There Are Only Two Paths Left for Software

• The comfortable middle is over: grow revenue 10+ pts or earn 40% margins.
• Path 1: ship AI-native products in 12-18 months via 4-person strike pods.
  • Process-capture sprints: harvest SOPs, tickets, docs from ~5 high-value leaders.
  • Move pricing from seat-based to token/per-use consumption models.
• Path 2: rebuild for 40%+ true operating margins, SBC included.
  • Flatten mgmt layers; standardize impl; cut custom services.
  • Raise token spend budgets to ~$1,000/engineer/month.
• Traditional moats are gone: data, integrations, workflow lock-in all reproducible.
• Top engineers already run 20-30 agents simultaneously — reorient R&D around that.
  • 50% of R&D to net-new AI products; collapse design/product/eng into one team.
• Broadcom benchmark: Hock Tan hit 61% adjusted EBITDA via subscription simplification.
• “Grow 10 or earn 40. No middle lane.”

David George (a16z Growth General Partner) · 2026-03-23 · Read on a16z.com