In response to my last posting on analyst relations (AR), Barbara French of Tekrati asked if it were “somewhat unrealistic for startups to spend much money on industry analysts?” referring to an earlier suggestion of mine that startups must spend at least $60k or so on AR. My feeling is that it is absolutely realistic. I think Barbara is referring to the tactical startups that spend money on analysts as a matter of routine and put it into auto-pilot only to see nothing positive come out of it ... and, turn off the faucet altogether. If so, yes, I see a lot of that going on, as well. These companies see it as spending (vs. investing).
If it's understood but still unfunded, it is almost always because it is not valuable enough relatively speaking – never because it has no value. A decision gets made that there are 10 things they need to do but only time to perform three things well to live on. AR is like the fine scene in a movie that gets left on the cutting room floor not because the scene stinks but because of the lack of time and there is still a movie without it (end goal). AR really needs to figure out how to properly position the industry analysts as key cast members instead of some scenes
Three of the startup’s most common misunderstandings about AR are, in descending order of frequency:
1) AR is “pay to play.” Two variations of this are “What’s the point anyway?” and “Why should I have to?” The former is the logic-driven efficacy problem (can be overcome) while the latter is the more emotion-driven hubris or myopia problem (tough to overcome). What gets neglected is that time is the currency for influence and influence, in turn, is the prerequisite to “play to win.”
2) AR is research. I need analysts to either validate our market opportunity (high value but one time effort) or need to support my business case with their research (low value and low $$$ spend; “subscribe to gain research access or purchase some reports and we’re done”). Validating market position where no market exists is scary stuff. And, yet, we choose not to rigorously challenge this approach.
3) AR is an action. Per misunderstandings #1 and/or #2, the startup ignores AR until a sales manager cries foul at an analyst or report becomes an obstacle in a deal, latest showing on Magic Quadrant is abysmal, an analyst leaves out mentioning the startup while discussing three other vendors in some big article. Now, suddenly, we need to take action! Talk about using a squirt gun after a house fire … This scenario plays out more than we already know.
These misunderstandings are signs or symptoms of a larger malfunction. More likely, a startup that either sees AR as a “necessary evil” or a quick fix act (hence, why they equate AR with money vs. relationships) does not have sound marketing to begin with.
Market Development at the Core
The biggest marketing weakness of a startup is the lack of market development efforts. Ask any number of startup CEOs or marketing execs what specific things they do to create, develop, and grow their market. You’ll get a long laundry list of things that pertain to source creation (ie., content), medium or channel creation (ie., delivery), and demand or awareness creation (ie, lead gen or PR). All of these things are important but they are all tactical unless they underpin a greater aspiration or goal.
Startups in earlier generations actually understood market development a lot better than we do now. In tech, there is almost a direct correlation between age and AR appreciation. This didn’t happen by accident. Decades ago, any tech company trying to succeed not only had to hit the pavement with salesmen but they needed to develop an entire industry much less their specific market or market segment. For tech, influencer marketing has always been and will always remain powerful. A startup has zero influence on customers. It needs to rapidly target initial prospects who cannot afford not to become customers, influence and win these customers via influencers, and create the self-perpetuating cycle of success. I’d even argue that in B2B tech, influencer marketing (AR, PR, customer marketing) is MORE critical than lead generation IF there is a sales team in place. To use a baseball analogy, influencer marketing is bringing in the fences and knowing what pitch is coming while lead gen is getting more pitches thrown at you.
If a startup is lead by a CEO who prioritizes influencer marketing** (and recognizing that not all influencers are equal), there is a high probability that AR is valued. Conversely, if the CEO does not understand or appreciate influencer marketing, there is a guarantee that AR will (at best) be misunderstood or (at worst) be ignored. So, I’d like to see AR be positioned in the context of how it fits into a much grander influencer marketing strategy rather than a function.
Our field has to make a compelling case for why these influencers have a disproportionate impact on customers. In my experience, startup marketing budgets are already woefully small. The opportunity cost of taking money away from the familiar to something that is unfamiliar is a tough case to propose. That’s why I always use the word “invest” to management and marketing teams. Like any investment, I tend to lay out the history of well performing (AR) investments, clarify tangible returns on investment, and form realistic expectations (mainly around time horizon and monitoring).
Not every startup will be open to investing in AR. They may ultimately come around to understanding AR’s strategic role and its part in field efforts to close deals. Even then, the reluctance to see AR as an investment vs. piece of a marketing mix may never go away. This is primarily because most startups do not have much of a mix. Many rely on a couple high value (which usually translates to “fastest”) investments at a time. PR was big ten years ago. “Lead gen” was big 5 years ago. SEO was big 3 years ago. “Viral” is the buzz now.
The Tree Is Falling?
