The AI Divide: 95% Waste Resources, 5% Will Take All the Rewards

From the Rule of 40 to the Rule of 70 and How GenAI is Changing the Game for Small Business Valuations and Operators

Aug 28, 2025

MIT’s recently published study this week that 95% of AI pilot implementations over the last two years have failed to deliver any value has every investor and business owner/operator questioning if we have hit the peak of inflated expectations and are heading into the trough of disillusionment.

Introduction to the Gartner Hype Cycle - BMC Software | Blogs

Image source: Gartner

For the last couple of decades, if you ran a services business or SaaS company, you knew the magic formula: the Rule of 40. If your revenue growth rate plus profit margin equaled 40% or higher, you were considered healthy and had an asset that at some point someone would acquire at a healthy multiple so that you could exit into financial retirement. That simple benchmark opened doors with investors and acquirers, often justifying premium multiples.

But let’s be honest, those days are gone.

Why the Old Rule of 40 Isn’t Enough Anymore

The recent AI boom pulled billions of dollars into companies that promised the moon. Most of them didn’t deliver. A sobering MIT study showed that 95% of enterprise AI pilots fail to deliver ROI.

The reasons: poor integration, no feedback loops, shadow AI, and wasted resources.

The result? Markets eventually ALWAYS correct. When they do, investors seek the safety of healthy operating businesses with strong reserves, care less about hype and more about fundamentals. They want cash flow, profitability, and proof of execution, not just a roadmap of potential.

And that’s where the new operating standard is emerging.

The Rise of the Rule of 70

Generative AI isn’t just another tool—it’s a lever that changes the math. Integrated properly, GenAI simultaneously lowers costs and accelerates growth. That’s why buyers are starting to measure health by the Rule of 70:

Rule of 70 = Growth Rate (%) + Profit Margin (%) ≥ 70

Companies that hit this benchmark are drawing outsized attention in M&A. I’m talking about multiples in the 20x+ range for firms that prove their GenAI systems actually show up in trailing twelve-month (TTM) results.

Here’s why acquirers will be paying up:

Margin Expansion – AI strips out repetitive costs, lifting EBITDA.
Growth Acceleration – Sales and delivery scale faster through automation and personalization.
Moats Through Systems – Once AI is woven into operations, it’s tough for competitors to copy.

But remember: no one pays for potential. They pay for proof.

Why 95% Fail and How to Join the 5%

Back to MIT’s data. Most AI efforts flop because companies treat them as side projects. Pilots get bolted onto workflows without strategy, feedback loops stall out, shadow AI runs unchecked, and resources get poured into the wrong areas.

Here’s the kicker: those exact failure points are what The Generative Organization (the #1 Amazon bestselling book I co-authored with Bryan Cassady and 34 other AI expert leaders) was built to solve. GenOrg frameworks move you from the 95% who struggle into the 5% who get ROI.

How GenOrg Tackles the MIT Failure Points

Alignment first (ABCS + PERSIST): Every AI project starts by tying back to business outcomes. No more “pilots in search of a purpose.”
Continuous improvement, not one-off pilots: Small, disciplined experiments with built-in feedback loops keep innovation moving.
Channel shadow AI into strength: Instead of policing employees, create sanctioned sandboxes and guilds where experimentation thrives responsibly.
Put AI where it compounds value: Don’t waste it on vanity use cases—apply it to back-office bottlenecks, scheduling, and workflows where ROI is immediate.
Blend human + AI intelligence: Persistence and judgment stay human. Speed, scale, and synthesis come from AI. Together, you win.

This is exactly why the GenOrg frameworks aren’t theory; they are a system.

The PERSIST Framework: Intelligent Persistence in Practice

One of the most actionable frameworks we included in The Generative Organization is my PERSIST framework. It’s designed to help leaders harness AI without losing the human spark:

P – Purpose-Driven: Anchor every AI project to a human challenge.
E – Experimentation: Run small, cheap tests to learn quickly.
R – Resilience in Learning: Don’t outsource judgment to AI—interrogate results.
S – Smile: Free people from repetitive work so they stay energized.
I – Intentional Adaptation: Evolve workflows and roles as AI advances.
S – Sustained Focus on Experience: Always ask, “Does this improve life for customers or employees?”
T – Tenacity in Principles: Be relentless in goals, flexible in methods.

💡 Factoid: James Dyson famously created 5,126 prototypes before nailing the bagless vacuum. That wasn’t stubbornness—it was intelligent persistence. That’s what PERSIST looks like in the AI era.

The Acquirer’s Playbook: From Rule of 40 to Rule of 70 (or 80)

If you’re looking to buy and scale companies, this is the playbook:

Start with businesses at or near the Rule of 40 – They’re fundamentally sound.
Identify GenAI leverage points – Where can you lift margins and accelerate growth?
Model post-acquisition cash flows – Project how AI drives a combined score of 70–80 within three years.
Buy low, sell high – Acquire at Rule of 40 multiples, exit at Rule of 70+ premiums.

That’s how you build generational wealth through M&A in the coming cycle.

Why This Matters for Small Business Owners

If you’re running a $2.5M–$10M services company today, the opportunity is enormous. By adopting GenAI with the right frameworks, you can:

Move beyond survival benchmarks.
Create real moats in your vertical.
Position yourself for premium exits or recapitalizations.

But you’ve got to stop treating AI as a toy and start embedding it as infrastructure. That’s what separates the 95% from the 5%.

Take Action: Secure Your Future Success

Here’s how you can put this into practice:

🔑 Paid Subscribers: Get access to the full 508-page international bestseller The Generative Organization, companion guides, and 29 customizable GPTs designed to help you apply frameworks like ABCS and PERSIST directly to your business.
📚 Not ready for paid? Just order the ebook or hard copy on Amazon here and start implementing the playbook today.

Thanks for the endorsement

Travis Wright

and make sure you subscribe to his Substack too!

Closing Thought

The shift from the Rule of 40 to the Rule of 70 isn’t just about valuations. It’s about mindset. It’s about blending human persistence with AI’s exponential capabilities.

Those who learn to do it will not only command premium multiples but will also build resilient organizations that thrive in uncertainty.

The formula is simple: