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Accounting for Your Business Type: Tips for the Tech Industry

Tech industry

Technology is changing the way we live our lives, it is also disrupting our businesses. The tech industry comprises numerous subsectors; computers and networking, semiconductors, financial technology, software and internet and the internet of things. Each subsector has diverse product and service offerings and various revenue recognition issues. Each subsector is also evolving, fast.

 

What is a Tech Company?

“You are a technology company if you are in the business of selling technology. If your product consists of applied scientific knowledge that solves concrete problems and enables other endeavors, you are a technology company,” says one global tech expert.

A tech company can be defined by the products or services it sells. This means renowned tech companies such as Airbnb and Uber do not qualify. They are tech-driven, but their true industry is hospitality or taxis.

 

Tech is Different

Technology companies are different from other types of industries in a number of ways;

  1. Different motivations
  2. Different time frames
  3. Different business models
  4. Different scalability
  5. Different KPIs

Choosing the most suitable accounting software for your tech business should take in to account these five features when you are exploring the market. These differences should also guide you in your timing of upgrading all your accounting software. Try scanning the tech news to see what business software your competitors are using.

 

Tech Start-up or Tech SME

If you work in technology, or live in a tech hub such as Silicon Valley or Hong Kong you probably know someone who is in the process of conceptualizing their own startup. A start-up is often misunderstood as a new SME but there are significant differences between the two.

For years, investors treated startups as smaller versions of large companies but there are substantial ideological and organizational differences between startups and small businesses which necessitates different funding strategies and KPIs.

Start-up vs SME

A startup can be defined as a “temporary organization designed to search for a repeatable and scalable business model.” A startup in the tech industry should be short for “scalable startup,” which searches to not only prove their business model, but to do so quickly, in a way that will have a significant impact on the current market. This means that a “scalable” startup has the intent to become a large company, unlike an SME.

A scalable startup founder doesn’t just want to be their own boss; they want to take over the world. From day one their intent is to grow their startup into a large, disruptive company. They may believe that they have come across the next ‘big idea’ that will disrupt the industry, take customers from existing companies, or create new markets.

This is in contrast with the definition of a small business, which the U.S. Small Business Administration describes as “independently owned and operated, organized for profit, and not dominant in its field.”

The driving forces behind the two business models are also different. The intent of the startup founder is to disrupt the market with a scalable and impactful business model; whereas the intent of the SME owner is to be their own boss and secure a place in the local market.

 

A Tech Start-up Is Temporary

Nothing is permanent. A startup founder has three main functions:

  • To provide a vision of a product with a set of features
  • To create a set of hypotheses about all the individual parts of the business model
  • To quickly validate whether the model is correct by seeing if customers behave as the model predicts

Once the business model has been proven, the function of the organization must change to produce outcomes and execute the model; in many cases removing the flexibility and innovation that once existed in the early stages of the business.

Whether you are a tech start-up or a tech SME, you will need business software to support everything from invoicing to reaching your KPIs. Choosing the most suitable accounting software, and upgrading it as your business model changes, should be a key aspect of your business strategy.

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