He launched a company in 2023 with a bold mission: to fundamentally rethink how we protect the human side of cybersecurity.

Originally founded to help security teams upskill through immersive training, the company has since evolved into a next-generation human security platform that’s tackling one of the biggest unsolved challenges in enterprise security: employee behavior.

In this episode, Harley and Vivek unpack how one pivot, a flood of cold outreach, and relentless focus on behavior change transformed a niche tool into an enterprise platform serving companies like Disney and Pfizer. From landing enterprise logos off of nothing but wireframes to outmaneuvering the 800-lb gorilla in a legacy industry — Harley’s tactics are a masterclass for any founder trying to stand out in a crowded market.

Listen on Spotify, Apple, and Amazon | Watch on YouTube.

This transcript was automatically generated and edited for clarity.

Vivek: What motivated you to launch this company? How did your background help you in the early shaping of the company itself?

Harley: Yeah, so I have a bit of a funny background. I actually went into school as an English major, was a semi-professional magician prior to doing that. So I really did not think I was going to be in the tech world for a long time. But after going to school in Palo Alto, sort of being very much immersed in that world, the idea of starting a company took hold, but I didn’t know what I wanted to go and do. So right out of college, I moved to New York and was working at Bloomberg, mostly there doing engineering for sort of infrastructure tools that Bloomberg was building, and sort of realized that I knew a lot about the product side of startups, but didn’t know much about all the other stuff, about the fundraising, about the hiring, all those other facets that go into creating a company.

So I found Bloomberg Beta, which was this early-stage fund that exists within Bloomberg and is very focused on the future of work, which is something I was also very interested in. So I joined for two years, essentially with the ultimatum that after two years, I want to be fired and forced to go and start a company. And the team I worked with was very supportive. I worked with a woman, Karen, out of New York who sort of held me to that promise. And for me, security was always a very natural fit. There’s a lot of engineering within security that I find really fascinating. That was my specialist focus at university.

And really for me, there was always this interesting intersection of the technical side of security and the human side of security. And that human side was this sort of much fuzzier problem than the technical side. And it was a problem that a lot of people had tried to solve, but hadn’t really been able to solve. And so, that was what gave me the trigger to say, “You know what? Let’s go into this space. Let’s look and see where there’s opportunity.” And that led to the initial vision for the product, which was focused on security teams and eventually led us to what we’re now building at Anagram.

Vivek: Yeah, and I think obviously you had a lot of interesting developments leading you to even starting the company in security in the first place. But then, the original vision of the company was very different, or certainly different from what you’re doing today, which was around upskilling cybersecurity employees and teams with this kind of capture the flag style approach. But then, you pivoted the company in 2024 and saw some rapid success from there. What sort of led you to this pivot? Walk us through what your thought process around that was.

Challenges and Market Realities

Harley: So the original product that we built, which I stand by as being an awesome product, was this way of evaluating security talent and training security talent through this idea of puzzles, right? In security, there’s this culture of capture the flag, which is we’ll give you a piece of broken software or vulnerable software, and your job is to figure out how to exploit that vulnerability. And in doing that, you very quickly understand, “Oh, okay. This is how I would defend against that in the future.” And it’s a really cool, engaging way to teach people to evaluate what somebody knows. And so, we started off building software very much focused on solving that problem for security teams, which I can talk about at length.

But I think one of the issues with it is that security is a very gate-kept industry. There are a lot of certifications, a lot of a feeling that you need to have gone to a certain kind of school, or have a certain degree to get into this field, and I didn’t buy that at all. So that was the first product that we launched. We got a little bit of traction with it. And candidly, we just realized quite quickly that the market wasn’t there for it. We launched sort of 2022, end of 2022 timeframe into a market that was very much contracting. So companies that had big security teams, financial institutions, tech companies, et cetera, were on hiring freezes. They were doing layoffs. They were downsizing. So we quite quickly learned that there was a cap to how big this business could be.

And then, the other challenge with it was the needs and the requirements for security training at these different orgs looked fairly different, given the risk profiles, given the compliance frameworks you needed to worry about, given the kind of software that you are developing. So we decided to make a pivot, but we knew that we had built something special because the feedback from users was really, really positive. They loved the puzzles. They loved this idea of critical thinking and keeping things short, but engaging. And so, we basically started talking to the customers that we had, and we said, “Okay. Where are you feeling this pain, where this kind of solution could be interesting?”

And the thing that came up more and more frequently was this idea of training users who weren’t necessarily on the security team, training the general population. And it’s a very known issue. Human risk tends to be the biggest hole for most enterprise companies, meaning someone clicking on a phishing email, somebody sharing data with their personal email or to someone that they shouldn’t. Now, increasingly, there’s a lot of AI risk around what information gets put into models and what does that company do with that information. And there hasn’t really been a good solution to that problem. There’s a lot of companies out in that space. It’s a very popular space. But the approach most of these companies has taken is very cut and dry, right?

Pretty much everyone watching this or listening to this is going to have had to have gone through some kind of security awareness training in the past. That’s usually 45 minutes of videos talking about what is a phishing email, followed by a kind of reading comprehension quiz that looks like it came out of the SAT, and that is not a good way to train people. And what we learned was that there was real appetite to take this more engaging way of educating and teaching, and apply it to this space, which is a lot broader space, because every company above a certain size needs to do this employee training. And so, that was the seed that led to Anagram.

To be honest, I was quite hesitant to do this initially. I thought we were going into a space that was very commoditized. I felt it was a little bit of a race to the bottom. So I sort of felt like, “Okay, if we do this, we have to do it right and we have to do it differently.” And so, that was the initial sort of hump that I had to get over was my own kind of internal bias like, “Does this actually make sense? Is this a good idea? Is this not a good idea?” But we got really, really good feedback, and so we then started doubling down. And it kind of didn’t even really feel like a pivot at all.

Executing a Startup Pivot

Vivek: Take us through that actual pivot. You talked about externally why you decided to… You saw one direction, and you said, “Okay, you know what?” Actually, if I take the company and the product in a different direction, I’m seeing a lot of immediate traction there.”

But internally, what actually happened? If you just think about the tactics of this, did you wake up and you tell the team, “Folks, we’re going to change the direction of the company, and this is the product we’re going to go into.” Did you have to change the team? What sort of happened? At least on the internal side after you made that pivot, because that’s something so many founders have to go through.

Harley: So the way that we thought about it or the way that I thought about it was every step kind of felt like a natural progression of the step before. So I actually don’t think I remember waking up one day and saying, “Hey, you know what? We’re now a security awareness company.” That didn’t happen. It actually felt very organic. I make decisions well when I see data. That’s kind of the framing through which I view the world. And when we started selling this new product, we started sort of ideating on, “Hey, okay, security training for security teams. That’s probably going to hit a wall at some point. Where can we expand?”

We started just running a ton of little experiments around messaging and outbound, outside of our existing customers, and we said, “Okay. My hypothesis — this is probably not going to work.” Right? There’s a million companies out there. CISOs kind of think this is an unsolvable problem because human risk is that you can’t fix the human, which I think is a really terrible framing. And so I sort of said, “All right. Well, we’ve got these customers who are willing to give us some money. Let’s focus some effort on building that product as cheaply and as quickly as we can.”

And then in the meantime, let’s just start running some tests. Let’s start reaching out via LinkedIn, via email to CISOs, and see if we can get any interest like, “Hey, we’re going to try this a little differently.” And we got a lot of bites that way. Of our first, I think, 20 customers, 80% of them came through cold outbound. It wasn’t my network. It wasn’t people doing us favors, right? We had a couple of existing customers who converted, but the vast, vast majority came from us just reaching out. And I think that was the thing above everything else that made me say, “Actually, this is cool. There’s a there there. There’s an opportunity here.”

And people are sick of the status quo, and they feel like there is a chance for us to build something here that is differentiated, and feels unique, and feels innovative.” And so, we just slowly started spending more and more of our time on it. And there was a moment, I’d probably say early to the middle of last year, where we decided as a team, this is going to be our focus now. We are spending 80% of our time on this product. We closed more revenue in the first six months than we did in the past 18 months building the original product. And so at that point, it was fairly obvious like, “All right, we’re going to do this.” And you know, for the team, a few of them came and sort of said to me like, “It kind of didn’t feel like a pivot.”

Someone said to me once, I thought it was kind of interesting. There’s like two genres of pivot. There’s a market pivot or there’s a buyer pivot. And it’s hard to do both, but you can do one. We kind of made a buyer pivot, right? We are still selling to security. The process is not a million miles away. It’s this top-down enterprise sale. But the end user, the experience, the problem that we’re solving is just fairly different. And we were kind of lucky there was a lot of DNA from product one that could apply into product two.

But yeah, it felt I think very natural and we didn’t need to make any team replacements or anything like that.

Vivek: I think that’s where the word pivot just sounds like you’re making a hard pivot, right? Where so many things are changing, and it’s like you got rid of one team, and you got another. In this case, it’s more almost a transition, right? There’s a transition of the product, but there’s a transition on the buyer side. They decided, “Okay, you know what? This first part I’m not going to spend that much money on. But the second thing that you’re doing, actually, there’s budget for this.” And now, you can tap into that budget.
And I think the thing you said that was really interesting and that is differentiated is, so much of your early traction came from you reaching out cold on LinkedIn and on email. And these aren’t just small SMB customers. This is Disney, and Pfizer, and big blue chip customers. Maybe talk through that a little bit. What was sort of different in what you were doing that allowed it to work?

Security Awareness Training that works

Harley: A few things that we did, I think, that worked for us and would work for other people is, we always started from a place of feedback. So in the early days, we didn’t have a ton of functionalities to the product. We had a lot of wireframes, we had some basic things that we could demo, and we were very upfront about that. We weren’t saying, “Hey, we are going to come in and solve all of your problems.” We came in and said, “Hey, security awareness training sucks. You probably hate what you’re doing. We’ve taken this approach that is a little bit different. We’d love to show it to you. We’d love to hear if the approach resonates with you. Do you have 15 minutes?” And I will die on the hill that a cold email is the highest reward-to-risk ratio proposition that you will ever encounter as a founder.

It costs you literally as close to nothing as it can cost you, right? Some time and some thoughtfulness around who you reach out to and how you reach out. And the worst that can happen is they ignore you. And maybe if you reach out to them a year later, they respond, but they’ll have forgotten about the first one. So there’s zero reputational risk really if you do a thoughtful one, but the potential upside is so high. So we really leaned into that. Just try it. But as I say, I think coming at it from a place of, “We want your feedback. We are not telling you that this is going to solve all of your problems.” Coming at it from a place of the open secret that in this space, there are a bunch of issues. And hey, we are thinking about how to solve this, and we’re being innovative. I also think, tactically, if you frame yourself as earlier than you are, that can help.

Even now, we send stuff from my university alumni email address, and we try things where we say, “Hey, we’re a team of… We recently founded a company, even though the company’s been around a year.” I just think having that framing of like we are early gives you two things, especially for C-levels at big companies. One is it puts them a little bit more at ease. It feels like, “Hey, I’m not just going to get pitch slapped by this dumb company that I get 400 of these every day.” And then the second thing is a lot of these big C levels love the idea of paying it forward and helping startups. Some of them might become investors. Some of ours did become investors. Some of them might want to help connect you with VCs that they’re connected with. So there is this idea of a rising tide lifts all boats that I think we were able to capitalize on as well.

Vivek: And I think also you approaching this with a level of humility that I think is really important too, right? It’s not this idea of, “Hey, buy us, and we’re going to solve all your human risk problems.” Right? It’s like we are the greatest security training tool. It’s not like, “Hey, we have a different approach. Why don’t you try us out? Or I’ll at least, get on the phone and talk to you about it. And we’ve had this success and you can just sort of build on top of that.” And I think that’s great. By the way, this probably the first time I’ve heard pitch slapped.

Harley: I didn’t come up with that.

Vivek: I was going to say it’s very good. And I’m not sure if we’re going to be able to use it or not. Hopefully, we can. But I think one thing you noted there is really important, which is this is a space that’s been around for a long time. Right? As you say, at a certain size, you need to have some level of security awareness training, products within your organization. Now, the vast majority of them today are very much check-the-box, and it’s not a great experience. And I’m sure 90% of the people who are listening or watching this podcast have kind of gone through that. Now, I’d love to hear how you all and how Anagram thinks about standing out in this space.

We’ve talked about this. There are almost two sets of competitors. One is all these new age sort of AI forward companies, many of which are getting venture funded, and a lot of them have been out there for the last few years. And then, there’s this one giant behemoth, right? In KnowBe4, which has been around, probably the first one in this space, and is sort of the 800-pound gorilla in this market. For a product and a company that’s only been around for a couple of years, how do you think about how Anagram competes in the spaces? Do you think about all of these? Do you think about this side more? Walk us through the competitive set and how you compete and find success.

Harley: So I think for what we do, it is a fairly commoditized space. There are a lot of startups. There are a lot of incumbents. There is really one massive incumbent, which is KnowBe4, and they’ve built a machine. I’ve got to give them credit because they have managed to dominate the industry. When we go into these enterprise companies, nine times out of 10, we’re competing with KnowBe4. All stuff they’ve built internally. But it’s unusual, I think, to see a space within security where so few of the incumbents of the big customers are using a startup as a solution. When we go up for these customers, we’re very rarely competing against the startups. We’re usually competing against KnowBe4. Sometimes, a company like Proofpoint, like an email security platform, has some training built into it.

And then, the startups that are doing the AI solution. We run into them a little bit more at the mid-market, sort of maybe 500 to a thousand, 1500 employees. We learned quite quickly that our bread and butter is the big enterprise. We found that we can serve 1000, 2000-person companies pretty well, but those processes tend to be very competitive. You’re going against all these other AI-driven companies. There’s a lot more shininess. And you’re also going up against a team that you’re selling to a persona who’s got a lot more going on in the sense that there is typically one person. Maybe it’s a CISO. Often, it’s not even a CISO. It might be a director of IT who’s wearing 17,000 hats, and security awareness is one of those hats.

And so they just need to get something in, check the box, and get it done as quickly and as cheaply as possible. And that’s not really the company that we’re going after. What we’ve realized is that these big enterprises that have the biggest risk surface because they’re dealing with 10,000, 20,000. In our bigger customer cases, 400 – 500,000 employees, they have to think about this with a bit more sophistication. They have to think about, how do we target training to different parts of the org? How do we customize what people get? We deal with a lot of companies that have manufacturing facilities. And those workers are hourly. And so for them, training that is 45 minutes long versus 15 minutes long, all of a sudden.

Vivek: An hour of pay.

Harley: Right. Exactly. Yeah. If you take 10,000 manufacturing workers times that by 30 minutes, that’s 300,000 minutes. I think I did the math right.

Vivek: It’s a lot of time.

Harley: Yeah, it’s a lot of time. But it’s interesting, because what we’ve learned quite quickly is that that is our bread and butter. Those are the programs where we can go in and show ROI really, really quickly. And so, that’s where we focused. In terms of how we’ve looked at it from a product perspective. I think if you look at the incumbents, we’re all familiar with that product. As I say, it checks a box, but it doesn’t lead to behavior change.

And I think the big problem in this space, and the reason you’re seeing a lot of startups in this space, is that CISOs have realized this training doesn’t really do anything. It is a thing that we have to do because our compliance framework says we have to do it, but that’s kind of as far as it goes. And the analogy I’ve started to use is if we taught kids, if we taught school-age kids the way that we expect adults to learn security awareness, within two weeks, there would be protests in the streets.

Vivek: Yes.

Harley: We’re not going to let our kids just sit in front of a screen and then take a comprehension quiz. That doesn’t actually teach. And it doesn’t teach you anything, right? There’s been so much research on how behavior change works at scale and how education can work at scale, not from security companies, but from companies like Duolingo, from companies like TikTok.

Vivek: Right.

Harley: And you need to incorporate those kinds of technologies and techniques into awareness training. The big incumbents don’t do that. And then, even the smaller startups that are very AI forward and they say, “Hey, we’re going to take the phishing simulations that you do and we’re going to let them be AI-generated,” or, “We’re going to have AI-generated videos.” Again, there’s some value there, but it’s kind of, to me, the lowest hanging answer to the question, how do we incorporate AI into this training?
And I just feel like if you put someone, and give them three minutes and say, “Hey, how do I incorporate AI into awareness training?” That’s what they would come up with. So what we’re trying to do is go one level deeper and look at the workflows that our users are engaging with day-to-day, and figure out how do we insert nudges, behavior change, training into those workflows. And I think that’s something that no one’s really doing right now.

Vivek: At the end of the day, for most of these customers, they would like to drive behavior change. Right? It’s very hard to do.

Harley: Yeah.

Vivek: Because we’re used to the way we do things at work, right? And so, being able to show, especially at these big enterprises, can you drive behavior change? Or what leads to behavior change to make your environment more secure is so important. And so, I would say that one of the things that attracted us to Anagram was taking this enterprise-first approach, right?

A lot of companies will go say, “Hey, you know, let me start with a small customer and kind of work my way up.” Versus just going, “No, Disney has a complex environment, and that complexity is what’s going to make our product shine.” What advice do you have for other founders who are trying to break into the enterprise? Because enterprise is not easy, right? And these large companies are not easy. What sorts of things have you found successful for Anagram that you think might be relatable to other founders?

Enterprise Sales Strategy

Harley: So I think within the enterprise, you really have to put in the time understanding how their business works. It becomes a much more of a consultative sale than a prescriptive sale because every enterprise has its own beast. There are power dynamics at play that you will not get a sense for until you’ve spent real time with them. And what we started to do that is showing a good amount of promise is look for a specific problem that we can solve, right? Let’s take J&J, or Kenvue, or Disney as an example.
They have such a huge number of challenges that if you try and say, “Hey, we’re going to solve everything day one.” First of all, they’re not going to believe you if you’re a company at our stage. Second of all, the number of people who would have to buy in for you to go and solve all of those problems is probably in the dozens. Not always, but oftentimes. And there’s different departments that might need to buy in. I’m not even talking about budgeting yet or dollar amounts. Just the sheer complexity of the sale goes up so quickly. So what we’ve tried to do is really focus on specific areas where we can improve. So it might be training people who click on phishing emails a lot. It might be doing a little bit more targeted training to certain parts of the organization. But this land and expand motion, I think, works really, really well within those enterprises, because you get the chance to build some of that trust.

And you get in the door a little bit quicker. Your contract size won’t be that big initially, but our mission is to build trust, and to get them enjoy working with us, and that unlocks volumes, I would say, in terms of ability to expand. Also, social proof, right? I think once you’re in one of them, you can then kind of name-drop that one. And then all of a sudden, you get a little bit of the FOMO among the enterprise, which is always nice.

Vivek: Yeah. Well, you should be less humble about it. It’s not easy to break into these companies in the first place, and then expand. But as you say, if you can get your foot in the door, you have a good starting point that can give you a lot of leverage to moving across the organization.

Choosing the Right Investors

Let’s switch gears here a little bit to fundraising. Tell us a little bit about the fundraising journey. And I guess I’ll put you on the spot a little bit. You weren’t really fundraising when we talked, and so why’d you even take the call? And give us a little bit about that experience.

Harley: Yeah, we weren’t fundraising when I first met you. I think we had planned to fundraise kind of around now, like March, April, May. I guess we’re in June of 2025. At the end of 2024, when we got introduced, I was really just in the early stages of saying, “Okay, I probably need to get my reps in fundraising. And I remember this from my time as a VC. We used to give this coach to our founders. Fundraising is like a muscle, and you just have to remember how to talk about your business.

