I was talking with an entrepreneur and investor here in Chicago today, and he pointed out a distinction that I’ve started to notice more and more over the past couple years:
Most startups today can be classified as either “high tech” or “tech enabled.”
Let me elaborate:
High Tech Startups
These are the companies that have to invent something just to exist. When Jobs and Wozniak put together the first Apple computer, they were building something that barely existed to that point - a home computer. They had to come up with new circuit boards, write an operating system, and order custom parts from suppliers just to make their first product.
This is a high tech startup. It’s an extremely risky application of technology to a novel area, and it usually requires an R&D phase, several rounds of prototyping, and then slow adoption in an uncertain market. If a high tech startup works, the payoff is huge, but if it doesn’t - and they usually don’t - everyone who threw money at it will lose (see Theranos).
Tech Enabled Startups
On the other hand, most software startups today are tech enabled businesses. High potential? Yes, but the barrier to market entry isn’t nearly as high as coming up with a new form of computing.
For example, Hired.com is a “talent marketplace” for developers - essentially a tech-enabled recruiting firm - that takes a 15% commission on every placement they make. I don’t know anything about Hired.com’s stack, but it’s pretty clear just by looking at the site that they’re not doing anything much beyond basic CRUD.
Why Does it Matter?
In truth it doesn’t. Startups can succeed as either “high tech” or “tech enabled” businesses, but in general investors favor the former, and therefore most founders try to spin themselves into that camp. I say “spin” because most SaaS startups are really tech enabled businesses with a thin veneer of “machine learning,” “blockchain,” or “AI.”
I’m making generalizations here, but I’ve had several conversations with “AI startups” this year who have done nothing more than collect data “with the intention of applying some AI later.” I don’t know where they plan to get this magic AI from, but my guess is it’ll really just be plugging into a third party provider’s platform.
And that’s okay.
Not every startup has to be a sexy unicorn built on novel technology. Most of them are just small businesses who adopt technology faster than their industry does on average.
I’d love to hear what you think. Find me on Twitter to chat.