Analyst :
All that you say is true provided that the company does make it through those significant transitions! It has to survive through all the stages, na.

Senior Executive :
That's true, but those who pass the test grow faster than any typical non-tech company - which takes years or even decades to build up.

Analyst :
Tech companies may grow faster, but the decline is too speedy than other companies, too. What goes up quick, comes down quicker! The mortality rate is much higher with tech companies. They may crumble within months, and sometimes weeks.

Senior Executive :
It is, but we've seen tech companies whose maturity phase have lasted for decades. They've made money for themselves and their investors. Look at Microsoft, Apple, IBM, etc.

Student :
Hold on, y'all have reached the maturity, but I'm loking at fundamentals: I'm wondering why is it so easy for a company to start up?

Vice President :
Oh, there are quite a few reasons. Fewer restrictions on entry to markets make it easier to enter the business. The investment for tech companies particlularly is very low.

Analyst :
That's not true. Investment is low at the start, but when you've to scale up, money is needed! And this is the easy stage today. When it is needed, access to capital is getting easier day by day.

Senior Executive :
Another key point, Mr. Analyst: customer acquisition. Scaling up is easier in industries where customers are willing to switch away from existing products. You've no incremental costs, neither you've any strings attached. Let's face it, it's moreover like an interface.

Student :
Oh, I think that's easier said than done but say you grow, you mature, but someone here mentioned many companies decline quick. What's the reason for such quick declines?

Vice President :
Son, it's a two-edged sword. The reasons are same for as the growth of companies. But it's for competitors - it's easier to enter, easier for them to scale up, and your decline starts!

Analyst :
Yes, and once you decline, what starts is the liquidation game. A tech company hardly has any physical assets and the intangibles - their value is just on paper. No one's going to pay for them. Basically, there's not much left.

Student :
I see. But what makes a tech company so different from a non-tech company? I get the fact about the assets, but I'm sure there's more to it.

Vice President :
I think before y'all embark on that, one should also draw a line between tech companies and non-tech companies. I feel the classification 'tech' has been much more casual. So let's go back to simpler times. When the tech sector first started to grow, technology companies were defined as products and services related to computers - either personal or business computers.

Senior Executive :
So Apple, Microsoft were clearly technological companies. The grandfather companies were IBM, HP and the rest of the market was non-tech, right? That was an easy distinction. But things are different now. Now almost every product that we use almost has a computer component whether its appliance to an automobile. This distinction is difficult to make.

Analyst :
Yes, it's a difficult distinction to make - if not with the majority companies but with many of them. Facebook and Google are clearly tech companies. A restaurant chain is clearly a non-tech company. But Tesla and Ford are companies that rely on technology for an automobile.

Student :
Tesla is obviously more tech than Ford because its automobile depends a lot more on technologies than a typical Ford automobile does.

Analyst :
True, kid. The lines are blurring very quickly. For the past few years, I've been keeping track of Amazon. About half the investment banks look at Amazon as a retail company and the other half as a technology company. The same thing seems to be happening with Netflix.

Student :
But sir, what difference does it make in valuation?

Analyst :
Oh, it makes a lot of difference. How we price the companies depends on who these companies are we comparing to. If I compare Tesla with an automobile company, it is very difficult to justify its price - it looks awfully overpriced. If I think of Tesla as technology company, it is easier to justify its price.

Student :
No wonder everyone wants to be a tech company. So, as an analyst, how do I do it the classification? Some litmus tests you techies could give me to use so making money is easier the other time?

Vice President :
I have a simple formula. To me, these are the business where entry is easy and unchecked, they are not regulated because you don’t need much investment to grow.

Senior Executive :
I agree. But let me add: once you grow, holding on to these businesses is tough as you don’t stay as mature for very long. Your competitive advantages tend to be slippery, they don’t last very long.

Analyst :
True. But once the decline starts, not only its hard to stop but the decline is very quick. You go from a big company to a small company in no time at all. And finally, when the game is over there is not much left to sell. Your physical assets are non-existent and your intangibles that you count, to attach a number to - nobody wants it anymore.

Student :
So these would help me in figuring out a company that's gonna do the disruption the next time!

Senior Executive :
Hold your horses. It shouldn't be assumed that every tech company is going to disrupt the market. To me, disruption is more likely when a tech company introduces a tech business model into a non-tech business. A tech life cycle into a company which is used to the non-tech life cycle.

Student :
That's a unique combination, but why so?

Senior Executive :
Well, the consequences are not surprising. The companies in the non-tech life cycle, especially the mature life are not used to moving quickly. So when the tech company comes in these old businesses, companies tend to move too slowly and don’t respond appropriately to the challenges that come. By the time they recognize this problem, its too late.

Vice President :
Right, I could relate this to Uber in the car serving space. The old players looked back at the regulators and rule makers to protect them, but that doesn’t solve their problem.

Student :
Thanks for the valuable advice. I'm closer to my multi-billion idea!

Senior Executive :
*Caution* it is true that you would be able to disrupt the old business companies fairly easily if things worked as planned. Disruption is easy, but making money on disruption is much more difficult. Never forget that unless you change the nature of the business model, you too are going to be susceptible to competition just around the corner. All the best!