What are the common questions that come up? What are some of the big things that you’re going to have to answer? Who are your competitive set? How are they fundraised? And there’s a lot of prep work that I think goes into a good fundraising process. And so, this was going to be the very, very early stages of that process for me. We got connected through my little brother, of all people.

Vivek: You owe him a nice Christmas present.

Harley: Yeah, exactly. And he was like, “Oh, I met these guys at Madrona. They seem really smart. Do you want to have a chat?” I said, “Yeah, I’ll get some practice swings in.” And yeah, I think on our side, we were in a fairly good position because we had had a lot of momentum. We’ve closed a lot of contracts. We were and are growing pretty well. But I was just really surprised. I loved the conversation that we had, and you asked really good questions. I also fundamentally believe that fundraising… And I hate the cliche, but fundraising is kind of like a marriage. This is a long-term partnership, right?

This is not, “Oh, they’re going to write a check, and then disappear.” This is — you are going to be seeing these people or speaking to these people multiple times a month, or once a course, in a board meeting or whatever it is. And so, you need to get along both on a professional level, obviously. And then, have a shared vision for the company. But also, you need to just want to spend time with them, and trust that you can be honest with them, and have these conversations. Life’s too short to have friction like that. And yeah, as I say, I just… You know? Not to big you up too much on your own podcast.

Vivek: We’ll take it. We’ll take it.

Harley: But I just thought it was a really great conversation.

Vivek: The feeling is mutual. And I think, for us, we had looked at a number of companies in this space. But I feel like the approach you are taking and Anagram was taking, but also your authenticity, right? Outside of just having a very interesting approach in this space, it’s like, are you the kind of founder or the kind of person that’s going to be able to make changes when the market throws a million things at you, right? It takes time to suss that out. I remember we spent half a day in New York and went for dinner. And those are the kind of things that I think get us really excited. Great traction and customers is important, but ultimately, so much of the company is defined by the founder in the early stages. And I think getting to those things is really important.

And I think the other underappreciated part is that when you already have a great group of investors, like in your case, you already had Bloomberg Beta and GC. You want to have someone who also can probably fit into that board dynamic while also challenging you in certain ways. And I think you’ve been very lucky to have a great set of investors, and I’m not talking about ourselves, but even your other investors. And so, it’s been fun to be part of that dynamic in that group. If you were to give advice to founders about fundraising and choosing a partner for the long term, what are one or two things that you would, maybe that they don’t hear as much? Or are there one or two pieces of advice you’d give after having gone through this process?

Advice for Founders

Harley: I would say the biggest thing is choosing someone who you get along with. To me, that is far and away the most important piece. And this isn’t to say the case for every CEO, but I really value collaboration and I really enjoy hearing other people’s ideas. I think of myself as a sponge. And I might take in all the information, and then just wring it out and ignore all of it, but I love absorbing it. And so, I need someone who I can listen to and who I’m going to care about their opinion.

And I think if you are someone who always thinks that you’re the smartest person in the room, if you’re someone who has to get the last word in edgewise, you are just going to… I just know myself and I know that I’m going to start dismissing what that person says or take it with a grain of salt. And so for me, I was really solving for that. Who is this person who is going to be a thought partner? Because ultimately, you also have to, as a founder, know where to take the advice and where not to take the advice. VCs are great, and we have been very lucky. We have a really good batch, but they are backseat builders, right? They are not there in the trenches. They don’t see what’s happening day-to-day. So you, as the founder, have to make the call ultimately, but you need someone who is going to have that little bit of humility on the VC side and say, “Look, I know that I am not necessarily the best person to answer this question. You’re the best person to answer this question, and trust you with that vision.” Again, being a VC, I think I saw this happen in a positive, constructive way.

And I saw this happen in very negative ways, where board meetings were just sort of this thing that the founder and even some of the VCs dreaded because they knew there was going to be conflicting egos. It’s uselessly destructive because it doesn’t contribute to building the business. It doesn’t contribute to a good relationship between these people who are spending a ton of time and are really invested in each other’s success. So yeah, as I say, for me, it’s a soft answer, but I think that interpersonal connection is massively important.

Vivek: That totally makes sense. And let’s end with a couple of rapid-fire questions here. So, outside of fundraising, if you could provide founders with one piece of advice, what would it be?

Harley: Send more cold emails than you think you should.

Vivek: Love that. Okay. Send more cold emails. Yeah, I think you probably learned some of this skill as a VC too, right? This is what we do all day. And one, let’s talk about hiring for a second. What lessons have you learned around hiring, especially when it comes to the kind of talent you want to get at this stage that Anagram’s at?

Harley: This is a longer answer for a quick-fire question, but it’s difficult to get talent that can scale at any stage of a company. What is a good fit for someone when you are 2, 3, 4, 5 people might not be a good fit when you are 10, 11, 12, 13 people, which might not be a good fit when you’re 25, 30, or 50, or a hundred. And so, always being cognizant of, is this the right blend of talent that I need for my team at this stage of this company? And then, a lesson that I have learned and a mistake that I’ve made that I’m trying to internalize and continue to get better at is not letting bad hires or mistaken hires drag out. So, making those decisions quickly.

And I say that not in a kind of, oh, let’s just be cruel and callous about it, and just hire and fire everyone and kind of create, because that’s really bad for the culture. But there genuinely is, for most people, a stage of company where they will shine and a stage of company where they will not. And we’ve hired a couple of times people who I think would be really great fits for companies where there was a little bit more infrastructure. And maybe if the company were 50, or a hundred, or a thousand people, they would be a really, really strong A-level player. But when you’re five people, when you’re 10 people, there’s just so much ambiguity and so much comfort that you need to be able to do without that, it just wasn’t the right fit for them or for us, right?

It’s not really fair for them to be wasting their talent at a place like us. And it’s not really fair for us to be bringing them in where they’re not contributing what they could be, right? So I think making decisions quickly. Also, smaller point — hire more junior than you think, especially at the earlier stages. Like someone who is earlier in their career, maybe, or not as experienced, but really hungry and learns really quickly. I will take that 10 out of 10 times over someone with a bit more experience who’s maybe coasting.

Vivek: Yeah. In fact, it feels like we’ve actually had more success in that type of hiring, and watching those people grow, and do all the tactical sort of get in the mud working versus bringing in someone senior. There’s a time for that. But I think, as you say, for seed series A, early-stage companies, that kind of role makes a lot of sense. Last question for you, Harley. Looking out five years, where do you see this market and where do you see Anagram?

Future of Security Awareness Training

Harley: I think that the current incarnation of security training disappears. I think it has to. One of the nice things about the way the current compliance frameworks are written is that they’re actually very vague. They just say, “Well, you have to train your employees annually on security relevant to their jobs.” That’s pretty vague. And what that has meant so far is we’ve done the lowest hanging fruit like, “Okay. Well, we’re going to give employees annual training about security,” and it doesn’t work.

And I think that as AI attacks become more sophisticated, so as these emails, that phishing farms can create become more personalized, become higher quality, become more relevant, the email security platforms are going to struggle to detect that as effectively and struggle to prevent those from landing in employees’ inboxes. I think we’ll see it with AI language models and these tools that we’re using. Even companies that are banning them outright, they’re still getting a ton of data leaked into them because employees are just putting it on their phone or taking a screenshot of the code and loading it into ChatGPT.

These are all stories that I’ve heard. And AI is just this kind of massive tailwind towards the humans needing to become better at detecting and preventing these security breaches, right? Already, humans account for 70, 80% of the number of breaches that big enterprises face. I think that number is just going to get higher and higher and higher because the tools that attackers are used get more and more sophisticated.

And so, the only way that we can solve that is to actually create behavior change and actually impact the way that users think about security. And for us, as I say, annual training is not a way to do that. And so, that’s where we are really focused on innovating in terms of both the simulations and the tests that you can use to train your employees, the format of the training itself, and then also ultimately the workflows, and getting into those workflows, and pointing them in the right direction.

Vivek: It’s awesome. Well, Harley, this has been great. We’re so excited to be on this journey with you. It’s a pleasure to have hosted you here, and I’m excited for everything you do in the future. So thank you again, Harley.

Harley: Awesome. Thank you for having me.

In this Founded & Funded episode, Madrona Managing Director Soma Somasegar sits down with Charles Lamanna, corporate vice president at Microsoft, to unpack his journey from startup founder to corporate leader. They dive into what it takes to build a successful AI-transformed organization, how the nature of business applications is evolving, and why AI agents will fundamentally reshape teams, tools, and workflows. This conversation offers a tactical AI adoption playbook—from “customer obsession” to “extreme ownership”—as Charles delivers insight after insight for startup founders and enterprise leaders navigating the age of AI.

They dive into:

• Why business apps as we know them are dead
• How AI agents and open standards like MCP and A2A are reshaping software
• The shift toward generalist teams powered by AI
• What startups are doing today that enterprises will follow in 3–5 years
• How to focus deeply on a few high-impact AI projects instead of chasing 100 pilots

Listen on Spotify, Apple, and Amazon | Watch on YouTube.

This transcript was automatically generated and edited for clarity.

Soma: Now, Charles, you came back to Microsoft when Microsoft decided to acquire your company, MetricsHub. How was that sort of entrepreneurial experience, and then transition back to a large company? Any learnings that you want to share that you think other founders or entrepreneurs might find interesting or valuable from your experience?

Charles: Absolutely. From my time on the outside of Microsoft, there were two big things that I learned and internalized in a profound way. The first is true customer obsession. That means even if you’re the engineer writing code, really understanding exactly how your customers use your product, what problems they’re trying to solve and what they’re looking to try to get out of it. That obsession has followed me since then, and I’ve really tried to bring back and inject deeply into Microsoft.

We do things like customer advisory board. We had one a couple of weeks ago with a few hundred customers came to town, and we have great quantitative analysis of how people use our products, where they get stuck, what our retention and funnel look like. Those are things that sometimes you forget or lose in a big company like Microsoft, because you have this amazing go-to-market arm, and you can make money even if maybe you aren’t delighting your customers. That has been a huge change. I think, of course, any startup is not going to be successful if they don’t really understand their customer and the pain points they’re going through.

The second thing is this idea of complete ownership, and when you have this sense of complete ownership, it doesn’t matter who’s responsible for doing something, if it’s necessary for the product or the business to be successful, you do it. And that is the biggest separation from a big company and a startup because in a startup, you don’t look around and say, “This is somebody else’s job.” It’s your job. If you’re a founder, everything is your job. Whether that’s responding to a customer support request, figuring out how to set up payroll, or doing financing. All of that is part of the job, and you never second-guess it. You never think for a second, “I need to hire someone to do this, or this is somebody else’s problem.”

That’s another thing, as you go into a big company like Microsoft, sometimes it’s easy because there’s such a robust support framework around you. You’ll say, “Oh no, I don’t do marketing, I don’t do finance, I don’t do this selling process.” Bringing back that extreme ownership has made it so much easier to create these successful businesses inside of Microsoft over the last 10 years. Things like Power Apps and Power Automate, they’re really expanding Dynamics 365. It’s that sense of total ownership.

Soma: I love those two things, customer obsession and complete ownership. Thanks. As I was just mentioning, Charles, we’ve heard Satya or Microsoft publicly say this on many occasions, like, “Hey, business applications as we have known them are dead.” We know that with AI, there is a tremendous amount of re-imagination of what business applications could mean or could look like that’s happening, including places at Microsoft. How do you think about this?

Charles: As the guy at Microsoft who works on business applications, sometimes the truth hurts, but business apps as we know it are indeed dead. I think that’s just the truth of it, and the analogy I always make is, it’s going to be like mainframes. I’m not saying tomorrow there will be $0 spent on CRM and ERP and HCM inside the enterprise. People will probably spend the same amount of money they did before, maybe a little bit less. They’re not going to do any innovation or any future-looking investment in that space because a system of record designed for humans to do data entry is not what transformation is going to look like in the world of AI agents and AI automation.

Instead, what will probably happen is you’ll see this ossification of these classic biz apps, the emergence of this new AI layer, which is very focused around automation and completing tasks in a way that extends the team of humans and people with these AI agents that go and do work. And if I kind of break it down, what’s in a biz app, I always have thought there are basically three things. It’s a basic form-driven UI gooey application on mobile and the web. It’s a list of things, and you can drill in and edit the individual things, whether it’s orders, or leads, or sales items. It’s a set of workflows that are statically defined, which codify how a lead goes to an opportunity, or how you close a purchase order. Very fragile, not dynamic.

Then it’s some relational database to store your data. That’s what a biz app was. Those aren’t the three elements of what a business application is going to look like in the future. Instead, it’s going to be closer to business agents. You’re going to have a generative UI, which AI dynamically authors and renders on the fly to exactly match what the person’s trying to do. You’re going to replace workflows with AI agents, which can take a goal and an outcome and find the best way to accomplish it, and you’re going to move from static relational databases to things like vector databases, and search indexes, and relevant systems, which are a whole new class of technology. When we fast-forward 10 years from now, you’ll look at those two things and it’ll be so clearly different, but right now they’re just beginning to separate. The gist of it is yes, indeed, biz apps, the age of biz apps is over.

Soma: When you mentioned forms of UI, in our workflow and database, you literally transported me back to my VB days.

Charles: Yes, yes.

Soma: Those were the things we were thinking about to help democratize application development. The fact that 20 years later we are still, at least today’s deployed application world is, tells me it is time for some disruption and some innovation.

Charles: Yes, exactly. I always joke, if you go and you look at a biz app that ran on a mainframe, it looks remarkably similar to a web-based biz app of today. That’s not going to be true in 10 years.

Soma: Whether it was the internet wave or the mobile platform wave, it always takes several years, many years, before you would find what I call canonical applications that define what the platform is capable of. In the AI world, I sometimes wonder whether that is still ahead of us as opposed to behind us. For all the hoopla and excitement that the world has seen around ChatGPT, that’s one sort of AI app that has gotten to what I call some critical mass in terms of adoption and usage.

Now in the startup world, there are a bunch of others like Perplexity, Glean, Cursor, Runway, Typeface, and a whole host of other companies that are getting to some level of critical mass. Some of these applications are targeted at consumers, some of them are targeted at enterprises, and some of them have aspirations to go both directions. What do you think is going to be the time when we can look and say, this is what a modern business application is going to look like, and throw away all the mental models you have about what that could be? Do you think it’s around the corner? Do you think it’s a few years away? What do you think?

Charles: I think we’ll see what the shape starts to look like very clearly in the next 6 to 18 months. I think because you already have glimmers of it, and then I think it’ll take longer to be mainstream. The refresh cycle of biz apps and core business processes takes a little bit longer, but in my mind, by 2030, this will be the prevalent pattern for business applications and business solutions. And in the next 6 to 18 months, you’ll really have it codified.

We can look to some of the places that have moved faster, like I’ll use Cursor as a great example. If you take Cursor, it’s a AI-powered application, tailored to provide an entirely AI-forward environment for a coder or developer. If you think about that, there’s the same type of work that happens for sales, or customer service, or core finance, like if it’s budget analysis, or reconciliation, or for core supply chain. You’re going to see things like Cursor or GitHub Copilot show up for each of those disciplines and be extremely tuned to take what people used to do and reimagine it with AI.

Just like how you have things like vibe coding, you’ll have vibe selling, vibe marketing, and vibe legal work. Those things will all show up. There are great companies out there. Harvey is a great company on the law side. There are a lot of companies that are emerging that are starting to do that. And of course, I’m biased. I think we have a lot of great stuff at Microsoft. We have very broad adoption of our Copilot offerings, but I think we’re going to see that fill out by industry, by business process, and by function.

The last thing I would say, which I think is probably one of the more interesting elements of all of this, is right now we’re taking the way organizations are structured and just mapping them to this AI world, right? Oh, you have a sales team, so they need AI for sales. You have a customer support team, you need AI for customer support. I don’t know if that will be what the world looks like at the end of the decade. You’ll have new disciplines, and new roles. Maybe you don’t have sales and customer support as two divisions. Maybe it’s one. Maybe sales, marketing, and customer support all become one role, and one person does all three. I think we’re going to reason through that, and that element is what will probably take the longest. We’ll probably have a wave of great technology for the old way of working that have new ways of working. Then another second wave of great technology, but all I know is it’s definitely going to be an exciting couple of years.

Soma: Your last point particularly made me think about this, Charles, instead of AI for sales, and AI for finance, and AI for this, and AI for that, do you think people are starting to think about, hey, what do people need to do in a company to get their job done, or to get their work done and start thinking about workflows that may or may not stay within a particular function or a particular discipline and cross discipline? Do you think there’s enough of that push that’s happening already, or is it coming in the future?

Charles: It’s very early. I mean, what’s amazing is that startups are doing this because startups, in a world where you have extreme ownership and you have to do whatever it takes to succeed, you don’t feel constrained by disciplines and boundaries. If you want to see where the enterprise world or where mid-size companies are going to go in three to five years, look at what startups are doing right now and that’s exactly what they’re doing. Different structures, different ways of working, and there are two things which I think are going to really drive a lot of this transformation.

The first is, these AI tools bring experts to your fingertips. As a result, you can be a generalist with a team of expert AI supporting you. That’s how I feel every day. I have an agent that helps me with sales research. I’m not a salesperson, I’m an engineer, but I don’t have to go out and talk to a salesperson to get ready for a customer meeting. I have a researcher agent, which helps me prepare and reason over hard challenges. I have a document editing and proofreading agent, which makes me a better writer. I have all these tools, which make me more of a generalist, kind of overseeing these set of AIs. What that translates to is probably de-specialization in the enterprise, de-specialization in companies where you have less distinct roles and disciplines, more generalists powered by AI. That’s item one.

The second thing is, what makes a team? We always think a team is a group of people. The big change is that the team is a group of people and AI agents. That’s really how we need to start thinking about how we organize organizations and companies, and how we even go out and do hiring. If you think about who you work with, you’ll start to, increasingly I think of it as — here are the people I work with, and here are the AI agents I work with to get a job done. That means you have meetings, you have calls, you have documents you work on together. Those two things will help drive that transformation. It’s not like a startup sits down and says, “How should we structure ourselves for the future?” They tackle this problem, that problem, that problem in the best and most efficient way, and it happens to look like that. So that is, I think, probably a lot of the changes that we’ll start to see.

Soma: You talked about this notion of, a team as not just a bunch of people, but a bunch of people plus a bunch of AI agents. Can you take it one step further and say, hey, every information worker or knowledge worker is really a human being plus a bunch of AI agents at their disposal? Is that a good way to think about it?

Charles: Absolutely. The way we approach it is every individual contributor, everybody who individually does work, will increasingly become a manager of AI agents who do the work. We have a thing we talk about internally at Microsoft, which is in the past we built software for knowledge workers to do knowledge work. In the future, probably most knowledge work and most information work will be done by AI agents. And a knowledge worker’s main responsibility will be the management and upkeep.

Soma: To orchestrate and manage.

Charles: Exactly. That’s where you get this idea that you can be much more of a generalist and an expert, and this is how you get a huge productivity gain. You’re not talking about, oh, I’m 10% more productive or 15% more productive. We all are going to have entire teams of AI agents working for us. We can be 5 or 10 times more productive if you get that right, and that’s what gets me excited because that’s what starts to change the shape of the economy and really create abundance of doctors, lawyers, software, and all of those things.

Soma: People fondly refer to 2025 as the year of agentic AI. First of all, do you agree with that? How do you see the role of agentic AI or AI agents as far as the next generation of business applications go?

Charles: It definitely is the year of agents. Everyone I talk to, from the smallest to biggest company, understands what agents are and they want to get started with deploying agents in their enterprise. You can see, you have Google with Agentspace, you have Salesforce with Agentforce. We have plenty of agents at Microsoft in and around Copilot. OpenAI is talking about agents, Cursor is talking about agents, everybody’s talking about agents.

