In the first part of this two-part series we discussed the importance of timing in ensuring that market research is actionable. The moral was to time the arrival of research (e.g., win/loss reporting, NPS surveys, awareness and marketing funnel studies) with the cadence of your company’s quarterly and annual strategic goal setting process.
Research that arrives asynchronously gets read (if you’re lucky) and then forgotten. Research that arrives synchronously becomes a homework assignment for the meeting and a session on the agenda. That way, its findings are top-of-mind when you sit down to decide priorities and hammer out OKRs.
In part II, we’ll take a more strategic look at the question. Ultimately, to make market research actionable, you need to ensure five things:
Good timing. It must show up at a time when you’re ready to absorb and action it. The subject of the first post in this series.
High relevance. It needs to help answer your most important strategic questions.
Action-oriented framing. Work to ask questions in a way that provides action-oriented answers. You can ask, “do you have plans to move to the cloud in the next five years?” or you can ask, “do you plan to move to the cloud in the next year, and if so, what are your top three evaluation criteria?”
Time for consensus building. You can’t just spit out the answer from a black box. At each stage of the process, you want to have discussion and get buy in, so that when the end is reached people feel the process was valid and buy into the conclusions.
A qualitative component. Quantitative answers what, but not why. Qualitative can lead to understanding why. Pair surveys with interviews for this reason.
Put differently, as my friends at Topline Strategy say, market research that gets turned into action is market research that was designed from the outset to be actionable.
Let’s drill into relevance and action-orientation a bit more. To ensure you’re asking relevant questions, you should do two things.
First, create what I call the hypothesis file. This is a file where you write down, over the course of the year, every time you hear an assertion or a hypothesis that you’d love to validate. Examples:
The problem is nobody’s ever heard of us. We’re just not seeing enough deals.
The issue is we’re not making the short list and that because we’re not seen as a leader.
We can’t sell use-case A because we’re seen as weak on features 1, 2, and 3.
The leakage point in our funnel is demo. We lose too many deals there and that’s because of our UI.
We’re not speaking to the business buyer’s priorities.
Everyone’s tired of talking about (e.g.,) data culture, we need a new message.
If we just focused on BigCo replacements, we could do the numbers on that alone.
These are rarely offered as hypotheses. They’re usually statements, often presented as self-evident facts. You need to tune your ears to hear them and write them down. Don’t fight every one in real time. But be keenly aware that these are the foundations of your internal corporate mythology — and it’d sure be nice to know if they’re true or not.
When it’s time to do a market study, review the questions in the file and decide which ones you want answered. Picking the hottest questions will guarantee that people will be champing at the bit to see the results.
Second, to ensure high relevance, try to identify the core strategic questions you’re facing, whether they appear in the hypothesis file or not. Such as:
In which segment are we really most successful, not just at winning deals but renewing and expanding them?
If our market is transitioning to a platform, what are the key elements that must be included? Where do customers want us to partner so they can buy best of breed?
How can we easily regain some product differentiation that matters to customers with our limited R&D capacity?
Is our Microsoft partnership a key asset on which to double down or a liability to unwind?
Will our category be entirely absorbed into a broader suite or can we sustain a moat of product differentiation to protect us?
By debating these questions, and which ones to include in the study, you again guarantee a high degree of interest in learning the answers once they are available.
To ensure you’re asking action-oriented questions, as you build the study, question-by-question you need to ask yourself, “what would I do differently based on the answer?”
For multiple choice, what would I do differently if the majority answer were A vs. C?
For rankings, what would I do knowing the top three ranked choices were 123? Or the bottom, 789?
For progression questions, what would I do if I notice everyone was dropping out at stage 3 of our funnel?
Sometimes, the answer is ask more questions. So build follow-up and drill-down questions into the survey. Sometimes, the answer is you’re circling the wrong question. Think: we asked a lot of questions that will help us determine the TAM. Say we conclude it’s $20B, then what? I think we’re asking the wrong question, I don’t want to know what the TAM is, I won’t to know the velocity with which it’s coming to market. Ultimately, how many deals will be happening in the space next year and how many of those do we need to participate in to make our numbers?
Simply put, you can research how big the TAM is, or you can research how much of it is coming to market next year. The latter is a lot more actionable than the former.
So let’s wrap up. If we want to ensure that our market research is actionable, then we need to:
Time its arrival
Study the right questions
Ask those questions in a way that provides action-oriented answers
“Yes, we run a quarterly customer satisfaction (CSAT) and NPS survey, but I feel like we don’t really take any action based on it.”
