How to identify false automation in startups and avoid fraud

The recent scandal involving Builder.ai, which operated with 700 human engineers while claiming to offer an automated platform, exposed an increasingly common practice in the technology sector: false automation.

In an environment where investors and customers are looking for increasingly automated solutions, many startups end up inflating their speeches and hiding processes that, in practice, are manual and carried out by human teams.

So, I’ll help you identify it with some tips:

• What is false automation
• Why is it so common
• How to identify it before investing or hiring
• How to protect your business

What is false automation?

False automation occurs when companies claim to offer products or services based on artificial intelligence or fully automated processes, but in reality, much or all of the work is performed by human labor.

Why is it a problem?

❌ Misleads consumers and investors

❌ Overestimates the value of the company

❌ Creates financial and operational risks

❌ Harms the innovation ecosystem

Why do startups fake automation?

✅ To appear more innovative

Investors are looking for automated and scalable solutions. Startups know this and adapt their pitches to appear more “techy”.

✅ To attract more investments

Automation promises lower costs and higher margins. This attracts venture capital.

✅ To gain traction in the market

Early-stage startups need to show aggressive numbers and may choose to inflate capabilities.

Famous cases of fake automation

What are the risks of fake automation?

• ⚠️ Risk of financial collapse, as happened with Builder.ai
• ⚠️ Loss of credibility in the market
• ⚠️ Possible lawsuits for fraud
• ⚠️ Damage to reputation with customers

How to identify fake automations?

Here’s a practical checklist:

✅ Ask technical questions:

• Can the company demonstrate its automation in action?

• Is there evidence of real machine learning?

✅ Ask for data:

• What is the ratio between employees and automated processes?

• Are there many hidden outsourced workers?

✅ Research:

• Has the company ever been the target of investigations?

• Are there reports from insiders or former employees?

✅ Analyze signs:

• Does the automation seem too good to be true?

• Very fast growth without technical validation?

How to protect yourself when investing or hiring?

• ✅ Demand independent technical audits
• ✅ Check corporate governance
• ✅ Prioritize transparent companies that publish whitepapers
• ✅ Consult AI and automation experts

The ethical impact of false automation

In addition to the financial consequences, false automation raises a major ethical debate:

• Companies hide human labor in often precarious conditions.
• Misleading AI advertising undermines consumer trust.
• It creates a toxic environment for startups that do real innovation.

What can we learn from the Builder.ai case?

✅ Not all “automation” is automatic.

✅ Not all “AI” is intelligent.

✅ Transparency is more valuable than hype.

Builder.ai is a classic example of how the seductive discourse of AI can hide a traditional operation, which sooner or later ends up collapsing.

10 important questions about false automation

1. What is false automation?

When a company promotes automated processes, but uses hidden human labor.

2. Why do companies do this?

To attract investments, appear more innovative and gain a competitive advantage.

3. What are the risks?

Financial fraud, business collapses and loss of credibility.

4. What are famous examples?

Builder.ai, Amazon “Just Walk Out” and QuickBooks.

5. How to identify fake automation?

Requiring technical demonstrations, checking operational structure and doing due diligence.

6. What should investors do?

Request audits and analyze the company’s real automation capacity.

7. Is it illegal to practice fake automation?

It can constitute fraud and violate market and consumer protection standards.

8. What are the social impacts?

Exploitation of human labor, misinformation and devaluation of real innovation.

9. How to protect my business from this?

In-depth research into suppliers and partnerships, looking for transparent companies.

10. What have we learned from Builder.ai?

That hype is no substitute for substance and that verification is essential.

And the future of AI?

The Builder.ai scandal is a global wake-up call: the era of AI and automation needs to be led with ethics, responsibility and transparency.

As consumers, professionals and investors, we must remain vigilant and seek to understand the true nature of the technologies that surround us.

Until the next reflection, dev! 🚀

Cirino | Casa do Dev https://casado.dev