It very much is beginning to diffuse — kind of like how 2023 was probably the main year of chat AI experiences on the back of ChatGPT and Copilot’s launch, that’s what 2025 will be, but for agents. Business applications, in particular, are going to be the ones most changed as a result, and I think you’re starting to see it. Every company I work with tells me, “I’m excited by business applications with AI, that’s great, but I really care about business agents. Tell me how I can get agents deployed in my back office, in my front office? How can I grow revenue, cut costs, using agents?” That is a new conversation, which to me means it’s the era of agents.

Soma: We’ve gone through a major platform shift almost every decade or so, and sometimes during this platform shift, every major player would go off in their own direction, trying to figure out what it means for them and what they can do with that kind of thing. If you go back to the internet platform way, you could argue that HTTP was something that sort of came in pretty early on, and everybody adopted and said, “We are going to be behind this kind of thing.”

Similarly today, when I think about this agentic world, I look at a protocol like MCP, or a protocol like A2A, and see a tremendous amount of industry consolidating. In fact, the thing that surprised me is that Anthropic, in MCP’s case, came out with MCP, and within a few months, pretty much anybody that mattered talked about how they’re all in on supporting MCP and came out with their own offerings. That level of industry consolidation around something is both exciting and fantastic. How do you see that?

Charles: It’s probably 30 years since we’ve had such an industry-wide convergence on an open standard, back to really the original open web HTML, HTTP, and JavaScript. It’s incredible because that means more opportunity for startups because there’s really not some strong incumbency advantage, as a result of open standards. Also for customers. I can buy 10 solutions, 10 different AI agents, and I have confidence that they’ll work together. Even at Microsoft, we support A2A. We’ve announced that a couple of weeks ago. We have MCP support for a couple months, and we’ve even contributed back changes to MCP that have been accepted and merged with a bunch of other companies for authentication to make that work well with MCP.

This is going to be great because a typical company has so many, say, SaaS applications and databases today. In the future, they’re going to have a ton of these different agents and tools for agents. That’s what the future is going to look like. If you think about what it’s like to be in an IT department that has 300 different SaaS apps, it’s so painful to integrate them. I don’t think it’ll be as painful in this world of MCP and A2A and that’s huge opportunity for lots of these startups, which can be so fast and agile using these AI tools and can interoperate with the big footprints that exist in a typical user’s day, whether it’s consumer or commercial.

Soma: I want to go back to one of the earlier things you talked about, which is customer obsession. You mentioned that you had a customer advisory board, and a couple of hundred customers come through. When you talk to enterprise customers, where do you think they are in the journey of adopting AI, whether it’s in the form of business applications, next-generation business applications, or Copilots, or what have you? Do you think they’re in the early stages, mid-stages, or later stages, and what are you hearing from them?

Charles: It’s a big spread out there right now. Some companies are almost like a tech company in terms of how aggressive and ambitious they are with the AI transformation, usually that comes from a very top-down investment focus from the CEO, the board, plus having business and IT and tech resources equally engaged. A lot of companies are very early, and they’re looking for that first big win. Maybe they have a few POCs, a few prototypes, a few experiments. They don’t have that big top line or bottom line moving win.

What’s interesting is that if you went back a couple of years ago, it was all about building things yourselves. Everybody had dev teams calling APIs and using models. We’re coming out of that because people realize how hard it is to assemble these things and get business outcomes. It’s the era of these AI finished solutions, whether that’s in an agent or this new type of AI application like Cursor. That is starting to be the main place that companies are looking to get that value quickly. If I were to take a step back and maybe do a pattern match of what are we seeing for companies that are being most successful, enterprises that are being most successful, the three main things when it comes to the AI transformation.

First, they’re being very focused on driving real resource constraints into the organization to drive productivity improvement. If your budget grows every year, you don’t feel a lot of pressure to improve your unit performance inside the organization. That’s a hard thing to do, particularly if a company is growing. The second thing is having a big focus on democratizing access to AI. Companies which are struggling are the companies that don’t have AI in everybody’s hands every day.

If you want to become an AI-transformed company, the only way to do it is all of your users, no matter where they are, technical, non-technical, need to be picking up and using these tools each and every day. If you don’t have that, people will have dreams of the magic AI can do, which isn’t grounded in reality, or they’ll be unnecessary skeptics for future projects. Get AI in the hands of everybody. The third and last bit is don’t spread yourself a mile wide and inch deep. For companies that are successful, they don’t do 100 projects, they do 5 projects very well with a lot of force and with continuous improvement in mind. That’s kind of what I see as showing up as the most successful enterprise organizations.

Soma: That’s great. Did you hear the Shopify CEO make a prompt from a few weeks ago about how everybody should be thinking about AI?

Charles: Yes.

Soma: That dovetails with what you’re saying about, hey, make sure that everybody has access to AI tools?

Charles: Exactly. I go out and tell my team, “This year, you won’t be promoted unless you use AI tools if you’re an engineer, because how can you really say that you’re on the cutting edge of AI software development if you yourself are not using AI?”

Soma: That’s great. Charles, earlier on, you talked about customer obsession and complete ownership. Some of the learnings that you had from being a startup founder to coming back to Microsoft. Going hand in hand with that, how do you think about agility? One of the things I worry about, and I was part of Microsoft, so I can sort of say that I’ve been there, but as the company gets larger, sometimes you sort of wonder whether the agility is what it needs to be, the level of urgency is what it should be. How do you encourage your teams and Microsoft to say, hey, I want to operate with the same level of urgency and agility that a startup does?

Charles: There’s three big things that we’ve done to help instill that. The first is, for the most intense period since I’ve been back at Microsoft, it’s mission-oriented. Everybody understands what the mission is. All of our software, all of our technology, all of our products is going to be completely disrupted by AI. Do we want to be the people who watch that happen, or do we want to be the people who do it to ourselves? The energy is off the charts. I’ve not seen folks at Microsoft working as hard and pushing the limits and boundaries and innovating in the last 10 years I’ve been there, as there has been over the last couple of years. That’s kind of item number one.

Number two is when you’re in a big company, there’s always this incredible inertia and this incredible layers of bureaucracy, and process, and layers of decision makers, and consensus building that slows everything down. That’s where extreme ownership and this desire to grind through anything is really critical because anything you want to do, if you want to innovate, there’ll be 100 reasons why you cannot do it. You have to find the one reason why you can and how you can, so that extreme ownership grit to really push through all these barriers to go be successful.

And the third piece is really encouraging experimentation and being willing and rewarding failure if it produces learnings. We have these interesting forums at Microsoft where folks will come in and say, “Here is a product experiment we’ve done, or here’s an AI model experiment we’ve done.” We have these every week and they share good or bad. Here’s what we tried. It didn’t work for these reasons. Here’s what we tried. It did work for these reasons. It’s almost like the cloud post-mortem culture that you had to develop with repair items and a blameless post-mortem.

It’s this continuous experimentation, innovation feedback loop around model and AI products, and doing both of those because those are both equally important, is how we’re really starting to drive this culture of, it’s not build a plan for six months and we’re going to run the plan no matter what. It’s build an experiment, run it in a day, learn, run it another day, learn, because that’s what all the good AI companies are doing. Those are just a few of the things. If you look at the pace of innovation, Microsoft is definitely moving faster than we’ve ever moved before.

Soma: That’s a super helpful framework to think about, as teams and organizations are thinking about how do they operate with the same level of urgency or agility that is required in today’s age. It’s not a nice to have or hey, yeah, someday I’ll do it. If you want to survive and if you want to be ahead of the curve, you need to do it today. Now, coming to the personal side a little bit, Charles, I’m sure AI is impacting your life in a positive way, whether it’s at work or outside work. Are there one or two tools that you use on a daily basis, and can you talk a little bit about what those tools are and how they change what you’re doing?

Charles: I will exclude all my Microsoft tools that I use all the time, in the interest of being different a little bit, because I use a bunch of those, and one of my favorite features that have been released lately is the deep research functionality. Between o3 and Deep Research, you can get some amazing insights. A big thing I like to try to do is really have a good view of the market to try to find blind spots. What startups are out there being successful, and how are the big competitors doing when they do their earnings, announcements, or conferences?

What I can do with Deep Research is I can basically have a very specific question, and I run this basically every week. I’ll give an example, help me understand the financial performance of business application companies, and who is accelerating versus decelerating, and what are some interesting facts and terms around usage that they’ve announced. I can basically describe this nice little big healthy prompt, send that off, come back 10 minutes later, and I get a beautiful little view. This is a way that I stay on top of what’s happening in the market every week. In the past, I could do this by reading various places, Hacker News, and on X, and stuff like that. But this gives me a really in-depth view report, almost as if I truly had a competitive researcher full-time doing work for me.

That has been game-changing and my poor team is probably tired of me sending screenshots to these reports because I use that for a lot of public information. Second thing is, I’m a big user for image generation tools. I have subscribed to Midjourney. That’s just so much fun because I never was a great artist, but I’d say I can create lots of fun images and pictures and I share them with family and friends. That’s kind of like a relaxing thing for me to do. And I don’t have Photoshop. I would never have opened up and drawn free form, but I can have that feeling of creation and creativity in a way I wouldn’t have before. It’s interesting. It’s a new kind of hobby, a new accessibility. Again, back to the generalist specialist thing, I’m definitely not a specialist artist, but I can use AI.

Soma: It’s a good outlet for your creativity.

Charles: Exactly, exactly.

Soma: That’s fantastic.

Charles: I cannot wait for companies like Runway, as they mature capabilities to be more than just images to videos. I can’t make a film or a movie today, but I bet in the next 10 years I’ll be able to make a 60-minute film, like really. So that’ll be fun.

Soma: That is great. On that note, Charles, thank you so much for taking the time to be here with us today. I really enjoyed the conversation, and we took it in multiple directions, and it was fun to be able to hear your views, your perspectives, and your experiences. Thank you so much.

Charles: Thank you for having me.

Entrepreneurs often ask: When do I know it’s time to scale? Or, how do I lead when I wasn’t the original founder?

In this week’s Founded & Funded, Madrona Partner Chris Picardo sits down with Eleanor Lightbody, CEO of Luminance, who shares how she took a promising AI product and built a company culture, go-to-market motion, and product strategy that’s scaled 6x in just two years. Eleanor’s candor and tactical insights on hiring, selling, and navigating founder dynamics make this a must-listen.

Listen on Spotify, Apple, and Amazon | Watch on YouTube

This transcript was automatically generated and edited for clarity.

Chris Picardo: To kick things off, I think it would be great to just talk a little bit about your career journey. How do you go from a cybersecurity account manager at Darktrace to the CEO of Luminance?

Eleanor Lightbody: I think to understand that, it’s probably worth going way back. I was reflecting on this the other day, I grew up in a household where my mother was an entrepreneur. She started a small business that has grown massively and I saw that when I was growing up. And my father’s a lawyer. Reflecting on it, and looking back, I’m like, “Oh, matching, kind of mirroring entrepreneurship and working in the legal space.” It feels like a given now.

I started at Darktrace when I was fresh out of a post-grad, and I chose Darktrace for a few reasons. The first one was that it had some seasoned investors, and it felt like they had built and grown quite established companies before. I was going to be one of a handful of people in the London office. It felt like it was an opportunity to work for a company that had the potential to scale very fast because what they were offering was appropriate to every single company in the world.

I’m pretty glad that I did. I had a few offers on the table, but I’m very glad that I did because I joined when the company was super small, probably 50 of us globally, if that. I left just before the IPO, and recently the company was bought by Thoma Bravo for over $5 billion. I set up the African operations. I was the first one on the ground to open up that market. Then I went on to run a global division that looked at securing national critical infrastructure, and the investors of Darktrace were similar to those at Luminance.

I got a phone call over five years ago, and it was like, “Hey, our portfolio company’s doing something really interesting. Would you like to join them?” And I thought, “What do you mean? Join them? I’m like meeting the company.” I had to clarify that with them. I’d actually known the founders at Luminance from afar for a while. After speaking to them, I wasn’t thinking about leaving Darktrace, but actually,y it was a very quick yes and an easy yes, because the opportunity that Luminance had was absolutely massive. And so I thought, “You’d be crazy not to say yes to this.”

Chris Picardo: It’s so interesting. It’s got to be a great phone call to get to be like, “Hey, do you want to go do this really fun thing at another exciting company?” One quick question I wanted to ask that you mentioned, which I’m curious about, is you said when you joined Darktrace, it felt like it was ready to grow really fast. What does a company feel like when it’s ready to grow really fast? I know that sometimes you get that feeling, sometimes you don’t. What resonated with you when you were like, “Okay, this company is ready to go.”

Hear from Eleanor during
the 2024 IA Summit.

How to Know When an AI Startup Is Ready to Scale

Eleanor Lightbody: That’s exactly why I joined Luminance, because I was like, “They’ve got these foundations and they have this ability to scale.” I think it’s a combination of things. One, it’s like— how big of a problem are they addressing? Are they thinking about the problem in a different way? This is when I’m talking to founders. Is there deep expertise in the technical team, and do they have a real sense of what they’re trying to deliver? Those are the key elements that I was always looking at.

But fundamentally, ideas change, they permeate. I think any successful company experiments a lot. It’s not necessarily about the product today, but it’s about the team today and the way that they think about things. Then alongside that, it’s like, do they have that energy? You know when you walk into a room and you’re like, These people want to build, and they are competitive, and I feel like there is no Plan B, but success. Those are all of the things that both Darktrace and Luminance have shared.

Chris Picardo: It’s sort of like that drive that you are going to build this product because you want to win and you want to see it out in the world and fulfill your vision, and that is what’s motivating you as being part of the company.

Eleanor Lightbody: 100% and nothing’s going to stop me.

Chris Picardo: Obviously, you’ve had that feeling twice and both stops have been quite successful, so it must be a great feeling to have. When we talk about Luminance, you’ve done something obviously a little bit different than a lot of people’s journeys, which is stepping into the CEO job. Talk a little bit about what that experience was like. The founders are still there. There have been a couple of other CEOs. How did you think about that? How did you navigate the dynamic? What was that broader experience like?

Navigating Founder Dynamics as a Non-Founder CEO

Eleanor Lightbody: When I first joined, it was a combination of a tiny bit of naivety, which I think is actually really good. As we grow up in businesses and get more and more experiences, one of the key things is to try and keep a bit of naivety because that can help you take on these hugely daunting tasks that in time we slightly get a bit wary of. I was excited, and I was daunted.

I look back on it and it’s quite funny. One of the pieces of advice that I was given from one of my mentors was, A, it’s going to be really hard. I didn’t think I knew how hard it was going to be, but I was like, “Okay, cool.” The second one was, “Look, you want to join a company and within the first few weeks you’re probably going to want to change so much. Get a piece of paper, write everything down that you want to change, put it in a cupboard, and don’t look at it for four weeks. Don’t change anything for four weeks and then revisit it. You’ll start to understand why some of the things you might not need to change or why they are a certain way.”

I didn’t listen to that very well, and I think for a good reason. Regardless of the circumstances, they’re bringing you in. The most important thing to set the scene is to have very frank conversations upfront to say, “This is what I can bring. These are the things I can bring.” For me, when I joined Luminance, there was so much that could be done to mold the commercial teams and to change the way that the company was thinking about how to go to market.

It felt like I could sit with the founders and say, “This is what you guys are doing, this is what you should be doing. Let’s do it today.” And they were like, “Oh, wow. Okay.” Then, having a few metrics to show early signs of success can help you bring the founders on that journey with you. From the outset, my piece of advice to anyone going in is, “Know where your strengths are. Don’t try to boil the ocean from day one.” They’re stuff from that list that I wrote, and I haven’t changed, and know where your finer strengths are. For the first few months, figure that out. Be very upfront in your conversations, be very transparent, and then you’ll start to build a lot of bridges.

Chris Picardo: It seems like when you bring in a new CEO, obviously, one of the reasons you might do it is because you want a change agent. You have to be nuanced and thoughtful about how you want to go about getting buy-in and team-wide enthusiasm about the change that you’re bringing.

Eleanor Lightbody: Yeah, exactly. Being thoughtful and mindful are really, really key things.

Chris Picardo: One thing I hear a lot from CEOs, people who’ve been CEOs, people who’ve worked with a lot of CEOs, is it’s kind of a job. There’s no job description around being the CEO, and it’s not like, “Oh, here’s this great training path to becoming a CEO because it’s a very different type of role than anything else in the company.” Is that your experience as you sort of transitioned into the seat, that maybe your expectations around what a CEO does or what people externally think a CEO does is kind of different from what they actually do?

Eleanor Lightbody: I think everyone thinks that a CEO does something different. If you were to take a general survey of the market, I’m not sure that you would get consensus at all. I don’t think I knew what I was getting myself into, and I mean that in a very positive way. The rate that we’re growing, a lot of CEO’s roles change and they morph. I used to say every month felt slightly different.

The rate of innovation and the speed of scale each week are the key thing, for successful CEOs are a few things. One is being able to understand the vision, being able to understand the 10,000-foot view, but also to be able to parachute in and understand the problems and think about things from the first principle basis to then help fix them. The second thing, and the most important, I have this opinion, very biased, but I think it’s — focus.

As a CEO you can be pulled in so many different directions. All the teams can benefit from having you in the conversations. What are the most important things that day, that week, that month, that year, the next few years? And to try and be very regimented in that. I also think part of my role is being a bit of the hype person for the business, you know? Like going in every day, leading by example. There are other CEOs who might not necessarily agree with that. It really depends on the company, what’s required at that given time, and adapting to it.

Chris Picardo: Being able to figure out what the company needs at any given time is one of the key things you have to be able to do. It’s probably a good time also to talk a little bit about that in practice at Luminance. You stepped in and were able to really massively change the growth trajectory of the company. I’m both very curious about how you did that? But also, I think it’s a good time to spend 30 seconds on Luminance and what it is and why you were so excited about it being able to really put the company on such an incredible growth trajectory.

Scaling Go-to-Market: From Law Firms to Global Enterprises

Eleanor Lightbody: If you think about it as we sit here right now, there will be teams in every corner of this world who will be receiving legal contracts. They’ll be reviewing them, they’ll be processing them, and they’ll be deciding what to do with them. As that stands, it’s very time-consuming, it’s expensive, it’s prone to human error, and it’s costly. What we do at Luminance is that we automate that process end-to-end.

Our customers are pretty much any company of any size, whether that’s someone like AMD or DHL or Hitachi, all different industries who are using us for every single interaction that they have with their legal contract. When I joined the company four years ago, Luminance was only selling to law firms and they had done a really good job. They’d sold to a quarter of the top hundred law firms.

When I came in, I was like, “This platform’s so powerful.” Their addressable market is so much bigger than just law firms. One of the things that we did very quickly was we used the underlying AI models and technology, and we built a whole new workflow and platform to be much more directed at in-house legal teams. That was one of the bets that really paid off because we saw that sales cycles were much faster, the time to value was much faster. That product in itself has grown its ARR 6x over the last two years.

And, again, going back to what I did very quickly when I joined Luminance, I’ve got a sales background. I came in and I asked the teams, “How many fast meetings have you got? How many POVs?” We do free trials. “How many free trials are you running? How many cold calls are you making?” All this stuff. There was a bit of a disconnect of what was expected from the sales teams versus what sales teams should be delivering.

The sales teams have been ex-lawyers. I was like, “Wait a second, we need a lot of lawyers in the company to help build the product, help understand the use cases, help be subject matter experts, but the one area that we do not need lawyers is in selling, because selling is slightly different. Give me a graduate who’s 21 and I will train them how to sell, as long as they understand what we’re doing.”