“Win/loss reporting, well yes, we do it, but I don’t think it’s very effective and I don’t think we do much in response to the data.”
“Wow, we ran an amazing overall market study last year, but I can’t think of a single strategic change made as a result of the findings.”
What’s wrong here? Why are we going to the trouble of doing good market research, but not making any use of it?
Sure, sometimes it’s politics or change resistance or the ostrich effect.
But more often than not, in my experience, the reason is simple: timing. Companies know they should do this research. They know their peers do. They know it’s a best pratice. So they do it.
But it arrives asynchronously. Like the win/loss report that arrives the week after the ops review. Or the strategic analysis that arrives six months before the strategy offsite. Or the CSAT survey that arrives arrives mid-quarter.
When these deliverables arrive asynchronously, people do their best to read them. They share them on Slack or email and make a few interesting observations. But then they forget them. There is so much other data. And so much else to do.
How do we fix this? Simple. Fix the timing. If your company has a a quarterly business review (QBR) where next-quarter OKRs are discussed and assigned, then ensure the CSAT report arrives days before that meeting. Better yet, make the CSAT report review a standing item on the QBR agenda. Along with a review of the win/loss report. Time the annual state-of-the-market study so it arrives a week or two before the strategy offsite.
Don’t fight your company’s cadence. Instead, slide into it. Design the surveys to be actionable and time them so they can be. Work with your vendors to move to new timing. Otherwise, you’re spending $50K to dump a report into a drawer (or a PDF into a shared drive).
Market research doesn’t improve with age. Build it and time it appropriately, and you’ll find that it’s a lot more actionable than you might think.
Just a quick post to share the slides from the webinar we ran today on the Balderton Founder’s Guide to B2B Sales. Thanks to all those who attended and who particpated in the Q&A.
I’m writing this post to promote an upcoming webinar entitled How To Emerge From The Downturn Stronger Than You Went In. The webinar will be held on Tuesday, January 24th and is hosted by Balderton Capital, where I work as an EIR. The webinar will start at 3:00 pm UK time, 10:00 am Eastern, and 7:00 am Pacific (lucky me), and will last one hour.
While Balderton invests in European (broadly defined) companies, the webinar is nevertheless open to all. Some Balderton content necessarily takes the European angle on issues (e.g., my USA expansion mistakes series), but for this webinar the material should be 95%+ equally applicable worldwide. So please join us if you’re interested, regardless of where you work or your fundraising plans.
Michael will run a 30-minute Q&A session that pulls from questions submitted by the audience (and/or that pop into his head).
I love live Q&A so there should be a lot of interaction and it should be a lot of fun.
Here’s a preview of the five ways to Emerge Stronger that we’ll be discussing at the event.
Sharpen focus. As they saying goes, “never waste a good crisis.” Use the downturn to force yourself to answer some hard questions about your strategy. Are we focused enough? Do we remember our Latin teacher who taught us that focus was singular? Are we putting all our executive energy into The Crux of our strategic challenge? Are we “throwing bones” to board or team members? Can we afford to?
M&A. Depending on your situation, you’re either a buyer or seller — but, either way, companies will be trying to broaden their product lines to get more leverage from their clostly go-to-market machines. (Think: “we need put more things in sales’ bag.”) Multiples are down, so it’s a good time to buy. And if you lack the cash or strategic position to ride out the storm, it’s not necessarily a bad time to sell — especially when you compare the expected value of your equity between a potentially dirty term sheet and a solid, clean M&A offer.
Play into SaaS rationalization. To quote Jim Lovell, “there are people who make things happen, there are people who watch things happen, and there are people who wonder what happened.” Be the the first type. SaaS spend rationalization is going to happen, whether we like it or not. How can you position your company to be on the right side of that trend? How can we turn this threat into an opportunity?
Re-orient your use-cases and messaging. Can you grow faster than the competiton by tapping into the new concerns of your buyers? How have their priorities changed? How does that map to the various use-cases of your product? If you’re selling conversation intelligence, should you switch campaigns from “onboard faster” to “drive increased productivity?”
Upgrade talent. The labor market was pretty brutal during the past 5 years. How can you exploit the easier labor market to upgrade key members of your team? How do you balance this upgrade opportunity with a dance with who brung ya ethos of employee loyalty? How can you build a culture that lets you do both?
