GPT Sol 5.6 vs Claude Fable 5 For Marketing (Which Wins?)

9:55Neil Patel:Oh, the Spain guy. Don't reveal. The Spain guy? Not the Spain guy, no.

10:02Eric Siu:I gave you another name on Tuesday. It was an SEO company. Oh, yeah, yeah, yeah. I know what you're talking about.

10:07Neil Patel:I thought you were talking about the Spain guy that we met at a conference a few years ago. No, that wasn't a fit for you. It wasn't a fit because it wasn't growing and then I talked to him on what he would take. And he said, yeah. And then he told my team he wanted like eight times profit for a declining business. This ain't going to happen.

10:27Eric Siu:So Neil, let's workshop this company. I mean, we'll just give high level numbers. Let's say this company is doing, let's say 4 million in EBITDA. Okay. And let's say the profits, or sorry, the revenue is 15 million or so. So this company considers themselves AI native, right? And I think that's something that you guys would like to have. And I think this founder is a very smart person. So what's your take on this one? Because you had talked to this company before.

10:53Neil Patel:All right.

10:53Eric Siu:So I wanted to take a moment to tell you about my podcast co-host Neil's agency called MP Digital. And they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as Ubersuggest and Answer to Public. All you have to do is go to npdigital.com to learn more. And we'll see you on the other side.

11:14Neil Patel:I haven't talked to them in a long time. So it's a good company. I think they'll be able to sell. If they can maintain the growth, they can probably get maybe close to$30 million, including earn out. They won't get most of the money up front, but they can get a good chunk up front. The problem with AI native consulting companies is, and this one was an AI native consulting company. I think a lot of the revenue is non-AI. They are just pushing on the AI narrative more now. You have to look at what portion of their revenue is from these new services and how sticky is it. But I think a lot of these players will have a ton of competition.

11:54Neil Patel:And then if their margins are high, call it 25, 30%, I think there's going to be margin compression over time. The other thing that you have to look out is if the company is relying on one person, we call that key man risk. Sometimes it could be an influencer. Sometimes it It could be a well-connected CEO who ran a publicly traded company, has all the relationships. The list goes on and on. Sometimes it could be someone who published a book and their New York Times bestselling author and people read the book and that's what drives all the leads. But if there's key risks like that, you'll start seeing the deal starting to get dinged.

12:31Neil Patel:And I do believe over time when people have higher margins, it's because they haven't built out their management team to reduce the risk. And we constantly see that when agencies are running like 30-40 % profit, like I would say 4 on 15 is high profit. And the chances are is they don't have as well established of a management team. That would be my guess on 26-27 % margin type of business and services.

12:59Eric Siu:And just so everyone knows, I mean, the numbers I'm giving are modified a little bit so it doesn't reveal anybody. What's interesting, Neil, was that earlier this week, I was talking to an AI consulting firm here in New York. So let's just say they're doing about$25,$30 million a year right now. And they are getting VCs hitting them up everywhere, and they don't want to raise money, right? And then they're like, okay, maybe they want to take on debt. because one guy sitting at the table that I was talking to, he actually funds a lot of businesses, right? He actually, it's a business funding business, business loans business, right?

13:37Eric Siu:So again, going back to the AI consulting firm, they're getting people hitting them up left and right. And then they're just like, wow, like do we just take on more debt? But that's scary. I'm like, no matter what you do, you need to take on more money right now. My opinion is whether you raise venture or you take on debt, But my opinion is, if you don't, the problem is, I just look at all these logos that you're going to pick up right now as expansion opportunities. And if someone comes in and vacuums them all up, or vacuums a lot of them up, it's not to say that there isn't a lot of business everywhere.

14:07Eric Siu:There certainly is. But I think this is a nice land grab opportunity in the next year or two. I don't look at it as land grab as meta or Facebook, that type of land grab, but I think it's still very much a land grab.

14:19Neil Patel:I think they should take a totally different approach. they shouldn't take the debt if because if the guy's afraid of debt and the risk and he's already built something amazing i'm guessing this is his first big company that

14:32Eric Siu:he's built first big company but he's raised venture for his last few companies and none of

14:37Neil Patel:them worked out yeah so what i would do if this is the first big company that he built i would go and uh not take on more debt i would not go and raise venture capital i would go sell and minority chunk to our private equity. He'll take chips off the table, enough where he never has to work again. They'll put in money and debt into the company so that way he can grow and build something even bigger. If it doesn't work out, he's made enough.

15:04Eric Siu:So you're saying, you would say he should go build a platform with a PE firm?

15:11Neil Patel:Not only to build a platform, he would be the platform and they would tuck in other companies to just make him larger, but I would go do it with private equity. That's his best bet because if he sold 49 % or 40 % in a minority and they put in more capital to grow faster and he's going to get diluted as they buy more companies, especially if the PE has to put in more cash, but he could take enough money off the table where he's okay. And if he really thinks it's a big opportunity and the amount of money he can get right now is enough where he's happy with it, then he should sell majority and take 70 % off the table.

15:44Neil Patel:And then if he takes 70 % off the table, he'll go buy more. and typically if it's something hot and they do well, whatever he made on the front end, even if on the back end he only owns 30 % and that gets diluted down, the back end usually will be a similar size to the front end. So then he can make double the amount of money and if the front end was big enough that he never has to worry again and his kids don't have to worry again, he's really good if the back end succeeds.

16:07Eric Siu:Yep, or bigger, which could very well be the case.

