What do expansion stage CEOs need to know about the rapidly changing role of analysts like Forrester and Gartner in the software industry? This is a question we recently asked Tim Kopp, former CMO of ExactTarget, General Partner at Hyde Park Venture Partners, and an advisor and board member to multiple software companies. Big analysts have long enjoyed prestige and influence because of their firmly established role as the primary arbiter of rankings across a number of key vertical markets. But major shifts in the way businesses evaluate their options and make purchase decisions are shaking those traditional foundations, especially in the software market.
Kopp has worked with his share of analysts over the last twenty years, and he has a unique perspective because of the leadership roles he has had with both massive consumer brands (Procter & Gamble and Coca-Cola) and a wide variety of software startups. During his six years as the CMO of ExactTarget, he helped increase revenue dramatically from $40+ million to well over $400 million. This growth ultimately resulted in one of the largest software IPOs on record and the 2013 acquisition of the company by Salesforce to the tune of $2.7 billion. Analyst relations was one of Kopp’s key responsibilities during that time.
An Inherently Flawed System
“When I started at ExactTarget, we had a $30 million run rate business, and we couldn’t get Silverpop to cover us,” Kopp says. “The problem was that you had to have a certain percentage of enterprise business to qualify for coverage. If I remember correctly, their criteria required that more than fifty percent of your business be with enterprise customers. We had substantially more total enterprise customers than most of our competitors, but our denominator was too big, so the percentage of overall enterprise customers wasn’t high enough and we couldn’t get in. I spent all my time lobbying them on that one criterion. It doesn’t make any sense to me that we were penalized for serving mid-market companies.”
A lack of consistent and comprehensive market coverage is only one problem with the traditional analyst model. More relevant for software companies is the analysts’ inability to keep up with the fast pace of the software market. “The software-buying cycle makes the analyst model challenging,” says Kopp. “The analysts might do a refresh on a Wave Report or a Magic Quadrant every two years, but two years is like a decade in software time.” He goes on to explain that there may just be too many moving parts to the SaaS equation for the traditional analyst approach to be effective. “Everything changes,” he says. “There are acquisitions and management team changes. There just isn’t a one-size-fits-all solution. Technically, you could find a way to go into an analyst report and tweak things to make it relevant to your business, but it’s very, very hard to do. There’s no real-time component to it. What if you have a massive system outage for two weeks, or a security breach? Those kinds of things aren’t reflected in the traditional model, likewise neither are the fast followers who launch on the heels of the initial innovators.”
In addition to these inherent flaws, the traditional analyst role is also potentially compromised by the increasing prevalence (and influence) of third-party and consumer reviews. “The model is very fundamentally challenged,” Kopp says. “Firms like Forrester and Gartner aren’t going anywhere soon, but their role and influence are going to change dramatically. Say you need to buy an email marketing platform in the next month, and you need to know what’s happening in the market. If you’re looking at a report that’s ten years old, some of the vendors you’re evaluating may not even be covered.”
A Democratized Buying Process: The Influence of B2C on B2B
Kopp sees a convergence between how B2C and B2B customers are buying, “Today, we put arbitrary B2B and B2C hats on,” he says, “But whether I’m in the office buying software or at the store buying an Apple phone, I’m wearing the same hat. I don’t say, ‘Because I’m buying software, you get a free pass and your marketing can suck.’”
Instead, Kopp emphasizes the importance of having really good marketing in order to earn those valuable third-party reviews. “Really good marketing is really good marketing, whether it’s B2C or B2B. And you have to be at that level,” he says. “People want to know what kinds of brand experiences their friends and colleagues have had with a company, and a third-party endorsement carries a ton of weight. In fact, when it comes to day-to-day buying decisions that are happening in the trenches, I’d always much rather go to an objective source. That’s what’s happened in the B2C world – before you buy something, you look at reviews. The same thing is happening in the software world.”
Platforms like G2 Crowd are so effective and gaining such influence in the market because they are powered by actual users. “The end user is in the best place to evaluate software,” says Kopp. “It’s incredibly powerful to do real-time, side-by-side reviews based on real-world, unbiased user feedback. More importantly, you can drill into this feedback by narrow and specific criteria that is specifically relevant to your business.”
In contrast, Kopp points out that many analysts aren’t necessarily the most appropriate judge and jury, so to speak, when it comes to software. “Many analysts have not been operators before,” he says. “So, they’re not in the best place to judge how a product might be used within a business. But, I do think analysts can play an important role with thought leadership, helping buyers understand what’s happening in the macro environment.”
“The buying process is getting democratized,” Kopp sums up. “The primary influence has moved to the customer and the buyer. Many analysts are coasting off a brand that was built years ago, but those brands are eroding, and that will change things.”
Kopp’s 80/20 Rule
So, getting back to our original question – how should expansion stage CEOs approach analysts? Should they follow a traditional path and focus a lot of energy on lobbying the big players, or should they put more effort into newer, user-driven forums and communities like G2 Crowd?
“The answer is, it depends,” says Kopp. “There are a number of good analysts out there, but you have to remember that you only get out what you put in. It wasn’t easy, but we actually got a fair amount of help from Forrester in the early days. But, if you treat analysts in a very coin-operated way, you’ll get a very programmatic briefing.”
“The advice I give smaller companies,” Kopp says, “is to spend 80 to 90% of your time on a platform like G2 Crowd and 10 to 20% building a relationship with bigger analysts.” Kopp gives this advice in part because third-party platforms driven by user content do not put companies into competitive situations where whoever spends the most wins. “When you give the power to the user, you’ve got a fighting chance,” he explains.
“The reality for really small companies is that Gartner and Forrester just don’t care about you. They can’t. You’re not big enough to pay attention to.”
But, Kopp adds, if a company delivers a product that is objectively the best on the market, users will shout their praises from the virtual rooftops, and then even a small company has a shot at being top-ranked.
As far as what to do with the 10 to 20% of the time spent working with an analysts, Kopp recommends a strategic approach. “The best thing we did with our analysts was to bring them onsite for a day so that we could leverage their domain expertise,” he says. “Where they can be really helpful is going deep into the product roadmap, competitive review, and industry landscape. Start small, make sure you have the variables to do your onsite engagement in a day, and think about creating more of a demand generation kind of piece.”
At the end of the day, thought, it all comes down to adaptability. How tech companies continue to interact with both legacy analyst firms and newcomer platforms like G2 Crowd will ultimately determine the direction of this field. And for now, while both remain crucially important, it’s clear that evolution is already underway.
Illustration by Rachel Worthman