We changed the whole hiring process, the whole structure. I very quickly promoted two very young, at the time, account executives into more leadership positions, into mentor positions. I remember some people saying, “They’re very young, they don’t necessarily have enough experience.” And I was like, “Give me someone who’s young and hungry and I will help train them into what they need to be.” They’ve become two of the most successful people in the business. That was one of the moves. Adapting the product, it wasn’t really changing it was adapting it and totally changing our go-to market for two areas that were really important to do first thing.

Chris Picardo: You just gave a very condensed master class in both positioning your product and then figuring out how to sell it. One of the things we were joking about in our prep call, I guess a couple of weeks ago now, was people love to say, “If you’ve got a great product and AI, it’s just going to sell itself.” I think we were both laughing because that is definitely not true. Certainly, some companies have been able to figure that out, but I think for the most part, you have to map a great go-to-market strategy with a great product strategy, right? Those two sort of work together.

Eleanor Lightbody: I totally agree. By the way, any company that has been able to do that, hats off to you. Kudos to you. High-fives to you. I want to talk to you. Great, amazing. But that, as a founder, as a CEO, is not necessarily what you should be solving for. If that comes organically, brilliant, amazing. But there are still some key things that might not necessarily last till the end of time.

So understanding your product and understanding distribution, of course, you’ve got to have innovation at the heart of it. You’ve got to have a really solid understanding of the problems that you’re trying to address and how technology can help. If you don’t know how to go to market to it and you don’t know how to take customer feedback, and the key thing is that taking the right customer feedback and prioritizing it, again, is I think so important when you’re scaling business.

Chris Picardo: That’s an interesting point that you want a lot of customer feedback, but you also need to prioritize the customer feedback around what moves the needle and what is useful and interesting information, but maybe not as high on your priority list.

Eleanor Lightbody: Exactly. Everyone talks about customer feedback. It’s important that customer feedback is crucial, don’t get me wrong, especially depending on where you are in your product development cycle. If you’re early on as a company, then what we found super successful or to be super successful was choosing. We were very lucky that two very big companies, early on, were like, “We’ll become design partners with you.”

We said yes to them, but actually no to some others because we felt that the use cases that they were trying to address with our technology and what they were trying to build with our technology could relate to companies around the world of all different sizes. So we were like, “We’re going to go with you guys.” And I think finding some early design partners can be super useful.

Then obviously, as you get more and more customers, the key is two things. The first one is prioritizing customer feedback. I have friends in other areas and other businesses who, as time goes on, they remove themselves from the customer. For us, it’s so important to be even more ingrained with the customer because you get so much valuable information there. But, again, having a system where the feedback loops really fast and you can see if the same feedback’s coming across from all of your customers, those are the ones that you need to really focus on versus a customer saying, “Can I put my logo on it or can it be yellow rather than blue?”

Another mentor of mine told me early on, and I didn’t really get this because in sales you’re like, “Yeah, yeah, we can do this, this,” But when you’re running a business, the power of, no, when you’re talking to customers. Saying, “No, we’re not going to do this and there are some reasons why we’re not going to do this.” Most often than not the customers say, “Okay, cool, that’s fine. It was just an idea.” Actually, if you overpromise, then that’s when you find yourself in a bit of a wrap rate, like a hamster wheel of trying to always catch up and that’s not necessarily a place that you want to be in.

Chris Picardo: Then you’re customizing for every customer, and it’s a problem, right?

Eleanor Lightbody: Then the amount of when you’re upgrading, not somewhere that you necessarily want to be. The second thing is around, we have a team that focuses on customer feedback and product, but we also have our blue sky thinking team because sometimes customers can identify lots of things that they want and for you to kind of help them with. They might not necessarily see around the corner, they might not see the potholes. We’ve got a team very much focused on what can’t we do today that we might be able to do in six months time, in a year’s time.

The capabilities of these models are getting better and better and better. That’s no secret to anyone. They’re getting cheaper and cheaper and cheaper. How are we building for the future? Metaphorically, they’re carved out into a separate room because I don’t want them to get too distracted by the noise of the daily operations. I want them always to be thinking about innovative, cool, different end-use cases.

Chris Picardo: I was so curious to talk a little bit more about this concept that you have around, I think you call your innovation team, the jet pilot team. Then you’ve got the core team. I know a lot of founders and CEOs always try to think about how to balance innovation versus core product delivery and what are the ways to do it? You’ve been successful at doing that. How do you think about managing that on a day-to-day basis and having those two different groups working in concert with each other?

Inside Luminance: Running a Dual-Track Product & Innovation

Eleanor Lightbody: It’s always a bit of a balancing act. For us, one of the pillars that a whole company is based off of is innovation and speed. I think that to be competitive in this market, you have to build very, very fast. You can only do that if you’ve got a team that really understands the impact of what it means to build slowly, actually. There are areas that you need to build slowly, don’t get me wrong, but there are new value-adds, features, use cases, and modules that you want to get out there. It’s seen as a classic like 80/20 rule. We’ll get it out there and see what the feedback is, choose a few customers to go live with, and then you can iterate on it and fly.

The way that we’ve got our teams to buy into this is that they’re the ones talking to the customers. They’re the ones who developers will build something, they’ll sit in and they’ll see the impact and historically they’re siloed away and they’re like, “Oh, but why do we need to build fast? Why does this matter? Let’s make sure that we’re getting it totally right before we push it out.” My argument always to them, and they only started believing this when they saw it, was you don’t know what’s going to really work. You actually have no idea.

We might think in isolation that something is going to land really nicely, but more often than not, sometimes the things that we don’t know are going to land are the ones that people really, really like. So just get it out there. A terrible analogy, but it’s like throwing mud at the wall and seeing what sticks. Throw as much mud and see what sticks, and then you can iterate really quickly on that.

Chris Picardo: Are you able to earn your ability to do that because you’re so close to your customers and able to gain that trust? I think you said something interesting, which is the 80/20 is okay to launch some of these things and be iterative and to get new product in front of customers quickly. Did you earn your way into doing that? Is that something you did? Then customers said, “Hey, this is great, right? Keep it coming.” What’s the nuance there? There are a lot of people who are like, “Hey, if I do launch something and it’s terrible, then have I blown up all of my trust?” Or do people now think it’s not a great product? I think clearly you’re saying, “Yeah, you might have a couple of those things that just don’t land.” But if you launch and you put stuff in front of customers, that’s the cycle to get the best product out there.

Eleanor Lightbody: It’s choosing the right customers. You don’t do this across all of your customer base. You say, right here, X customer. AMD is a great example. They came to us and they were like, “We love your AI for legal negotiation, but at the moment, I still have to review clause by clause.” The AI tells me whether I should agree to it or not. It gives me language that I can use instead. Still the human has to go through and say, “Yes, I agree.” Or, “No, I don’t agree.” They were like, “It’d be amazing if I could just click a button and it rewrote the whole contract for me.” We we’re like, “Okay, let’s do that.”

The first few times that we showed it to them, it didn’t get it right. We could have easily lost their trust, but it’s all about the framing and the positioning, which is like if you’re going to these development partners and saying this is a fully baked solution, then if it doesn’t work or if it doesn’t quite hit the mark, then of course you’re going to lose trust very quickly. It’s like, “No, this is something that we’re working with you on and we’re going to iterate. This is the first future version of it. Let’s continue this dialogue.” Then if you pick the right partners, they’re going to love being able to roll up their sleeves and help you with that.

Chris Picardo: You have a set of customers that are basically perpetual design partners that are happy to work with you on iteration knowing that some of it is going to be experimental and you guys will co-work on it together to land the final version of the product.

Eleanor Lightbody: The good thing is that most of the stuff, we eat our own dog food, it’s the best way to describe it. We test it out ourselves first as a legal team and we think, “Yeah, this is going to have legs on it and then we go to a few select customers. There is sometimes it doesn’t even pass getting past our legal team and we’re like, “This is a cool idea, but actually this is never going to work in reality.” Yeah, that’s how we come to that.

Chris Picardo: It’s funny because, obviously, you’re so focused on go-to-market, but you have tons of product insight on how to map the two pieces of go-to-market and the product roadmap together. That’s a hard thing sometimes for purely technical or purely product-focused founders and executive teams to be able to see how those two pieces work very closely together.

Shifting from Sales to Product Leadership as a CEO

Eleanor Lightbody: It goes back to the earlier point, which is I think I bought in very much for distribution and go-to-market. Now I spend much less time thinking about that. We’ve got a really good repeatable machine and I dip in and out of it. Now my role is very much with product and thinking about, “Okay, what are the next use cases? ” I absolutely love that.

I was talking to one of the founders the other day, and I was like, “I’m not an AI expert and I always come up these ideas.” He’s like, “Eleanor, they’re not your ideas?” Really at a high level, oh, I’ve great ideas.” Building that respect and that trust has been so great and why we’ve seen so much success.

Chris Picardo: I wanted to circle back to that question, which is, how you think about working with technical founders. I’d imagined you still might not consider yourself to be ultra deeply technical, even though you clearly are pretty technical now on a lot of this. I think Snowflake is the example people often use about very technical founders and very commercially minded CEOs, but it seems like it’s a great working relationship that you have. Are there ways that you thought about that or culturally think about that to make it so effective?

Eleanor Lightbody: I don’t think either Adam or Graham, who are our founders will mind me saying this. The beginning part that was definitely, we had to work through a few things. I didn’t know what I didn’t know, and they didn’t know what they didn’t know. The key thing is, again, I’ve done this. It’s understanding where your lane is when you start off. You’re in a room, all of you, because you are super strong at something you would hope.

We always talk about leaving egos at the door when we get together as a management team. We’re pretty blunt with each other. We give constant feedback and no one’s off the hook. I get bombarded and the founders get bombarded. When I first started I was a bit like, “Oh, wow.” Then you’re like, “No, this is exactly what success looks like.” Is that we’re constantly holding ourselves to higher standards, and we have really productive, sometimes heated, conversations, most of the time not, and that’s so key.

It’s starting where your strengths are, showing a bit of success, showing that you appreciate each other’s art. The other day I was reminiscing. When I came in, the founders didn’t really know what ARR was. They weren’t plugged into the monthly sales numbers and they didn’t quite understand that whole world. Now, the first people to text me on a monthly management call, end of the month, would be the founders. “How are our numbers this month?” They’re like, “How are the sales? What are the growth? Why don’t we win?”

I’ll be the ones asking them about new AI models. And I’ve got a bit of a competition where I’ll be like whenever this new AI model that comes out, I’ll text them, I’ll be like, “Am I the first one to know about this?” And they’ll “No, you’re still not the first one. There’s this appreciation now of each other’s worlds, and I love that.

Chris Picardo: Many of the things you’ve been saying have come back to mutually aligning the culture around a company that’s going in the same direction culturally, doing things the same way and has the guardrails up around what the culture is like. It almost goes back to the initial thing we were talking about, around feeling that energy and alignment at a company that is just, “Hey, we are scaling, we are going, this is awesome.” Iit does seem like an explanation under a lot of these topics is the cultural alignment that you’ve been able to drive and alongside obviously the founders and the team to set up this version of Luminance where it is.

It’s really fun for me to listen to stories like that, especially because I think it’s unique to do it as the non-founder. To come in and say, “Hey, maybe at this point you’re effectively a quasi-founder or a true right founder of this version of Luminance.” It’s very unique to do it that way and at that time versus, “Hey, I’m going to try to start this from the beginning because I started the company from scratch.”

Scaling People and Culture Alongside Product

Eleanor Lightbody: It comes with a lot of challenges, but also it comes with so much potential. The fact that you can join, you can change things, and you can hopefully clearly see what needs to be improved, and also what has happened, that’s been amazing, and to remind people of the amazing things that they’ve done. Sometimes they get lost in that. Then slightly change things up to make sure, you guys, you’re on the right path to the next stage of growth. I love it.

Chris Picardo: You can tell. It’s fun talking about it, obviously. We’ve talked a little bit about it, but I want to ask you, is there anything that’s been particularly hard? I’m sure there’s lots of things. Is there anything that surprised you like, “Wow, that is hard. We’ve got to go figure out how to solve.” That maybe wasn’t on your list of things you thought were going to be hard as you scale the company?

Eleanor Lightbody: I mean, it’s all hard. I don’t know, if anyone tells you it’s not great, but I’m very honest. It’s so rewarding and fun and as I said, absolutely, you’re so immersed in it. One piece of advice I would give to anyone who is thinking about stepping into this role would be, there’s no such thing as work-life balance. Leave that at the door.

If you think that you’re going to join a company, you want to scale in and you want to be successful, it’s not just you that’s going to be immersed in it. It’s your spouse or partner or your friends, you family. You are all in it, whether they like it or not, you are all in it together. I think that is important. What have I found hard? What I have found hard is, and maybe this is a bit controversial for a podcast.

I’ll be very open, which is, you really hope that the team that you have with you will scale with you and that they will learn and they will grow. Sometimes, some people don’t. As you have to, as you go through that journey, manage that. That is probably one of the hardest things that I have found in the past. So that was quite a wide awake. I don’t think you know what it’s going to feel like until you have to go through that.

What is always interesting is making sure that you’re focused because you can spend a week feeling like you’re super productive and so busy, but have you really moved the needle or have you been focused on the things that are the most important part? The third thing that I found, I don’t want to say hard, but I just hadn’t expected it. We hear so much and you read so much about how hard it is or how exciting it is and how the teams are so important in innovation. What you don’t hear or I had heard less about, is how important having the story is, how important having a narrative is. Not just for you as a company and so that everyone’s aligned to it, but also for the outside world. I think in the U.S. Marketing is amazing, and I don’t think I had appreciated the power of it until I joined Luminance.

Chris Picardo: Sometimes the English major part of my brain comes out. In another part of my life, I work with a bunch of scientists here at Madrona, and I think one of the things we talk about a lot is telling your story in simple language that people can understand. It doesn’t matter what you do or even if you’re talking to people who are extraordinarily deep experts in your field, like that. The ability to do that and modulate how you can tell your story, I think, really sets apart a lot of very, very successful companies and founders and executives from people who sometimes struggle with that.

I do want to thank you for making the point around the difficulty of knowing that some people on your team won’t scale because sometimes you hear people talk about that from time to time. It is one of the conversations that certainly from our investor CEO relationship perspective and from, I’m sure, with your board members, that’s a conversation you have more than I think people generally talk about and it’s an important and hard thing for everybody involved. It’s nice that you mention that for the broader audience, that it’s a normal part of scaling a company.

Eleanor Lightbody: Exactly. Most often than not, people do massively surprise you for the positive and people step up and people grow. The counter to that is I really believe in giving . I took on Luminance when I was 29-years-old and, I mean, that’s maybe really old for Silicon Valley, but globally quite young. It’s so powerful to give opportunities to talent that might not necessarily be quite ready for it or the traditional experience for it.

We’ve seen some of our best employees rise up the ranks and be given tasks and responsibilities that might be slightly, at the time, felt like maybe too much. They have not only risen to the challenge, but they have absolutely accelerated in it. I have to sometimes remind myself that it’s like some of the best people that I’ve worked with are given opportunities young and to keep on doing that rather than to be like, “Oh, no, we need to make sure that they’ve got 20 years of experience.”

Chris Picardo: It’s also so important that you say that. I think about that from time to time sitting here in Seattle, we can all name some famous Amazon, Microsoft, et cetera, executives. Almost all of them were given opportunities at those companies really young and were able to scale into those jobs. They didn’t just emerge out of nowhere. I think you giving people those opportunities to be able to do that is, I’m sure, massively beneficial to the company, but also just amazing for the people. It’s such a great cultural piece.

Eleanor Lightbody: Also everything for you as a leader. You get to watch people mature, grow, and believe more in themselves. That is, I think, one of the funnest part of my role, is seeing someone who was a 22-year-old, now 26 and just so capable and even I thought, that they were going to be.

Chris Picardo: Those people are in your network forever. I mean, we’ve met so many CEOs that you’re like, “Wow, there are hundreds of people who have worked for you, been in your organization, been given opportunities that have then gone on to do incredible things. A lot of them can point that path all the way back to those opportunities they got or being at Luminance right at the right time to be able to get an opportunity. That’s got to be an incredible feeling.

Eleanor Lightbody: Yeah.

Chris Picardo: This has been such a fascinating discussion and there’s so many other topics we could have talked about, including, we probably could have spent an hour on the topic of design partners, which I find to be endlessly fascinating. I wanted to talk about a couple of quick questions to end it. The first one is, where are we in the hype cycle? What’s your take of AI? Is it a good thing? Is it a bad thing? What’s real? What’s noise?

Where AI Is Headed — and Why 10x Value Matters

Eleanor Lightbody: Depends on any given day that you’re asking me — my mind might change. I’m kidding. Fundamentally, there is so much that AI can do for good, and there is so much impact, and I think we have only scratched the surface. But I think where we are is, historically, up until today, I think people have seen kind of two X three X productivity gains. To change behaviors, you need to see 10x productivity change. We’re about to start seeing that, and that’s going to be absolutely massive.

So, where we are in the hype cycle, everyone’s got a different opinion. Do I believe that we are only starting to see the potential and we’re going to see more and more potential? Absolutely. The conversation that I think has moved on hasn’t hit. Now people are like, “Okay, cool, this is really useful. This could have a huge amount of impact.” Now people are like, “Okay, what are the return on investments? How am I driving adoption? Why am I actually using this?” Those are the really interesting places to be.

Chris Picardo: What’s a belief you had a year ago or last week, I don’t know, about AI that you think turned out to be totally wrong?

Eleanor Lightbody: It goes back almost to the point I just made, which is like, I always thought that if you could do something and save 50% of time or if you could save X amount of costs and if you had something that gave your customer two X productivity gains in some shape, way or form, that would be enough for adoption and it’s going to be totally ingrained.

To change human habits, it always has to be much more than two X. A few years ago, I was like, “Oh wow, this is not about being more efficient or being more productive. What is the real intrinsic value?” If you don’t have value, then you might be like a one-hit wonder, essentially. People use you but then get tired of you and move on to the next thing.

Chris Picardo: If you look out into the future, what has you the most excited or what do you think we should all broadly be really excited about?

Eleanor Lightbody: I think today the human is still in the driving seat with AI. The human’s still putting the inputs in. It’s still most often than not, they’re not checking the outputs. That’s going to inverse and the AI is going to be massively in the driving seat and the human’s going to be there to slightly tweak levers and to put some guardrails up. I’m so excited for that.

From the humanist point of view, AI negotiating against AI, I think we’re going to live in a world where most legal contracts are the first pass, second pass, third pass, done by AI either side. Also beyond legal, like drug discovery, the impact that we can have on personal medicine, the impact that we can have on curing some of the diseases that we’ve been trying to cure for years. That is going to be, and again, we’ve only scratched the surface there, but it’s going to be so, so positively beneficial for society as a whole.

Chris Picardo: Yeah, that’s the other part of my world. I, 100% agree with you. Eleanor. This has been so fun and we could have talked so much more about so many of these topics, but I really appreciate you joining us on the podcast.

Eleanor Lightbody: Thank you so much for having me.

Tune in to the next episode on May 28 to hear from Microsoft CVP Charles Lamanna.

This week, Madrona Managing Director Soma Somasegar sat down with Anoop Gupta, the co-founder and CEO of SeekOut — a company at the forefront of agentic AI in recruiting, redefining how organizations discover, hire, and manage talent.

In this conversation, Soma and Anoop explore how SeekOut has evolved its platform to include SeekOut Spot, an agentic AI solution that reduces the time it takes to move from job description to qualified candidates — from 45 days down to just three. Together, these two long-time friends unpack lessons on building an AI-native company, navigating changing market dynamics, and what it takes to deliver real outcomes in a sea of AI hype.

