There is little doubt in my mind that nothing in technology marketing is more misunderstood, ignored, and underappreciated than analyst relations (AR). AR is an area I call “unfair leverage” or what some may prefer to call competitive differentiation. Differentiation is not exclusive to products. A great marketing team leverages effective AR to pounce on its competitors and win mind- and market share quickly. I’ll present some of basic AR insights in a Q&A format below. We’ll go into various execution aspects of AR with future blog drill-downs.
Q: What is analyst relations?
A: Analyst relations (commonly called “AR”) is the practice of working with and through industry analysts to both give information to and receive information from the marketplace. AR is especially prevalent in the high tech industry. Some people make a distinction between Industry Analysts (IAs) and Financial Analysts (FAs). Communicating with FAs is usually for large, publicly-held companies and normally falls under the finance department – more specifically, an Investor Relations (IR) team that typically reports into the CFO. Startups usually do not deal much with FAs. But, exit stage startups do need to engage intimately with FAs as much as IAs as it impacts valuation. We won’t cover that topic here though. But, I promise some viewpoints on IR for startups in the future.
Q: Why is AR most prevalent in high tech?
A: Relative to other goods and services, technology offerings are highly complex so buyers need the additional insights from analysts. I don’t believe there are analyst firms who are dedicated to covering pet supplies and dog food although there will be consultancies that conduct market research for the dog food market. Tech IAs themselves are an industry … a very big one.
Q: Why is AR important?
A: AR is absolutely critical to a startup. It has been shown in numerous surveys that industry analysts have a strong influence on IT purchase decisions. Primary research by Penn, Schoen & Borland showed that analysts influence CXO and IT buyers more than any other source when it comes to B2B technologies. Every survey differs in the exact ranking or influence level of IAs in purchase decisions but it’s almost always in the Top 2 or Top 3 (#1 is always peer or user recommendation).
Q: Are all analyst firms the same?
A: No. There are three major types of analyst firms. I’m making up these terms because there is no standard definition of each of these types of firms. To categorize or segment the firms, you have to understand the business model and strategy of each firm as it relates to revenue source, focus areas, and (most) valuable services … all from their point-of-view (not yours).
Advisory firms – These are firms that get the bulk of their revenues from end users and buyers of technology. They typically rake in 60-80 percent of revenue from buyers. The remainder of their revenue comes from sellers of technology, or vendors. What do they sell? They sell a lot of advice and recommendations. Informally, they are called buy-side IAs. It can be a bit confusing since sell side means the exact opposite in IR. In IR, buy side FAs reside in various money management firms like hedge funds, mutual funds, pension funds, and so on. So, to keep it simple, let’s just call these firms advisories.
Research firms – These are the exact opposite of the advisory firms with regard to revenue source. Research heavy firms get most of their money from selling research reports. Buyers of technology don’t value market research as much as consultation and deeper analysis on specific technologies. So, most research firms cater to vendors, financial firms, venture capital firm, media, etc. – their client base. That’s why they are sell-side IAs (i.e., they sell research and serve research needs of tech sellers).
Marketing firms – Most smaller firms and boutiques are technically industry analyst “firms” but they are really marketing firms. Almost all of their income comes from vendors. The services they sell are writing white papers, commissioned research, sponsored seminars or webinars, marketing collateral, marketing consultation, packaging consultation, buyer surveys, and so on.
Niche firms – Beyond the above three major categories, there are some other niche firms. There are competitive intelligence firms like Current Analysis although that firm is becoming much more of an advisory/marketing/CI firm. There are many technical shops that specialize in hands-on reverse engineering, test methodologies, product reviews, product consulting and sponsored white papers like Broadband Testing, NSS, Tolly Group, etc. Firms like the451 which serve the VC community with summary SWOTs (although they are a bigger force in deeper analysis now). Some firms like Burton Group are very influential but for players in security and networking. Others like EMA are strong in systems and storage management as well as virtualization. The list literally goes on and on.
Q: How many firms are there?
