Startups Are Not About Technology

Scaling Strategy by TheFamily

By Nicolas Colin (Co-Founder & Partner) | TheFamily

This story is part of a TheFamily series exploring business strategy in the 21st century. Sign up for my weekly newsletter to make sure you’re up-to-date on how businesses thrive in the digital age.

The word ‘technology’ has become ubiquitous in today’s economy. It is used as a suffix to refer to the birth of a host of new startups in a given industry, as with ‘FinTech’, ‘EdTech’, ‘LegalTech’, ‘HealthTech’, and even ‘CivicTech’ or ‘SexTech’. Online advertising, which was once thought to be the whole of the digital economy, had to be rebranded as ‘AdTech’, one industry among many. It’s as if every company now wants to be called a tech company.

But ‘technology’ has also become a somewhat misleading word. The word tends to be confused with ‘innovation’ or something along the lines of ‘deploying new, scalable business models made possible by information and communication technology’. Here is its full definition in Merriam-Webster:

The practical application of knowledge especially in a particular area or a capability given by the practical application of knowledge; a manner of accomplishing a task especially using technical processes, methods, or knowledge; the specialized aspects of a particular field of endeavor.

Information and communication technology is not startup specific. On the contrary, it is widely used in traditional companies, but mostly to sustain existing business models rather than to create new ones. As Nicholas Carr once wrote, information technology has long since become a commodity:

What makes a resource truly strategic — what gives it the capacity to be the basis for a sustained competitive advantage — is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do. By now, the core functions of IT — data storage, data processing, and data transport — have become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none.

One reason why startups are often confused for technology is that, as they are part of the digital economy, they deploy their business on a common ground enabled by software, which is a general purpose technology — or, as Venkatesh Rao puts it, the third “soft technology” in the world’s history:

Only a handful of general-purpose technologies — electricity, steam power, precision clocks, written language, token currencies, iron metallurgy and agriculture among them — have impacted our world in the sort of deeply transformative way that deserves the description eating. And only two of these, written language and money, were soft technologies: seemingly ephemeral, but capable of being embodied in a variety of specific physical forms. Software has the same relationship to any specific sort of computing hardware as money does to coins or credit cards or writing to clay tablets and paper books.

What makes a difference in the startup world is not the fact that Entrepreneurs use technology, but the way they use it. The spreading of software technology has a measurable impact on productivity statistics thanks to the considerable efforts of those who went beyond simply sustaining pre-existing business models with technology. But contrary to what is widely assumed, technology is not much of an issue for a startup — at least not in its early stages. Several factors have even turned technology into a commodity for any company operating at a small scale.

Finally, the most crucial problem with the word ‘technology’ is how misleading it is depending on context and language. France, for instance, is a country with a passion for technology. We train exceptional engineers (and we breed the best mathematicians in the world). And so the idea of startups here is engineers / researchers / inventors / scientists developing breakthrough technologies protected by patents. The problem is that French engineers, while usually good in their field, are also painfully bad at hacking new business models: hence the tendency of our ‘startups’ to fail miserably. The widespread view that startups are all about technology is a deep and lasting misunderstanding — a key part of what makes France such a toxic environment for startups.

Here are three questions:

• Do you think that the digital economy is about technology? If yes, you’ve been misled: what matters are the needs of customers, not technology.
• Do you think that technology requires research and development? If yes, you’ve been misled again: what makes the digital economy so powerful is that the technology you need is already developed, abundant and cheap.
• If you need technology to break a constraint, do you intend to develop it yourself? If yes, think twice: maybe it would be faster, more secure and cheaper to buy it from the market.

I’m glad to have your comments and feedback. Also, sign up for my weekly newsletter to be notified when new issues are published.