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The second most important pitch: The Gartner Observatory

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Research presentation discussing how digital ventures use the endorsement economy. This was the keynote presentation at the 2018 Cool and Hot Vendor Forum at the University of Edinburgh

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The second most important pitch: The Gartner Observatory

  1. 1. THE 2ND MOST IMPORTANT PITCH How digital ventures must navigate the ‘endorsement economy’ to scale Neil Pollock, Duncan Chapple, Suwen Chen, Fabio Rocha
  2. 2. YOU “AREN’T GOING ANYWHERE” IF YOU’RE NOT RECOGNISED BY ONE OF THE 1000+ INDUSTRY ANALYST FIRMS “Influencer relations” who coach vendorsVendors who pitch “[Chicago start-up] made the Forrester Wave because the analysts saw them as a disruptive technology”. “We really feel like we are far ahead of SAP, Oracle or even IBM”. “We’re doing all this stuff from momentum that we’ve gained from the Forrester Wave” (interview with analyst relations agency) “There's a little vendor up in Glasgow. Their technology is as good or better than others - but they aren't going anywhere”. “They’re not on anybody’s Magic Quadrant or Forrester Wave”. “They will remain a small start-up until they get onto one; it’s as simple as that” (interview with industry analyst)
  3. 3. INDUSTRY ANALYST ENDORSEMENT MATTERS Forrester Wave Chicago Start-up Chicago Start-up Magic Quadrant
  4. 4. 12:45 Industry Analyst Endorsement Matters Making it on to “lists”
  5. 5. Industry Analyst Endorsement Matters They speak to (very) large audiences of IT buyers
  6. 6. Industry analysts influence nearly 60% of all enterprise software sales Institute of Industry Analyst Relations (IIAR) study (Dennington & Leforestier 2013)
  7. 7. INDUSTRY ANALYST IMPACT Press/opinion influence Written research Recommendations to tech buyers/investors
  8. 8. FAVOURED LATVIAN VENTURE EJECTED FROM MAJOR PROCUREMENT CONTEST “[Gartner] has a list of some 500 vendors of CRM, many of which [Gartner analyst] meets on a regular basis to track the development of their products. [Latvian_Start-up] is not on the list; he had not heard of them”. “Gartner said that with [Latvian_Start-Up] we would be taking a risk”. “Who would sign up to a company that no one has heard of?” (Study of CRM solution procurement)
  9. 9. GROWING NUMBERS OF INDUSTRY ANALYST FIRMS The “Big Three” 700 medium sized and "boutique firms"
  10. 10. ACCELERATING PACE OF DIGITAL INNOVATION, MEANS INDUSTRY ANALYSTS NOW STUDY START-UPS  Appearance of ‘Apps’, means important technological developments now come to prominence quickly and outside large IT vendor labs  Industry analysts now devoting more resources to tracking new digital ventures
  11. 11. GARTNER “COOL VENDORS” “So our Cool Vendor reports are really vendors that have been trading for 3 or 4 years, maybe 5, unlisted. Most people haven’t got a clue who they are, but we know that they have got some really good customers. The customers say they are good, and that is what we think is cool about them. They have got something unique and they got real customers”. (interview with Gartner analyst) Notable Cool Vendors: Box, Dropbox, Nest, Evernote, Cloudera, Palantir, Instagram etc
  12. 12. ARAGON “HOT VENDORS”
  13. 13. HFS “HOT VENDORS”
  14. 14. INDUSTRY ANALYSTS INFLUENCE INVESTOR AUDIENCES IDC Private Vendor Watch Service 451 Research M&A Knowledgebase Ovum’s Investment Tracker
  15. 15. WHY THIS MATTERS FOR DIGITAL VENTURES Digital sector typified by vast numbers of innovative start-ups, many of which will fail (Giardino et al. 2015) Digital enterprises lack credibility at outset (Cusumano 2013) Young enterprises suffer from ‘liability of newness’ (Stinchcombe 1965) Buyers don’t want to buy a ‘lemon’ or end up an ‘angry orphan’
  16. 16. WHY THIS MATTERS FOR THOSE SUPPORTING DIGITAL VENTURES UK recognised as amongst most vibrant places for creation of digital start-ups (EDCI 2016) However, its new enterprises are often unable to take the next important step “Too many start-ups start, but never scale” (Nesta 2016) “UK lag[s] behind the US and other leading economies in the extent to which our companies scale” (Scaleup Institute 2014)
