Not every startup is a technology company, even if the two categories largely overlap. The pair are sufficiently intermingled that most infer the word technology before startups when they read or write the latter word.
But as we’ve seen from a number of recent public offerings, not every venture-backed startup that goes public is a technology company. And we can point to easy examples, in reverse, showing that not every technology company is a startup.
The issue at hand is that nearly every company within a short drive of being a tech company wants to brand themselves as such, thanks to sharp economic incentives. Selling mattresses, for example, is a business that few wake up in the morning excited to invest in. But a direct-to-consumer, digitally-native, sleep-focused startup? Well, get out your wallet.
Investors getting caught up in such excitement is how we’ve managed to see, variously, former startups selling salads, eyeglasses, and clothing rentals go public in recent weeks. They enjoyed decades of time and acre-feet of venture capital on their way to going public. And go public they did. But were they tech companies?
To say one way or another, we need a sharper understanding of what tech is, else we’ll keep muddling along, conflating startups and tech, among other sins.
Katie Roof, my former colleague and technology deal-hound extraordinaire, tweeted recently
that she had written “about salads and farmers in the past day,” adding that what counts as “‘tech’ is changing.”
Is it? To come to a conclusion on the point we need a definition. So let’s come up with one.
What counts as tech?
At issue with the general technology moniker is that we tend to read the word and think of consumer electronics, software, and similar products. That’s too narrow a lens.
As a classifier, technology doesn’t refer to a single type of product, or method of business. Instead, technology work is the building and selling of a product that presents immensely better economics than what came before it. Or more simply, tech companies are those bringing a good or service to market at a radically different cost profile to other, related goods and services.
We’re not focusing on product performance, mind; performance is a bit upstream from what we care about, namely business results.
Technology unlocks market shortcuts through new product types, product innovation, and similar. The result of that product work is pricing power, either in the form of lower costs making the market-clearing price for a particular good or service dramatically more attractive, or by driving a company’s ability to charge more for its product, thus, again, leading to strong business outcomes.
A third option is a tech company creating a new product category with attractive economics, though that happens less frequently than our preceding examples.
Sure, you can argue that tech can exist in the lab. But until something gets from a university to the street, it’s not tech per se; it’s more tech antecedent. A rough draft. Drafts, however, aren’t books, just as patents aren’t products. You get the idea.
What about Uber?
Our definition of technology as repeatable market hack allowing for improved business economics is useful for drawing the line between what counts as technology and doesn’t both historically, and in the present day.
The printing press? Definitely technology for its time. It made printed words mass producible, leading to sharply lower costs and sale prices, and, frankly, better long-term economics and a far larger TAM.
Uber? That’s more difficult. It did shake up some markets, but Uber has not shown an ability to present better economics than its historical rivals, given that it still loses oodles of money quarter in, and quarter out. So, not tech I would say. Tech-enabled, in that it depends on other technology products – smartphones, wireless Internet, etc. – to execute its business, yes. But it isn’t a tech company in and of itself, even if it does write code.
Back to startups
Another way to think about what counts as tech is to consider a company’s product gross margins. The higher they are, the more effective pricing power is at play, and the more likely that a product in question and the company building it count as tech. As pricing power, resulting in strong gross margins, is a lens through which we can anticipate stronger business performance, it fits neatly into our larger thesis.
Returning to startups and software, the reason why so many startups write and sell code is that doing so makes extant work tasks faster, and cheaper to execute. This allows software companies to charge attractive prices for their services, and at winsome margins.
Software is nearly the ultimate example of tech in that its marginal profitability can land as close to 100% as you can get in a mass-market business, while also accelerating the world.
Winner winner, big fucking chicken dinner.
Imperfect, but perhaps closer
I wanted to write out how I am thinking about what tech means, but I don’t want to presume that I’ve fully cracked the question. It isn’t hard to summon counter-examples to my first attempt at a definition.
One could imagine a children’s toy featuring the great performance improvements that tech offers, but with a cost-constrained market, less ability to demonstrate radically better economics than preceding, comparable goods. Still tech? Probably, even if not to our core definition.
Back to Rent the Runway, Allbirds, and Sweetgreen. Are they tech companies? No. Rent has gross margins too low to support its business. Sweetgreen is not dissimilar. Allbirds is simply a pedestrian business that seems to be moderately attractive. But it’s not tech.
Summarizing: Tech is a shortcut, a hack, a way through the current reality of business or life that leads to outsized economics results, often through the lens of either greatly improved gross margins, or vastly larger market-access allowing for huge adoption, and mountainous profits. Everything else is just tech-enabled at best.