Feedback from analysts on what a tech startup knows that would be really interesting [Startup Saturday]

In addition to last week’s post (see Startups have unique market insights that they can use as currency with IT industry analysts [Startup Saturday]) I also listed a question on LinkedIn Answers to see what sort of feedback I would get from analysts. I am glad I did as I got some really interesting and useful responses. They fell into three basic categories: standard briefing information that all vendors should provide, information that should be included in briefings by startups and unique “ah ha”s that startups can provide analysts. Here are a few of the key quotes from the responses. All of the responses are included at the bottom of this post and are worth the read and not just by startups either. Established companies can learn a few tips from these suggestions as well

• The biggest unknown [for analysts] is how the market will evolve – and who/what will be left standing. The insight provided by start up’s is invaluable to helping to understand the market and the changes that are already in progress.
• Understanding of the buyer side … especially if it sets up factors to track that might indicate the leaders and challengers … are about to be shuffled. Getting in front of that with clients would be valuable, indeed.
• Startups by their nature are spotting opportunities to add value that the big guys are too lumbering or distracted to fill.
• Value proposition for a start-up is its insights into solving a problem
• Vision which differs from current thinking
• A unique way of looking at a market segment or a solution that others may not have thought through
• Tell the analyst what they are not hearing from your competition, esp. the larger players
• Smaller firms don’t rely on canned, pre-programmed responses to analysts and instead often give insightful, and honest, answers.
• Articulate a nascent tipping point
• Insight into a shift or change in trends that may not yet affect the “established” players.
• Renewed energy or focus on a problem that may have reemerged.

Bottom Line: Startups should always be alert to the opportunity to include unique market insights as a means to engage the analysts and obtain analyst-requested follow up briefings.
 
Question:

Analysts – What does a tech startup know that would be really interesting to an IT industry analyst?

Startups – What other topics should a startup be looking to exploit that makes them interesting and standout versus mature vendors?
 
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Responses from analysts and non-analysts:

Jon Collins, Freeform Dynamics

I see this slightly differently from the other side of the pond (and indeed, outside of the Valley). On top of everything else I would answer “intentions” – it is a poorly documented truth that many startups come to the UK in order to check a few boxes in their growth plan, with the ultimate aim being their acquisition. The big box to be checked is “gain appropriate number of strategic customers” – being checked along the way are “building relations with country-specific channel partners” and, indeed, “engage with local industry analysts”. The PR company is hired, the analysts are called, the press release saying, “Acme Tech expands its operations in Europe” is issued, and the process goes on.

Now, of course we want to know what such companies are up to – startups by their nature are spotting opportunities to add value that the big guys are too lumbering or distracted to fill (indeed, that’s why the big guys sponsor startups in the first place). However, it can be quite disheartening when one realizes one is just a box to be checked on the path to acquisition. Particularly when one is fed the whole line about really caring about growing the business etc, when the thing cared most about is the yacht.

So, an honest statement of intentions would be really helpful, we won’t tell. I’m getting the hang of it now, as the same guys turn up in charge of different companies, we have a good chin wag and talk about sailing as much as technology or growth plans. There’s a (more) serious point here as well – if that’s what tech startups need from transatlantic analysts, I would suggest the latter sometimes lack the smarts to really assist the former: there are a handful of Europe-centred analyst firms that really do “get” how to grow channels, country differences etc – Canalys and Eurolan spring to mind – but the majority in my experience are more about the technology advisory, and have less to offer the startup in Europe. Given that we research markets, we do add value of a form but we could probably do more – at least have a more valuable conversation – if we had a clearer view of intent.

Perhaps it would be interesting to categorize startups according to the kind of technology they offer – I think this would help a great deal in understanding (then) the kind of analyst conversation that would be most useful. Potential categories are:

– bolt-on technologies to add value to incumbent technologies – the startup that adds security features to an application server for example. Almost totally setting itself up for acquisition

– standalone technology capabilities in a new niche (the ones that fall foul of the MQ that isn’t there). Hoping for mass adoption, if get big as a result so be it… probably hoping to be acquired at some point but not too soon.

– technology in a new but rapidly growing area. Less worried about acquisition, more hopeful (ahem) that the company might become the next Google, or at least the #2. If #=3-n, then acquisition won’t be so bad

– technology that has been available for a while but was generally sold into a specific vertical. Such companies are often owner-managed, and the drive to expand comes more from setting corporate goals than VC pressure. Unlikely to want acquisition (though more likely to talk about it).

