By Peng T. Ong and Andrew P. Rowan
In recent years, there’s been a push for deeper and deeper tech to be developed and deployed by startups. As the joke goes: “All you need is AI and blockchain in your business plan to get funded.” Lately, it seems that entrepreneurs are getting caught up in deep tech—and forgetting about, or sidelining, deep value.
First, almost all new value is created by entrepreneurs. In fact, if you take the ten most valuable companies on the planet and look at the increase in the last year, or the last five years, most of the new value was created by the companies led by their founders—eight of the top 10 are (or until recently for Apple) founder-led. For most companies, creating an innovative business model is more important than creating innovative technology because the former creates economic value directly. Deep value means that you’re addressing customer needs and wants, and in turn, generating lots of revenues and profits (at least if you are a capitalist). Put another way, the deep value created by a product or service is reflected in the financial returns of a business. The best way to understand this point is to look at the most valuable companies in the world; their value creation was initially in their innovative business models. (E.g., Microsoft, Facebook, or Tencent.) The founders focus on deep value creation; they understand what their customers need and want and build products to serve and fill those gaps.
So, what about deep tech? Deep tech usually isn’t a business or consumer innovation. Furthermore, the definition of deep tech evolves over time, that is, the line moves depending on the state of the industry. If you are building a startup today, chances are that you might be using just regular tech (e.g. machine learning from existing open source libraries)—deep tech is what’s coming around the curve. For example, Deep Learning might be considered deep tech as there is still much research. Basically, deep tech companies create value by producing new tech, not by disrupting existing business models. (Think of DeepMind or SpaceX.)
Deep Value Creation
Entrepreneurship on the Internet is about creating deep value using tech… and sometimes using deep tech. In other words, entrepreneurs shouldn’t focus on deep tech — instead, they should focus on how to get a 10x increase in value for customers. Sometimes, it is only with tech that you get that kind of jump in value. In many cases, founders don’t need deep tech to create deep value. Thus, the guiding star for a company’s path to growth and scale should always be one of value creation (and ideally deep value creation—10x better than what’s out there).
When developing tech, an optimizing function is what engineers use to achieve building a system or enterprise. In other words, how do you optimize it? And what are you optimizing for? For example, to be faster, cheaper, better, more fuel efficient, etc. It’s imperative not to solely use the best tech or the deepest tech. Rather, it’s more important to make a value judgment (an operational decision) to see what a startup can do with existing or available tech that can create deep value in a customer focused time horizon versus prioritizing product features that can wait. If a CTO can discern among the available options and make the right call, then her/his startup will be one of the better value-creating tech companies on the market.
Deciding on Deep Tech
If you do decide to create deep value with deep tech, then be aware that it will be both time intensive and expensive. Truly groundbreaking tech might require anywhere from a handful to hundreds of engineers, who are experts, to create. Experts don’t come cheap. Pioneering applications with new deep tech can be more time consuming than expected as well. However, after assessing the paths ahead, you might conclude that deep tech is exactly what you need to create deep value but this will more often than not be the exception—not the rule. (E.g. what was the deep tech initially used in DropBox, Uber, or AirBNB?)
That doesn’t mean you shouldn’t pursue your goals or try to further your worldviews. We believe in the free market—so go innovate and form ideas about what you want to spend your time or invest in. The point here is that the optimizing function you should be using to build a business—as an entrepreneur—is the creation of value and not the creation of tech. Ultimately, value creation is a requirement and the creation of tech is just one piece of the entire puzzle.
Peng T. Ong is Managing Partner at Monk’s Hill Ventures, a technology venture fund based in Southeast Asia that he co-founded. Andrew P. Rowan is an American entrepreneur and author of Startup Vietnam: Innovation and Entrepreneurship in the Socialist Republic. This article was originally published on Antevorta.net.