The idea that for a company to be successful, it must take advantage of bleeding-edge technology isn’t necessarily wrong. But it also isn’t necessarily right. There are advantages and disadvantages to using bleeding-edge technology that you have to understand, and there is no one right answer to the question of whether you should use it or not.
We often look at startups today as two PhDs from Stanford in a garage in Palo Alto (think Google or Facebook) building and leveraging the latest technology. But not every successful company works this way. What we see in private equity acquisitions is that most companies aren’t like this. As a result, bleeding-edge technology is often misrepresented, often over-used, and misunderstood.
We recommend a pragmatic approach to decide if bleeding-edge technology is appropriate and consistent with the investment thesis.
The implications of using bleeding-edge tech
Bleeding edge technology is a category of technologies that are so new and highly advanced that companies don’t fully understand what might happen if they implement them because they still have a long way to go before they are commonly understood and used.
It’s not wrong to want to take advantage of new technology, but if you don’t understand the pros and cons of using it, then you may be setting yourself up for problems.
Ten years ago, a lot of developers starting using a new database technology known as NoSQL because it was the “shiny new object.” The most well-known of these NoSQL databases was MongoDB. At the time, many developers didn’t understand why NoSQL was better; it just was.
One of the companies that implemented MongoDB early was Coinbase. The problem is, MongoDB was generally deemed inappropriate for financial transactions because it wasn’t ACID compliant (this is a securities transaction that happens when the application persists information into the database). MongoDB provided a less elegant approach, and as a result, Coinbase ran into some trouble using it, including losing records in the database. They had to revert to using a traditional relational database to resolve their issues although today, they are using MongoDB, which now includes ACID support.
Coinbase is an example of a startup that chased a new technology without understanding the implications of using it. In this case, there was a financial impact.
Many startups start as a few developers in a room who are completely focused on the technology. As such, we often find ourselves having to level-set their decision-making process regarding technology.
The implications of using legacy technology
On the flip side, we encounter many businesses that don’t move forward in terms of their technology choices. Instead, they remain tied to tried and true technology that is known and understood — even if it’s not the best technology today.
There are situations when continuing to use legacy technology is the right choice. This is particularly true when the impact of using bleeding-edge technology is still not fully understood for the situation.
However, using an older paradigm can result in many disadvantages, including security and compliance risks. For example, a vendor may stop supporting legacy technology that has reached its end of life. In this case, security flaws may no longer be found and patched, leaving the company open to cyberattacks. Another example involves the inability to scale the technology to support growth at the speed required by the company.
So how do you know if bleeding-edge technology is the right way to go?
A pragmatic approach to technology decisions
The answer is that it depends on the business.
A recurring theme we see is that a CTO, VP of Engineering or head of development often looks at the world from a lens of technology. They’ll read a blog from the engineering team of a big tech company (like Facebook) about how that team used a solution, and now they’re making millions of dollars.
What they don’t think about is the scale that company is operating at (e.g., Facebook makes a million dollars every twenty minutes). The technology may be very sophisticated and hard to manage or develop with, which is fine for a company like Facebook, but maybe not for their company and situation.
It’s critical to understand the business context and the environment in which you operate to determine if the technology you want to use will accelerate development or decelerate it. Ask yourself if there are particular things about the environment in which you work that have a technology implication? Know if the technology compliant with the legal or regulatory requirements of your company.
PE firms looking to invest in a company also need to look at how that company can scale. They need to figure out if the technology can scale. Whether it’s bleeding-edge tech or something less new and proven, the ability to scale is crucial. It doesn’t have to be infinite scale, and it doesn’t have to drive revenue crazy fast. But it does need to scale at some level, and you need to be able to show that.
Bleeding-edge for the right reasons
There was a time when Gmail was considered a bleeding technology, and while consumers used it, businesses wouldn’t touch it. Today it is the most-used consumer email solution, and Google Suite is used by over twelve thousand companies including Uber, Netflix, and Airbnb.
The point is, bleeding-edge technology can have a significant impact on your company and its ability to scale. But it’s essential to understand how that technology works within the context of your business.
If you have a clear strategy and roadmap of where you want your company to go, it’s easier to know if bleeding-edge technology can help you get there because you can figure out how the technology will affect your development and implementation. We can help you with this process. Feel free to reach out for a conversation.