The End of Tech Companies


“If you aren’t genuinely pained by the risk involved in your strategic choices, it’s not much of a strategy.” — Reed Hastings

Enterprise software companies are facing unprecedented market pressure. With the emergence of cloud, digital, machine learning, and analytics (to name a few), the traditional business models, cash flows, and unit economics are under pressure. The results can be seen in some public stock prices (HDP, TDC, IMPV, etc.), and nearly everyone’s financials (flat to declining revenues in traditional spaces).

charts from Scout

The results can also be seen in the number of private transactions occurring (Informatica, Qlik, etc.); it’s easier to change your business model outside of the public eye. In short, business models reliant on traditional distribution models, large dollar transactions, and human-intensive operations will remain under pressure.

Many ‘non-tech companies’ tell me, “thank goodness that is not the business we are in” or “technology changes too fast, I’m glad we are in a more traditional space”. These are false hopes. This fundamental shift is coming (or has already come) to every business and every industry, in every part of the world. It does not matter if you are a retailer, a manufacturer, a healthcare provider, an agricultural producer, or a pharma company. Your traditional distribution model, operational mechanics, and method of value creation will change in the next 5 years; you will either lead or be left behind.

It’s been said that we sit on the cusp of the next Industrial Revolution. Data, IoT, and software are replacing industrialization as the driving force of productivity and change. Look no further than the public markets; the 5 largest companies in the world by value are:

As Benedict Evans observed, “It is easier for software to enter other industries than for other industries to hire software people.” In the same vein, Naval Ravikant commented, “Competing without software is like competing without electricity.” The rise of the Data era, coupled with software and connected device sprawl, creates an opportunity for some companies to outperform others. Those who figure out how to apply this advantage will drive unprecedented wealth creation and comprise the new S&P 500.

This is the end of ‘tech companies’. The era of “tech companies” is over; there are only ‘companies’, steeped in technology, that will survive.

While this movement has been underway for some time, it is just now becoming more acute and starting to show up in the financials of the non-tech elite (i.e. business capital spending negative in 4 of last 5 quarters). The non-tech elite have yet to embrace the fact that companies and tech companies are becoming synonymous.

There are 4 macro shocks, all occurring at the same time, that are expediting the end of ‘tech companies’, and ushering in the era where tech is default for all companies.

Shock 1: The market is undergoing a digital transformation: we are on our way to 5 billion smartphones globally, impacting all types of commerce and customer/supplier engagement. The overall connected device growth is even greater, accompanied by a data explosion.

data source: Siemens AG

This changes the nature of supplier, customer, and stakeholder engagement, rendering many traditional forms of distribution and communication economically unviable. As MB once asked, “how many industries are left, where if you digitize some existing component of it, you introduce network effects in a way that was unanticipated, and leads to the potential for exponential growth?”.

Shock 2: Users have changed in the consumer world and business world. As Chamath Palihapitiya once said, “the business model of the future is to serve individuals.” The Internet is democratizing traditional incumbent advantages. Every incumbent in any industry has traditional distribution models and methods of customer/supplier interaction. The change in users and the aforementioned digital transformation is eroding these legacy advantages:

Shock 3: The price of compute has plummeted, enabling the fragmentation of industries on the basis of data and analytics. At the same time, the price of collecting and analyzing data has plummeted as well.

For the first time, data has become a competitive weapon, creating a moat around an enterprise. For a company to transition to this era, they must be able to take advantage of this shift in economics, and harness the power of analytics and machine learning. Machine learning on a large corpus of data is now as strong of a competitive advantage as network effects or economies of scale.

Shock 4: Companies no longer have the skills they need to make the transition. The skills for success in many professions and industry are changing. A company that used to have an army of IT specialists to run systems, now needs an army of data scientists. A company that prided itself on merchandising, now needs algorithms. When every business process is digitized or data-ified, the skill requirements of a business fundamentally change. We are on the cusp of a great re-skilling in the mature economies of the world.

I believe there is a proven approach to adapting and leading a company to success over the next 5–10 years. It requires as much business, operations, and financial skill, as it does technology skill. This is not just an IT initiative or the roll-out of new business applications; this is the acceptance that this is the end of ‘tech companies’, and accepting technology as the basis for competition. All companies that decide to embrace this technology imperative must start by assessing their vital signs; I call these the 6 vital signs for a post-tech world.

  1. Capital allocation (re-allocation)
  2. Product Strategy
  3. Go-to-Market Strategy
  4. Work Habits and Tools
  5. Talent
  6. Instrumentation

These vital signs will determine a company’s existence in the post-tech world. While each vital sign may be slightly different based on the industry, unit economics, and business model, they are generally applicable to every business.

Capital Re-allocation

A company cannot make the transition to the new era without a dramatic change in capital structure and how dollars are spent. Just think about it: a company’s capital structure and spending was geared for a business model that was successful in the last decade, not the next decade. The sales and marketing expense in most companies, tied up in traditional distribution channels, forces an under-investment in technology, product innovation and digital engagement. This is a death spiral for those seeking business leadership in the next decade.

Every company must rethink their relative spending on product development, sales, marketing, and G&A. It will be different than the mix that led to market leadership (or not) in the past. Let’s use pure-play software companies as an example:

The Inverted Enterprise inverts the traditional allocation of capital between sales & marketing, R&D, and everything else. One of the best examples of an inverted enterprise today is Atlassian, a company founded in 2002, that went public in 2015. Atlassian built their business model on digital distribution, foregoing the traditional costs of scaling an enterprise software company. They focused on the new users (developers) in the market, turning Shock #2 into a strength. This left them more capital for innovation along with compensation/equity, to hire the best engineers to drive that innovation.

