AI-native startups run with 25% fewer workers, study finds

AI-native startups employ about 25% fewer workers than comparable companies not built around AI, with 15% fewer managers and fewer entry-level roles, according to a working paper examining thousands of US venture-backed firms.

"The newest generation of companies, infused with AI from the start, offer a vision of how work could soon be structured elsewhere," said Rem Koning, an entrepreneurship professor at Harvard Business School who co-led the research with Insead professor Hyunjin Kim.

The study, which analyzed Y Combinator and other US venture-backed startups, found AI-native companies had about 15% fewer entry-level workers and 15% fewer managers, with fewer rungs in the corporate ladder — yet similar valuations to their less AI-focused peers. Service-sector startups, including those in mental health and tutoring, saw the most dramatic shift, with workforces 70% smaller than non-AI counterparts. The companies raised comparable amounts of funding, giving AI startups about 20% more capital per employee.

The findings offer an early blueprint for how AI could reshape corporate America. Major companies including Amazon.com and Meta Platforms are already reorganizing, cutting management layers and investing more in AI. When Microsoft's Xbox division said in early July it would lay off 3,200 people, it pledged to cut management layers to between three and five — down from as many as 14 in some parts of the organization.

Pointhound, a three-year-old startup that helps consumers book flight deals with credit-card points, illustrates the trend. The company has four full-time human staffers and a fleet of AI agents, even though 750,000 people used its products last year. Its CEO Jay Reno, who previously ran a furniture rental company that peaked at 150 employees, said projects that took six months at his old company now take days. Even if sales grew tenfold overnight, he estimates he would need to hire just one more engineer and someone for marketing.

At OffDeal, an AI-powered investment bank that raised $12 million in Series A funding last summer, engineers and bankers sit side by side with nearly a 1:1 ratio — a far cry from Wall Street firms where engineers are often housed in separate offices. CEO Ori Eldarov said the company had software engineers shadow bankers for two weeks, cataloging every task to find efficiencies. The exercise revealed that pre-call preparation and post-call debriefings could be automated, and many reports eliminated entirely.

Flatter Structures, Fewer Entry-Level Roles

The research found that AI-native startups were more likely to hire from prestigious companies and elite schools, and were more likely to be male. Koning said slimmer companies don't necessarily mean fewer people with jobs overall — AI makes it easier to create businesses, potentially resulting in more companies, albeit with smaller workforces. But he believes established companies won't achieve significant productivity gains just by giving employees AI tools; streamlined reporting lines and embedded AI workflows make the real difference.

"There's going to be a hard limit on what existing organizations are going to be able to achieve," said Eldarov. Many companies are organized around human-to-human interactions, not human-to-AI interactions, he said. "Baby steps avoid risk but won't fix inefficient workflows."

The Investment Angle

For investors, the data signals a structural shift in how capital-efficient AI-native companies can be. With 20% more capital per employee and comparable valuations to non-AI peers, these startups offer a template for higher margins and lower fixed costs. But the trend also threatens traditional service-sector business models — tutoring and mental health startups with 70% smaller workforces could undercut incumbents on price. The question is whether established companies can adapt their organizational structures fast enough, or whether the AI-native upstarts will simply outrun them.

This article is for informational purposes only and does not constitute investment advice.