A former colleague recently asked if I had experience creating a new category with technology analyst firms, specifically Gartner. I said I had, and I knew, firsthand, that inclusion in a Gartner report was the "Holy Grail" for many technology startups. However, if you don't fit one of the preexisting Magic Quadrants, you have to convince Gartner to create a new technology category—and this is not easy or simple.
In 2005, I worked with a security software company that had a unique technological approach to passively monitor Web application traffic, compare user activity from the most recent session with historical activity, and alert security personnel to anomalies in user behavior that indicated fraudulent access. But it did not fit any of the established network security categories, such as firewall, anti-virus protection, intrusion detection and prevention. In nine months, we were able to create new data security categories of Transaction Anomaly Detection with Gartner and Online Fraud Risk Monitoring with Forrester.
Here’s how we did it, and what I learned in the process.
USE SPECIALTY ANALYST FIRMS AS ADVISORS
Before briefing Gartner and Forrester, the major technology analyst firms, we met with TowerGroup, a leading global financial services research and advisory firm, and Javelin Strategy & Research, a quantitative and qualitative research firm focused on global financial services. We described our technological approach and our belief that it complied with security measures recommended in a recent update to Federal Financial Institutions Examination Council (FFEIC) guidelines on online customer authentication by financial institutions.
Both firms agreed, and provided more insight into the probable impact on regulatory compliance for online banking and financial services, which led us to establish online fraud detection, identity theft protection, and regulatory compliance as our value proposition. Furthermore, they provided information on the number of financial institutions affected by the guidelines (market size) and other companies with similar security approaches. This helped us develop two items that were critical to creating a new information security technology category.
DEVELOP A MARKET MODEL AND COMPETITIVE LANDSCAPE
Gartner, Forrester, Frost & Sullivan, and other analyst firms make money by selling research and advisory services. Many of their customers are the very companies their analysts cover. Therefore, one of the factors that influence the creation of a new category is whether it is big enough and valuable enough to create new customers for the analyst firm. We developed a market model that showed U.S. financial institutions could spend over $1B to comply with the new guidelines, and that at least 4 new and 4 established companies would compete in the new space.
LAND A MARQUEE ACCOUNT
Despite a unique technological approach that did not fit an existing category, a compelling value proposition, a relatively large total available market (TAM), and a considerable competitive landscape, one last element was missing. An analyst told me: I would love to write a research note on you and this new space, but you need to land a marquee account—either a top 10 bank or brokerage. As I pressed the analyst on this factor, he said: I don’t care if you give the product to someone, as long as they install and use it. That will legitimize the category and position you as a credible competitor. So over the next six months, we worked to land a top 10 bank. But rather than give away a product, we expanded our basic offering (a point solution) to meet the enterprise needs of a bank.
In the end, we landed a marquee, enterprise account at a price 10 times higher than the average sales price (ASP) of our point solution, and positioned ourselves as a noteworthy competitor in new categories created by the major technology analyst firms. And, ultimately, this helped the company achieve a successful exit.
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