16:13Neil Patel:Yeah, but I also think a lot of these companies will go back down to normal valuations, Just like, I believe it was Scrunch that sold for$200 and something million or something crazy like that on$20 million in revenue. Scrunch, the profound competitor, right? Oh. It was something like that that got reported. Wait, how much was it? Geo, like, okay, if you look at profound, profound raise well over$100 million, a billion dollar valuation. Let's say they do 50 in revenue. Do you think that valuation is going to keep climbing? I'm not saying they can't sell for a lot of money, but I'm saying five, 10 years from now.

16:46Neil Patel:Do you think that valuation is going to be the same where it's going to come down to, it's going to be normalized?

16:51Eric Siu:I think it's going to come down to earth because you and me being SEOs, I don't think it's something that, to me, it's like the new SEO. And I'm like, how does this, how is this adding up? But we'll see. But they raised over 155.

17:03Neil Patel:Totally agree with you. So I look at a lot of these things, including AI consulting or implementation businesses that are really heavily valued right now. but in five years, there'll be a ton of them and the valuations will drop down and they'll be normalized. Yeah, and so what Neil's really saying here

17:20Eric Siu:is that strike while the iron is hot right now,

17:22Neil Patel:take some chips off the table while the valuation is hot. Because he could be like, we're growing really fast, but private equity is probably going to value his company double what it really should be valued. So then he should just take 70 % off the table.

17:34Eric Siu:Anything that grows really fast, what do you think is going to happen? Of course, it invites competition. And that means what goes up must come down.

17:41Neil Patel:Yes. And then you have people competing on price and giving away some of the things for free. We saw even with SEO, dude, a lot of the agencies back in the day would say, oh, SEO is hot on you. No problem. If you just do paid media through us, we'll do the SEO for free. Of course, they didn't put enough resources into it because they're giving away something for free. So they barely did much. But still people like, oh, OK, sounds good. I'm getting this new shiny object for free. Now, granted, SEO is much older now, but people start doing creative things to get the business. Yep.

18:14Eric Siu:All right. So we got another five minutes left here. What do you got on your side?

18:19Neil Patel:All right. So, you know, right now we've seen a huge change in creator. Okay. And when I say creative, when you're running marketing campaigns, you're generating Facebook ads, you're generating Google ads. it could be video ads, CTV, so like ads on Netflix. And I remember a few years ago, everyone's like, you don't need creative shops anymore, you can just have AI do everything. Now I'm giving creative as an example, because that could easily be disrupted by AI. And it has in many cases, because you can use humans for post-production, I mean, you can use AI for post-production, a lot of these other things to create more efficiencies.

18:59Neil Patel:We're seeing a whole new shift in marketing right now. A year ago, companies were putting a lot of pressure on marketers and agencies. If I actually look to now, customers and marketers are actually getting less pressure about AI than before. We also see a lot of big corporations slowly remove or starting to cut in certain areas because they were getting pressure from finance, at least in marketing, on headcount, and why can't you do more with AI? To now they're rehiring because they found that AI is creating a lot of slop and they still need the humans involved in the process. But what I'm getting at is whether it's creative or whether it's just general marketing tasks, yes, AI has affected marketing, but we're seeing a lot less pressure from customers and just companies alike that everything needs to be AI forward and you need to do more for the same money and you're not doing enough and why are we using humans?

19:56Neil Patel:a lot of them are actually reverting. Not to back where it was, but somewhere in between that is more realistic. And I would have to say the pendulum is swinging more towards the human side than the AI side from what we're seeing from a pressure perspective from companies.

20:11Eric Siu:That's interesting because earlier when we started this podcast, you mentioned kind of the do more expectation. We called out the survey as well, right? The expectation is to do more from founders. But I'm like thinking, I'm like, okay, well, wouldn't that be the expectation too from clients too, the do more fees? but maybe not so much like because your the client is not necessarily the founder all the time so i don't know that's just the thought that i had as you're talking about it

20:33Neil Patel:yep but realistically majority of the calls we have people aren't pushing as hard as they were a year ago and the reason being is that they weren't getting the results from all this ai investment i'm not saying that won't change but they're pushing really hard expecting people to be super AI forward. And when they look at the same budget that they spent with this new model, they're not really seeing any more growth. And when people started testing out some of the older models and the older ways, they really weren't seeing much of a difference either. Because a lot of these big corporations have like 20, 30, 50 divisions, so they can run experiments, right?

21:10Neil Patel:And it's the same agencies that they're paying that use technology versus that don't, or they select a few different ones. And what we're seeing is people are using AI and marketing. People just have to accept that. And people are expecting good results and a little bit more. But the crazy thing before was like, you should be able to do double, you should be able to do triple. When they're pushing that narrative, the quality just sucked. Yeah.

21:39Eric Siu:The way I see it before we wrap up here is services are here to stay. AI is here to stay. But what is also here to stay is you're always going to need, for the most part, human in the loop to quality check, to optimize, to maintain things. That doesn't change. If people are going to build more stuff, you're going to need more maintainers and optimizers and strategists. And so that's why I think Neil, and I'm speaking for Neil as well, we see that more humans, we're going to need to hire more humans to do work. And a lot of people are going to be reskilled over the next, call it the next 10 plus years or so.

22:12Eric Siu:So I think it's a net positive. And I think people are still getting used to it. And then the good news is, to Neil's point, expectations have dropped a little bit because this stuff has started to normalize. Anything else, Neil?

22:22Neil Patel:That's it. Thank you guys for listening in. We'll see you tomorrow.