A: As of 2008, there are roughly 750 firms of all shapes and sizes. Approximately half of these firms get half of their revenue from vendors. This does not necessarily mean they get the other half from enterprise buyers. Recall that the financial/investment communities (big institutions, pension funds, money managers VCs, hedge funds, brokerages) are big consumers of market research. About a quarter of these firms really do get most of their revenue from IT buyers. But, again, the numbers are a bit misleading. The AR industry went through a massive consolidation about 5-6 years ago. We’re still not out of that consolidation stage. There are less and less big firms. So, the 750 really includes a lot of 2-3 person shops and independent analysts. So, you need to identify the firms who make money from buyers (since you need to sell to them via the IA intermediary) but also look at their relative size since a big firm reaches tens of thousands of buyers but most firms reach only a handful.
Q: Which firms are most important to a startup?
A: That’s a tough question. It really depends on a case by case basis but you didn’t bring up our blog to hear that … so, let me take a position on it albeit in generalized fashion. You must spend the most time and money on the advisory IA firms (e.g., Gartner, Forrester, Burton) and marketing-centric IA firms (e.g., Internet Research Group would be a valuable firm for a networking company). Sign up to be a client for one or two Research firms. But, you need to engage with all available major advisory IA firms in your space or domain. A startup really benefits a ton from getting experienced consulting from some of the marketing-centric IA firms. Also, you never have enough product marketing heads, hands, and feet at a startup so these smaller guys deliver plenty of valuable marketing services, as well.
Q: Why are you putting boutique shops ahead of some of the more familiar research firms such as IDC, Infonetics, Frost & Sullivan, etc.?
A: Research firms are very important – maybe even critical at the later stages and for public companies. But, their value really diminishes for a startup entering a nascent market with an emerging technology. Bigger companies rely more on those types of firms. Multinational players outsource a lot of their market research and custom research to these firms. The reality for a startup is that these giant research-oriented firms are not going to start creating and covering your market space. They need to sell research and that means there must be a demand. And, they do not see a demand until a technology matures.
I’d recommend keeping IAs informed on major product launches and buying a few of their core research for the market you consider to be direct competition as well as one on IT buying trends (if they have one). Point is … something’s gotta give when you need 100 things but can only afford (in time and money) 5 things.
Q: Where does the AR practice or team belong?
A: AR should belong in marketing. It is a critical marketing function. It is not a PR sub function. It is not a corporate marcom function. It is not a sales function nor is it a finance function. AR is a strategic marketing function that predominantly relies on teamwork with top management, product marketing, product management, and even sales management.
Q: We use a PR agency. Couldn’t we have our PR agency take care of our AR needs, as well?
A: Absolutely, convincingly, unwaveringly … NO. The worst possible thing you could do as a startup marketing organization is to outsource your AR. My strong view has nothing to do with the AR knowledge, talent, and dedication that PR people possess or lack. The main reason you do not want to outsource AR is because of the needs of analysts and how they function.
PR agencies have huge benefits for companies of all sizes. PR provides a thin layer of separation between the company and its various external constituencies – most notably, the press. When a product fails or a customer publicly complains, PR comes to the rescue. PR is NOT solely “cheap” or cost effective marketing as some startups believe. PR is a powerful marketing tool but it's plenty more. PR is reputation management. In times of crisis, PR safeguards corporate reputation and preserves credibility. PR serves a value to the press by giving it accurate and timely information for fair, balanced coverage. Internally, having a thin layer of separation gives companies the time required to prepare the best possible statement to clarify its position to the press – and, by extension, to the public marketplace. Of course, bad companies and poor PR people use this window of time to “spin” and mislead (or, far worse, go silent) but that’s another topic.
During normal times, PR communicates corporate and product news to all of its key stakeholders such as customers, partners, press, analysts, investors, shareholders, and even competitors. Hence, PR is frequently the weapon of choice for product launches, product placements, third party reviews, and so on. PR is a lot of writing and some talking. But, it’s all disseminating. The best PR folks are masters of taking complicated product marketing mumbo jumbo and simplifying it to language that is understood and persuasive in the real world.