It should be a great event and both Michael and I look forward to seeing you there. You can register here.
If you live in the country and see someone out walking a smaller dog, once in a while it will be dressed like this:
Does your startup need a coyote vest?
That’s called a coyote vest and it’s pet body armor designed to prevent Bruiser from being taken by a coyote and/or hawk. I think about coyote vests whenever I think about larger vendors running envelopment strategies against smaller vendors.
A Review of Envelopment Strategies
Envelopment strategies are common, and often winning, strategies in enterprise software. Two classic examples from the days of yore:
Microsoft wiping out Wordperfect and Lotus by suite-izing word processing and spreadsheets, along with presentations, into a single office suite category with Microsoft Office.
Siebel transforming sales force automation (SFA), the category it originally created, into customer relationship management (CRM) by building its own marketing automation and acquiring customer service via Scopus [1] [2].
I’ve written before about envelopment strategies, then using SuccessFactors and Marketo as examples. I’ve executed envelopment strategies, too. At BusinessObjects, we pioneered the category for query & reporting (Q&R) tools, and then ran an envelopment strategy that broadened and transformed our category into business intelligence suites. We did that by building OLAP into our Q&R tool, and then spending $1B to acquire Crystal Decisions in enterprise reporting.
More recent examples include:
Qualtrics, who evolved from a product-centric survey software positioning to a solutions-centric experience management (XM) positioning, and defined a new category the Play Bigger way in the process [3].
Alation, who pioneered the data catalog as an application for data search & discovery and then transformed it into an overall data intelligence platform for data search & discovery, data governance, cloud data migration, and data privacy.
Alation transformed the data catalog from its original search & discovery use-case to a broader, data intelligence platform.
In short, envelopment strategies work — to the point where they’re basically the standard play in enterprise software: pioneer a category, win it [4], up-level it by defining a broader problem, define what’s in and what’s out when it comes to solving that broader problem [5], and then deliver against that definition.
“You either die a point solution, or you live long enough to become a platform.”
But that’s just our warm-up for today, where our question is not whether envelopment strategies are effective (answer, yes) but instead: what should I do when a competitor is trying to envelop me?
Combatting Envelopment Strategies
Deciding your response to an envelopment strategy requires you to determine where your category fits into the larger vendor’s broader vision.
The key question: is your space one of the top three (or so) strategic components in the larger vendor’s broader vision? If it is, you face a very different situation from when it is not.
For example, back in the early days of CRM, sales, marketing, and customer service were all defined as in the space. But professional services was out.
The original definition of CRM left room beyond sales, marketing, and service (as well as plenty of room within each)
When your company is not within one of those strategic components, life is fairly easy. You will likely be able to partner with the larger vendor because while vision overlap may exist, reality overlap does not — and the sales force knows that. For example, early CRM vendors did not offer a professional services automation (PSA) tool and their sellers were typically happy to connect customers to a good PSA offered by a friendly partner.
While such partnerships sow the seeds of downstream conflict because the larger vendor usually expands its scope over time, that is a high-class problem. You can build a substantial company in the period between the larger vendor’s first entry and when they eventually get their act together. That often takes multiple, failed, organic attempts — executed across years — followed by a change in course and a major acquistion. Oracle failed repeatedly at in-house-developed applications for about 15 years before eventually changing course to acquire PeopleSoft, Siebel, and others. Salesforce eyed Yammer around 2010, then built Chatter to an only modest reception, and about 10 years later acquired Slack to provide best-of-breed collaboration.
But it’s not usually as simple as in or out. Because these boxes tend to be quite broad, there is usually room for specialization. For example, for many years customer service largely meant case management to Salesforce — omitting B2C customer service (e.g., high-volume case deflection portals) or field service (e.g., rolling trucks). ServiceMax, RightNow, and Click all partnered succesfully with Salesforce in these areas before Oracle acquired RightNow (early in the game) and Salesforce later acquired Click after nearly a decade of partnership.
Sometimes, the situation is more subtle, where the issue is not room due to specialization, but room due to lack of commitment. In these cases, the larger vendor “cares, but not that much” about a box. The vendor may want to cover a large number of boxes, each with a different commitment level that is usually known with the organization [7], but never expressly communicated:
High. We must succeed in this space.
Medium. We care, but not that much.
Low. We really don’t care and just want to “check the box.”
