At Deep Analysis, we count over 500 vendors across our industry and have yet to account for many more. That’s way too many vendors chasing the same market opportunities. Add to this the fact that VCs are struggling to raise new capital and that investments they made 3-5 years ago are seeing those valuations drop, and things don’t bode well. We expect to see a fallout over the next couple of years and much consolidation in the form of business failures and acquisitions. Some vendors will run out of money and close their doors; others will be acquired at much lower valuations than they hoped for. Don’t be fooled by the bright lights, yes, there is a burst of funding going to AI, and we are seeing some crazy deals, but they are the exception, not the rule.
But it’s not all doom and gloom; for one thing, some consolidation is welcomed; the market is too disjointed, messy, and vast for buyers to navigate. It needs tidying up to let buyers see the wood from the trees. Nor is the need to manage and automate unstructured data going away; the need and scale are increasing exponentially, and the market itself will continue to grow at a clip; it’s just that there will be fewer players in the game. The question is how much consolidation is to come, and in our analysis, if many smaller vendors don’t wake up and pivot quickly, it could get pretty ugly.
So, the question is, what do these vendors need to wake up and pivot to survive? The answer is pretty simple; they need to fix their sales and marketing and find a niche to focus on. Easier said than done, of course, but critical nonetheless. Here is an essential checklist to at least consider:
1: Market your value, not your technology
This week’s Financial Times quote nicely sums this up: “To say clients want expert advisers is to confuse process and outcome. Patients don’t want doctors; they want good health.” Likewise, nobody wants an IDP or Process Mining application; they want to improve the business processes and most likely do more with less. Enterprises have money for buying business improvements, that’s what you need to be selling them on, but all too often, that is a secondary and less convincing message in vendor marketing. ,If, as a small vendor, you can save a customer money and improve their business operations, tell them how, how much, and how quickly you can bring that investment return. If you can’t, you have a huge problem on your hands.
2: Stop trying to slay giants.
It’s a perennial favorite that every industry analyst hears regularly, a tiny start-up claiming they are focused on taking out another vendor ten or a hundred times their size. That’s not a realistic goal that, if you were ever to hope to achieve it, would require an order of magnitude more resources than you have. In the industry analyst world, the giant is Gartner which has $5.5B in revenue, and trust me, Deep Analysis has never set a goal to take them out. We focus on being the best of the best in our niche. Technology vendors need to do the same but trust me when I say many startups are laser-focused on slaying giants; it’s a fool’s game.
3: Find your niche.
It may be a cliche, but the ‘crossing the chasm’ theory in the dotcom era was nearly sacred. Find an underserved niche, focus on it, and work hard to own it, then expand to another nearby niche. In truth, many successful firms from that era did the first and never really expanded to other niches, as they discovered there was more than enough revenue to be had in the one. That approach is just as valid today as it was then, and dozens of underserved industries and regional niches are waiting for love and attention.
4: Understand your customers and prospects
Another cliche coming up, ‘assume’ makes an ‘ass’ out of ‘u’ and ‘me’. Never assume you understand your customer’s needs and priorities unless you have spent a lot of time and effort listening to them. At Deep Analysis, we undertake surveys and customer insight projects; the one consistent outcome of these projects is that they always reveal surprise outcomes. Often, they reveal little alignment between the vendor and the customer’s understanding of needs and priorities. Get expert help here, from Deep Analysis, or you could even consider the big G, though expect to dig deep and borrow money from your grandma if you take that route. Either way, get expert external help from outside your own virtual echo chamber.
The four tips are all common sense, but as I like to say, common sense isn’t all that common. It’s not that folks aren’t doing their best, it’s simply that facing harsh realities and shifting the focus, particularly within enterprise software firms, away from the tech and out toward the marketplace realities is hard. But it’s not impossible, and I will let you into a secret, we speak with hundreds of vendors, it’s our job, but we get to know many of these founders and business leaders, and we are rooting for them. And to finish with yet another cliché, we want everyone to be a winner, well almost everyone, but that’s not the real world, and the next few years will see some falling by the wayside, not because of poor technology or financial mismanagement, but simply because they were too slow to plot a course and navigate through the stormy seas ahead.