Entering new B2B technology markets and the planning fallacy

When B2B technology vendors enter new markets they often find that their success falls short of their expectations. Some of this is due to their go-to-market strategy, competitor actions and unpredictable market changes. However, many technology vendors fall victim to the planning fallacy – the tendency for individuals and organizations to under estimate challenges and to over estimate their chances of success. A useful for tool for mitigating the planning fallacy is reference class comparison. Reference class comparison is based on theories developed by Amos Tversky and Daniel Kahneman (winner of the Nobel Prize in Economics). The objective of the approach is to provide a systematic, “outside view” of market dynamics that identifies where biases, overconfidence and under appreciation of risks exist by evaluating the outcomes of similar situations.

Isurus has conducted research in enterprise technology markets for fifteen years. Our work has spanned markets, product categories, established and emerging technologies, and global and niche vendors. Based on this experience we offer the following reference-class comparison of what B2B technology vendors encounter as they expand into new markets and new product categories.

More due diligence / less urgency
Prospects in new markets typically have less defined needs than a vendor’s core customers. They often evaluate new technologies and vendors out of due diligence and do not have a set of specific needs they want addressed. This makes it harder for them to justify the investment in new technologies and processes.

Solutions are evaluated in a broader context
The number and type of stakeholders involved often changes. This creates two new challenges for vendors: New investments are evaluated in a broader context of all other initiatives; and a broader range of alternative solutions are considered for addressing the problem.

The evaluation criteria broadens
The biggest change B2B technology vendors encounter as they expand into new markets is that prospects tend to have broader evaluation criteria than a vendor’s core customers. The dimensions that made the vendor successful with its customers do not always translate directly to prospects, especially in new markets. The following are the changes to evaluation criteria that typically occur.

Features and functionality: Features and functionality are always critical evaluation criteria. However, prospects often focus their evaluation on a narrow set of broad outcomes. In doing so, they view a wider number of solutions as being able to meet their needs than vendors would expect. Because they feel less pain and have less urgency prospects often have less risk tolerance and are less willing to change internal processes. This makes solutions that fit with existing processes and require less investment of time or resource more appealing, even if they don’t address the problem as well as more sophisticated solutions.

Ease of use: Ease of use has always been an important criterion when selecting technologies. Technology implementations often fail to deliver their full benefits because end-users find them hard to use and continue to use old approaches or develop workarounds to compensate for the lack of user friendliness. The importance of ease of use is accelerating with the consumerization of IT and the expectations that applications should be as easy to use as the apps users have on their phones and tablets.

Deployment: The amount of effort and time it takes to deploy becomes increasingly important. As noted previously prospects are not as motivated to solve the problem as core customers and are less willing to disrupt their internal processes. SaaS and cloud based solutions are especially appealing at the department level where functional heads seek easy to use, easy to deploy and cost effective solutions.

Brand Reputation: In competitive evaluations brand equity becomes a surrogate for detailed evaluation, especially with tangential stakeholders. The brand can also help sell the decision internally and deflects some risk from the decision maker – their reputation is more at risk if they select a smaller brand and it falls short of expectations than it is if they select a well known brand that falls short in the same manner.

Support: Support is critical to any technology. Prospects want to know what type of support is provided, who is it provided by, when is it available, etc. Smaller vendors often have an advantage over larger vendors in the area of support because they typically maintain a higher skilled first level support staff rather than the first level of support merely opening the trouble ticket.

Analyst firm coverage: For the average IT professional the opinions of analysts factor heavily into the solutions they put on their short list to evaluate and eventually select. Analyst coverage becomes a surrogate for a range of information from financial stability to functionality and capability.

IT policies: IT departments have policies around platform requirements, operating in a virtualized data center, minimizing the number of vendors supported if not standardizing on a single vendor, etc. New vendors that do not conform to these policies are not necessary excluded from consideration, but they do make vendors that offer less functionality but that meet these criteria more appealing.

Product road map: The vendor’s long term product road map becomes increasingly important, especially with the relatively rapid changes in technology. This includes platforms, deployment options, virtualization, mobility and analytics.

Reference class comparisons can help B2B technology vendors understand the market dynamics they will likely encounter and inform plans to address the hurdles and barriers that exist. They can also help clarify and validate internal hypotheses about the opportunity. If internal stakeholders believe the company will encounter meaningfully different dynamics then in the reference class comparison it encourages evaluation of what those hypotheses are based upon.