Tech unicorns don’t appear by magic
3 min read
The definition used for a ‘digital tech business’ in the Tech Nation Report is a “business that provides a digital technical service/product/platform/hardware, or heavily relies on it, as its primary revenue source.” But ask around, and you’ll find people attached to all sorts of different ideas of what a ‘tech company’ is.
It’s fashionable for companies to market themselves as ‘tech.’ The word invokes images of beer pong, bean bags, and millennials. It’s a way of implying your company is at the forefront of innovation without necessarily having to innovate.
Coworking company WeWork raises funding in the same manner as a tech startup. It recently received $4.4 billion in investment from SoftBank and is now a unicorn, meaning it’s a ‘startup’ valued at more than $1 billion.
Unlike WeWork, unicorns are typically in the ‘technology, mobile technology and information technology’ sectors. WeWork is a key example of how classifying a business as a ‘tech company’ opens it up to new avenues of investment not normally available to office management companies.
But as investor and former Twitter engineer, Alex Payne, asked in 2012, “Is a company that has staff members with ‘programmer’ or ‘engineer’ in their titles a technology company?”
Sainsbury’s, with one of its main offices in Manchester, has more than 600 digital and technology roles. But everyone agrees that Sainsbury’s is a retailer.
But why are there so many companies lying outside this definition that want to call themselves tech companies?
Frequently, companies that are heavy users of technology are conflated with technology companies. This is partly because there is immense value in defining your company this way.
One 1999 study called ‘A Rose.com by any other name’ illustrated how, during the dotcom bubble of 1997 – 2001, companies adding the dotcom suffix to the end of their name experienced a temporary surge in their stock price. The company did not have to be particularly affiliated with the internet, showing there was real financial gain by aligning your company with tech.
The landscape has changed since the dotcom bubble, but there are still lots of companies engaging in similar practices. We asked several tech companies based in the North of England just how they would define a tech company.
The CEO of the Newcastle-based Hedgehog Lab technology consultancy, Sarat Pediredla, says, “Today’s business world relies upon technology – so much so that I would argue any large firm could now be classed as a tech company.
“In our case, the rationale for our classification as a tech company is simple. We produce technology, it’s our product/service, and the focus of our expertise.
“But the definition can be applied in a much broader context. For instance, WeWork exists to enable productive tech working. You won’t see it renting space to a retail or manufacturing business. You can see it as a key part of the industry itself.”
It can be argued that WeWork operates in the tech industry by only serving technology clients. They also heavily rely on technology. But is merely being associated with the tech industry the same as actually being a tech company? Or should WeWork be classified as being a part of the broader ecosystem?
Some companies agree that a definition should be based on tech being the product. The product can be hardware, like the Apple iPhone or the IBM computer. It can also be software, such as Spotify’s music streaming platform or Oracle’s enterprise database software.
This is a great definition by Alex Payne:
“You are a technology company if you are in the business of selling technology. That is to say, if your product – the thing you make money by selling – consists of applied scientific knowledge that solves concrete problems and enables other endeavors, you are a technology company.”
We can define a tech company by the products or services it sells. But, by this definition, celebrated tech companies such as Airbnb and Uber would not qualify. They are very much tech-driven, but their true industry is hospitality or taxis.
This definition seems to be too narrow, and many other tech companies don’t agree.
Potentially, technology could even be a service in the way that Uber has revolutionised the taxi industry with its software platform and infrastructure.
David Coveney, Director of Liverpool digital agency Interconnect IT, says: “A true tech company creates new technology. It doesn’t necessarily sell it to other people. It may use technology as part of a product, such as Uber which both uses and creates technology in order to assist people in booking minicabs. Or it may be like Google which creates new search algorithms.
“But technology isn’t just software and can be machine based, or even quite simple things like a new kind of kitchen tool. Paper is technology. Glass is technology. Corning makes glass, and they are very definitely a technology company. But my local glass company is not a tech company. They merely supply glass.”
Uber is a salient example because it has been the subject of dispute in the past over whether it’s a tech company or a taxi company. Airbnb also faces similar charges over whether it’s a hospitality company or a software company (it would like to say the latter).
The answer has serious consequences for how a company operates, and how it is regulated.
Simply having a software platform doesn’t necessarily entitle a company to ‘tech’ status.
Jamie Hinton, CEO of Sheffield-based technology consultancy Razor, says, “We believe the answer is fairly simple. If you took away the technology that a company has created and it wouldn’t survive, it’s a tech company.
“Buying or consuming someone else’s technology out of the box doesn’t count. In this case, you’re definitely not a tech company. You must have created technology that differentiates you from the competition to truly be called a tech company.
”You don’t even have to sell technology directly, or as a service. If the contribution of technology to your business and your customers becomes an integral part of your operations, then it’s time to ask yourself if you’re a company in X industry, or if you’re a tech company that also happens to be in X industry. The shift in focus might unlock your next level of growth.”
This is probably the reason why Uber and Airbnb get away with being classed as tech companies. They’re deeply defined by the software platforms they’ve created to disrupt existing industries outside of tech.
Head of Projects at Manchester startup consultancy The Startup Factory, James Brookes, says “A technology company or startup is a company who, without their technology or their technology partner, would cease to be able to function effectively.”
Then there are the companies formerly operating in one industry who classify themselves as tech companies.
Auto Trader, based in Manchester, is an online automotive marketplace, and formerly a print publication. They’re one example of a traditional company that has survived the disruption wreaked by digital publishing, and is now even flourishing.
Alison Ross, Customer Experience and Operations Director at Auto Trader, says, “I increasingly don’t think of tech companies in terms of what they do, but how they do it. You could argue that a car manufacturer, a bank, or any retailer is now (or ought to be) a tech company.
”To me, it’s often shorthand for a specific culture and approach to business: collaborative, innovative, purpose-led, and values-based.”
UK Managing Director of digital agency Valtech, Phil Hall, says similarly.
“By definition, a tech company harnesses technology to create a competitive advantage.
”At Valtech, we believe that the most successful tech companies are those that not only harness technology, but also maintain a relentless focus on satisfying their users’ and customers’ needs to create awesome experiences.”
Some simply define technology companies as being oriented by tech’s unique culture and values.
Amy Gornall, PR and Marketing coordinator at IT talent agency Doris, says, “A true ‘tech’ company is one that will never stop learning. It’s run by a diverse group of passionate people who are looking to build a better, smoother and exciting future for our next generation!
“They’re also organisations that wouldn’t exist without technology, or have been created based on a technology product or service (like Doris)! Otherwise, all companies would be tech companies in the modern world.”
While culture and values are important in any company, these must be combined with the other factors previously discussed to truly qualify as a ‘tech’ company.
To qualify as a tech company, a company has to make new technology (whether or not they sell it to an end user), use it to differentiate themselves, and be driven by the values of innovation and collaboration.
Many companies now have to produce technology without necessarily relying on it for revenue. However, their technology must be a key differentiator in how their business generates value.
You can separate ‘true’ tech companies from the wider technology ecosystem, such as coworking spaces and recruiters.
Technology adoption will continue to become more widespread and many more companies will be keen to adopt the label. The line between a tech and non-tech company is set to become even more blurred.
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Featured image credit: tec_estromberg / Flickr
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