Are you really a technology company?

Many expansion stage software companies consider themselves technology companies. That is, they are most proud of their technology and that’s how they identify themselves.

I believe at least for some of them, the term “technology company” does not exactly fit the description. Instead, I think there are four broad types of software businesses at the expansion stage, not mutually exclusive, and as they evolve, they may change from one type to another and as they grow larger and more complex, they ultimately become all four types. These four types are:

• Technology driven
• Product driven
• Services driven
• Sales and Marketing driven

Technology driven: With these companies, the market problem and the solutions are relatively well-known, and the major unknown for the company to solve is how to do it. For example, in the 1990’s everyone knew the Internet had a ton of information and people faced a challenge when looking for relevant information. Google provided a better search service through innovative technology that delivered a better result to the market than many of its competitors. In these instances, the company’s early success is primarily tied up in building better technology. (This doesn’t mean that the best technology companies will win, but it does mean that you have to be pretty technology focused to even sit at the table).To them, rock star engineers are key.

Product driven: These are companies whose success rests on seeing a market problem that either no one else sees, or they see it from a new angle. They also provide solutions that solve that problem better than others.Technology may or may not be an issue at all. That is, the underlying technology could be trivial from a technical perspective. Think early Salesforce.com, MySpace, Craigslist, an HR or project management application, etc. The engineering trick here is figuring out what the technology needs to do well and what it doesn’t need to do well to get the desired solution.To them, rock star product managers (and possibly UX designers) are key, and they agree with my controversial blog post.

Services driven: Speaks for itself.Their primary product is services… somewhat rarer for expansion stage software businesses. It’s all about the quality of service and rock star customer support people and strategic consulting services people.

Sales and Marketing driven: These are companies that are driven primarily by their sales and marketing organizations. Typically, the markets are large and well-known and there are lots of very similar product alternatives. And these companies attack this issue of differentiation primarily through better sales and marketing execution, for instance by becoming an industry thought leader via a superior content marketing strategy or by selling through a unique or exclusive sales channel. These companies’ successes or failures do not rest on the quality of their engineers (they still need to be good, but they don’t need to be geniuses). They need rock star marketers and sales people.

As software businesses grow from the expansion stage to beyond, they ultimately need to develop along several or even all of the axes. For example, they typically need to become more product, services, and sales and marketing driven over time if they started out as purely technology driven (without losing their technology edge), or become more technology driven if they started as purely product driven (larger scale needs better technology to offer the same product). For the former, think Google, who has tried to diversify beyond its search into areas where it’s more about the product than the technology (Google office, classifieds, etc.). Or IBM and HP, who had to evolve from product and technology organizations into services and sales and marketing ones, while trying not to lose focus on the product and technology. For the latter, think eBay, Salesforce.com, Facebook, etc. Providing a given service to 500,000 users is much easier from a technical perspective than providing that same service to 500,000,000 users.

It is helpful to know which one(s) you are so you can focus on the right things for creating competitive advantage.

It is also helpful to know when being just one is no longer enough to be successful (for instance, if you’re a sales and marketing organization in a long undifferentiated market that suddenly experiences a major technological and/or product disruption from a competitor).