That’s a start – I hope you see what I’m getting at! The latter may not be “pure” startups but are often treated in the same way by the firms they choose to represent them – and of course the categories will sometimes overlap.

 Duncan Chapple, Lighthouse AR

A key thing here is cando(u)r. Start-ups can also be totally open about everything, and public-companies are very limited in talking about segments and financial performance. Plus, start-ups get drawn into uncontested sweet-spots very quickly, and that shows where there’s money left on the table.

William “Bill” Malik, CISA, CTO formerly with Gartner

Start-ups are angling for two things: first, market visibility; and ultimately, credibility. If a start-up has a new and profound insight into the real solution to a serious industry problem, then they have a reason to call on an analyst. By describing their solution, if the analyst believes it, the start-up might get a mention in some analyst research or in a conversation between the analyst and a prospective buyer.

Analysts exist to mitigate doubt on behalf of their paying customers, so their bias is towards skepticism. A start-up shouldn’t angle for an analyst’s time until they have at least one production customer of sufficient gravity to provide a reasonable reference.

In my own experience I’ve had start-up CEO types assert that their product was better than the competition, and that’s fine – it’s a sad dog that won’t wag its own tail. But it’s a bit of a stretch for any vendor to assert that their un-delivered prototype is better than technology that is generating revenue in production.

I would point out that most start-ups aren’t in markets with no mature competitors. Google came into a market that already was dominated by Yahoo. The first search tool was Archie.

In some markets, the market doesn’t exist until a major competitor moves in. Consider the Unix transaction processing market, for example. Encina and Top End were battling it out for first place for years and nobody cared, until IBM announced CICS/6000 for the AIX platform. Only then did businesses began considering running transaction workloads on Unix variants.

The value proposition for a start-up is its insight into solving a problem that is sufficiently broad to have a real market, has enough urgency that someone really wants to solve it, and has someone who is willing to write a check to get the problem solved. Single sign-on, for instance, certainly addresses a broad problem, and there may be some urgency to getting it solved, but the benefit of its solution is so diffuse that nobody in most firms is willing to write a check – hence the collapse of that technology.

 David Mitchell, Ovum

Two basic items for me Carter:

– The background and experience of the team i.e. have they been successful before

– The sources and depth of funding, especially if there is a PE or VC track to the funding

In addition, I’m always interest in:

– what THEY choose to present – the topcis they select give me an inkling on how they will run the business e.g. is it all product focused or is their a funding stream focus or is it all GTM focused

– how they present – the way that they present themselves to me gives me a clue as to how they’ll present to prospects and, so, how likely they are to win business

Nigel Deighton, independent analyst, formerly with Gartner

Well assuming they crossed all the T’s and dotted all the I’s that industry analysts want ………. I guess you would expect them to have a vision which differs from current thinking. Paraphrasing Einstein they need to show that they have understood that “Today’s problems cannot be solved by the same level of thinking that caused them”…….. you could of course read opportunity for problem.

Cynthia Holladay, Upright Marketing

Speaking as a former IT analyst myself and to be brief, it would be the carefully and deeply-searched answer to the question “Why are we doing this?”

Then, in all subsequent conversations, tie insights, actions and results that pertain to that declaration in clear rational ways.

The perspectives would be unique if the company is creating as opposed to merely surviving or copying others.

Simon Holloway, Bloor

This is an interesting questions – particualrly as I sit on both sides of the fence, being an industry analyst for Bloor research and also running my won start-up company (ContrstructRFID). With my industry analyst hat, when talking to a vendor in some way there is no difference between what I want to know about a company and its product whether they are new or old. Besides understanding the company structure, the financing, and the technicalities of the product offering, i am interested in y=understanding the unique selling points (USPs), the Go-To-Market (GTM) and the partner strategy. All of this should be in the business plan of a new company.

Certainly in building my own company, this is exactly what we have looked at and therefore put together.