If you skim the larger vendor’s marketing, it will be difficult to discern the level of commitment associated with any given space. But, if you spend more time, looking for rich content, deep white papers, and numerous customer reference stories, you will likely develop a sense for whether the marketing is simply veneer covering a low-commitment box as opposed to the hardwood of a core one. Either way, the sales force will know. Partners will know. Most employees will know [7].
For example, Oracle had its own BI tool, Discoverer, the entire time BusinessObjects grew from zero to IPO, serving largely Oracle customers, in many cases partnering with the Oracle field [8]. In strategy circles, Oracle was executing a “weak substitutes” strategy, treating the space opportunistically, hoping to get extra revenues from indifferent customers, but understanding their offering was not fit to win in a best-of-breed evaluation.
Summary of Strategic Responses to Envelopment Strategies
With that backdrop, let’s summarize the options for how you can respond when someone tries to envelop you.
Sell. The key here is timing. If a bigger vendor approaches you early in your lifetime, you might think “too early for me.” But, for them, it’s a clear sign that they are tracking the space and doing a make / buy / partner assessment. If you rebuff the offer, you might get a second chance, but it will likely be years later, after they try building it themselves or acquiring another company and failing. Remember, when selling to a strategic, it’s about them, not you [9]. Examples: Aptrinsic selling to Gainsight, Chorus selling to Zoominfo, though later in its lifecycle.
Specialize. Get so strong in your space that buying another vendor wouldn’t really solve the larger vendor’s problem, thus they decide to build or partner in the space. If you execute well and you’re really focused, you can beat their in-house development efforts and stay a leader despite the larger vendor’s efforts. If you also have great access to capital so you can grow fast, you can also build a substantial company while the larger vendor fumbles around. Your strength and anticipated response can shape their “in/out” definition of the category. Examples: Gong, Clari, Amplitude [10].
Segment. Pick a size-based, functional, or vertical segment of the market and go deep. Think: we’re the best CRM vendor for SMB/MM (Hubspot), we’re the best application for the customer service function (Zendesk), or we’re the best marketing personalization vendor for retailers (Bluecore). This strategy can work very well to provide differentiation from the would-be enveloper and build a moat to protect your from their attack. Think: “the megavendor may be in bigger in the overall market, but nobody knows and cares about you like we do.” [10]
Counter. Envelop back. If someone tries to envelop you, well, two can play that game — and you can envelop right back. This works best when you’re similar in size to the would-be enveloper. Examples: Back in the day, BusinessObjects and Cognos each tried to envelop each other. After BusinessObjects bested Cognos in the BI suites evolution, Cognos countered by trying to unite BI suites with planning software to create enterprise performance management [11]. Today, in a similar clash, Alation and Collibra are trying to envelop each other in data intelligence platforms, the former starting from its leadership position in data catalogs and latter from its strong position in data governance. I believe Alation has the better strategic position in that battle and that seems to be proving out in the market [12] — though I am by no means a disinterested observer [13].
Suffer. Finally, you can pretend that envelopment isn’t happening around you — an all too popular strategy, that rarely results in a good outcome. As Mark Twain said, “denial ain’t just a river in Egypt.” Ignoring category envelopment is a fast path to becoming a question in Trivial Pursuit Enterprise Software Edition. Example: name the enterprise reporting vendor who, in the early 2000s, had a superior product, but nevetheless lost to Crystal? Answer: Actuate. While it’s fashionable to say, perhaps over a nice glass of Michter’s 20 year in Davos, that building a company is about ignoring the competition and following your true North Star, that has nothing to do with the real world of strategy which is all about rising to strategic challenges, which often arise from competition.
A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. — Richard Rummelt
# # #
Notes
[1] Hence the original, and fairly long-lasting, definition of CRM as sales, marketing, and service.
[2] That Siebel would shortly thereafter miss the cloud transformation and be displaced by Salesforce is a story for another day. Per an old friend who used to work there: “I decided to leave Siebel the day I heard the quite powerful VP of Product say we were going to beat Salesforce by being more Siebel than we’ve ever been.”
[3] Effectively doing two transformations: (a) from survey software to customer experiencement management, (b) from customer experience management (application) to overall experience management platform — for customer, employee, product, and brand experience management.
[4] Don’t forget this important step! You can be too busy thinking about the next thing to remember to win the category you pioneered.