There’s a saying that if no one saw the tree fall, did the tree really fall? Likewise, if there is no attempt at finding a solution to a problem, does the problem really exist? So, here are some possible solutions …
What Stage?
Figure out if startup is in pre-revenue stage or post-revenue stage (let’s say US$1 million or more). The exact amount of revenue does not matter. If pre-revenue, startup will not spend any more than maybe $15k or $20k maximum on AR. Startup will claim it has a business model but it’s going to be fragile. The fragility will consume all their time. Most of this time won’t be spent on talking to other people with no direct stakeholder interest. Not having customers means that they do not see analysts as couriers of stakeholder interest (that is, the customer as stakeholder). I’ve been in board meetings and management offsites where board members and CEOs stare like zombies or suddenly go deaf if you even mention the thought of getting an analyst’s opinion on an issue at this early, pre-revenue stage. Really. No revenue? Don’t bother talking about AR – it’s way too early. It’s a different story with post-revenue startups. Those are the ones I was referring to earlier with the suggestion that these startups need to invest at least $60-80k in AR.
What’s Lacking Severely?
So, what do these post-revenue startups need? The short answer is that the right analyst product is lacking for a startup. It’s less about a lack of AR education and more about a lack of product/service fit. Former has been progressing while the latter has been regressing. The longer discussion follows.
Many pre-revenue startups still do not want high level “advice.” They want and need something deeper. Nuts and bolts. Early stage entrepreneurs and executives have a heavy bias toward being brilliant. They do not like the idea of learning or discovering through others. Jeff Hawkins of Palm fame said it best when he stated that (I’m paraphrasing here) analysts need people like him, not the other way around. Startups think of themselves as creating new technology in or for new markets. They may think a particular analyst is a genius and even outright hire him or her but they do not otherwise outsource strategy. Any time or money that gets spent on AR is usually to serve as support for a position they have already taken or to validate an assumption. This is the period of self fulfilling prophecy. We’re doing X, so go find that report Y, so that we can convince our VCs that Z is the right way to go!
Startups first see the analyst fork in the road when they are in product planning, developing go-to-market, and scheduling launch modes. It’s just not called “AR” at this stage so there is probably no AR manager, no AR budget, and no one really even knows what “AR” means. They just call them consultants. There are two types of startups at this juncture. Bad startups and bad product marketing people use analysts to insert a few paragraphs into Market Requirement Documents (MRDs) and continue the act of supporting existing positions and assumptions. They’re negative toward AR or analysts. These people sit around and download outdated reports, troll through the quantitative reports, and try to get “free” advice. These startups can be saved from themselves. Lots of potential here for AR investments but it’ll take a long time to get these folks on board.
In some cases, the CEO who could care less what analysts think results in a product marketing team that abandons analyst engagements. In other cases, a weak product marketing team actually feels threatened by highly experienced analysts who have far greater intelligence and exposure into a given market and thus, hides the CEO and startup from analysts. Value is there but it is invisible. This scenario has bigger underlying issues rooted in dysfunction. We can turn malfunction around but people dysfunction is a tough beast to tame. This has very low potential.
In contrast, a solid startup team scrambles to get its hand on a lot of information at this point but, more importantly, they are constantly trying to interpret the information to make some key decisions. The big value is on the tail end of this equation - end customer-based consultation on the decision itself. The least valuable part is the access to information – especially the raw quantitative kind. Reports and analysis with interpretation is somewhere in the middle. This is why startups shy away from research and look for consultants … they’re in need of well-reasoned, actionable advice backed by solid information. If you ask a startup CEO or marketing exec whether they value influencer marketing or see market development as something critical to the company and hear a “yes,” this is the ideal startup for strategic AR consultation and investment. If they say “yes” to both, this is the perfect startup!
Specifically on Mis-Fit
Almost all larger analyst firms lead in with research when they pitch their services to startups. Research subscription is offered up as an entry fee to the startup. Research is a more predictable, recurring source of revenue. I get it. But, it’s an approach that doesn’t fit a startup’s needs. Startups do not care about the logins and seat licenses. They won’t spend money on it.
Quite frankly, I wish analyst firms would do their own market development! Not only do some of these startups represent tomorrow’s gigantic companies (ie, clients) but they collectively drive more and more of the firm’s revenues from the larger companies.
The Tree Has Fallen!
Here are some solutions …
#1) Help solve immediate needs. Some needs are usually uniform throughout all startups. First, the startup needs to establish a position within (if not in close proximity to) an existing (defined) market with goals of developing that market. Second, the startup needs outside influencers to find, persuade, and win customers. Both efforts can start with the small shops and independents. At NetScaler, we did it with the little guys. The money came from the budget for collateral development, product testing, sales seminars, and so on. It was a patchwork of a budget but that was fine. Gradually, management starts seeing the value of analysts. After some time, larger analyst firms take notice and begin to lead the coverage and influence a broader marketplace. We ramped AR investments at this point. All of below are approximate figures:
NetScaler AR Spend for 2003 = US$20k (mostly on small firms; focused spend)
NetScaler AR Spend for 2004 = US$75k (even between small and large firms; spread out spend)
NetScaler AR Spend for 2005 = US$220+k (mostly on larger firms; focused spend)
Citrix/NetScaler AR Spend for 2006 = US$2.2+million* (balanced distribution; spread out spend)
* Total figure for four product groups and corporate combined.
