Opinion: What is a tech company? — What is technical innovation?

Those are my definitions, and not meant to be universal; but they have served me well in my past years navigating and advising tech companies of various stages. I hope they’re useful to you with regard to your own definitions.

What is innovation? — An intersection of two things

I tend to call innovation something that matches both those criteria:

• It is done in some kind of new way. It doesn’t need to be crazy disruptive or visionary, but there is something about it that doesn’t fully match how other players do it.
• What is new about it makes it have more scalable business value, that is monetizable and measurable, in a firmly proven way.

You must have both. I tend to cringe when I hear:

• Large companies reaching successful milestones aligning with current industry best practices, and because they are most focused on the breadth of what happens within their walls, call those successes innovations because it wasn’t done within their company before. If it’s not new industry-wide, no matter how necessary it was and how much it improved your value, it is not innovation.
• Pre-product-market-fit startups that present their product as innovative. If you haven’t found product-market fit, then the scalable value isn’t proven yet, and therefore no matter how new and unusual it is, it is not innovation (yet?). I get it that founders mean that they see it become an innovation in the future, and that it fits the definition enough for them; it doesn’t for me.

Why does that definition matter? Because I’ve seen it be the difference between a successful startup product, and a startup whose product failed. If I’m a VC, my baseline is that I’m seeking that one deal in my portfolio that will grow 100x; therefore that baseline defines startup success.

• If a startup is building a product that is new but isn’t proven to produce scalable value, then it hasn’t found a scalable product-market fit yet. As an investor, if I go for it, I’m aware of the risk, and I know that finding that scalable product-market fit will need to be the startup’s primary goal until it’s achieved, and that the startup will die if it doesn’t find the “innovation” to build itself around.
• If a startup is building a product whose monetizable KPIs are growing well, but is not doing it with any kind of new approach, it will likely find its growth capped by whatever business the incumbents will let themselves lose. It’s way less likely for the startup to disrupt the incumbents since it’s doing it the same way they are, or for the startup’s niche to eventually grow since it most likely would have already. In a nutshell: that business is more likely to become a successful lifestyle business, and therefore in VC/startup speak, a failed startup.

What is technical innovation? — Bite-sized industrial revolutions

When the world changes in some way, it opens the door to new approaches that weren’t relevant before; and therefore to more potential innovations worth attempting. Innovative businesses historically have peaked along the lines of the current industrial revolution. You can automate your factories better? Cheap cars are suddenly possible! You should look at how many car manufacturers there were in the early 20th century compared to now. A lot of them don’t exist anymore because they grew a lot and got acquired; which is success in VC/startup speak.

The current industrial revolution is IT, with an emphasis on software. And while I haven’t lived enough to be fully aware, this industrial revolution sure is fast-moving enough that it feels like the gift that keeps giving.

“Fast moving it is; there are just too many frameworks and tech tools to catch up on!” But please wonder: why are people spending time creating them, and why do some new ones keep becoming widely used eventually? People talk of tech hype, but the market doesn’t care about tech hype. Those technical solutions become widely used, because as all technical solutions should, they get created to better solve business problems, and not technical problems.

As a result, as we use existing software to find more stuff to make it do, we also create new use cases; and those use cases would be better served with different software, that in turn, gets created, creating new use cases. With the constant renewal of this industrial revolution, and how fast existing tech assets and business needs are both evolving, it creates an ever-renewable trove of innovations waiting to be found. What a world we live in!

(To my engineer friends: think about how a business problem, the scalability of humans working on the same web back-end code base without breaking each other while maintaining a decent technical debt, is widely being solved with micro service architectures. Now, think about how today’s micro services are most powered by languages such as JavaScript, which was created to animate a webpage and just happened to have a strong callback culture to make it solve I/O issues simply, and Go, which was created as a “faster monolith” language that just happens to be built for concurrency, compiled, multithreaded, and packaged with no dependency. Total reuse of existing tech to align with new business problems, and give them new use cases. But think also about what new business possibilities micro-service architectures then opened, and what new tech is emerging to manage them better and push them further.)

So, technical innovation is, to me, innovation carried by the current industrial revolution; today, that’s innovation thanks to IT breakthroughs, most of them being software. You don’t need to be a technical innovation to be an innovation (people keep finding smart new valuable ways to solve problems about all kinds of things!), but:

• There’s a lot more technical innovation to go by, because that’s where the world is currently changing the most, and creating constant pockets of required realignment.
• Software innovation is what I know best, and what I feel most relevant to speak of. All other kinds of innovations, I’ll happily leave it to the experts of those innovations to discuss.

This was part 1 of my “What is a tech company?” series. Watch out for:

• Part 2: “What is a tech company? — How to generate technical innovation?”
• Part 3: “What is a tech company?—From early-stage startups to high-scale tech companies, how do others do it?” (coming soon)