Listen on Spotify, Apple, and Amazon | Watch on YouTube

This transcript was automatically generated and edited for clarity.

Soma: Anoop, you have truly an eclectic background, starting with, initially, academic, then a startup, then a large company, and now back to a startup. Why don’t you introduce yourself a little bit to the audience and also talk about what you do at SeekOut and what SeekOut does?

Anoop: I’m Anoop, I’m a geek and an entrepreneur. I got my PhD from Carnegie Mellon in computer science. I was in the faculty of computer science at Stanford. And then did my first startup in ’95. We were one of the first companies doing streaming media. When the modems were still 56K modems and it was a wonderful time at Stanford. That company was acquired by Microsoft in ’97. SeekOut is a talent business. We focus on helping companies build winning teams and fill the talent gaps. We look at talent very holistically from external talent, internal talent, how to retain, grow, and recruit people. We are used by some of the top brands. We have over 700 customers, who is who in tech, in defense, in pharma. We feel really privileged that they used us as their recruiting and talent solution.

The Role of Agentic AI in Recruiting

Soma: Now, to remind people, as much as we think AI has been around for the last 100 years, it was really only five years since the transformer revolution, so to speak, happened and the large language models came into existence. Even before all that happened, you were thinking about SeekOut as an AI-first company. You’re going from like, “Hey, how can AI help you,” to , “Hey, how can AI do it for you,” kind of thing, right? Some people refer to it as agentic AI or what have you. Tell us a little bit about what got you started on AI from day one and how you evolved with the changes in technology and the innovation that’s happening at a pretty fast pace.

Anoop: If you look at talent, there’s a lot of data. You’ve got to understand the data. The data is noisy. Even if you think about you went to the University of Pennsylvania, do you say Wharton, Pennsylvania. If you’re doing diversity classifiers. The early AI was in data cleansing, in data combining, in classifiers, in everything in how do you build the most amazing search engine in the world. So that is where we started. As the time has gone along, especially, the second thing was, “Oh, LLMs are there and you just give it a job description and it can build searches for you.” But it has fundamentally changed with agentic AI.

The thing is that recruiting in some sense, and actually any talent job, whether you’re thinking succession planning, anything, is a very predictable thing. You look at a job description, you talk to the hiring manager to understand the needs. You go and search a large landscape, you go and evaluate hundreds of thousands of people, you reach out in very hyper personalized ways, and you do that and that magic agentic AI is very good. Vertical AI is very good. And that’s where we can bring the time from a job description to initial candidates you’re interviewing from 30, 45 days to three days. That is the magic. It’s a transformational jump.

Soma: I’ve heard you consistently tell me this, Anoop, for a while now. Companies that don’t take a step back and reimagine how they are going after recruiting talent and managing talent, they’re going to be left behind. Why do you think now is the time for companies to embrace agentic AI solutions to reimagine how they could go about talent acquisition and what is the urgency here?

Anoop: Yeah. So, Soma, the world is changing. Every industry is changing, every business is changing. People are refining their strategies and saying, “We’ve got to adopt AI, or we’ve got to do this thing differently otherwise.” Now all of this evolving, changing business strategy, you’ve got to have a talent strategy. You got to say, “Do I have the right people in the seat now the speed of change has become, and the speed at which the companies need to change has increased?” In this world where things are changing, it becomes urgent for the talent organizations to say, “What am I going to do differently to deliver talent quickly that’s high quality so the right people are in the right seat?” One more angle just quickly I would add to that is there is a lot of pressure on all organizations that AI is coming, how are you becoming more effective, more efficient? That is another pressure that people are feeling on how to do more with less.

Soma: You guys have recently launched SeekOut Spot. I’m super excited about that. In fact, I’m proud to say in this forum that we were probably one of the earliest customers of SeekOut Spot and we are happy customers. Tell me a little bit about that. Tell me how you came up with that, because there is a growing trend here where people are talking about not just software as service, but service as software with AI playing a key role. Tell me a little bit about the genesis of SeekOut Spot and what does it do for companies, organizations, and talent leaders.

Business Model and Flexibility

Anoop: When we start with the business leader and what they care about is the right hires with speed and quality that is there. The magic of AI agents is outcomes as the delivery thing, and not, “Here is a tool that your people have to use.” The fundamental thing, from a business model, is the focus on outcomes. Now there is a lot of flexibility because it’s a combination of people and the AI agents that are happening. We have supported a lot of different models. We will deliver you a hire and that is pricing costs associated with it. We can say we will augment the sources that you have. Maybe you need fewer sources, or when the demand is changing, we can come and help you.

There’s a lot of flexibility of business models, but they’re all outcome-based that we deliver for them. To dig in a little bit, what does the recruiting task look like? How do you engage with the talent? That is interesting. Our recruiters tell us, by the time they’ve done the 10th message, their eyeballs dry out, fall off, and roll across the table. It is crazy the amount of hard work and crazy work that you have to do as a recruiter. With SeekOut Spot, the recruiters focus on the tasks they love, talking to the hiring managers, talking to the humans, selling to the candidates what needs to be done and Spot takes over everything in the middle, delivering your results faster and with higher quality.

Soma: That’s awesome. Sounds truly magical, but help us walk through the shift here. SeekOut Spot in my mind is a classic example of service as a software. Tell me what is the business model changes here and why is it the right thing for your customers?

Anoop: The business model change is we deliver hires or we deliver you strong candidates for this thing. That is the outcome. Eventually, what the talent leader and the business leader are looking for is, “Did you get me a hire? Are they great? Are they the right fit?” They don’t care when it’s taking six weeks. The average for a technical hire by Ashby is 83 days for a hire, and for non-technical, it’s around 63. That’s a long time, and that’s just the median. Many things take longer. So this can be so much faster and better.

Soma: As you know, Madrona wanted to hire a data scientist a few months ago, and whenever we think about hiring a position, my mental model is, “Hey, I’ll be happy if we can hire somebody in the next 90 days.” 180 days maybe, but 90 days would be like, “I’ll be thrilled,”. This hire, the data scientist hire, from start to finish, I think, took less than four weeks for us.

I was amazed at the speed and the quality of the candidates that we saw through the process. It all happened amazingly well for us. Thank you to you and to SeekOut Spot, we made that hire and that person is on board for the last few months and we are thrilled with him so far. So tell me, you mentioned earlier, this goes from 30 days or 45 days to three days, right? We’ve seen at least one example in our environment where we’ve been able to hire a high quality data scientist in about three and a half weeks from start to finish kind of thing.

Anoop: Basically what we can do, and this technology is, from the kickoff meeting with the hiring manager to the initial candidates you’re interviewing, on the fourth day. So that is the magic. Now the hiring, making the offer takes a little bit of time. We have had Discord, which is getting amazing results. We had a startup named Shaped.ai, which is getting hires within three weeks with the initial… And they’re amazed at it. If you look at the quotes on our website, we have Discord, 1Password, HP, Shaped, and Madrona. Even though it’s early, we are seeing real proof that there’s magic in here.

Soma: The other thing that I’ve heard you say, Anoop, when I was over to your place for the SKO, you mentioned, “Hey, with SeekOut Spot, we can deliver a 5 to 10X productivity for recruiters,” or talent acquisition, people kind of thing, right? Talk to me a little bit about that.

Recruiting Process and Efficiency

Anoop: Basically, here is how the recruiting process works. The recruiter talks to the hiring manager, understands the role, then they build a mental model of what they need to do, do some search, come back, do some search, send some messages, and that cycle goes on. In SeekOut, on the first day, after you talk to the hiring manager, you have this success rubric. You have explored automatically thousands of candidates, you’ve evaluated each one of them and we give you a spider graph and how they’re doing across each of the rubric elements, and you have sent out messages.

That thing, I’m saying 5 to 10X, that takes a long time for a recruiter, and that time is being compressed to the benefit of the recruiter and the customer. I’ll tell you, we have specialized, in this service, of course, there’s technology, but we also have recruiters who operate this technology because they’re some tasks that humans do best. They’re the happiest, most energized recruiters, because, “I’m doing what I love and I’m delivering results quickly.” It is pretty amazing how everyone is happier, the business leader, the talent leader, the recruiter. So it’s exciting to us.

Soma: That is great. We’ve been talking about human in the loop for a while now and with something like SeekOut Spot, what you’re really telling organizations is like, “Hey, recruiters are highly valuable. Let them focus on things that they need to focus on. And I’m going to give you agentic AI solution or AI agents that is going to work in conjunction with your talent people to be able to get things done better, faster, all that fun stuff. This notion of hybrid model where you have AI agents working with human beings, that seems like a great model to drive forward as it relates to recruiting and talent acquisition, right?

Anoop: Yes.

Soma: If I’m a recruiter today or a talent acquisition professional, and I see the world of agentic AI, you could argue like, it’s going to disrupt my world, or you could say, it’s going to reimagine what is possible and get me to do what I need to do much, much, much better, 10X better, whatever it is, what should I take away from this as a recruiter or a talent acquisition person and how should I be prepared for this wave of innovation to come?

Anoop: So here’s the way. Do what is human and only humans can do and become the best at it. One is it means when you talk to the hiring manager, how can you be an advisor? Ask hard questions. Do you really mean this? Do you really want this? What is this person going to do? If you feel confident, expert, and good at that, that is one side of it. The second is when you’re talking to a candidate, right? How do you sell? How do you say what is inspiring? How do you say what are you going to do? Why is this a great company for you or not? I think those are the skills you have to become very good at. A lot of them, messy middle, which is critical and important, AI agents will do a great job for you.

Soma: That’s cool. That’s a good way to frame and think about it. I always tell this, Anoop, to every founder or every startup, in the history of this world, there isn’t a single company which has always had a smooth journey. There are good days, there are amazing days, there are okay days, there are lousy days and everything in between.

In your journey over the last, say, seven years or so, you’ve gone through some amazing highs, some not so great lows, and everything in between. How did you and your co-founder, Aravind, how did you guys navigate through this and are there any takeaways or learnings or ahas that you would like to share that will be valuable for other founders where every founder goes through this?

Navigating Challenges and Product-Market Fit

Anoop: We had an early phase of it where we were in hypergrowth, exponential growth, and then the economic malaise, the market change, and we went through some flat portions and now we are on a path to hypergrowth again. What are the things that you need to do? I think the most important thing is continuously watching a product market fit. When the market changed, the environment changed, what was needed changed, it took us a little while to say, “How do we do?” Because market always wins. You can have a great team and the market is this thing you’re not going to succeed in. You can have a lousy team, but you’re aligned with the market, you’re going to win. So one key message is watch for market fit. Just because you have market fit once doesn’t mean you’re maintaining.

The other is to have a sense of confidence and always iterating and experimenting and keeping calm. Your organization comes along with you. That bad stage shouldn’t ruin, though you have to be very conscious about managing your expenses and how you are doing. I want to point to one piece advice, which was maybe a thing for the times. When we were raising a series B, or series C, we had not spent any money that we had raised. And you said, “Go ahead and raise it anyway. It’s good times.” And that helped us too. We’ve never had to be in a desperate situation, not that we don’t want to be scrappy, or want to be conscious. That has given us a comfort and a cushion and that was very wise advice to us.

Soma: Thank you. There are two elements to that, Anoop. One is you want to raise money when you don’t need to raise money, that’s always the best time to do it. The second time is what you said is one of the reasons I was excited about us raising that money was because I’ve seen how you and Aravind have been very scrappy. I wasn’t worried about if there was a little more money than what you need today, would bad behavior set in in terms of spending. Right? It doesn’t matter how much money there is in the bank or not in the bank. I think as entrepreneurs, as founders, as what I call efficient stewards of capital, you have to always be thoughtful about that. I say this right now, hey, your increase in investment should warrant a return on that investment. If you’re confident about that, go do that. If not, you have to be really thoughtful.

I’m so glad whenever you raise your CDC and that has helped you tie through the last year or so to put yourself back in hypergrowth mode. That’s fantastic. Going hand in hand with raising is also a more thoughtful deployment of capital.

Anoop: I totally agree. We always feel like it’s our own money, we have a responsibility.

Soma: Are there any lessons from your own journey? I truly believe that you guys were AI-first from day one, as I said, well before the Transformers and large language models came into existence. Any guidance or advice that you would give to founders today when people are thinking about like, “Hey, I want to ride this AI wave. I want to truly be an AI-first company,” what should they do or what should they not do?

Founders: Focus on Outcomes, not on Hype

Anoop: My advice to founders and actually to the customers that we have, or prospects, is to focus on outcomes, not on the hype. If I were advising this thing, and because everybody’s put AI in their marketing materials, I say look for the outcomes. What are the outcomes you’re delivering? Get to the success stories, shout those out from the rooftops — that focus on outcomes is really important. In the recruiting space, we have a lot of companies that would talk about, “We are AI. We are agentic AI,” and all they have done is maybe an LLM, and they give a natural language query, and something comes out. That is not the end solution. Part of the vertical AI is looking at the whole workflow and process that results in the outcomes. What I would say is, don’t use it as a buzzword, genuinely create value for your customers. That is the thing to do. There is a lot of power in what’s coming, but focus on the customer’s problems and outcomes.

Soma: When people are thinking about AI, and I agree with you completely, focus on the outcome and not the activity alone, how important is what I call a data moat? Do I need to necessarily have either what I call proprietary data or a data moat if I’m an AI-first company, or I don’t need to have that?

Anoop: I think there’s different kinds of data. A lot of data is available, everybody has data. One is the experience moat. As you work with clients and you get the proprietary data from the customer and the client and how you integrate it and how easily you can do that, so it becomes not your data moat and some base data that you have. Our one example would be, in recruiting, it’s not just external data, how do you integrate with the applicant tracking systems and the data that customers have, or their internal employee data and how do you bring that or how do you integrate with specialized resources and partners, whether it’s healthcare and nursing data. I think the data moat comes from delivering outcomes and the learnings, and that learnings and the data becomes also a moat.

Soma: If I take you at face value, you’re telling this from the rooftop that, every investor should be talking to their portfolio company about, “what is your talent acquisition strategy”? How are you reimagining in this world of agentic AI?'” What would you want to tell investors?

Don’t build a recruiting org too early

Anoop: I think building a recruiting org too early is not good because your demand is going to fluctuate. The quality and the people that you need will fluctuate. These are specialized roles. What a startup should have is probably one recruiting manager and recruiting coordinator that they have where the interface to the hiring managers and scheduling interviews and calendaring, work with somebody like SeekOut. Because in startups, the right hires are really important. The cost of a bad hire is so much more than just, “Here is what I did.” If you can get high-quality hires in two weeks, three weeks, that makes a difference to your business outcome. I would invite, it’ll sound a little bit selfish as I am saying it, come and check us out, talk to us. I think it can make a big difference.

Soma: I want to underscore one point that you made. For every organization, every company, this is true, but it is even more true for a startup because you have finite assets of resources. Every right hire can be a true force multiplier.

I truly believe it’s extremely important for startups, particularly the early stages of the company, to ensure that, and everybody goes through this way. Nobody bats 1000. There’s always hiring mistakes, but you want to minimize that and truly understand that every great hire is going to be a true force multiplier for your company.

Anoop: Yes, it is so important.

Soma: From your vantage point, particularly as a hiring manager, what do you think the biggest hiring mistakes that companies today are making?

Anoop: One is company strategies change. Hiring strong, fungible engineers and marketers who can change as your strategy changes is really important. That is the thing you need to do. The second thing we have found is attitude is really important. People who understand the ambiguity, who can take the punches, roll with the punches, adapt and adjust, and are there and get shit done. Those things are also super critical in the hires that you make.

Soma: Now the other side of the audience is usually founders, either existing founders or new founders or people who are thinking that in the next 6 to 12 months, they want to be founders. What is your message to them?

Anoop: My message to founders is, one is before you hire, try and do the job yourself in some of the cases. I did a lot of sales, I’ve never done sales before, and I became an expert because I didn’t know how to hire a sales person. That was one thing on the talent side that I did. Then there were many cases where I had no expertise. Let’s say on a sales leader CRO. I leveraged people at Madrona and said, “Would you interview this person for me?” You want to leverage your connections and contacts who are experts in that so that you can get a good sense of what it needs to be.

My recommendation is, to the people who are thinking to be founders, that the initial team is super critical. Become familiar yourself before you jump into hiring all those people at a level of detail so that you know what is the right thing you need. The salesperson you need for one startup versus another varies a lot. You have to say, “What is your selling motion, who is you need,” and understand that deeply, and second, leverage your friends to do that, and then leverage the right people who can feed you that talent.

Soma: How can I get in touch with you, Anoop, if I’m a founder or investor and want to learn more?

Anoop: Okay, it’s simple. My email is [email protected]. You can find me on LinkedIn, connect with me and we’ll love to talk to you and show you. Because seeing is believing. Everybody talks so much. I’m just such a passionate thinker that seeing is believing, come and see, come and experience, and we would love to partner with you.

Soma: As we come to an end in this episode, Anoop, I want to congratulate you on pushing the boundaries and pushing the envelope on what AI can do for talent acquisition for organizations of all sizes and in all industries. Is there a final word that you would want to say to people, whether they are in a smaller environment like a startup or a bigger environment like an enterprise as to what they should do about talent management and talent acquisition as they look ahead?

Agentic AI for recruiting is here

Anoop: Agentic AI for recruiting is here and now. I would say experiment with it. This is the time. Be early before the change is thrust upon you. Be the lean-forward leader, experimenting, and adapting, and flowing with the transformation versus being hit by it when somebody comes and says you’re too late. The world is changing, and it is changing in amazing, wonderful ways, that is don’t get stuck in the old world to the extent you can avoid that and look broadly on what needs to be done. Especially for the large enterprises, the transformation is going to be very huge, and even for small companies. So, my final word, this will sound very selfish, contact us. We’ll show you what we can do for you as you explore all of the different options that are out there so that you’re getting the right tires and kicking the ball out of the field.

Soma: First of all, even before I wrap this up, thank you for allowing me to partner with you and Aravind for the last seven years or so. It’s been a fabulous journey. So many learnings and so much success. For all the progress we’ve made, I think we are still in early stages and there is so much more that we can do, and I’m looking forward to that. Thank you so much for joining us here today, and thanks to everybody for listening and we’ll see you again soon.

Anoop: Thank you, Soma. It has been wonderful to have you as a partner in our journey.

Listen on Spotify, Apple, and Amazon | Watch on YouTube

Full Transcript below.

Sometimes, the best insights can come after an interview ends.

That’s exactly what happened when Madrona Partner Jon Turow wrapped the official recording of our recent Founded & Funded episode with Douwe Kiela, co-founder and CEO of Contextual AI. The full conversation dove deep into the evolution of RAG, the rise of RAG agents, and how to evaluate real GenAI systems in production.

But after we hit “cut,” Douwe and Jon kept talking — and this bonus conversation produced some of the most candid moments of the day.

In this 10-minute follow-up, Douwe and Jon cover:

1. Why vertical storytelling matters more than ever in GenAI
2. The tension between being platform vs. application
3. How “doing things that don’t scale” builds conviction early on
4. The archetypes of great founders — and how imagination is often the rarest (but most valuable) trait
5. Douwe’s early work on multimodal hate speech detection at Meta and why the subtle problems are often the hardest to solve
6. Why now is the moment to show what’s possible with your platform — not just sell the vision
7. It’s a fast exchange full of unfiltered insight on what it really takes to build ambitious AI systems — and companies.

And if you missed the full episode, start there.

This transcript was automatically generated and edited for clarity.

