In the early days in tech, there were two kinds of tech companies: companies like Intel, who made memory and semiconductors for tech companies like Apple to integrate into their products, and companies like Apple, who built technology and sold it to everyone else.
Clients for most of the tech industry were people and businesses that worked in other industries. Tech was a small space, only a few players made the foundational building blocks, commonly referred to today as the “picks and shovels,” to run a tech company, and so growing the market position meant building products and services for everyone else.
As the tech industry grew and became what it is today, more and more companies were built for the sole purpose of helping other tech companies. Amazon, the consumer-facing company, built Amazon Web Services. Microsoft, the company best-known for Office and Windows, built Azure. I’m a firm believer that all B2C SaaS companies eventually become B2B, but the magic of AWS and Azure was that it served tech.
Most tech businesses have the best legal economic model in history. They build something once, the cost of which can be expensive, then they sell that thing lots of times with very low marginal cost. This is true in both software and hardware. In software, writing the code and getting the application working costs lots of money, but selling it to a new person costs virtually nothing. When building a chip, getting the fabs and the manufacturing lines built may take several months and cost hundreds of millions, or billions, of dollars, but the manufacturing cost of each chip is minute.
The high fixed-costs, low marginal-cost nature of tech is the primary reason why tech companies are so investable, they’re so scalable, and they’re so profitable.
Those three reasons are exactly why a new economy emerged: companies that build software for tech companies. As the total amount of new capital in VC has grown, more companies have gotten funded each year. As more companies have gotten funded, the total addressable market (TAM) of tech companies has grown. As the TAM of tech companies has grown, more companies have decided to build software for tech companies.
We’ve entered an era where there are dozens of platforms for to-do apps and note taking apps and blog applications, for example, targeted exclusively at employees of tech companies. There are coding assistants for your coding assistants. Email apps to decrease your time spent doing email each day. AI for everything in tech.
Tech, as an industry, continues to grow so much that are now three kinds of tech companies: tech companies that build foundational building blocks (picks and shovels) for other tech companies, tech companies that build products for everyone else, and tech companies that build software for other tech companies.
Due to their being in tech, tech companies are more willing to try new tools, so more software startups serving tech companies stay around longer. Some solve a real need, get traction, and become a standalone survivor of the startup Olympics. Many, however, fade off in existence, losing to the next hot app that takes their place. Worse, yet, some lose not because a new tech company outcompeted them, but, instead, because the “old way” was simply better. The latest hot tech to-do app that charges $1/day loses out to Apple Notes. The email app that charges $1/day loses to Outlook. The paid calendar app which has one cool feature gets copied by an incumbent with better distribution and is rendered, effectively, obsolete overnight.
What’s gotten lost in all this tech hype is building tech for everyone else. Nobody is building new project management applications for construction companies. Practice management systems for dentists haven’t been revamped in decades. Manufacturing ERP systems could be so much better, but nobody has taken the time to understand what’s really needed to create a 10X better user experience.
I was recently at a conference with some of the most forward-thinking entrepreneurs in the world. The only caveat is that those entrepreneurs are, largely, nontechnical. They buy, but don’t build, technology. They’re terrified of AI because they don’t understand it and because they don’t know where to start. They don’t even know what to Google to get started.
I was thinking about their fear. If they’re some of the most advanced, successful entrepreneurs in the world and they’re scared of AI, how are most other nontechnical entrepreneurs feeling? Why are they feeling that way?
Tech, as an industry, has been growing so fast that the industry forgot that a large part of its original client base was everyone who wasn’t in tech.
There are plenty of big opportunities to be a tech company serving tech companies, but I think there are opportunities just as big, if not bigger, in serving everyone else.
Thanks to Bill Bloom, Shannon Waller, and Terise Ryan for reading drafts of this essay.
Evan Ryan 