AR is different in many ways. With analysts, you cannot create any layer or barrier between them and your company. The communication is always a dialogue. Analysts resent any kind of intermediary that they do not find valuable. Whereas a journalist values PR’s interpretation of events, products, technologies, trends, and news, analysts do not value PR people at agencies playing the middle man’s role. The interpretation of PR people is precisely what they do not want. Analysts need to be super informative and highly deep in their knowledge of technologies in order to continue selling expensive services to IT buyers and vendors’ management and product teams alike. The only way to do it is to have open access to the company. For the company, you always want to keep all business-critical relationships in-house.
Analysts are important in helping to establish market standing and drive revenues. Never outsource it. There is, however, one exception. If you do not hire an AR manager in-house, you have no choice but to share AR duties with your PR agency but I would advise against it. Startups typically ask PR agencies to handle routine – and time consuming – tasks such as scheduling meetings/briefings and analyst tours. Unfortunately, if your agency is spending time on administrative tasks like this, they are not spending time on PR. It’s a lose-lose scenario.
Q: If AR should not create a middle man, why should I hire an AR manager?
A: Unlike PR agencies, analysts want to work with an AR manager employed by the company. Forrester even has a special program (called Councils) to serve the needs of corporate AR managers. Your AR manager serves three roles: 1) ensure that every analyst relationship is healthy and strong, 2) make certain that they gain access to key staff in product marketing and management, as needed, and 3) formulate a yearly AR strategy and plan that takes into account all facets of AR including research tracking, research creation, competitive monitoring, IA events, generating content, ensuring shortlistings, etc. Above all, your AR manager performs the duty of managing the IA relationships full-time.
Q: How critical is the AR hire?
A: Very critical. But, again, it really depends on the personnel you already have onboard. In my experience, most product marketing managers think they are managing AR but they are not. Far from it. Going on some phone calls and exchanging emails with analysts is not AR. In fact, your product marketing manager is probably doing your competitors a favor if that is what they are doing since the analyst is using you for competitive IQ s/he will deliver as a service to your competitor who has a dedicated AR team and throws time and money resource at the firms. Typically, the best thing to do is to assess your VP of marketing. Ask him how much of his time is spent on AR – not spent with analysts but rather spent on analyst relations. If the answer comes back as less than 25 percent at bare minimum, give him a headcount for an AR manager. It will be the best marketing investment you will ever make.
Q: How do I recruit or find a great AR professional?
A: This is a tough one. Great or even good AR pros are extremely hard to find. You really have one of three choices, in order of preference. Option 1 – look for a PR or corporate communications pro who specializes in or is passionate about AR. Make sure the PR person loves AR but is also a lot more technology savvy and skilled in understanding technical concepts than the average PR person. PR speaks the language of the broader market and media. AR speaks the language of technical people. I found and hired my AR manager at Citrix this way. She was a director of marketing at a mid-sized, public company looking to focus more on AR. She was one of the best hires of my career and very special. Not everyone will be this lucky in their search and so … Option 2 - recruit an analyst looking to make the jump to the corporate-side. Analysts are by nature very independent thinkers so a corporate job won’t jive with some of them but most already have corporate or startup experience. Option 3 – hire a very junior person and train, train, train! AR is not something that is hard to learn.
Q: What is the right investment level for a typical AR program?
A: A startup with little to no revenue should spend about US$60-80k minimum on AR programs – not including headcount and expenses. As you hit the US$10-20 million revenue level, your investment has to increase by a factor of many. A reasonable level is to invest north of $175-200k. To give you context, when I headed AR and market intelligence at a large software company our total spend was well over US$2 million – a sum that is a tad smaller than a typical startups entire marketing budget. You’re competing against giants outinvesting (not outspending!) you in AR by ... a ton.
Q: Why can’t we just spend the same amount on AR year-over-year?