Jon: One thing I’m learning about, I talked to a lot of enterprise CTOs, as I’m sure you do, and a lot of founders, as I’m sure you do, and I feel like even when this kind of technology is horizontal, we say you go to market vertically, or by segment, or whatever, but I don’t even think that’s quite right, I think the storytelling is the thing that becomes vertical or segmented. When you speak to a CTO of a bank versus a CTO of a pharma company, or the head partner of a law firm, or whatever it would be, none of these people, their eyes will glaze over when we start to talk about chunking. But if we can talk about SEC filings and the tolerances in there, and a couple of really impactful stories that are in the language of those segments, that seems to go so far. I’ve seen it myself, and even when a student, customers will realize it’s the same thing. And so storytelling at a time like this, where there’s opportunity in every direction you look, feels like a thing that can be a superpower for you.

Douwe Kiela: It’s not easy, because it’s like, how vertical do you want to go? We don’t want to be Hebbia or even Harvey; we want Hebbia and Harvey to be built on Contextual, but the only way to do that is to maybe show that you can build a Hebbia and Harvey on our platform.

Jon: I’ll tell you about when I’ve done it right and when I did it wrong. When I did it right was in early days of DynamoDB, the managed NoSQL data store, and we said, “Dynamo is really useful for ad tech, for gaming, and for finance, probably.” It’s because there were key use cases in each of these domains that took advantage of the capabilities of NoSQL and were not too bothered by the limitations of NoSQL, we only have certain numbers of lookups and things like that. Astute customers could realize you could use Dynamo for whatever you wanted, but we didn’t say that ever. All of our market was we had customer references, and we had reference implementation, and that helped us, like you plant your feet really well. When I’ve done it badly, also shows the power of this technique. I remember I did a presentation about Edge AI, this was like 2016, at AWS re:Invent. Edge AI, we shipped the first Edge AI product ever at Amazon.

We showed how we were using it with Rio Tinto, which is a giant mining company doing autonomous mining vehicles. We chose that because it’s fun and sparks the imagination, and we thought would spark the imagination across a lot of domains. This is a re:Invent, so it was on a Thursday, I want to say, a Wednesday or a Thursday, that I did that presentation. On a Friday morning, before I was going to fly out, I got an urgent phone call from the CTO of the only other major mining company of that scale, saying, “I have exactly that problem. Can you do the same thing for me?” I thought, “Well, gee, I aimed wrong,” because I picked a market of two, I already had one. But it shows that if you really put it in people don’t necessarily use imagination, but if you put it in terms that are that recognizable, they can see themselves.

Douwe Kiela: Yeah. So I heard that, maybe it was Swami or someone senior in AWS, said, “The big problem in the market right now is not the technology, it’s people’s lack of imagination around AI.”

Jon: That sounds like a Swami.

Douwe: Swami or maybe Andy. Yeah, I don’t know.

Jon: It could be. I would also say that that’s a major role for founders on this spectrum. There will be, put you in a group with Sergey and Larry, right? And so there’s the Douwes, Sergeys, and Larrys, there’s the Mark Zuckerbergs who are only PHP coders, and there’s the domain experts who are visionaries, they’re missionaries about solving a real problem, and they understand the problem better than other people do, and they are not necessarily nuanced in what is possible, but they can hack it together, they can get it to work enough that they can get to a point to then build a team around them.

Douwe: Who’s the archetype there?

Jon: I would think about, this is not a perfect example, but I would think about pure sales CEOs.

Douwe: Benioff or something?

Jon: Yeah, or the guys who started Flatiron Health and Invite Media. They were not oncology experts, they understood their customers really well. Jeff Bezos was not a publishing expert, nor did he wrote code at all at Amazon, I’m not sure he ever checked one line of code in a production, but deep customer empathy and conviction around that. The story with Jeff is that the first book that was ordered on Amazon.com from a non-Amazonian was not a book that they had at stock. And the team told Jeff, “Sorry, we got to cancel this order.” And Jeff said like, “Hell, we do.” And he got in his car and he went to every bookstore in the city.

Douwe Kiela: Barnes & Noble, somewhere.

Jon: Yeah and he found it, and then he drove to the post office and he mailed it himself. He was trying to make a point, but he was also saying, “Look, we’re in the books business now and we promised our whole catalog. In the first order, you better believe we’re going to honor it.” So that’s what I think about. And you do things that don’t scale and the rest.

Douwe: Doing all the crazy stuff. All the VCs are saying, “Just do it SaaS, no services. Focus on one thing, do it well.” And all of that is true, but if you want to be the next Amazon, then you also have to not follow that.

Jon: Do things that don’t scale, and you figure out, you know and I know, eventually, you can get things to scale. One of the reasons, and you would know this so much better than I do, one of the reasons Meta invested as early as it did in AI was content moderation.You would like a social media business to scale with compute, but it was starting to get bottlenecked by how many content moderators, and that’s a lot slower and more expensive. How quickly and effectively can you leverage that up?

Douwe: That’s why they needed AI content moderation.

Jon: That’s why they needed AI.

Douwe: We’re doing all the multimodal content moderations. That was powered by our code base.

Jon: Wow. And what year?

Douwe: It was around 2018. We did hateful memes. I don’t know if you’ve heard of this, the Hateful Memes Project, that was my thing. Where that came from was content moderation was pretty good on images and it was pretty good on text, like if there was some Hitler image, or whatever, or some obvious hate speech.

Jon: That’s kind of an easy one.

Douwe Kiela: Exactly. The most interesting ones, and people have figured this out, is like multimodal. It’s like I have a meme, so on the surface, to the individual classifiers, it looks fine, but if you put them together, it’s super racist, or they’re trying to sell a gun, or they’re dealing drugs, or things like that. Everybody at the time was trying to circumvent these hate speech classifiers by being multimodal. Then I’m on it, and I came in and we solved it.

Jon: How did you solve it?

Douwe Kiela: By building better multimodal models. So we had a better multimodal classifier that actually looked at both modalities at the same time in the same model. We built a framework, and we built the data set, and we built the models, and then most of the work was done by product teams.

TLDR: Microsoft Chairman & CEO Satya Nadella shared candid insights on leadership, AI, and Microsoft’s transformation into a $3 trillion powerhouse during Madrona’s Annual Meeting on March 18, 2025. He reflected on the cultural shifts that fueled the company’s resurgence, Microsoft’s AI strategy and pivotal AI partnership with OpenAI, and why AI’s success should be measured in global economic growth. His key messages? Mission and culture define strategy. AI is still in its early days. And “The world will need more compute.”

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This transcript was automatically generated.

Soma: Satya, it’s fantastic to have you here today. I don’t know if you remember this. We had you actually at our annual meeting five years ago to celebrate our 25th anniversary back then. But it so happened that once we agreed that we are going to do this two weeks before the event, we had to go on a massive scramble. The world changed from everything being in person to everything being virtual and you were a good sport and we did this virtually five years ago and that ended up being a great conversation. Thank you for doing that.
But I’m so, so excited to have you in person here today.

Satya Nadella: Likewise, I’m glad it’s in person.

Soma: This year we are celebrating a couple of different milestones, okay? First and foremost, obviously, Microsoft is celebrating its 50th year anniversary. In fact, I think two and a half weeks from now (April 5th) is the 50th anniversary. So that’s a fantastic milestone. I spent 27 out of these 50 years at Microsoft and some of those years working closely with you, so for me personally, it’s with a lot of personal joy and satisfaction to see how far Microsoft has come along under your leadership these last 11 years. Coincidentally, we’re also celebrating Madrona’s 30th year anniversary this year. Back in 1995, when the four co-founders of Madrona started Madrona; and I see Paul there. He was one of the four co-founders for us back then. The thesis and the bet for Madrona was very simple. It was all about like, hey, we are going to take a bet on the technology ecosystem, on the startup ecosystem in Seattle.

And 30 years later we are so glad that they took the bet and we all joined the journey. But for all the progress that I think we’ve seen in Seattle, I think we are still scratching the surface. There’s so much more ahead of us in the next 20 years, 30 years, 50 years that we are excited to see where the world is going and how we can play a part in help shape that world, so to speak.

11 years ago when you became the CEO for Microsoft, I actually don’t know how many people in this audience and in the world imagined that hey, there’s going to be a day not in the too distant future where we are likely to have two companies that collectively have a market cap of over $5 trillion in Seattle. Microsoft being one and Amazon being the other. But just looking at what you’ve been able to accomplish at Microsoft, when you took over as the CEO, Microsoft’s market cap was around $300 million. Today it’s around $3 trillion. It’s a phenomenal progress and one that I definitely did not imagine and I continue to think about, hey, how did this happen and what caused it to happen?

Satya Nadella: But did you hold?

Soma: A lot.

Satya Nadella: That’s great.

Soma: In addition to everything else, I’m a shareholder of Microsoft. I’m excited about that. Okay. But Satya, congratulations on a great, great run at Microsoft so far, and I know there’s still a lot more to go there.
I do know that everybody here in the audience is really interested in hearing from you, so I should stop my ramble and dive into the conversation.

Satya Nadella: Sure.

Soma: I want to take you back 11 years ago when you decided that, “Hey, I’m going to take on the matter to be the CEO for Microsoft,” what were some of the things in your mind in terms of what were your expectations, what do you think might happen? And then talk about some of the key inflection points in the last decade in your tenure as the CEO of Microsoft.

Satya Nadella: Yes. First of all, thank you so much for the opportunity to be here. It’s great to be celebrating, I guess, your 30th year. And as you said, for me of late, I’ve been thinking a lot about our upcoming 50th, which it’s unbelievable to think about it. I was also thinking about it yesterday. I was seven years old, I guess, when Microsoft was formed. And a lot has happened.
In 2014 when I became CEO, Soma, quite honestly at that time, my frame was very simple. I knew I was walking in as the first non-founder. Technically Steve was not the founder, but he had founder status at the company. The company I grew up in was built by Bill and Steve. And so therefore, I felt one of the things as a non-founder was to make first class again what founders do. What founders do is have a real sense of purpose and mission that gives them both the moral authority and telegraphs what the company was created for and what have you. And I felt like we needed to reground ourselves.

In fact, back then, one of the things I felt was, wow, in 1975 when Paul and Bill started Microsoft, they somehow thought of software as a … In fact, the software industry didn’t even exist, but they conceived that we should create software so that others can create more software and a software industry will be born. And that’s what was the original idea of Microsoft. And if that was relevant in ’75, it was more relevant in 2014 and it’s more relevant today in 2025.

And so I went back to that origin story, took inspiration from it, re-articulated it as our mission now that we are to talk about, which is empowering every person and organization on the planet to achieve more. So that was one part. The other piece that I felt also, again as a non-founder, was to make culture a very first class thing. Because again, in companies that have founders, still culture is also implicit because it’s a little bit of the cult of the founder. You can get away with a lot, whereas a mere model CEO like me can’t.

And so you needed to build more of that cultural base even. I must say I was lucky enough to pick the meme of growth mindset from Carol Dweck’s work and it’s done wonders. And quite frankly it’s done wonders because it was not considered as new dogma from a new CEO because it spoke a lot more intrinsically to us as humans, both in life and at work. And so therefore, both these things, making mission a first-class explicit thing and culture, these two things. And then of course they’re necessary but not sufficient because then you’ve got to get your strategy right and execution right, and you’ve got to adapt because everything in life is path dependent.

But you don’t even get shots on goal if you don’t have your mission and culture set right. And so that’s at least what I attribute a lot of, at least our … And we have stayed consistent on that frame, I would say, for the last whatever, 11 years.

Soma: If you go back to I think you took over in February sometime and then in May that year, 2014, your first announcement externally came up as like, “Hey, we are going to take Office cross-platform.” And that I thought was visceral. Particularly people who knew Microsoft until then or who had been part of the Microsoft ecosystem in one way, shape or form, knew how big of a statement that was. Was it a conscious decision on your part to say, “Hey, I need to signal not just to the external world, but to my own organization what it means?”

Satya Nadella: Yeah. The Microsoft that you worked at and that I worked at know, you’ve got to remember, we launched Office on the Mac before there was Windows even. So in some sense, obviously we achieved a lot of success in the ’90s and so therefore we went back to Windows as the only thing that is needed, and the air we breathe and what-have-you. But it was really not the company’s core gene pool. Our core gene pool was we create software and we want to make sure that our software is there everywhere.

And obviously it’s not like I came in February and I said, “Let’s build the software.” Obviously Steve had approved that. But it worked well because it helped unlock, to your point, what was Microsoft’s true value prop in the cloud era. See, one of the things when I look back at it, if God had come to me and said, “There’s mobile and cloud, pick one,” I would’ve picked cloud. Not that mobile is not the biggest thing, but if you had told me pick one, I’ll pick something that may even outlast the client device.

And so therefore, that’s what was the real strategy, which is we knew where our position at that time was on mobile. We were struggling at third. Having seen what happens to number three players in an ecosystem, I felt like wow, that train had left the station. So therefore it was very important for us to make sure we became a strong number two in cloud at that time. And then in fact, more comprehensive than even our friends across the lake because of what we were doing on Office 365 and Azure.

And so we just doubled down. And when you double down on such a strategy, you got to make sure that your software is available and your endpoints are available everywhere. And so that was what that event was all about.

Soma: Great. You just referenced culture, cultural transformation, and growth mindset in the context. By the way, if any of you haven’t read that book, I’m a huge believer in the book. I think that book is one of the best books that’s been written on culture and please get a copy and read that. It’s a fantastic book and something that I try hard to practice every day. And I can tell you I’m still learning.

But I’ve also heard you talk a lot about changing the culture from a know-it-all culture to a learn-it-all culture. But like anything else, when you took on the mantle, they were already a 100,000-people-strong organization that was steeped in a particular set of ways of doing things and thinking about things. How easy or hard was it for you to go through the cultural transformation?

Satya Nadella: Yeah. I think the beauty of the growth mindset framework, if you will, is not about claiming growth mindset, but confronting one’s own fixed mindset. At the end of the day, the day you say you have a growth mindset is the day you don’t have a growth mindset. That’s the nice recursion in it. And it’s hard and it has to start with setting the tone.

Let’s face it. In large organizations like ours, or anyone I guess, it’s easy to talk about risk because you want the other person to take risk. Or it is easy to say, “‘Let’s change.” It’s the other person who should change. And so in some sense, the hard part of organizational change is that inward change that has to come. And so this thing pushes you on it. It gives you at least a way to live that. And by living up to that high standard of confronting your own fixed mindset, you get hope to make that large-scale change happen. And like all things, Soma, it’s always top down and bottom up. You can never do anything in any one direction. It has to happen across both sides of it and all the time.

The other thing I must say is you have to have patience. You can’t come in the morning and say, “Hey, we need to have by evening growth mindset.” You have to basically let even leaders bring their own personal passion to it, personal stories to it, give it some room to breathe. And I think somehow or the other not because we really thought it all through, it took on, as I said, some organic life. People felt like this is a meme that made them better leaders, it made them better human beings.

And so therefore, I think that that’s what really helped. And we were patient on it. Like for example, the classic thing at Microsoft would have been to metric it and then say green, red, yellow, and then start doing bad things to all the reds and then it would’ve been gamed in a second. We didn’t do that, and that I think helped a lot. And like all things, it also can be taken to the extreme. There are times when I’m in meetings where people will look around the room and say, “Here are all the people who don’t have a growth mindset,” versus saying, “Look — the entire idea is to be able to talk about your own fixed mindset.” And by the way, the best feature of that cultural thing is that it’s never done. So you never can claim that job done. Right now, oh my God, talk about it. Which is you’re in the middle of, again, saying, “Wow, we’ve got to relearn everything because there’s a complete new game in town again.

Soma: So before we talk about AI, I thought we’ll talk a little bit about something that is personal to you and hopefully something on a lighter note. You’ve been a cricket player in high school and college and it’s been fun working with you these last many years, trying to bring cricket to the US through Major League cricket. And you’ve mentioned this many times, Satya, about how that sport has shaped your thinking, your leadership style. In fact, had a positive impact on your life. Share with us a little bit about that.

Satya Nadella: Yeah, Caitlin, who works with me is here. Every time I post on cricket, I get all these likes from India and she says, “God, why don’t they do the same when you post on Microsoft products?” It’s like a billion and a half people who are crazy can do that for you.

Look, I think all team sport shapes us a lot. I think it’s one of those cultural things that … When I see leaders; and you can easily trace back to the team sports they played and how it impacts how they think about it. There are three things that I think I’ve written a lot about and I think a lot about even daily. I remember there was this one time. It’s interesting, there’s this guy that you know, Harsha Bhogle, who actually went to the same high school as me and recently I was talking to him and he was telling me about our … we call them physical directors. Think of them as a coach, I think is the best translation.

But anyway, so we were playing some league match and there was this guy from Australia who suddenly happened to be in Hyderabad of all things and playing for the opposition. And he was such an unbelievable player. And I was sitting, I was feeling at whatever, at forward short leg and watching in awe of him. So I hear this guy yell, saying, “Compete, don’t admire.” And it’s like when you’re in the field that zeal, the competitive spirit and giving it all, I think it’s just such an important thing that sport teaches you. That ability to get the energy to go play the game is one.

The other one that I’ll say, talking about teams, I’ll never forget this. There was this unbelievably important match of ours. There was this unbelievable player who was pissed off at our captain for whatever reason, because I think he changed him soon or what have you. And the guy just drops a catch just on purpose. And think about like the entire 11. All our faces dropped. We were all so pissed off, I guess. But also more let down when, in fact, your star player who somehow feels like he wants to teach us a lesson and then thereby cause us to lose.

And then the last thing I would say, which has probably been the most profound impact in me, is what is the leadership lesson? There was a captain of mine who went on to play later a lot of first-class cricket. One day I was a bowler and I was bowling some thrashy off spin. And so this guy takes the thing. He changes me, he bowls, he gets a wicket, but he gives it back to me the next over and that’s a match I got some four or five wickets. And then I asked him like, “Why the heck did you do that?” And he comes to me and he says, “You know what? I needed you for a season, not for a match. Because I wanted to make sure that I could make sure that your confidence is not broken.” I said, “Man, for a high school captain to have that level of enlightened leadership skills …”

That’s the idea, which is leadership is about having a team and then getting the team to perform for a season. And I think team sport and what it means to all of us culturally and what it means in terms of teaching us the hard lessons in those fields is something that I think a lot about.

Soma: That’s great.

Satya Nadella: And of course, I think a lot about MLC too.

Soma: Season three starts June 12.

Satya Nadella: The sports market is not sufficiently penetrated in the United States. Talk about you got to make your money somewhere else.

Soma: Let’s talk about AI now. You mentioned this, that if you look at the history of Microsoft, we are in the beginning or in the middle of the fourth platform wave. First one was Client Server, then it was internet and mobile, and then the cloud, and now it’s AI.
Microsoft, as much as we talk about AI a lot these past few years, Microsoft has had investments in AI for decades now. Tell me a little bit about how you decided, hey, in addition to everything that we are doing ourselves, how do we think about partnering with OpenAI.

Satya Nadella: I love the way you say ourselves. That’s good.

Soma: How does Microsoft think about partnering with somebody like OpenAI? And then more importantly, how has that partnership evolved till today and what do you think the future is going to be of that partnership?

Satya Nadella: Yeah, it’s a good point. I think in 1995 is when we had our first ML research team and MSR speech. That was the first place we went to. And obviously we had lots of MSR work. Here’s the interesting thing, which is even the OpenAI side, we had two phases of it. In fact, the first time we partnered with them was in the context of when they were doing Dota 2 and RL at that time. And then they went off on that and I was interested, but RL by itself, at that time at least, we were not that deep in. When they said, “We want to go tackle natural language with transformers,” that’s when we said, “Let’s go bet.”

