The trajectories of most software and web companies can be explained by a simple principle:
there is a battle between technology and business.
I have been in Silicon Valley for almost four years now, and I have had the privilege of working for three very different companies: Oracle, NexTag, and JotSpot. At Oracle I was a software engineer surrounded by people far more passionate about technology than I was. At NexTag I was a product manager surrounded by business people who focused on wringing every last penny out of products. And now at JotSpot I’ve finally found balance as part of a technology-oriented team that still recognizes the importance of a business model.
I have been on both sides of the battlefield, and I’ve concluded that the battle starts with two kinds of people: technology people and business people.
Technology people love technology for technology’s sake. They love building products and solving both simple and complex problems. The world needs technology people because they constantly push the envelope and innovate. Technology people are motivated by progress.
Business people appreciate technology but love money – sometimes for money’s sake, but in most cases because of what money provides. They are the people who are able to turn technology into something worth paying for. The world needs business people because they are the ones who put food on the tables of those who love technology. Business people are motivated by profit.
In rare cases, an individual excels equally in both technology and in business. But more often than not, a person is much stronger in one area than in the other, or in some cases, completely undeveloped in one area. When software companies are formed, especially in this Web 2.0 era, technology people are responsible for the product implementation in all cases and the product idea in most cases. Without strong technologists in a company’s core management team, that company will fail to build a high quality, interesting product.
Technology people have led and continue to lead the initial product launch for most startup companies. Technology alone can catapult a company into the public eye, but what makes or breaks a high-flying startup is the outcome of the battle between technology and business. In the early stages of a company, technology almost always trumps business, especially when a company’s founding team lacks experienced business people. Sometimes technology trumps business when it should not – think of all the failed Web 1.0 companies that never had a viable economic model.
However, shortly after a product is launched, the battle between technology and business intensifies. After launch, technology people instinctively want to improve their product because their motivation is progress. However, business people soon ask for a much stronger role in planning the product roadmap because they often have very different ideas about how product work should be prioritized. Operations analysts and product managers want extensive reporting about how products are being used. Sales people want to make the product easier to sell. Marketers want to make a product easier to try.
What happens next depends entirely on the values of the management team. None of the engineering effort that business people ask for is particularly interesting to technology people, and the work does absolutely nothing to directly improve the product. However, measurement of product usage and the act of fixing product leaks in sales and marketing is the critical path to transforming a product into profit.
In some startups, technology defeats business, and a company never invests in understanding how its product is used and how it should be monetized. Engineering teams build fascinating products that cannot be marketed and sold. No matter how great the technology or product, the company is doomed.
In other startups, business defeats technology to produce a profitable company. Business people have their way, and the product is tailored to fix leaks and priced to ensure profit. Sales people have an easy time because the product sells itself, and marketers execute reliable campaigns so that people try the product. For some period of time, the company grows and operates profitably.
So is this to say that business should permanently defeat technology? Absolutely not.
In the best companies, business and technology battle indefinitely. For companies in which business permanently defeats technology, the law of diminishing marginal returns eventually sets in. After a certain point in time, the company’s growth begins to slow, and eventually growth grinds to a halt. Margins are squeezed as the company’s technology becomes a commodity, and eventually the company is displaced due to disruptive technologies.
The strongest companies are those that invest significant resources to satisfy the interests of both technology and business people. As a company matures, it becomes increasingly important to fund research and development projects, in spite of how silly ideas might seem to business people. Often companies allocate research and development spending by acquiring technology-focused startups.
The battle between technology and business explains the cyclical nature of venture investing in software and web businesses. Both Web 1.0 and Web 2.0 began when technology people were suddenly empowered in new ways. During Web 1.0, technology people gained an upper hand due to the advent of the Internet, and in Web 2.0 the combination of open source software, cheap hardware, and offshore labor has given technology people cheaper means to build products. Web 1.0 only ended when business people gained the upper hand – or rather, they lost their shirts. Web 2.0 companies are likely to repeat the mistakes of failed Web 1.0 companies as long as technology defeats business. The companies that do emerge from today’s bubble will be the ones who best understand this:
when the battle between technology and business is won, a company is lost.
