The 3 Types of Tech Companies: Explained

This article is an excerpt from the Shortform book guide to "Inspired" by Marty Cagan. Shortform has the world's best summaries and analyses of books you should be reading.

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What are the three types of tech companies? What are the advantages and disadvantages of each type?

In his book Inspired, Marty Cagan outlines the three types of tech companies: startups, growth-stage companies, and enterprise companies. He also discusses the pros and cons of being at each stage.

Continue reading to learn about the three types of tech companies.

Types of Companies

There are three types of tech companies, each with its own advantages and disadvantages when it comes to product development:

Startups: Startups are new companies that haven’t found their product niche yet. Here, the product manager is the CEO, and there are at most five product teams. The biggest challenge that startups face is money issues. They need to find their niche with the money that they have, because if they don’t, it’s almost impossible to find new streams of revenue. The advantage to being in a startup environment is that there’s little bureaucracy and the teams can pivot to new ideas quickly. Successful startups are good at product discovery, which we’ll cover in detail later in the book. Working at a startup is high-risk, high-reward—not many startups make it big, but if yours does, you’ll be in for a big payday, and you’ll likely feel rewarded by your work.
Growth-stage companies: If a startup does manage to find a market niche, it needs to figure out how to grow. Startups must build on early success with new products and new team members. These companies will have somewhere between 25 engineers and a few hundred. Obviously, those two ends of the scale are different, and in a growth stage, companies are usually scaling up quickly. When there are more people, some have trouble understanding the original mission of the company, and when there is more demand for the products the company is producing, the technology itself is often under stress. These companies are often looking for an IPO or are targets for acquisition from big companies—this can motivate engineers and product managers to strive for success.
Enterprise (large, often public) companies: Even if companies get through the growth stage relatively unscathed, it’s still tough to build a sustainable business. Tech consumers want innovation, and competitors are always innovating, so enterprise companies must do so as well to remain relevant. Particularly once companies become publicly traded, the incentive structure changes, so that the culture becomes less about discovery and more about protecting what exists to please the shareholders. This means taking fewer risks, which can often unsettle the morale of employees. There’s little vision or innovation. However, the best big companies continue to innovate, even under these conditions.

Example: HP in the 1980s

As a young engineer at Hewlett-Packard in the 1980s, author Cagan was tasked with building a huge workstation that wound up costing over $100,000. Product reviewers were wildly impressed with the outcome, but it didn’t sell at all.

He realized that the engineering team had done all that they could to deliver on their task, but that their product manager, who should have had a better handle on the marketing of the product (and whether there was a market for it at all), had failed. Cagan decided he would no longer work for teams where he wasn’t sure whether there was a market for the product they were building.

Since then, he’s helped to build many products, and while they’ve had varying degrees of success, none has been the abject failure that the HP machine was.

The 3 Types of Tech Companies: Explained