Quite frankly, that was the thing that OpenAI got right which is that they were willing to go all in on scaling laws. In fact, the first paper I read was interestingly written by Elian Dario on the scaling laws and saying, “Hey, we can go through compute and see scaling laws work on transformers on natural language and natural language.” If you think about Microsoft’s history, for those of you who’ve been tracking us, Bill has been obsessed about natural language. And of course the way he has been obsessed about it is by schematizing the world. To him, it is all about people, places, things, beautifully organize it into a database and then do a SQL query, and that’s all the world needs.

That was the Microsoft that we dreamt of. And then of course, when we thought of AI was, oh, adding some semantics on top of it. That’s sort of how we came in. It turns out in hindsight, of course, when we were taking that bet, it is unclear to us quite frankly. But to me, when I first saw code completions in a Codex model, which is a precursor to 35, that is when I think we started building enough conviction that, one, you can actually build useful products. And software engineering, the team that you ran, even the engineers are skeptical people. No one thought that AI will go and make coding easy. But man, that was the moment when I felt like there’s something afoot. Definitely my belief in scaling laws and the fact that you could build something useful. And so then the rest is history. We just doubled down on it. And even today when I look at GitHub Copilot, it’s unbelievable to see in the, whatever, three years or so, there’s code completions.

And by the way, all of these things are happening in parallel. Code completions are getting better. We, in fact, just launched a new model even for code completion. And then chat of course is right there. You have multi-file edits. You have agents that are working at their full repo, and then we have a SWE-agent that is more like you’re going from, I’ll say, pair programmer to a peer programmer. So it’s all like a full system being built off of effectively what is one regime.

Soma: I remember now, this was before GitHub Copilot had launched in beta or whatever it is to the world. You and I were having dinner and now you literally spent probably 20, 30 minutes there talking about this new thing that the GitHub guys were doing called Copilot. I remember walking out of that meeting thinking I need to go talk to my buddies in DevDiv to understand what is happening here, because I haven’t seen you that animated and excited about something. And this was well before it came into what I call as a product finally kind of thing.
But those early days, how did you decide to take a bet on that inside the company? Because I would assume that in any organization there’s going to be some level of resistance to something new that is going to be fundamentally a paradigm changing thing.

Satya Nadella: Yeah. There were two phases to that as well. GitHub Copilot was the first product, and then ChatGPT happened. And ChatGPT, quite frankly, you should ask the OpenAI folks, but nobody thought that this is a product. It was supposed to be at best, maybe some data collection thing. And then rest is history. But I must say that was the thing that really helped, which is the beauty of at least Microsoft’s position was one, the partnership with OpenAI. Second thing is we were already building products like GitHub Copilot. And thankfully ChatGPT happened because then there was no … And we were ready so once ChatGPT happened and we had built a product and we had built the stack, it was easy to copy, paste, so to speak, across all of what we were doing.

But a lot of these waves are that, which is, if I look back at it, even in the four waves, you could say Windows, we had one, two, and three, but I joined really post three. And that was what we did. Once Windows 3 hit, it was like we knew what to do after. That’s where I think the path … And we were ahead. In some of the others, we were behind, but that’s fine. But this one we were ahead and so we executed pretty well, quite frankly, across the length and breadth of the Microsoft opportunity. But as you rightfully point out, but it’s still very early, I think in backstage, you and I were talking about it.

I think I feel it’s a little more like the GUI wave pre-Office or the web wave pre-search. I think we’re still trying to figure out where does the enterprise value truly accrue? Is it in the model? Is it in the infrastructure? Is it in one app category? And I think all that’s to be still litigated.

Soma: We have a point of view on that, but let me turn around and ask you that. If you look at the AI stack today, you’ve got AI infrastructure, you’ve got models, you’ve got applications, what we call intelligent applications. We historically always believe the application layer is where you’re going to have the most, what I call value creation over a period of time. Whether it’s horizontal or vertical or some combination thereof. Do you see that trend also following through here in the AI or do you think differently?

Satya Nadella: It’s a great question. I think that if I look back through all these tech shifts, I think all enterprise value accrues to two things. One is some organizing layer around user experience and some, I’ll call it, change in efficiency at the infrastructure layer. You can say GUI on the client and client server. That was one. Or you could say search as ultimately, although we thought browser for the longest time, but turns out search was the organizing layer of the web. And then SaaS applications and the infrastructure and databases and what have you. And same thing with cloud.

In this case, I think hyperscale, when I look at our business, if you ask the question five years from now, even in a fully agentic world, what is needed? Lots more compute. In fact, it’s interesting. When I look at, let’s take Deep Researcher or what-have-you. Remember, Deep Researcher needs a VM or a container. In fact, it’s the best workload to drive more compute.

And in fact, if you look at the ratio, even take ChatGPT. It’s a big Cosmos DB customer, which is all its state is in databases. In fact, the way they procure compute is they have a ratio between the AI accelerator to storage and compute. And so hyperscale, being one of the hyperscalers is a good place to be and to be able to build the infrastructure. You’ve got to be best-in-class in terms of scale and cost and what-have-you.

Then I think after that, it gets a little muddy, because what happens to models, what happens to app categories? I think that’s where I think time will tell, but I go back and say each category will be different. Consumer, there’ll be some winner take all network effect. In the enterprise space it’ll be different. That I think is where we are still in the early stages of figuring out, but I think the stable thing that at least I can say with confidence is the world will need more compute.

Soma: I have a lot more things to talk to Satya about but I know that we are running short of time here. I’m going to ask him one more question. You have a very unique vantage point in terms of who you talk to day in and day out, whether it’s Fortune 100 CEOs or whether it is heads of government or what-have-you. You recently mentioned something about one way to think about maybe the impact of AI success is its ability to boost the GDP of a country or the world or whatever it is. That’s a fascinating way to think about what AI’s impact would all be over a period of time. Can you elaborate a little bit on that?

Satya Nadella: Yeah. I think I said that in response to all these benchmarks on AGI and so on. I find that entire … First of all, all the evals are saturated. It’s becoming slightly meaningless. But if you set that aside, just take the simple math. Let’s say you spend a $100 billion in CapEx, and then you say, okay, you go t to make a return on it, and then let’s just say roughly you are to make a $100 billion a year on it. In order for you to make a $100 billion dollars on it, then what’s the value you have to create in order to make that?

And it’s multiples of that. And so that ain’t going to happen unless and unt il there is broad spread economic growth in the world. So that’s why I look at it and say my formula for when can we say AGI has arrived when, say, the developed world is growing at 10%, which may have been the peak of industrial revolution or what have you, that’s a good benchmark for me. If you ask me what’s the benchmark. This is the intelligence abundance and it’s going to drive productivity. I think we should peg ourselves. In fact, we should say the social permission at least for companies to invest what they’re investing in, both from the markets as well as the broader society will come from, I believe, our ability to have broad sectoral productivity gains that’s evidenced in economic growth.

And by the way, the one other thing that I’m excited about is this time around. It won’t be like the Industrial Revolution in the sense that it’s not going to be about the developed world or the Global North and the Global South. It’s going to be about the entire globe, because guess what? Diffusion is so good that everybody is going to get it at the same time. So that’ll be the other exciting part of it.

Soma: Great. Thank you, Satya. Thank you for being here, and congratulations again.

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From the invention of RAG to how it evolved beyond its early use cases, and why the future lies in RAG 2.0, RAG agents, and system-level AI design, this week’s episode of Founded & Funded is a must-listen for anyone building in AI. Madrona Partner Jon Turow sits down with Douwe Kiela, the co-creator of Retrieval Augmented Generation and co-founder of Contextual AI, to unpack:

• Why RAG was never meant to be a silver bullet — and why it still gets misunderstood
• The false dichotomies of RAG vs. fine-tuning and long-context
• How enterprises should evaluate and scale GenAI in production
• What makes a problem a “RAG problem” (and what doesn’t)
• How to build enterprise-ready AI infrastructure that actually works
• Why hallucinations aren’t always bad (and how to evaluate them)
• And why he believes now is the moment for RAG agents

Whether you’re a builder, an investor, or an AI practitioner, this is a conversation that will challenge how you think about the future of enterprise AI.

This transcript was automatically generated and edited for clarity.

Jon: So Douwe, take us back to the beginning of RAG. What was the problem that you were trying to solve when you came up with that?

Douwe: The history of the RAG project, we were at Facebook AI Research, obviously, FAIR, and I had been doing a lot of work on grounding already for my PhD thesis, and grounding, at the time, really meant understanding language with respect to something else. It was like if you want to know the meaning of the word cat, like the embedding, word embedding of the word cat, this was before we had sentence embeddings, then ideally, you would also know what cats look like because then you understand the meaning of cat better. So that type of perceptual grounding was something that a lot of people were looking at at the time. Then I was talking with one of my PhD students, Ethan Perez, about, “Can we ground it in something else? Maybe we can ground in other text instead of in images.” The obvious source at the time to ground in was Wikipedia.

We would say, “This is true, sort of true,” and then you can understand language with respect to that ground truth. That was the origin of RAG. Ethan and I were looking at that, and then we found that some folks in London had been working on open-domain question answering, mostly Sebastian Riedel and Patrick Lewis, and they had amazing first models in that space and it was a very interesting problem, how can I make a generative model work on any type of data and then answer questions on top of it? We joined forces there. We happened to get very lucky at the time because the people at the Facebook AI Image Similarity Search, I think is what it stands for, basically, the first vector database, but it was just there. And so we were like — we have to take the output from the vector database, give it to a generative model. This is before we called it language models, Then the language model can generate answers grounded on the things you retrieve. And that became RAG.

We always joke with the folks who were on the original paper that we should have come up with a much better name than that, but somehow, it stuck. This was by no means the only project that was doing this, there were people at Google working on very similar things, like REALM is an amazing paper from around the same time. Why RAG, I think, stuck was because the whole field was moving towards gen AI, and the G in RAG stands for generative. We were really the first ones to show that you could make this combination of a vector database and a generative model actually work.

Jon: There’s an insight in here that RAG, from its very inception, was multimodal. You were starting with image grounding, and things like that, and it’s been heavily language-centric in the way people have applied it. But from that very beginning place, were you imagining that you were going to come back and apply it with images?

Douwe: We had some papers from around that time. There’s a paper we did with more applied folks in Facebook where we were looking at, I think it was called Extra, and it was basically RAG but then on top of images. That feels like a long time ago now, but that was always very much the idea, is you can have arbitrary data that is not captured by the parameters of the generative model, and you can do retrieval over that arbitrary data to augment the generative model so that it can do its job. It’s all about the context that you give it.

Jon: Well, this takes me back to another common critique of these early generative models that, for the amazing Q&A that they were capable of, the knowledge cutoff was really striking, you’ve had models in 2020 and 2021 that were not aware of COVID-19, that obviously was so important to society. Was that part of the motivation? Was that part of the solve, that you can make these things fresher?

Douwe:

Yeah, it was part of the original motivation. That is what grounding is, the vision behind the original RAG project. We did a lot of work after that on that question as well, can I have a very lightweight language model that basically has no knowledge, it’s very good at reasoning and speaking English or any language, but it knows nothing? It has to rely completely on this other model, the retriever, which does a lot of the heavy lifting to ensure that the language model has the right context, but that they really have separate responsibilities. Getting that to work turned out to be quite difficult.

Jon:

Now, we have RAG, and we still have this constellation of other techniques, we have training, and we have tuning, and we have in-context learning, and that was, I’m sure, very hard to navigate for research labs, let alone enterprises. In the conception of RAG, in the early implementations of it, what was in your head about how RAG was going to fit into that constellation? Was it meant to be standalone?

Douwe: It’s interesting because the concept of in-context learning didn’t really exist at the time, that really became a thing with GPT-3, and that’s an amazing paper and proof point that that actually works, and I think that unlocked a lot of possibilities. In the original RAG paper, we have a baseline, what we call the frozen baseline, where we don’t do any training and we give it as context, that’s in table six, and we showed that it doesn’t really work, or at least, that you can do a lot better if you optimize the parameters. In-context learning is great, but you can probably always beat it through machine learning if you are able to do that. If you have access to the parameters, which is, obviously, not the case with a lot of these black box frontier language models, but if you have access to the parameters and you can optimize them for the data you’re working on or the problem you’re solving, then at least, theoretically, you should always be able to do better.

I see a lot of false dichotomies around RAG. The one I often hear is it’s either RAG or fine-tuning. That’s wrong, you can fine-tune a RAG system and then it would be even better. The other dichotomy I often hear is it’s RAG or long-context. Those are the same thing, RAG is a different way to solve the problem where you have more information than you can put in the context. One solution is to try to grow the context, which doesn’t really work yet even though people like to pretend that it does, the other is to use information retrieval, which is pretty well established as a computer science research field, and leverage all of that and make sure that the language model can do its job. I think things get oversimplified where it’s like, “You should be doing all of those things. You should be doing RAG, you should have a long-context window as long as you can get, and you should fine-tune that thing.” That’s how you get the best performance.

Jon: What has happened since then is that, and we’ll talk about how this is all getting combined in more sophisticated ways today, but I think it’s fair to say that in the past 18, 24, 36 months, RAG has caught fire and even become misunderstood as the single silver bullet. Why do you think it’s been so seductive?

Douwe: It’s seductive because it’s easy. Honestly, I think long-context is even more seductive if you’re lazy, because then you don’t even have to worry about the retrieval anymore, the data, you put it all there and you pay a heavy price for having all of that data in the context. Every single time you’re answering a question about Harry Potter, you have to read the whole book in order to answer the question, which is not great. So RAG is seductive, I think, because you need to have a way to get these language models to work on top of your data. In the old paradigm of machine learning, we would probably do that in a much more sophisticated way, but because these frontier models are behind black box APIs and we have no access to what they’re actually doing, the only way to really make them do the job on your data is to use retrieval to augment them. It’s a function of what the ecosystem has looked like over the past two years since ChatGPT.

Jon: We’ll get to the part where we’re talking about how you need to move beyond a cool demo, but I think the power of a cool demo should not be underestimated, and RAG enables that. What are some of the aha moments that you see with enterprise executives?

Douwe: There are lots of aha moments, I think that’s part of the joy of my job. I think it’s where you get to show what this can do, and it’s amazing what these models can do. So basic aha moments for us, is accuracy is almost kind of table stakes at this point. It’s like, okay, you have some data, it’s like one document, you can probably answer lots of questions about that document pretty well. It becomes much harder when you have million documents or tens of millions of documents and they’re all very complicated or they have very specific things in them. We’ve worked with Qualcomm and they’re like circuit design diagrams inside those documents, it’s much harder to make sense of that type of information. The initial wow factor, at least from people using our platform, is that you can stand this up in a minute. I can build a state-of-the-art RAG agent in three clicks basically.

That time of value used to be very difficult to achieve, because you had your developers, they have to think about the optimal chunking strategy for the documents, and things that you really don’t want your developers thinking about but they had to because the technology was so immature. The next generation of these systems and platforms for building these RAG agents is going to enable developers to think much more about business value and differentiation essentially, “How can I be better than my competitors because I’ve solved this problem so much better?” Your chunking strategy should not be important for solving that problem.

Jon: Also, if I now connect what we were just talking about to what you said now, the seduction of long-context and RAG are that it’s straightforward and easy, and it plugs into my existing architecture. As a CTO, if I have finite resources to go implement new pieces of technology, let alone dig into concepts like chunking strategies, and how the vector similarity for non-dairy will look similar to the vector similarity for milk, things like this, is it fair to say that CTOs are wanting something coherent, that can be something that works out of the box?

Douwe: You would think so, and that’s probably true for CTOs, and CIOs, and CAIOs, and CDOs, and the folks who are thinking about it from that level. But then what we often find is that we talk to these people and they talk to their architects and their developers, and those developers love thinking about chunking strategies, because that’s what it means in a modern era, to be an AI engineer is to be very good at prompt engineering and evaluation and optimizing all the different parts of the RAG stack. It’s very important to have the flexibility to play with these different strategies, but you need to have very, very good defaults so that these people don’t have to do that unless they really want to squeeze the final percent, and then they can do that.

That’s what we are trying to offer, is you don’t have to worry about all this basic stuff, you should be thinking about how to really use the AI to deliver value. It’s really a journey. The maturity curve is very wide and flat. It’s like some companies are figuring it out, it’s like, “What use case should I look at?” And others have a full-blown RAG platform that they built themselves based on completely wrong assumptions for where the field is going to go, and now, they’re stuck in this paradigm, it’s all over the place, which means it’s still very early in the market.

Jon: Take me through some of the milestones on that maturity curve, from the cool demo all the way through to the ninja level results.

Douwe: The timeline is, 2023 was the year of the demo, ChatGPT had just happened, everybody was playing with it, there was a lot of experimental budget, last year has been about trying to productionize it, and you could probably get promoted if you were in a large enterprise, if you were the first one to ship genAI into production. There’s been a lot of kneecapping of those solutions happening in order to be the first one to get it into production.

Jon: First-pass-the-post.

Douwe: First-pass-the-post, but in a limited way, because it is very hard to get the real thing past the post. This year, people are really under a lot of pressure to deliver return on investment for all of those AI investments and all of the experimentation that has been happening. It turns out that getting that ROI is a very different question, that’s where you need a lot of deep expertise around the problem, but also you need to have better components that exist out there in an open source easy framework for you to cobble together a Frankenstein RAG solution, that’s great for the demo, but that doesn’t scale.

Jon: Our customers think about the ROI, how do they measure, perceive that?

Douwe: It really depends on the customer. Some are very sophisticated, trying to think through the metrics, like, “How do I measure it? How do I prioritize it?” I think a lot of consulting firms are trying to be helpful there as well, thinking through, “Okay, this use case is interesting, but it touches 10 people. They’re very highly specialized, but we have this other use case that has 10,000 people. They’re maybe slightly less specialized, but there’s much more impact there.” It’s a trade-off. I think my general stance on use case adoption is that I see a lot of people aiming too low, where it’s like, “Oh, we have AI running in production.” It’s like, “Oh, what do you have?” It’s like, “Well, we have something that can tell us who our 401(k) provider is, and how many vacation days I get.”

And that’s nice, “Is that where you get the ROI of AI from?” Obviously not, you need to move up in terms of complexity, or if you think of the org chart of the company, you want to go for this specialized roles where they have really hard problems, and if you can make them 10, 20% more effective at that problem, you can save the company tens or hundreds of millions of dollars by making those people better at their job.

Jon: There’s an equation you’re getting at, which is the complexity, sophistication of the work being done times the number of employees that it impacts.

Douwe: There’s roughly two categories for gen AI deployment, one is cost savings. So I have lots of people doing one thing, if I make all of them slightly more effective, then I can save myself a lot of money. The other is more around business transformation and generating new revenue. That second one is obviously much harder to measure, and you need to think through the metrics, like, “What am I optimizing for here?” As a result of that, I think you see a lot more production deployments in the former category where it’s about cost-saving.

Jon: What are some big misunderstandings that you see around what the technology is or is not capable of?

Douwe: I see some confusion around the gap between demo and production. A lot of people think that, “Oh, yeah, it’s great, I can easily do this myself.” Then it turns out that everything breaks down after a hundred documents, and they have a million. That is the most common one that we see. There are other misconceptions maybe around what RAG is good for and what it’s not.What is a RAG problem and what is not a RAG problem? People don’t have the same mental model that maybe AI researchers like myself have, where if I give them access to a RAG agent, often, the first question they ask is, “What’s in the data?” That is not a RAG problem, or it’s a RAG problem on the metadata, it’s not on the data in itself. A RAG question would be like, what was, I don’t know, Meta’s R&D expense in Q4 or 2024, and how did it compare to the previous year? Something like that.

