How to build an AI-first System of Record
Until recently, it wasn’t feasible for a startup to attack a System of Record (SOR) in its space. Getting to feature parity would take years of engineering work and cost tens of millions of dollars - which simply wouldn’t align with most VC funding milestones.
My sense is that AI has unlocked the SOR opportunity in many verticals. The playbook is as follows:
Compress build time (reach feature parity in months, not years)
10x the value layer (sell revenue generation and cost savings, not workflows)
Start where incumbents can’t win (target SMB segments underserved by incumbents. Tap into labor budgets instead of software)
Let’s explore each of these below.
1. Compress build time
ServiceTitan ($6B market cap) is the SOR for plumbers, electricians and HVAC companies. Replicating its modules (e.g. CRM, dispatch, payments, inventory) used to take years of engineering resources.
This year, I witnessed our seed-stage portfolio company Solea rebuild ServiceTitan’s core modules in < 6 months, with just a handful of AI-native engineers. I’ve seen a similar story play out in a few other verticals as well.
But AI has been an unlock for more than just engineering velocity. It also collapses the two hardest parts of replacing a SOR:
Understanding legacy data (by speeding up the analysis of data dumps and the parsing of unstructured data)
Migrating customers off it (data mapping is now meaningfully easier, allowing for data to be sync’d rapidly)
The net impact is that an upstart can swiftly understand the data structure of incumbents and rapidly migrate customers off of them.
2. Rethink the value prop of the SOR altogether
Starting a company today affords you the opportunity to rethink certain SOR modules altogether. You can invent value propositions that are 10x better than the status quo: such as generating new revenue streams or massively reducing costs.
Let’s continue with the home services example.
Even a small plumbing/pest control/HVAC company will have a sizable back-office staff (typically 10+ people across customer service, scheduling, sales, collections and more). ServiceTitan primarily sells workflow modules for each of these roles. Solea automated several of these back-office roles completely. For example, they built:
AI customer service reps — replacing entire customer service terms, while providing 24/7 coverage across all channels
AI collections — automating the role of the invoicing team, pulling cash forward by weeks
AI route optimization — allows technicians to do an additional 1-2 jobs per day by virtue of efficient routing, thus making more money
Solea’s average cost savings and revenue uplift
For business owners, this value prop is a slam dunk. The ROI is immediate and obvious - which is why Solea has seen rapid adoption in recent months.
3. Counterposition against incumbents: sell to SMBs
Even if you can reach feature parity and deliver a 10x value prop, going head-on against an incumbent is still risky. The better strategy is to start where they’re structurally weak. For most SOR incumbents, the weak spot is the long tail of SMBs - not because demand isn’t there, but because the economics never worked.
Take ServiceTitan. Their business is optimized for mid-market and enterprise customers. Historically, it hasn’t made sense to go down-market - SMBs simply didn’t have the budget to justify the sales and onboarding costs of traditional software.
That constraint is now breaking because AI-native SORs like Solea are replacing labor, rather than selling workflow software.
When a product can eliminate back-office headcount or materially increase revenue per technician, the buyer is no longer comparing it to other software tools. That shift dramatically expands willingness to pay. SMBs who previously couldn’t justify a few hundred dollars a month for software can now justify several multiples of that, because the ROI comes out of a much larger budget.
This creates a structural asymmetry:
Incumbents monetize seats and workflows
AI SORs monetize outcomes and reduce headcount
It’s difficult for an incumbent to move down-market while also cannibalizing its own pricing model. Meanwhile, the challenger can go straight at underserved customers with a dramatically stronger ROI.
This playbook is open across dozens of verticals - ITSM, deskless workforce management, accounting, dental and more. If you’re a founder and this sounds like what you’re building, I’d love to connect (samit@1984.vc).