Bob Egan, Tower Group, formerly with Gartner

Two things;

1. What was the compelling reason investors put money into the company?

2. The three things that keeps them up at night…

Rob Enderle, Enderle Group

They often have a unique way of looking at a market segment or a solution that others may not have thought through. Often they are more candid, which is generally refreshing and can help break up a day. They are less likely to feel they need to take up an entire hour if they don’t need it. Sometimes their executives are powers in their own right and interesting to talk with regardless of what the company does.

Their big disadvantage is they likely won’t be a revenue source themselves and for those that have to watch their numbers this makes meetings harder to set up. In addition, most think they truly are unique even if they aren’t and their PR firms are often not well targeted and will try to set up meetings with analysts that don’t care about their true segment.

Karen Peterson, SAP VP, formerly with Gartner

All of the answers already given are correct – an analyst wants to know about funding, add on functionality, product placement, executive heritage, etc.. However, the “special sauce” is insight.

Analysts in emerging markets are gathering all of the information that they can in order to form their own view of the market as it is, and how it will evolve. I had someone tell me that an analyst’s biggest fear is that he/she will be asked a question to which he/she does not have an answer. The biggest unknown is how the market will evolve – and who/what will be left standing. The insight provided by start up’s is invaluable to helping to understand the market and the changes that are already in progress.

James Governor, Redmonk

It’s not unique to startups, but I would counsel any firm to explain what they *don’t do*. Every analyst has had calls with firms that say they can do everything. Coming from an IBM, the statement makes sense, in as much as IBM does do pretty much everything. But explaining what the startup doesn’t and won’t do is extremely helpful in understanding their positioning.

Tim Matthews, Ipedo VP

I have a slight twist to what James said (and I know he thoroughly enjoyed all the briefings I gave to him…)

Here it is: tell the analyst what they are not hearing from your competition, esp. the larger players. On more than one occasion, when I would happen to mention a small fact that I knew from the Silicon Valley rumor mill or even from a company’s SEC filings, I found industry analysts incredibly interested. In one case, the analyst asked me to send them a link to the SEC filing.

These can be juicy nuggets like: you know their VP Engineering just left; I heard they paid $50M for that company; there’s an RFP on the street from big bank X looking for this; I got a call from a recruiter telling me they are looking for a new CEO. Now, all this stuff has to be true and relevant. No spreading FUD. It’s stuff that you as a motivated startup exec know because you are out there and working that much harder. It’s stuff they can’t get anywhere else.

Done correctly – read not in a bashing or mean-spirited way – it can show that you are tuned into the market and start to build credibility with an analyst.

Anonymous, major firm analyst

Carter, I actually enjoy meeting with early stage companies for several reasons:

• They frequently have insight into emerging market or technology area that the larger companies don’t have
• Smaller tech firms have a passion for their unique technology area, and are able to identify new ways of addressing a business problem that, again, many larger firms can’t see
• Smaller firms don’t rely on canned, pre-programmed responses to analysts and instead often give insightful, and honest, answers. Again, rare when dealing with a larger, established firm

In terms of the information I am looking for from a smaller firm, I usually want to know:

• What is the unique problem they are trying to solve, or what is the technology they are bringing to bear that is looking for a problem to solve?
• What do they believe the size of the opportunity or market segment is?
• Who do they compete with? More importantly, how do they articulate their unique value propositon (often find smaller firms are challenged with this – they focus on the technology and forget that they need to address a business issue in order to find customers or users)
• Are they privately funded, VC funded, angel funded? Are they able to share who their investors are? (you can often tell a lot about a company based on who their investors are)
• Who are their current customers? who is on their prospect list?
• What are their biggest challenges?

Bruce Stewart

Many analysts will come into a vendor’s briefing with a framework/model for the industry in mind. This is an unavoidable part both of the way we think, and, more important, the way an analyst will put information together. All the prior interactions, in other words, are present as this new vendor begins to speak.

The most interesting thing a new vendor can contribute, therefore, is their different perception of the market and its status. To do this, however, the analyst must be prepared to set their model aside temporarily and actually engage in the vendor’s worldview. (This is actually a philosophic approach known as phenomenology, the “bracketing off” [to use Husserl’s language for it] of what you bring to the situation in order to let the new phenomena be there without initial evaluation; later, you bring the two together and challenge each with the other. For an easy point of access see Thomas Langan, Being and Truth, esp. Chapter 4, where Langan does one phenomenological experiment after another to demonstrate this way of dealing with novelty.)