A: Because you’re wrongly assuming that the money is going to the same thing each year. When the company starts, much of your AR dollar goes into building awareness and support for your market positioning. Thus, most of the money goes into predictable cost stuff like subscriptions, client fees, reports, consulting time (e.g., Gartner SAS). As your products start bringing in revenue, the money diverts to variable spending so to speak. Your money now gets spent on all of the above but also on promotional, revenue-driving co-marketing activities with these firms. AR starts to more directly support marketing and field efforts. You reach a point where hiring one more enterprise sales guy to bring in 4-5 more customers each quarter no longer works. Your cost of sales will skyrocket. Your focus is on making each sale more efficient but also tapping more sources of selling opportunity. It’s more likely that your sales motion incorporates major account reps, indirect sales, telesales, partner sales, direct marketing, and tighter alignment and collaboration overall with marketing.
AR is a rich subject. I haven’t even covered European markets here. Nor did I cover APAC. More on those and other AR-related topics another time!
- John
Hi John,
Very nice post. It’s great when pros in the know encourage startups to pay attention to the industry analysts.
Startups that sell into the enterprise market who do not reach out to the analysts are missing a significant opportunity to raise market awareness and generate super qualified leads at a very cost effective price. I know one management software vendor that devoted all of its marketing efforts to the customer reference program and Gartner. Quite a focused program, eh? However, it paid off with rapid growth without wasting budget on ineffective advertising and direct marketing. This approach led to a very profitable acquisition by one of the major players in the market.
You and your readers might want to check out the SageCircle blog. We specialized in helping all comms and tech vendors – from startups to global giants – interact more effectively with the analysts. Every week we do a post specifically for small companies called Startup Saturday. Here is a link to that series of posts.
http://sagecircle.wordpress.com/category/startups/
Cheers, -carter j
Posted by: Carter Lusher | April 18, 2008 at 03:42 PM
Great points, Carter. I think you bring up a very important facet of AR ... that a startups customer reference/marketing program is only bolstered by a strong AR program. They feed each other - and help overall PR efforts also in the process. Also, I probably should've mentioned that there are folks like Sage Circle, KCG and a handful of others that provide a great AR consulting * training services. I've used these services before at a couple companies and it was money very well spent. Thanks for the link, we'll certainly read and learn from it.
Posted by: John Oh | April 18, 2008 at 04:40 PM
A very useful post. I think you're right to stress the difference between high-quality boutiques, with real influence, and small vendor-centric firms who support product marketing. I made some points along those lines here: http://www.analystequity.com/?p=908.
Lighthouse Analyst Relations' research shows that two in five analyst firms get most of revenue from vendors. As for the others, their revenue comes mainly from enterprises, but also from governments and public sector bodies, as well as from telecom operators and investors. Take a look at http://www.analystequity.com/?p=733.
Analysts' impact on regulators and industry standards seems to be growing, especially in high-growth international markets.
Posted by: Duncan Chapple | April 19, 2008 at 03:05 AM
I agree with you, Duncan. Thanks for sharing your research. I think the key thing is that both a large firm and boutique serve a need to startups. It's really about recognizing that there are a few paths to revenue. You can enlist help of a very influential analyst to hunt for more deals. Or, you can work with a small shop analyst who doesn't have the "name" or reach but has the deep, dedicated knowledge about your space and help market to customers. But people really need to understand the differences to best leverage each ...
Posted by: John Oh | April 19, 2008 at 12:48 PM
The business experience behind this post shines through every suggestion. I'm wondering though, don't you think it's somewhat unrealistic for start-ups to spend much money on industry analysts? I've watched many develop tactical relationships as part of their prep for each round of funding, but other than that, most seem to be interested mostly in amassing whatever market stats they need for as little money and in as little time as possible.
I too have found the analyst firms most typically the exception to this are Internet Research Group -- also The 451 Group and Chris Shipley's Guidewire / DEMO.
Posted by: Barbara French | April 28, 2008 at 08:05 PM
I do see what you're saying but I really believe strongly that its ralistic for startups to invest heavily in AR. I think it depends a lot on the strength and skills of the marketing VP. Strategic ones will invest. Tactical ones won't.
I've put up a post in response.
Posted by: John Oh | April 30, 2008 at 12:40 PM