Software That Survives AI Needs Four of Eight Defenses
Investor Gokul Rajaram counts data, workflow, regulation, and five other shields, and says anything below four is fragile.
20VC with Harry Stebbings · Gokul Rajaram: How to Analyse for Durability and Defensibility in a World of AIGokul Rajaram, an operator turned investor who worked at Google, Facebook, Square, and DoorDash, was asked why public markets were treating all software as if it were headed to zero because AI can now write code for free. He called that reaction an overreaction, and then he offered his test.
“Anything four or more, you’re pretty damn secure,” he said.
He was describing what he calls the eight modes of defensibility, his play on investor Hamilton Helmer’s seven powers. His argument is that no software company can be judged on its code anymore. It has to be scored, one point at a time, on eight different shields. Four shields means you are pretty damn secure. Two or three means weakness. One or zero means trouble.
The first is data, which he argues only counts if it is truly proprietary. He points to Spotify’s Discover product, which draws on a decade of listening behavior that a newcomer cannot simply recreate.
The second is workflow, or how deeply a product runs a company’s operations. He believes this mode alone is weak, and he grades it on depth. An accounting system like NetSuite that runs a business gets a full point in his telling, while Zendesk, a lighter support tool, gets half a point.
The third is regulatory. Rajaram, who sits on the board of Coinbase, points to its state by state money transmission licenses. That paperwork makes it extremely hard for a customer to move crypto custody elsewhere.
The fourth is distribution. His example is Intuit, the maker of QuickBooks, which trained a network of accountants to insist on QuickBooks. He tried to use a newer rival and said his own accountant shut it down.
The fifth is ecosystem. He argues anyone can copy Shopify’s code for hosting an online store, but no one can easily copy the hundreds of thousands of outside developers and apps built on Shopify. He says every merchant he knows uses at least five or six of those outside apps.
The last three are network, physical infrastructure, and scale. DoorDash, where he worked, has liquidity, density, and reputation history that AI cannot wipe away. Businesses built on atoms, like warehouses or delivery fleets, are hard to displace. And giants like Amazon and chipmaker TSMC have costs so low, by virtue of scale, that they are hard to replicate.
Rajaram argues that durability and defensibility matter more than current margins. If a company is defensible, he believes, it will gain the ability to raise prices and expand margins over time.
Questions people ask
How exactly do you score a company on the eight modes?
He gives roughly one point for each mode a company truly has, with partial credit possible. His example is workflow, where an accounting system like NetSuite gets a full point and a lighter tool like Zendesk gets half a point. Add up the points, and four or more is pretty damn secure in his telling.
Why is workflow alone considered weak?
He says workflow alone is weak, and that it gets stronger the deeper a product is embedded in running operations and moving money. That is why he rates an accounting system like NetSuite as a full point and a lighter tool like Zendesk as half a point.
Do any of the eight modes apply outside pure software?
Yes, though Rajaram is focused on software. His physical infrastructure mode covers atoms like stores, warehouses, trucks, and factories, which are expensive and slow to copy. His scale mode covers cost advantages from size, with Amazon in retail and logistics and TSMC in chip manufacturing as his examples.