• December 1, 2011
  • By Denis Pombriant, founder and managing principal, Beagle Research Group

CRM Idol, Reviewing the Review

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CRM Idol was in some ways the first evaluation/competition of its kind. As a judge I can say that it was one of the more exhausting. Many other processes that result in an award or an acknowledgment of excellence put the majority of the effort on the awarding organization, and, in many cases, a company might not even be aware that it is being judged. The company simply receives notice one fine day that it has won something.

Idol was different, reflecting the personality of its originator, Paul Greenberg. In this competition, contestants knew they were under a microscope and that, to a degree, they had to perform. The further they went, the more they had to generate, culminating with a video produced by each of the four finalists. Consistent with the television show American Idol, the final judging was left to the wisdom of the crowd. Having seen the process from end to end, I formed a few observations that I can share.

Go Big

You know the old saying, go big or go home? It was on display throughout the competition. In some ways, the contest served as a longitudinal study of the marketplace—any marketplace, really. Longitudinal studies, or studies through time, compare the first day of the study with a later date and attempt to answer a question such as this one: What are the similarities and differences between otherwise similar companies or solutions over a period of years?

Fortunately, there were a number of companies in the competition that had been around a decade or more, and their trajectories were sources of fascination for me. Several attributes characterized these companies. They were founded by entrepreneurs and bootstrapped, meaning they had taken on no outside capital. They were also generating cash and they were debt-free. Unfortunately, they also failed to thrive.

While these companies have good products, their solutions are becoming dated. They are based on older architectures that are becoming less relevant. Their solutions—while competent—have been duplicated by larger and better-known competitors. Where they once could have had differentiation, they are now largely footnotes, or they address small market niches.

What caused them to fall off the curve? Ironically, the same approach to economics that might be considered laudable in one's personal finances often accounts for the failure to thrive. These companies have a sincere belief in not taking on any form of outside money—either debt or venture financing. Their technology-savvy founders had little trouble building their products, but when it came to executing a go-to-market strategy, they were financially unprepared.

Failing to attract the capital needed for sales and marketing is a huge red flag for emerging companies. Without exception, and I am not going to single out any vendors, those companies that failed to raise cash were the ones that couldn't afford to hire the sales and marketing talent that could make the difference between a new market colossus and a niche player. Without cash, you might get version one of your ideas built, but there won't be enough money around to pay salaries of developers and support people and hire sales and marketing. When it comes to building version two, you won't have enough gas in your tank, and your product will become as dated as an old Chevy.

So my first and biggest take-away from CRM Idol is to reinforce "go big or go home"—it really is that important.

It's All Relative

My second observation is about the small and medium business (SMB) market. Many emerging companies think that the SMB space is easier to penetrate, and there is good reason for that belief. But, it's also true that it takes about the same amount of resources and work to close a deal with a small company as with a big one, even though the margins might be better up market. The traditional idea is to use a grass roots strategy to build your company and then to move up market. This is especially useful if you have a disruptive innovation to bring out. If you've read Clay Christensen's Innovator's Dilemma, you will recognize the idea.

But the real message of the book is that disruptions start at the relatively low end of the market, which is important. You might aim a sales solution at a small company with a five-member sales force, but a call center solution needs to aim higher to still be in the viable end of the market. A small call center with the resources to invest in a solution (and the business pain to need one) might have 100 agents. Overall it might be larger than the company with five salespeople. There's a lot of indiscriminant SMB targeting, and it might be helpful for some vendors to carefully assess their target markets.

On the flip side, early adopters are often big companies with the resources—time, money, and available staff—to try out a new and potentially disruptive solution. That may be counterintuitive to some, but the Idol competitors that were doing well as emerging companies were not afraid to call on and win deals with large, established companies. This might be a neat corollary to the idea of going big or going home.

There are some incredibly powerful and cool solutions out there coming from companies that have funding and good ideas, and I can't wait to see them taking a bigger profile in the market. Let's focus on the ideas.

We're all familiar with the idea of a system of record. It's the system that does the transaction and keeps the official record of the event. We've spent most of our lives dealing directly with systems of record, and often we discover that these systems can clash in many ways and require huge investments to integrate. For instance, your sales and billing systems might not speak the same language, and they need to turn to the cottage industry, which goes back many years, for integration.

Systems of engagement sit on top of systems of record, providing the effective integration that has always seemed elusive. Systems of engagement are a good idea, but they are positioned on an unstable foundation. Any of the applications on which they are based can change in multiple unpredictable ways, so the engagement vendor has to remain vigilant and be able to react to change quickly.

Many of the vendors in the competition had social applications, and the best were helping to invent social business categories. What interested me most were the ideas that were bringing social to the point of generating revenue and one really stood out—gaming.

When you think of gaming you might automatically think of gambling. That's actually not a bad way to look at gamified systems, though there's nothing especially gambling-like about these systems. The best gamified applications create a small win for the user. Medical research describes a strong link between games and dopamine—one of the key neurotransmitters involved in making us feel good. When you have a lot of dopamine you feel high and you will work hard to feel that way again. Adding gaming to marketing promotions, for instance, causes the customer to take a hit of his or her own dopamine while doing the marketer's bidding. Gaming is a young field and it may go in several directions, but it is certainly an explosive idea.

There are other interesting ideas coming out of Idol, and I encourage people to look closely and discover what fascinates them. Many years ago, we were all enthusiastic about the new technologies that made it easier to build applications. But perhaps we were over impressed with the cost reductions for application development. While the application revolution has also delivered many sales and marketing systems that have brought down the cost of going to market, we are still nowhere near the point where if we build something people will reliably find and buy it.

That's the big lesson I took from Idol. It still takes talent and money to build a company and a category. The window of opportunity is finite: If you are late but right, you get little. If you are early, right or wrong, there's hope. Raise money. Spend it on sales and marketing. Essentially, go big or, well, you know.

Denis Pombriant, founder and managing principal of CRM market research firm and consultancy Beagle Research Group, has been writing about CRM since January 2000 and was the first analyst to specialize in on-demand computing. His 2004 white paper, "The New Garage," laid the blueprint for cloud computing. He can be reached via email (denis@beagleresearch.com) or on Twitter (@denispombriant).

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