daily articles for founders

Running a startup in the UK (or with a UK subsidiary)? Get in touch with my company, GrantTree. We help with government funding.
What is a technology company?  

Here's a thoughtful article by Alex Payne trying to pin down what a technology company is, and what we should call businesses that rely heavily on technology but don't strictly sell technology.

As Alex points out:

...this mis-labeling results in the conflation of companies in totally different industries applying totally different business models, all being funded and staffed and reported on by the same pool of people. If we remove the label of "tech startup" - and with it the hypothetically stellar trajectory we like to imagine such businesses are on - we're forced to confront the reality of a business's model, independent of the reverberations of the echo chamber.

At the same time, it's interesting to note (as Alex does) that all businesses are converging towards being heavily technology-driven. Because of this, and because of the extent to which companies end up relying on technology, I don't think it's clear that a company is not a technology company just because they don't "sell technology".

For example, one of our R&D tax credit clients sells flowers. By Alex's definition, this wouldn't count as a technology company. And yet, scratch the surface, and you may find out that this company doesn't just leverage technology as a side-effect. It's part of their competitive advantage. What this specific company has done is custom-build a complex logistics backend that powers their sales and enables them to dynamically adjust and predict pricing and products offered based on the availability of flowers across Europe. Take away this technology, and the company probably wouldn't function.

How about another counter-example, in the other direction: a small shop that builds custom computers to order and ships them out is "selling technology" to their customers. Are they a "technology company"? Not really, because they don't invent any of the technology.

I'm tempted to take a more inclusive view than Alex, so I would argue that a company is a technology company when custom-built technology is critical to what they do. By this definition, large banks are indeed technology companies, since they do enormous amounts of in-house, custom software development and they cannot function at all without that technology.

What about the nefarious effects of calling "tech startup" a company that isn't really a technology company? I'd argue that a company which develops its own technology tends to do so in order to scale better. A company which sells flowers via a dynamic logistics system is radically different (and scales in very different ways) than a company which does all their flower purchasing manually, so they should certainly be treated differently by investors.

More from the library:
Doing more by doing less
Different types of risk
What have you done wrong?