[5] The hardest part of the exercise in my opinion. Where do you need to make, buy, or partner? What really needs to be integrated in versus what should be connected externally and/or built upon. This is an exercise that intersects customer centricity with core competencies.
[6] I’m happy to say I joined the board of Jiminny in 2022.
[7] Sadly, know usually means tacit knowledge within the company and its close ecosystem. Companies seem to feel a need to communicate as if they are all-in in every space in which they play. This damages corporate credibility, but there is no obvious alternative. Think: “we sell a great thing 1, 2, and 3 and a just-OK thing 4 and 5. People figure it out anyway, but it’s hard to say in a marketing collateral or sales training. Plus, sometimes, senior management think it’s also a great thing 4 and 5, and few are willing to tell the Emperor that they’re wearing no clothes.
[8] Knowing that a $3M data warehouse Oracle database deal might ride on the success of a demo built in a $50K BI tool, and knowing that Oracle had only a weak commitment and a meh BI product, a seller might willingly trade away the $50K of BI tool revenue to increase the odds of winning the $3M database deal.
[9] Making a product acquisition, especially a strategic one, at a larger vendor requires much more than it being a good idea. It’s more like stars aligning. Larger vendors often track spaces and key vendors within them for years before making an acquisition. Triggers for actually making an acquisition could be a competitor acquisition (e.g., Oracle buying Endeca in response to HP acquiring Autonomy), the loss of a major customer, acknowledgement of failure in a new product initiative, a change in board sentiment, or a drop in a company’s stock price such that it become acquireable. Example: we had discussions with Acta several times, over a period of years, before eventually acquiring them at BusinessObjects.
[10] Specialize and segment are both the coyote vest strategy — get so strong in a space that it’s unenvelope-able (or at least, not worth enveloping) from the larger vendor’s POV.
[11] Via the acquistion of Adaytum. And yes, the original definition of EPM was the unification of BI and planning. This was an analyst-led shotgun wedding that Cognos embraced and one that never really made sense to customers. While BusinessObjects later countered by acquiring SRC, BI and planning never really came together. You could put them under one proverbial roof, but they never became one category. The two categories later diverged and EPM was redefined as the unification of financial planning and consolidation software (another analyst-led shotgun wedding that also later largely fell apart).
[12] If you want to provide a general-purpose data access platform designed to help a wide range of users find, understand, and trust data, are you better off starting from a data access point of view (POV) or a data governance one? Methinks access, as it’s fundamentally a “play offense with data” POV whereas data governance is fundamentally a “play defense with data” POV. I think customers want to buy the former (offense, subject to proper defense as a constraint) and it’s easier to adapt an access POV to governance than the converse. Growing up around dusty glossaries and policies isn’t a great way to get spiritually in tune with end-user needs, collaboration, access, and a data democratization POV. IMHO.
[13] I have a long history with Alation as an angel investor, advisor, former board member, interim gig employee, and consultant.
I’m Dave Kellogg, advisor, director, consultant, angel investor, and blogger focused on enterprise software startups. I am an executive-in-residence (EIR) at Balderton Capital and principal of my own eponymous consulting business.
I bring an uncommon perspective to startup challenges having 10 years’ experience at each of the CEO, CMO, and independent director levels across 10+ companies ranging in size from zero to over $1B in revenues.
From 2012 to 2018, I was CEO of cloud EPM vendor Host Analytics, where we quintupled ARR while halving customer acquisition costs in a competitive market, ultimately selling the company in a private equity transaction.
Previously, I was SVP/GM of the $500M Service Cloud business at Salesforce; CEO of NoSQL database provider MarkLogic, which we grew from zero to $80M over 6 years; and CMO at Business Objects for nearly a decade as we grew from $30M to over $1B in revenues. I started my career in technical and product marketing positions at Ingres and Versant.
I love disruption, startups, and Silicon Valley and have had the pleasure of working in varied capacities with companies including Bluecore, FloQast, GainSight, Hex, MongoDB, Pigment, Recorded Future, and Tableau.
I currently serve on the boards of Cyber Guru (cybersecurity training), Jiminny (conversation intelligence), and Scoro (work management).
I previously served on the boards of Alation (data intelligence), Aster Data (big data), Granular (agtech), Nuxeo (content services), Profisee (MDM), and SMA Technologies (workload automation).
I periodically speak to strategy and entrepreneurship classes at the Haas School of Business (UC Berkeley) and Hautes Études Commerciales de Paris (HEC).
Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here:
Cookie Policy
