Understanding the Difference: Tech Companies vs. Tech-Enabled Businesses
Introduction
In the digital age, the distinction between being a tech company and being tech-enabled is crucial. Let’s delve into the debate about truly understanding and utilizing technology as the core of business operations, rather than just using it as a tool.
Discussion on Being a Tech Company vs. Tech-Enabled Company
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The discussion begins with the idea that many companies claim to be tech companies, but in reality, they are tech-enabled companies.
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The distinction is made between companies using technology as a tool and those that are actually built around technology as the core of their operations.
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The focus is on the importance of truly understanding and utilizing technology, rather than just using it as a buzzword.
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The conversation shifts to the topic of fundraising for tech-enabled companies.
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There is a debate on whether tech-enabled companies should have the ability to raise funds, with the consensus being that they should be able to do so.
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The discussion then delves into the evaluation of tech-enabled companies and the misconception around their valuations.
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It is emphasized that valuations should be based on the potential cash flow and growth of the company, rather than just its technological aspect.
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Examples are provided to illustrate the differences between tech-enabled businesses, such as marketplace-based companies like Dubizzle or Uber versus service-based companies like a tech-enabled cleaning service.
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The key distinction lies in the scalability and cost structure of these different types of businesses.
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The conversation then touches on the concept of selling technology versus utilizing technology to enhance a business.
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An example of a tech-enabled company leveraging technology to improve efficiency in a different industry is presented.
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The significance of intellectual property in tech-enabled services is discussed, highlighting the value of data and algorithms in such businesses.
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The idea that even tech-enabled services hold valuable intellectual property, albeit in a different form from traditional tech companies, is put forth.
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The conversation evolves to explore the potential for tech-enabled companies to branch out into providing their technology as a separate service in the future.
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The distinction between being a tech company first versus utilizing tech as an enabler for the core business is emphasized.
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The importance of understanding the local consumer’s preferences and using localized data in tech-enabled businesses is underscored as a crucial aspect of their operations.
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The issue of building products solely for valuation purposes and the resulting challenges in the sector are brought to light.
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The inflated valuations, pursuit of trends, and lack of substantial business use cases in certain domains like crypto and AI are discussed as potential pitfalls for companies.
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The impending commoditization of AI and the differentiation through proprietary data are highlighted as important considerations for the future of tech-enabled businesses.
The Importance of Data in Building Tech-Enabled Businesses
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The key differentiator in tech-enabled businesses is the data they possess.
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Many companies constantly receive new data, but the key lies in understanding its use case and leveraging it to build a competitive edge.
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Building a real moat involves combining multiple workflows and leveraging proprietary data to improve offerings and gain a competitive edge.
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The quality of data is crucial, as training models on bad data leads to poor outputs and insights.
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The example of McKinsey using its own proprietary data to train models and provide valuable insights showcases the power of leveraging internal data.
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Separating the signal from the noise is essential, as having a lot of data is meaningless if it’s of poor quality or cannot be utilized effectively.
Challenges in the Middle East Funding Ecosystem
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The Middle East needs a mature funding ecosystem that supports companies to test and scale their ideas if they find product-market fit.
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The difficulty lies in implementing new technology in the region, as there is resistance to change from older generation leaders of family businesses.
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It will take time for the newer, more educated, and open-minded generations to embrace and test new technology internally.
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Some traditional businesses in the region are open to change and are exploring the integration of technology into their operations. However, most technology investment is coming from individuals with backgrounds in traditional businesses like real estate and oil.
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There is a need for investors with technology experience and successful exits from tech businesses to support and invest in tech startups in the region. The current investors lack this experience and background.
Challenges and Opportunities in the Business Landscape
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The business landscape has evolved with the introduction of new technologies and solutions.
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Many traditional businesses still rely on manual processes despite the availability of advanced technology.
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Adapting to the specific needs of businesses in different industry verticals is crucial for success.
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Tech companies should focus on understanding the pain points of potential clients and offering tailored solutions.
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Collaboration between tech providers and businesses can lead to more efficient and effective solutions.
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The approach to selling tech solutions should be based on addressing the client’s needs and providing value.
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Result-based pricing models may work for certain businesses, especially when there is a mutual interest in the success of the solution.
The Importance of Building Relationships in Sales
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The key to successful sales lies in building relationships with customers.
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Instead of focusing on selling the product, the approach should be to understand the customer’s problems and how the product can best serve them.
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Pitching the product as a solution to the customer’s problem shifts the dynamic in sales and creates a partnership rather than a sales pitch.
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The strategy is not to sell on the first day but to engage in general conversation, build a relationship, and only discuss the product when the customer shows interest.
Conclusion
The debate around tech companies and tech-enabled businesses sheds light on the importance of understanding the core of a business and leveraging technology for growth. The challenges and opportunities in the evolving business landscape, the significance of data, and the need for a mature funding ecosystem are crucial factors to consider in today’s digital economy.