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Is every startup really a tech business?

Every startup seems to be positioning itself as a tech business, though it might have little to do with technology. You would come across companies in legaltech, edutech, fintech, healthtech and even sextech. The latest hype in Indian investing circles is dairytech, which has nothing to do with technology to improve dairy productivity or its supply chain. They are mostly app-based aggregators of milk delivery boys. WeWork and many other shared office businesses were real-estate firms but sought to label themselves as tech businesses to ride the high valuation multiples enjoyed in the tech sector.

Why are tech firms valued so highly?

Tech can change the value chain and/or the economics of a business venture. The growth of network aggregators in segments such as taxis, hotels and retail has changed the landscape of both production and consumption of services. Now, internet-based software firms are able to replace high investments in hardware and software with on-demand and pay-per-use services. Tech businesses demonstrate opportunities for non-linear volume growth and economies of scale, which is rapid growth in profitability as volumes rise. Investors bet on tech businesses with huge upfront investments, anticipating growth and margins.

Can any business not be impacted by technology?

The proliferation of wireless networks, smartphones and mobile apps have improved customer experience, access to information and smarter decision-making in all businesses. However, that does not make them tech businesses, unless the use of tech fundamentally changes the industry structure, market opportunity or profitability.

Is everything in tech focused on IT?

Tech in a business is not limited to IT or mobile apps. Innovation in automobiles is focused on battery tech, which involves chemical and thermal engineering. The space of wearables is an intersection of medicine, physics, materials and other segments. Every new edition of smartphone reveals new developments in optics, materials and precision engineering, etc. Enhancements in core tech create opportunities for new product development and/or cutting costs, while IT and internet can enable business model transformation.

Can traditional firms make the shift to tech?

Every business is impacted by tech and each one could become a tech business. In a Harvard Business Review article, Michael Porter and James Heppelmann discuss how smart and connected products are transforming competition even in traditional businesses. Industry boundaries are being redefined by the shift to ecosystems from linear value chains. But not many are able to make the shift and tech-based disruption in most industries is being led by startups.

Srinivasa Addepalli is the CEO of a professional skills growth firm.

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