What is a ‘Technology’ Startup, Anyway? The Lines Between Physical and Virtual Continue to Blur

The “pure virtual” startup has company these days.

Over the last few years the technology world has been evolving from pure digital plays (Facebook, Twitter) to infiltrate a variety of more traditional industries previously seen as more investor friendly than tech. The lines between the virtual and physical worlds are beginning to blur.

Increasingly, companies are emerging that are tagged as tech start-ups but combine the best of old world business empowered by innovative new technologies. Here in Vancouver, we see Indochino and ClearlyContacts disrupting the retail space; globally, Monocle is challenging the idea of what a media organization can be; recently, Nike’s TechStars Accelerator showed how a product like FitDeck can give a digital twist to something as simple as a pack of cards.

What do all these companies have in common? They’re taking a familiar business—selling clothing, providing news, offering a form of entertainment—and using technology to fuel it. Yes, tech is a crucial piece of their product offering, but they’re also fundamentally operating in a physical space as well.

In the case of companies like Indochino, they’re blending an online presence, curation, and killer social media strategy to sell and market their product in an innovative way. But they’re still in the business of age-old retail tasks like finding and communicating with suppliers, distribution and order fulfillment. They’ve gotten rid of the storefront, but the backend supply chain is still there. In the case of ClearlyContacts, they’ve now built up enough of a virtual business to add innovative physical spaces, with their store on Robson Street in downtown Vancouver.

Monocle started off as a print magazine and has expanded to include web, mobile, podcasting, radio and a fleet of cafes. They’ve created a customer base that’s engaged at multiple points, on and offline, building a new model for what a traditional media outlet can be in the digital age.

What Nike has done with their TechStars accelerator partnership recently, working with fitness startups to incorporate their Fuel technology, is another example of how a traditional business model can be given new life through tech. As I attended the accelerator’s Demo Days in Portland and San Francisco, I noticed time and again how tech was an enabler of a startup concept. For example, FitDeck has been a successful fitness playing card game for years, and is now building out its digital version. GeoPalz is redefining how parents get kids active in a social and gamified way.

In other words, these companies don’t view tech as a bolt-on, but nor do they view the physical world as a bolt-on either.

I believe that the most interesting companies in the next few years will meet consumers where they are. They will not be bound by the pure virtual or the pure physical; they will be bound only by what the customer demands.

For an investor, that’s intriguing for a few reasons. First, it opens up investment opportunities to a larger pool of industries and categories to invest in—like B2B manufacturing, traditional media, travel and real estate—that are ready to experience a new round of disruption.

Second, any company that has a mix of product and can scale globally quickly is going to be appealing.

I think we’ll also start to see pure digital companies start to partner with more physical products as well. It’s not too hard to envision startups like Instagram and Vine looking into hardware partnerships with phone or camera companies.

Of course, there are risks to this hybrid virtual-physical model: investors who don’t get it orentrepreneurs who focus too hard on one aspect without respecting the balance of the other areas. Getting the revenue model right is critical as well: are the margins there?

But I’d challenge entrepreneurs and investors who are creating or looking at opportunities to be holistic in placing themselves in the mind of the consumer. Determine what the full breadth of the offering needs to be, and how to do that in a seamless way. It shouldn’t be a surprise when a digital marketplace like Etsy offers a pop-up shop. The emergence of seamless bricks and clicks has arrived.