  17. 17. OUR GOAL Collecting evidence to show:  that those new digital ventures endorsed by industry analysts receive a significant boost and,  where this form of backing is not forthcoming, it becomes a block or impediment to progress
  18. 18. MAJOR BOOST Evidence that ventures doing well on 2nd pitch:  increase sales  build growth and visibility  attracts talent  and other things
  19. 19. MAJOR HURDLE Evidence that ventures unaware of 2nd pitch lose out on:  finding new customers (Lakhani 2016)  attracting further investment (Hsu 2016)  reaching international markets (Priestley 2015)
  20. 20. BUILDING AWARENESS OF 2ND PITCH “We’re aware of the difficulty in scaling IT companies in Scotland [but] haven't really considered the role of analysts in putting some of these companies on the stage” Scottish policy maker responsible for venture scaling
  21. 21. BUILDING AWARENESS OF 2ND PITCH The Scaleup Institute (2014) highlights six factors that hinder the development process of ventures, but no mention of this 2nd pitch.
  22. 22. “THE PITCH”
  23. 23. SIMILARITIES BETWEEN PITCHES GIVEN TO VC AND INDUSTRY ANALYSTS, BUT ALSO IMPORTANT DIFFERENCES VC pitch High stakes Powerpoint Mostly face-to- face One-off events Individual pitcher Interaction (high) Valuation Analyst pitch High stakes Powerpoint Increasingly virtual Multiple pitches Team who pitches Interaction (unresponsive) Valuation??
  24. 24. “Influencer relations” who coach vendors EMERGING 2ND PITCH “INDUSTRY” Pitchers (tech entrepreneurs) Coaches (analyst relations agencies) Analysts
  25. 25. 2nd pitch: not just matter of presenting but also understanding analysts’ perspectives. • New ventures must learn about industry analysts and ‘taxonomies’ they use to frame technology markets 12:45
  26. 26. “Entrepreneur starts a company. It’s a software firm. It’s challenging the incumbents. It’s been relatively successful. They believe they are approaching the problem in a completely new way, they feel like they are a valuable, viable, in fact, superior option in the space” “They feel like the analysts are under- representing them [in their rankings]; they find that they are”. “It starts with “Hey, how are you? I’m glad I have the chance to talk to you” and very quickly it goes to “I don’t understand why you don’t see this” “So at once they assault [the analyst’s] judgement, assault their wisdom and assault their integrity, and I don’t give that less than 30 minutes. And this happens every single time” (interview, AH) INFORMATION FROM ANALYST RELATIONS AGENCY DESCRIBING HOW OPENING PITCH TYPICALLY GOES
  27. 27. ENDORSEMENT ECONOMY  We are asking if analysts might do more than just identify attractive start-ups but go on to ‘recommend’ them.  A line of enquiry will be thus to understand what it means to endorse a venture, including whether analysts also play an active role talking about ventures in public or recommending them privately to clients.
  28. 28. ANALYSTS WILL TALK ABOUT START-UPS “So one of the things I’d encourage [digital start-ups] to do is really just keep us updated on interesting projects you’re doing and new things that are coming out that we could potentially write about”. (observation of pitches)
  29. 29. ENDORSEMENT ECONOMY IS “UNEQUAL” All major analyst firms in North America (700+) Digital ventures in other parts of the world have to work much harder No analyst firms in Scotland
  30. 30. CERTAIN REGIONS MORE PREVALENT IN ANALYST RESEARCH: WHY? 1. Research from finance suggests ‘home biases’ not uncommon e.g. investors in financial markets systematically “overweight the securities of their country” (Karolyi & Stulz 2003) 2. Ventures from certain regions communicate more systematically with analyst firms and have more nuanced understandings of their importance and what they are looking for (and this explains their prevalence in analyst research)
  31. 31. OUR MISSION 1. To analyse the impacts of industry analyst endorsements on the survival and growth of new digital ventures 2. To analyse the factors that lead to digital ventures receiving these crucial endorsements and others not 3. To communicate our findings to practitioners, policymakers academics and others 4. Working with industry partners, we will support digital ventures in becoming ‘2nd-pitch ready', i.e. informed about and prepared to meet the criteria for analyst endorsement

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