What Does it Mean to be a Tech Company vs. Tech-Enabled?
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?
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Thank you Paul.
My environment is deeptech and technology transfer. So it’s very useful for me (I frequently screen and judge projects, sometimes for governmental programs which seek “innovation behind it”, “the state of the art technology”, “true tech companies”).
I was always uncomfortable with the word “innovation” and phrases like “more innovative” when I compare startups. But tech and tech-enabled companies is much more transparent distinction that helps founders to understand this difference and make my work as evaluator more transparent.
“Tech Enabled” see WeWork.
“Tech-Enabled” see pretty much every other
Superb article. I like that you mentioned partnerships, as I believe not a lot of founders focus on them.
I’m not sure about the iPod belonging to the pull category, yeah, mp3s players already existed but iTunes was just another piece of software until it got married to iPod and both together changed the music industry.
Also, in that specific example, you focused on a particular product instead of Apple as a company. I believe there is no doubt Apple is a tech company.
I really like that you mentioned that one is not better than the other one, and the need to find moats is more pressing on tech-enabled companies.
Thank you for sharing your thoughts!
It didn’t really strike me until I wrote it Roberto Inetti that that’s the subtle difference confusing investors and advice.
IF Tech… you can’t invest because customers. Invest to make it.
IF Tech enabled… you *can* expect some customers but also need to invest in that moat or it’s likely to fail
I like the article but…in our case the company exists BECAUSE of the technology.
“A technology company is an organization that wouldn’t (indeed, couldn’t) exist if it weren’t for technology.”
The challenge of a deep tech – science solution to a real problem is identifying people who understand the technology and see it as a solution to a real problem. Often, they who do not understand will comment things like “it’s not possible,” or “who else is doing what you’re doing,” or etc.
Yes and No 🙂
Yes, there is an education curve you need to conquer but… if the problem is real and the solution is clear, this is easily doable.
My startup makes websites load in one second or less on mobile. Do you know how many people told me it was not possible? Well, they don’t say that after they see demos and try the product themselves.
Woohoo! This makes me a Tech company! Thanks for the post. 🙂
eh, but also shows why my job as a founder is nearly impossible without a technical partner or funding – which is painful but also strangely relieving. ha. 😐 #allthemixedfeels #cofounderisbae
The lines between both kinds of companies are not written in stone. Amazon would likely be viewed initially as a tech enabled company. Given their development of proprietary tech for the cloud, distribution, advertising, etc. I think it is hard not classify them as a tech company today. On the other hand, there are a lot of tech-enabled companies that market themselves as tech companies even though to the extent they have proprietary technology it is not a primary driver of value or the source of a competitive mote.
Dror Futter Good point on source of competitive mote! Agreed, because for my company, that isn’t our primary driver of value at all, it’s just the tool that hasn’t been created yet – but it is essentially the underlying ‘product’ and the thing necessary to get noteworthy testing and traction.
Thanks for sharing this information with us
Our business is certainly tech-enabled. It is really interesting how ‘sniffy’ potential investors can be; ‘You’re tech-enabled, rather than tech right?’, always comes across as a minus for many of them. We are as you focused on KPIs and ROI just as you say. Thanks for this clarification on the terms – I feel like I can have a clearer answer in response to the question and how to handle it. We are tech-enabled and proud of it :+).
Tech-enabled businesses are like college teams: Many fragmented competitors.
Tech companies are the stadium’s the teams constantly play in.
Darnell Phelps dude! You’ve given me fodder for a new perspective: sports analogy is great but in our MediaTech Ventures context, I love using band and music analogies…
Tech-enabled businesses are like bands, many fragmented competitors. Tech companies are the stadiums where artists reach fans.
Great read! Mine is definitely tech enabled for sure.
Cheers Mina Davis
It’s inevitable that the two segments will converge in the not-so-distant future. Tech enabled businesses will have to incorporate tech development to be competitive in the same way that businesses that fail to become tech-enabled are being left behind. The current barrier to tech innovation is a lack of understanding of technology, which will fade away with each generation.
Helpful article for now, but I think the definitions will need some adjustment soon.
Alex Shahrestani “The current barrier to tech innovation is a lack of understanding of technology, which will fade away with each generation.”
Will it though?
Merely speaking for myself, I’m more familiar with the internet than most people I know, and likely most people given my work with it for the past 30 years. And yet, with Web3 racing upon us, I increasingly appreciate how older generations keep that tech gap alive and well.