#2) A big problem is that most smaller firms and indies serve vendors and don’t interact with IT buyers or end customers. This is ok. Startups will still spend money on outbound marketing (webinars, seminars, sales training, etc. ... primarily market education and generating awareness around business drivers and trends) and product marketing (primarily on white papers, competitive testing, packaging advice, custom research/surveys, product feature comparisons, and so on). Sell to the urgent marketing need and startups will spend.
#3) Don’t be too ambitious. Meaning, don’t overpromise to management with regard to early analyst engagements. The worst thing an AR pro can do is talk a lot about how AR is strategic this or that, revenue driver this or that, get everyone thinking immediate gratification and revenues, expecting Albert Einstein Jr. to come in … then, BAM! The CEO thinks the analyst was a moron and knows as much detail about the market as the cashier at Safeway supermarkets. VP of Engineering is disgusted at the lack of technical depth. VP of Sales is even more skeptical than ever. VP of Marketing is hiding in some dark hole. The analyst is pretty pissed at the startup, as well. The thought of any future investments in AR just sprinted out the door. The lose-lose situation happens more often than people realize and it can be avoided with one simple change.
Propose a small project with the analyst on some tactical project that is valuable to product marketing but probably not “strategic” in the usual sense. White papers always work because the finished piece can be used in so many ways – mutually and jointly by both the vendor and analyst firm. Lab testing works. Even messaging projects or market segment reviews work. These small projects give the analyst a chance to dig deeper into your business and technology. It gives them a chance to get to know the team. It builds trust and enables management to appreciate the value of AR in bite sized chunks. By the end of year two, my CEO was literally yelling, “Hey man, get to work. AR is making a big difference, why aren’t we doing even more with AR!?!?!” This really happened at NetScaler in September of 2004 as BV Jagadeesh (the CEO) and Seamus Hennessy (Finance VP) will attest. It took almost 2 years to reach this point. There are no short cuts or instant results in AR. It takes time but it’s worth the effort.
So, I totally believe it is realistic to believe all startups will invest in AR but only over time – initial investment will be small. For startups in B or C round funding stage, I do think a big investment in AR is realistic and probable but only for the strategic teams.
When In Doubt, Simplify the Case
When all else fails, I resort to simple reasoning. A startup will have a product marketing manager or director – maybe even two or three. Let’s assume there is a 8-10 pg. technology white paper on the PMM’s ‘to do’ list. Your PMM probably draws a salary between $100-165k per year (depending on a bunch of things). It will take about 7-8 hours minimum of dedicated, non-interrupted writing time to finish a good draft. This is a conservative estimate on just the writing. There are additional hours in research, interviews, and other sourcing activity. There are the other data sheets, solutions briefs, powerpoints, sales calls, training materials, PR support, press release editing, etc. that each PMM is bombarded with daily and weekly.
A simple white paper actually translates into big costs. For a few thousand dollars, I can outsource the white paper to an analyst. The amount will seem trivial in this context. And, we don’t actually end up with as big a net increase in spending if the PMM uses the freed up time on supporting sales deals more. I get a valuable tool created by a third party for outbound campaigns. An analyst gets to know our technology and establishes a business partnership. Our sales team gets more mileage out of our PMM. Customers benefit from more PMM access and time. PMM is leveraged and tapped better. PR probably has more content and analyst references so they’re happy (it could also end the “we need customer references to get a story!” excuse – or at least soften it =).
I think Carter, Duncan, Barbara, and countless others deserve high praise for what I believe will be the rebirth of influencer marketing. I've had enough with the fads and here in Silicon Valley, where there are some marketing "gurus" who promote themselves with new buzzwords and claims of conversion this or metric that far better than they market their products and companies, it's refreshing to see a return to the fundamentals.
** Influencer marketing is nothing new. I repeat ... it is NOT NEW. It has been around as long as the tech industry itself.
- John
You're making some excellent points here, but it's also worth consider when it might not the right to reach to analysts broadly. I had one such example walk in to Lighthouse's office today: http://www.analystequity.com/?p=922
Duncan.
Posted by: Duncan Chapple | May 05, 2008 at 09:07 AM
I can't disagree, Duncan. But I do think those are the exceptions.
Posted by: John Oh | May 05, 2008 at 03:12 PM