Most companies that buy-in to the idea of modernizing their capital structure overlook the need to re-allocate spend towards compensation and stock. Without that foresight, the war for talent (vital sign 5), is all but lost.

Product strategy

Products, in any every industry, begin with design. That also means beginning with the user. In many cases the user is not the buyer, the customer or the distributor. That requires a significant change in thinking. A company cannot modernize product offerings without a design team. So, hiring a design team (utilizing the available $ for spending from the capital re-allocation) is step 1.

While Product Horizons, as a portfolio strategy approach, has been around for years, it is still relevant. The traditional model for product horizons is captured here:

Given the current pace of change in the market and the macro shocks previously discussed, a product strategy requires the implementation of a Horizon 0. These are products that will be outsourced or completely stopped, so that you can spend the majority of investment in Horizons 2–3. This is not easy. In fact, these are the hardest decisions you will have to make across your vital signs. But, it is not optional. Every company must be selective in their investment allocation across products and products life cycles.

Once the product or service offerings are grouped by Horizon, the next task is to choose your lead-with offerings for marketing, PR, and digital exposure. With the traditional distribution channels no longer as relevant, it is not practical to feature ALL products from any given company. Each company must choose the concise set of products or services that will come to represent the company. Others will be sold, but these are the 1–3 that will be aggressively marketed, through traditional means and digitally.

Go-To-Market Strategy

In line with the Horizons work and product strategy, the first change to go-to-market is the hardest: stop selling all the products you have. A company must choose a handful of lead-with products, ideally the same ones that were chosen as the lead-with digital offerings. With that decision made, all of routes-to-market (digital, inside sales, face-to-face) can convene around a single message. It is shocking how few large incumbents are able to do this. Having grown through acquisition and expanded their product/service offerings over time, most companies never want to stop anything, and focus on a handful of things that are working. A company cannot be successful without a singular and simple go-to-market message, supported by no more than 1–3 offerings.

Work Habits and Tools

“If nothing changes, nothing changes”, said Nick Donofrio. An organization cannot evolve to become a technology leader unless the work habits and tools utilized to perform key operations change. It can start small through the adoption of new forms of communication (Slack, etc.) or file sharing (Box, Dropbox, etc), but it must evolve to a completely new way of working. Think about how many companies have wired their thinking to believe that the creation of a Powerpoint is “work”. It is not. Powerpoint is just a means of communicating a story or data, which could just as easily be communicated through a real-time dashboard via Watson Analytics or a similar capability. A commitment to change work habits and tools can be simplified into 3 key points:

  1. Reduce or eliminate traditional forms of communication (Powerpoint, email, static BI reports)
  2. Introduce new forms of collaboration and make them mandatory (file sync/share, persistent chat, social networking, github for developers, video conferencing and remote collaboration, etc.).
  3. The leadership of the company must become the first adopters of the new tools.


The expertise of an organization must advance faster than the rate of change that the organization desires. This means the talent must change. And, its not a 10% change. It’s closer to an 80% change. There are two ways to get there: 1) hiring and 2) training. For most companies, 50% of the workforce should be trained and re-trained, while 50% probably needs to be refreshed with new talent from the outside. No one said this is easy.

  • Training

Mandatory training does not work. If a person has to be required to learn, then they will not be able to make the shift that is necessary. An employee must have the desire and motivation to want to learn, in order for training to have the desired impact. It is the leaders’ responsibility to a) provide a self-paced training platform, b) provide badges and recognition for those that make progress, and c) develop the curriculum to ensure that the right skills are being emphasized.

  • Hiring

The hardest thing about hiring is that if your company is going through this transition, it is very hard to attract the type of people that you need, early in the transition. There are 2 ways to overcome this: First, you have to completely change your hiring process and approach, inclusive of compensation. The employees you want are interested in leverage for their time and upside when they are successful. So, bonuses and equity become very important, even if you typically did not offer this type of a compensation for new hires. (Note: this is why your capital structure has to change). Secondly, a modern and inspirational work environment is necessary to attract the people you need. They don’t want to work at your sprawling cubicle campus in the woods; they are more inclined to a small office in an urban setting, with open seating.

Not every company has to make these changes to training and hiring; just the ones that want to survive.


Every business process and corresponding metric must be instrumented. A real-time daily dashboard of the metrics that matter is the new management system in a modern enterprise. Very few companies have this. A shift to this approach will reveal a number of inefficiencies, as traditional approaches (static BI reports, etc) were able to mask issues. Once an organization plumbs the key processes and applications, with the appropriate instrumentation, measurement against KPI’s will be available instantly and as needed. This will change performance management for the positive. As Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.”

The end of tech companies is upon us. Survival for the next 5–10 years requires that every company embrace their future in the tech elite, in order to remain competitive in any industry. The fickle nature of the S&P 500 should not be understated. On average 22 companies are added or removed from the S&P 500 every year (see below).

I expect that this number will double over the next decade, with 50–100 companies added or removed each year. That is the essence of the end of tech companies and the welcoming of all companies to the tech culture. Check your Vital Signs for the post-tech world, in order to avoid a downfall. However, checking your vital signs must become part of your annual hygiene versus a one-time event. The second time around should be easier in task, but likely no easier in terms of the tough decisions to be made.

“If you aren’t genuinely pained by the risk involved in your strategic choices, it’s not much of a strategy.” is what Reed Hastings said. He lived through this personally, when he moved Netflix from traditional distribution (dvd’s by mail) to digital distribution (streaming). It was gut-wrenching, and many people doubted their ability to make the shift. Every company will make a similar gut-wrenching decision in the next 5 years.


This post led to my new book, The End of Tech Companies, available on Amazon here. The book is only $2.99 and all profits from the book project will go to DOMUS, a human services non-profit that works with children in Connecticut.


I am the author of Big Data Revolution.

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