In the capital communities of venture capital or angel investing, we often talk about the considerations of a startup that is “tech-enabled” rather than “tech.” A tech company, it seems, is often valued to a greater degree relative to revenue, than a company tech-enabled.
Is that valid? What is the difference? Is your work in technology or is it tech-enabled?
Most importantly, one is not inherently better than the other; the distinction exists to help characterize the nature of the company. And yes, while there are implications that help determine the team, possibilities, and valuations of the work, one is certainly not better nor worse. If anything, we really see it proven that risk and reward find balance.
A tech-enabled business uses existing tools, platforms, libraries, and frameworks to make a company or a solution it provides more efficient or effective. Tech-enabled businesses are greatly valued over businesses that are not, particularly in today’s digital / online driven economy. The internet is technology, and increasingly the more successful companies are using the tools, platforms, and even people it provides, more meaningfully. We’re witnessing that companies that are not tech-enabled, struggle.
How you might think of it is that a tech company is more oriented to science whereas as tech-enabled company is oriented more than otherwise to engineering.
A technology company is an organization that wouldn’t (indeed, couldn’t) exist if it weren’t for technology.
Tech companies deliver completely new products to the market by way of either:
- Push: when the organization uses a new invention to create a new market. It’s from this that the idea that the customer doesn’t know what they want until they have it comes. Sony Walkman might be considered a push technology whereas the later Apple iPod isn’t the same notion.
- Pull: when the economy or an industry reveals a problem to be fixed and technology creates the solution. Here, Apple’s iPod applies since the portable player already existed and with the emergence of MP3s, the market revealed a problem to solve with a new technology.
Tech-enabled businesses don’t really push into the market; they respond to pulls. This is a pretty important distinction in startups and funding because most advisors, investors, and even founders seem to neglect the considerations of being one or the other.
Tech-enabled businesses are where execution, efficiency, and time to market are more important because you likely have many competitors, can be replicated, and must know the market and trends so as to uncover a new business model for a known problem. For such founders, KPIs and ROI should be key words and areas of focus.
The tech company understandably has more unanswered and unanswerable questions, demanding more tests, trials, research, and patience. While understanding the market is just as critical, rather than being focused on the model, you’re first focused on what works and what will be sustainably adopted in the market. For such founders, partnerships, market share, and competitive advantages can be the more important.
Why Does It Matter if You’re a Tech or a Tech-Enabled Startup?
This distinction helps define the plan for what could become and sets the path to get there.
From this we can appreciate your strengths and weaknesses, your core competencies, to help uncover if you should be more or less oriented to intellectual property, promotions, outsourcing, funding, customer service, etc.
“Tech-enabled companies aren’t building the internet, mobile devices or social media platforms; they’re using those technologies,” notes Erik Huberman, CEO of Hawke Media. “Tech companies build the hardware, software, algorithms and platforms.”
Knowing that you are one or the other makes all the difference in appreciating the skillsets, priorities, and capital investments most meaningful to the limited time and resources you have to bring to bear.
At the end of the day, in either case, people are your most valuable resource; and it’s the question of which kinds of people that helps guide you to being successful with technology. A team of engineers best leverage technology on behalf of what the market is revealing you should do or a team of more scientist-like explorers determined to solve a problem presented but unknown?