AI startups risk collapse without data systems, warns ex-Facebook executive

Former Facebook design executive Julie Zhuo warns that AI startups are building their businesses on “good instincts and good vibes” rather than solid data analytics, despite attracting hundreds of millions in funding. Her critique highlights a fundamental vulnerability in the AI boom: companies experiencing explosive growth lack the infrastructure to understand why they’re succeeding, leaving them unprepared when inevitable slowdowns occur.

What you should know: AI companies are growing at unprecedented speeds without implementing proper data analysis systems to understand their success.

• “I don’t think a lot of the fast-growing companies are using data well at this point,” Zhuo explained in a recent podcast interview with Lenny Rachitsky.
• Many AI startups have minimal staff but generate “hundreds of millions [in revenue], and hundreds of millions of users” without the infrastructure to analyze their business performance.
• The explosive growth is happening so fast that traditional business analytics haven’t kept pace with company expansion.

Why this matters: The AI funding boom is financially unsustainable, and companies operating on hype alone will struggle when growth inevitably slows.

• 33 US-based AI startups have raised over $100 million in 2024 alone, with some funding rounds reaching billions of dollars.
• None of these companies are close to turning a profit on AI, something even leading big tech giants haven’t achieved.
• When venture capital funding dries up, only data-driven startups may survive the inevitable market correction.

The big picture: Zhuo’s warning reveals a dangerous irony in the AI industry’s rapid expansion.

• Companies that grew through “vibes” rather than analytics will find themselves “scrambling” when they need to function like actual businesses.
• “Things just don’t grow that fast” traditionally, making current AI growth patterns historically unprecedented and potentially unsustainable.

What they’re saying: Zhuo, Facebook’s former head of design turned tech entrepreneur, emphasizes the critical importance of data-driven decision making for long-term business survival.

• “In my mind, [data] helps us reflect back on what is reality… what always happens is eventually, things stop growing,” she cautioned.
• “Growth does not happen forever. And usually when growth stops, everyone has this question like, ‘what’s going on, what happened?'”
• “If you don’t have good observability over how your business runs, then you will be scrambling.”

The bottom line: While Zhuo focuses on individual startup longevity rather than broader economic concerns, her analysis suggests that the current AI investment frenzy may be setting up companies for failure when market conditions inevitably change.