(I should mention that I wrote parts of Being and Truth, edited the work, and co-taught it with Langan during my master’s and doctoral programmes. Not that that matters for this point.)

Having worked with start ups extensively – advisor, board director, industry association work, etc. – the one thing that has struck me is that in all such situations other than the company founded on the “I can deliver that cheaper” business model (and that has no real innovation underlying that claim: mostly these are attempts to arbitrage talent in a lower labour cost economy for sales against competitors in a higher labour cost economy), the founders have their own model/framework for the market. It is likely to be highly incomplete, and difficult for them to articulate, but they have it and work to it. This is what the analyst should want to tease out.

For instance, there are no shortage of companies out there doing something or other in the Web 2.0 space, and with an eye to corporate sales of same. Every one of them has a model in mind for why corporations would be willing to (a) jump into the capability and (b) buy from a new vendor rather than an established player they already do business with (good old “ability to execute” factors at play).

Most of these models will be deeply flawed – there is no reason why, for instance, a conservative company would turn to Suite Two from SpikeSource (whom they don’t know well) when they can just do something grounded in Lotus or Sharepoint (from vendors they already buy from and know). But occasionally the vendor will be able to articulate a nascent tipping point, or an understanding of the buyer’s frustrations, that explain why they see the opportunity to get a hearing.

This isn’t, therefore, as much about their technology or their product as it is about their understanding of the buyer side – and that should be worth its weight in gold for the analyst, especially if it sets up factors to track that might indicate the leaders and challengers (to use the old magic quadrant language) are about to be shuffled. Getting in front of that with clients would be valuable, indeed.

It requires a different kind of briefing, with different kinds of questions, but the shaking of the “standard framework” periodically is worth doing.

My 2¢ on the subject

Tim Bajarin, Creative Strategies

In my case, I want to know their business models as well as their longer term cashing out strategy. Do they see an IPO in their future, or expect to be acquired?. How do they build value so that their valuation is legit and worth real cash to founders, investors,etc?

Where do they see the company in 3 years, 5 years, etc.

Anonymous, major firm analyst

The ability to define a new market without being constrained by industry analyst categories

Insight into a shift or change in trends that may not yet affect the “established” players. This could be a change in buying behaviour, a change in deployment options, or a change in how an application can be utilized.

Renewed energy or focus on a problem that may have reemerged. We’re curious as to why and what those drivers are.

Anonymous, major firm analyst

The main thing I look for is differentiation: how are they different, and where  do they overlap other offerings. Don’t try to convince me that you are unique, or creating a new market (they all say that, and rarely do). It is more useful to say where you are like someone else (maybe better in some way) and how you are really something else.

Anonymous, former major firm analyst
Clear and succinct description of what the product does (few setup slides, brief feature list;simple diagrams) — 20 slides for whole pitch maximum;

Grasp of the market they are in (without egregious overreaching);

Vision for how their product will address that market more effectively;

Previous success and experience base of the founders and management team;

Examples of how the technology could be used and has been demonstrated in initial beta tests;

An understanding of the vendors in the market who could complement their product (services, related technology vendors) to make more of a solution in the future;

Finally, a strong effort to query the analyst and learn what the analyst knows — this should be the bulk of the time spent with an industry analyst

Hope that is helpful!

Joseph Martins, Data Mobility Group

Is this a rhetorical question?

Seriously Carter, how would this be any different than say the information IBM or HP would have (or seek) regarding incubated technologies and emerging markets?

I ask because I have helped the very early growth of six startups to-date, and I can think of nothing truly unique to startups except, perhaps, boundless energy and enthusiasm, and an infatuation with VCs.

As an aside, a startup’s challenge isn’t information – it’s perception and execution. Well-funded incumbents flowing over with CI regularly get their behinds handed to them by startups. What startups may lack in information and resources they more than make up for in customer attentiveness and agility.

Tina Whitfield

Having been there and done that in several structures, I do offer that many executives, managers, and staff that worked in start-ups can now add jr. system administrator to their resume. More than likely, a road warrior that spent time at a start-up, even as a desk jockey, can MacGyver to the WWW from just about anywhere.

What they bring to corporate life is that same creative ingenuity which inspires all their roles at all levels of execution. Further, an understanding of how they are networked to their team and to the world can provide a holistic perspective of leadership and operations.

I hope this has added value to your library.