It’s a specific question where you can extract the information and then reason over it and synthesize that different information. A lot of questions that people like to ask are not RAG problems. It’s like, summarize the document is another one. Summarization is not a RAG problem. Ideally, you want to put the whole document in a context and then summarize it. There are different strategies that work well for different questions, and why ChatGPT is such a great product is because they’ve abstracted away some of those decisions that go into it, but that’s still very much happening under the surface. I think people need to understand better what type of use case they have. If I’m a Qualcomm customer engineer and I need very specific answers to very specific questions, that’s very clearly a RAG problem. If I need to summarize the document, put that in context of a long-context model.

Jon: Now, we have Contextual, which is an amalgamation of multiple techniques, and you have what you call RAG 2.0, and you have fine-tuning, and there’s a lot of things that happen under the covers that customers ideally don’t have to worry about until they choose to do so. I expect that changes radically the conversation you have with an enterprise executive. How do you describe the kinds of problems that they should go find and apply and prioritize?

Douwe: We often help people with use case discovery. So, thinking through, okay, what are the RAG problems, what are maybe not RAG problems? Then for the RAG problems, how do you prioritize them? How do you define success? How do you come up with a proper test set so that you can evaluate whether it actually works? What is the process for, after that, doing what we call UAT, user acceptability testing. Putting it in front of real people, that’s really the thing that matters, right? Sometimes, we see production deployments, and they’re in production, and then I ask them, “How many people use this?” And the answer is zero. During the initial UAT, everything was great and everybody was saying, “Oh, yeah, this is so great.” Then when your boss asks you the question and your job is on the line, then you do it yourself, you don’t ask AI in that particular use case. It’s a transformation that a lot of these companies still have to go through.

Jon: Do the companies want support through that journey today, either direct for Contextual or from a solution partner, to get such things implemented?

Douwe: It’s very tempting to pretend that AI products are mature enough to be fully self-serve and standalone. It’s decent if you do that, but in order to get it to be great, you need to put in the work. We do that for our customers or we can also work through systems integrators who can do that for us.

Jon: I want to talk about two sides of the organization that you’ve had to build in order to bring all this for customers. One is scaling up the research and engineering function to keep pushing the envelope. There are a couple of very special things that Contextual has, something you call RAG 2.0, something you call active versus passive retrieval. Can you talk about some of those innovations that you’ve got inside Contextual and why they’re important?

Douwe: We really want to be a frontier company, but we don’t want to train foundation models. Obviously, that’s a very, very capital intensive business, I think language models are going to get commoditized. The really interesting problems are around how do you build systems around these models that solve the real problem? Most of the business problems that we encounter, they need to be solved by a system. Then there are a ton of super exciting research problems around how do I get that system to work well together? That’s what RAG 2.0 is in our case, how do you jointly optimize these components so that they can work well together? There’s also other things like making sure that your generations are very grounded. It’s not a general language model, it’s a language model that has been trained specifically for RAG and RAG only. It’s not doing creative writing, it can only talk about what’s in the context.

Similarly, when you build these production systems, you need to have a state-of-the-art re-ranker. Ideally, that re-ranker can also follow instructions. It’s a smarter model. There’s a lot of innovative stuff that we’re doing around building the RAG pipeline better and then how you incorporate feedback into that RAG pipeline as well. We’ve done work on KTO, and APO, and things like that, so different ways to incorporate human preferences into entire systems and not just models. That takes a very special team, which we have, I’m very proud of.

Jon: Can you talk about active versus passive retrieval?

Douwe: Passive retrieval is basically old-school RAG. It’s like I get a query, and I always retrieve, and then I take the results of that retrieval, and I give them to the language model, and it generates. That doesn’t really work. Very often, you need the language model to think, first of all, where am I going to retrieve it from and how am I going to retrieve it? Are there maybe better ways to search for the thing I’m looking for than copy and pasting the query? Modern production RAG pipelines are already way more sophisticated than having a vector database and a language model. One of the interesting things that you can do in the new paradigm of agentic things and test-time reasoning is decide for yourself if you want to retrieve something. It’s active retrieval. It’s like if you give me a query like, “Hi, how are you?” I don’t have to retrieve in order to answer that. I can just say, “I’m doing well, how can I help you?”

Then you ask me a question and now I decide that I need to go and retrieve. Maybe I make a mistake with my initial retrieval, so then I need to go and think like, “Oh, actually, maybe I should have gone here instead.” That’s active retrieval, that’s all getting unlocked now. This is what we call RAG agents, and this really is the future, I think, because gents are great, but we need a way to get them to work on your data, and that’s where RAG comes in.

Jon: This implies two uses of two relationships of Contextual and RAG to the agent, there is the supplying of information to the agents so that it can be performant, but if I probe into what you said, active retrieval implies a certain kind of reasoning, maybe even longer reasoning about, “Okay, what is the best source of the information that I’ve been asked to provide?”

Douwe: Exactly. It’s like I enjoy saying everything is Contextual. That’s very true for an enterprise. So the context that the data exists in, that really matters for the reasoning that the agent does in terms of finding the right information that all comes together in these RAG agents.

Jon: What is a really thorny problem that you’d like your team and the industry to try and attack in the coming years?

Douwe: The most interesting problems that I see everywhere in enterprises are at the intersection of structured and unstructured. We have great companies working on unstructured data, there are great companies working on structured data, but once you have the capability, which we’re starting to have now, where you can reason over both of these very different data modalities using the same model, then that unlocks so many cool use cases. That’s going to happen this year or next year, just thinking through the different data modalities and how you can reason on top of all of them with these agents.

Jon: Will that happen under the covers with one common piece of infrastructure or will it be a coherent single pane of glass across many different Lego bricks?

Douwe: I’d like to think that it would be one solution, and that is our platform, which can do all of that.

Jon: Let’s imagine that, but behind the covers, will you be accomplishing that with many different components each handling the structured versus unstructured?

Douwe: They are different components, despite what some people maybe like to pretend, I can always train up a better text-to-SQL model if I specialize it for text-to-SQL, than taking a generic off-the-shelf language model and telling it, “Generate some SQL query.” Specialization is always going to be better than generalization for specific problems, if you know what the problem is that you’re solving, the real question is much more around is it worth actually investing the money to do that? It costs money to specialize and it sometimes hampers economies of scale that you might want to have.

Jon: If I look at the other side of your organization that you’ve had to build, so you’ve had to build a very sophisticated research function, but Contextual is not a research lab, it’s a company, so what are the other kinds of disciplines and capabilities you’ve had to build up at Contextual that complement all the research that’s happening here?

Douwe: First of all, I think our researchers are really special in that we’re not focused on publishing papers or being too far out on the frontier. As a company, I don’t think you can afford that until you’re much bigger, and if you’re like Zuck and you can afford to have FAIR. The stuff I was working on at FAIR, at the time, I was doing like Wittgensteinian language games and all kinds of crazy stuff that I would never let people do here, honestly. But there’s a place for that, and that’s not a startup. The way we do research is we’re very much looking at what the customer problems are that we think we can solve better than anybody else, and then focusing, thinking from the system’s perspective about all of these problems, how can we make sure that we have the best system and then make that system jointly optimized and really specialized, or specializable, for different use cases? That’s what we can do.

That means that it’s a very fluid boundary between pure research and applied research, basically. All of our research is applied. In AI, right now, I think there’s a very fine line between product and research, where the research is basically is the product, and that’s not true for us, I think it’s true for OpenAI, Anthropic, everybody. The field is moving so quickly that you have to productize research almost immediately. As soon as it’s ready, you don’t even have time to write a paper about it anymore, you have to ship it into product very quickly because it is such a fast moving space.

Jon: How do you allocate your research attention? Is there some element of play, even 5%, 10%?

Douwe: The team would probably say not enough.

Jon: But not zero?

Douwe: As a researcher, you always want to play more but you have limited time. So yeah, it’s a trade-off, I don’t think we’re officially committing. We don’t have a 20% rule or something like Google would have, it’s more like we’re trying to solve cool problems as quickly as we can, and hopefully, have some impact on the world. Not work in isolation, but try to focus on things that matter.

Jon: I think I’m hearing you say that it’s zero even in an environment with finite resources and moving fast?

Douwe: Every environment has finite resources. It’s more like if you want to do special things, then you need to try new stuff. That’s, I think, very different for AI companies or AI native companies like us. If you compare this generation of companies with SaaS companies, there is like, okay, all the LAMP stack, everything was already there, you have to basically go and implement it. That’s not the case here, is we’re very much figuring out what we’re doing, like flying the airplane as we’re building it sort of thing, which is exciting, I think.

Jon: What is it like to now take this research that you’re doing and go out into the world and have that make contact with enterprises? What has that been like for you personally, and what has that been like for the company to transform from research-led to a product company?

Douwe: That’s my personal journey as well. I started off, I did a PhD, I was very much a pure research person and slowly transitioned to where I am now, where the key observation is that the research is the product. This is special point in time, it’s not going to always be like that. That’s been a lot of fun, honestly, I’ve been on a podcast a while back and they asked me, “What other job would you think is interesting?” And I said, “Maybe being the head of AI of JP Morgan.” And they were like, “Really?”

And I was like, “Well, I think actually, right now, at this particular point in time, that is a very interesting job.” And because you have to think about how am I going to change this giant company to use this latest piece of technology that is frankly going to change everything is going to change our entire society. For me, it gave me a lot of joy talking to people like that and thinking about what the future of the world is going to look like.

Jon: I think there’s going to be people problems, and organizational problems, and regulatory and domain constraints that fall outside the paper.

Douwe: Honestly, I would argue that those are the main problems to still overcome. I don’t care about AGI and all of those discussions, the core technology is already here for huge economic disruption. All the building blocks are here, the questions are more around how do we get lawyers to understand that? How do we get the MRM people to figure out what is an acceptable risk? One thing that we are very big on is not thinking about the accuracy, but thinking about the inaccuracy, and what do you do, if you have 98% accuracy, what do you do with the remaining 2% to make sure that you can mitigate that risk? A lot of this is happening right now. There’s a lot of change management that we’re going to need to do in these organizations. All of that is outside of the research questions where we have all the pieces to completely disrupt the global economy right now, it’s a question of executing on it, which is scary and exciting at the same time.

Jon: Douwe, you and I have had a conversation many times about different archetypes of founders and their capabilities. There’s one lens that stuck with me that has three click stops on it, there is a domain expert, who has expertise in revenue cycle management, but may not be that technical at all, A. B, there is somebody who is technical and able to write code but is not a PhD researcher, and Mark Zuckerberg is a really famous example of that. Then there’s the research founder, who has deep technical capabilities and advanced vision into the frontier. What do you see as the role for each of those types of founders in the next wave of companies that needs to get built?

Douwe: That’s a very interesting question. I would argue how many PhDs does Zuck have working for him? That’s a lot, right?

Jon: That’s a lot.

Douwe: I don’t think it matters how deep your expertise in a specific domain is, as long as you are a good leader and a good visionary, then you can recruit the PhDs to go and work for you. At the same time, obviously, it gives you an advantage if you are very deep in one field and that field happens to take off, which is what happened to me. I got very lucky, with a lot of timing there as well. Overall, one underlying question you’re asking there is around AI wrapper companies, for example. To what extent should companies go horizontal and vertical using this technology?

There’s been a lot of disdain for these wrapper companies like, “Oh, that’s a wrapper for OpenAI.” It’s like, “Well, it turns out you can make an amazing business just from that, right?” I think Cursor is like Anthropic’s biggest customer right now. It’s fine to be a wrapper company as long as you have an amazing business. People should have a lot more respect for companies building on top of fundamental new technology and discovering whole new business problems that we didn’t really knew existed, and then solving them much better than anything else.

Jon: Well, so I’m really thinking also about the comment you made, that we have a lot of technology that is capable of a lot of economic impact, even today, without new breakthroughs that, yes, we’ll also get. Does that change the next types of companies that should be founded in the coming year?

Douwe: I think so. I am also learning a lot of this myself, about how to be a good founder, basically. It’s always good to plan for what’s going to come and not for what is here right now, and that’s how you get to ride that wave in the right way. What’s going to come is that a lot of this stuff is going to become much more mature. One of the big problems we had even two years ago was that AI infrastructure was very immature. Everything would break down all the time. There were bugs into attention mechanism, implementation of frameworks we were using, really basic stuff. All of that has been solved now. With that maturity also comes the ability to scale much better, to think much, much more rigorously, I think, around cost quality trade-offs and things like that. There’s a lot of business value just right there.

Jon: What do new founders ask you? What kind of advice do they ask you?

Douwe: They ask me a lot about this wrapper company thing, and modes, and differentiation. There’s some fear that incumbents are going to eat everything, and so they obviously have amazing distribution. They’re massive opportunities for companies to be AI native and to think from day one as an AI company. If you do that right, then you have a massive opportunity to be the next Google, or Facebook, or whatever, if you play your cards right.

Jon: What is some advice that you’ve gotten, and I’ll ask you to break it into two, what is advice that you’ve gotten that you disagree with, and what do you think about that? And then what is advice that you’ve gotten that you take a lot from?

Douwe: Maybe we can start with the advice I really like, which is one observation around why Facebook is so successful, it’s like, be fluid like water. It’s like whatever the market is telling you or your users are telling you, fit into that, don’t be too rigorous in what is right and wrong, be humble and look at what the data tells you and then try to optimize for that. That is advice that when I got it, I didn’t really appreciate it fully, and I’m starting to appreciate that much more right now. Honestly, it took me too long to understand that. In terms of advice that I’ve gotten that I disagree with, it’s very easy for people to say, “You should do one thing and you should do it well.” Sure, maybe, but I’d like to be more ambitious than that. We could have been one small part of a RAG stack and we probably would’ve been the best in the world at that particular thing, but then we’re slotting into this ecosystem where we’re a small piece, and I want the whole pie ideally.

Then that’s why we’ve invested so much time in building this platform, making sure that all the individual components are state-of-the-art and that they’ve been made to work together so that you can solve this much bigger problem, but yet, that is also a lot harder to do. Not everyone would give me the advice that I should not go and solve that hard problem, but I think over time, as a company, that is where your moat comes from, doing something that everybody else thinks is kind of crazy. So that would be my advice to founders, is go and do something that everybody else thinks is crazy.

Jon: You’re probably going to tell me that that reflects in the team that comes to join you?

Douwe: Yeah, the company is the team, especially the early team. We’ve been very fortunate with the people who joined us early on, and that is what the company is. It’s the people.

Jon: If I piggyback a little bit and we get back into the technology for a minute, there’s a common question, maybe even misunderstanding that I hear about RAG, that, “Oh, this is the thing that’s going to solve hallucinations.” You and I have spoken about this many times, where is your head at right now on what hallucinations are, what they are not? Does RAG solve it? What’s the outlook there?

Douwe: I think hallucination is not a very technical term. We used to have a pretty good word for it, it was accuracy. If you were inaccurate, if you were wrong, then I guess to explain that, or to anthropomorphize it would be to say, “Oh, the model hallucinated.” I think it’s a very ill-defined term, honestly. If I would have to try to turn it into a technical definition, I would say the generation of the language model is not grounded in the context that is given, where it is told that that context is true. Basically, hallucination is about groundedness. If you have a model that adheres to its context, then it will hallucinate less. Hallucination itself is arguably a feature for a general purpose language model, it’s not a bug. If you have a creative writing department, or marketing department, creative writing thing like content generation, I think hallucination is great for that, as long as you have a way to fix it, you probably have a human somewhere double checking it and rewriting some stuff.

So hallucination itself is not even a bad thing necessarily, it is a bad thing if you have a RAG problem though and you cannot afford to make a mistake. Then that’s why we have a grounded language model that has been trained specifically not to hallucinate, or to hallucinate less. Because one other misconception that I sometimes see is that people think that these probabilistic systems can have 100% accuracy, and that is a pipe dream. It’s the same with people. If you look at a big bank, there are people in these banks and people make mistakes too.

Jon: SEC filings have mistakes.

Douwe: Exactly. The whole reason we have the SEC and that is a regulated market is so that we have mechanisms built into the market so that if a person makes a mistake, then at least we made reasonable efforts to mitigate the risk around that. It’s the same with AI deployments. That’s why I’m talking about how to mitigate the risk with inaccuracies. It’s like, we’re not going to get it to 100%, so you need to think about the 2, 3, 5, 10% depending on how hard the use cases where you might still not be perfect. How do you deal with that?

Jon: What are some of the things that you might’ve believed a year ago about AI adoption or AI capabilities that you think very differently about today?

Douwe: Many things. The main thing I thought that turned out not to be true was that I thought this would be easy.

Jon: What is this?

Douwe: Building the company and solving real problems with AI. We were very naive, especially in the beginning of the company. We were like, “Oh, yeah, we just get a research cluster. Get a bunch of GPUs in there. We train some models, it’s going to be great.” Then it turned out that getting a working GPU cluster was very hard. And then it turned out that training something on that GPU cluster in a way that actually works, where if you’re using other people’s code, then maybe that code is not that great yet. Now, you have to build your own framework for a lot of the stuff that you’re doing if you want to make sure that it’s really, really good. We had to do a lot of plumbing that we did not expect to have to do. Now, I’m very happy that we did all that work, but at the time, it was very frustrating.

Jon: What are we, either you and I, or we, the industry, not talking about nearly enough that we should be?

Douwe: Evaluation. I’ve been doing a lot of work on evaluation in my research career, things like Dynabench where it was about how do we hopefully maybe get rid of benchmarks all together and have a more dynamic way to measure model performance. Evaluation is very boring. People don’t seem to care about it. I care deeply about it, so that always surprises me. We did this amazing launch, I thought, around LMUnit, it’s natural language unit testing. You have a response from a language model, and now you want to check very specific things about that response. It’s like, did it contain this? Did it not make this mistake? Ideally, you can write unit tests as a person for what a good response looks like. You can do that with our approach. We have a model that is by far state-of-the-art at verifying that these unit tests are passing or failing.

I think this is awesome. I love talking about this, but people don’t seem to really care. It’s like, “Oh, yeah, evaluation. Yeah, we have a spreadsheet somewhere with 10 examples.” How is that possible? That’s such an important problem. When you deploy AI, you need to know if it works or not, and you need to know where it falls short, and you need to have trust in your deployment, and you need to think about the things that might go wrong, and all of that. It’s been very surprising to me just how immature a lot of companies are when it comes to evaluation, and this includes huge companies.

Jon: Garry Tan posted on social media not too long ago, that evaluation is the secret weapon of the strongest AI application companies.

Douwe: Also, AI research companies, by the way. So OpenAI and Anthropic, part of why they’re so great is because they’re amazing at evaluation too. They know exactly what good looks like. That’s also why we are doing all of that in-house; we’re not outsourcing evaluation to somebody else. It’s like, if you are an AI company and AI is your product, then you can only assess the quality of your product through evaluation. t’s core to all of these companies.

Jon: Whoever is lucky enough to get that cool JP Morgan head of AI job that you would be doing in another life, is that intellectual property of JP Morgan what the evals really need to look like, or is this something that they can ultimately ask Contextual to cover for them?

Douwe: No. I think the tooling for evaluation, they can use us for, but the actual expertise that goes into that evaluation, the unit tests, they should write that themselves. In the limit, we talked about a company is its people, but in the limit, that might not even be true, because there might be AI mostly, and maybe only a few people. What makes a company a company is its data, and the expertise around that data and the institutional knowledge. That is what defines a company. That should be captured in how you evaluate the systems that you deploy in your company.

Jon: I think we can leave it there. Douwe Kiela, thank you so much. This was a lot of fun.

Douwe: Thank you.