Despite its leading global role, the country has never produced a software giant like SAP or Infosys, or a $10bn start-up – known as a decacorn – to rival the likes of Uber or Airbnb.
I recently came across a prime example of this phenomenon as part of my ongoing research with Duncan Chapple, a PhD student. Two digital start-ups were both initially described by industry insiders as “extremely promising” and “potentially disruptive”. But where one is now, in their CEO’s words, “going toe to toe with the likes of IBM and Oracle”, the other is floundering - despite being technologically at least as good, or perhaps better. The difference? The former is from Chicago while the latter is based in Glasgow.
The story is not a one off, nor is it new. A decade ago research by my University of Edinburgh colleague Professor Richard Harrison had already pointed out that software start-ups in the US were likely to grow to twice the size and twice as fast as their UK counterparts.
So what’s going on?
UK tech start-ups lack credibility. Not so much in their ability to innovate – British firms are known the world over for that – but in their capacity to attract top investors. Access to the top table requires endorsement from an ever growing and shadowy network of US-centric Industry Analysts. UK firms don’t know how to play the game because, frankly, very few of them know the game exists.
So massive is the volume of tech start-ups that burst on the scene each year to vie for capital, Gartner, Forrester, IDC and others have built a $6 billion dollar industry out of doing the legwork to find the next big thing and ensure venture capitalists and angel investors don’t end up pouring their cash into lemons.
Rankings like Gartner’s Magic Quadrant and Forrester’s Wave have become the go to cheat sheets for the biggest of the big money. If your start up isn’t on their radar, it may as well not be on anyone’s. It’s no coincidence unicorns like Dropbox, Nest and Instagram were named ‘Cool Vendors’ by Gartner in their early years. Likewise, the Chicago start-up we spoke to only began to gain real traction after making it into the Forrester Wave. That’s how the endorsement economy works.
Of course, geography plays a role. More than two thirds of analyst firms (around 400) are headquartered around US innovation hubs San Francisco, Seattle and New York, including all three major players. Compare that to Europe, where there are just 200 – typically much smaller, boutique operations – covering the entire continent. Moreover, analysts are notoriously short-sighted and seem to pay attention only to those companies on their doorstep. Of the 150 ‘Cool Vendors’ we surveyed from Gartner’s latest ranking, 15 were British and 98 were from the US.
Background of success
But by far the main barrier for the UK’s tech firms breaking into the endorsement economy is not knowing how to pitch themselves to analysts, or indeed to the right ones. Despite what tech entrepreneurs might think, this second pitch is a very different game to their first round.
We studied these second important pitches up close and saw how they could become fractious and bad tempered affairs as pitchers misunderstood the format and what the analysts were looking for. It’s not unusual for all parties to come away from these meetings with a negative impression of the other.
Founders tend to come from a background of success, used to getting their own way, and they have got this far on the back of selling themselves and their ideas. But analysts too can be difficult characters to handle. They are refashioning the industry hierarchy, and are comfortable to play a leading role amongst the new digital elite. Analysts don’t go in search of the next big Silicon Valley CEO. The CEOs come to them.
Digital enterprises’ success relies on the ability to navigate the endorsement economy, something for which they need support. In the last 20 years alone, a secondary industry of nearly 1,000 analyst relations firms have sprung up in the US, offering start-ups support to pitch themselves to the right targets, in the right way.
These firms coach entrepreneurs over a number of years, sharing knowledge on how analysts’ mindsets work, and converting what are typically product or technology stories into a great business model story.
For those companies who are further afield from the US, engaging with this endorsement economy, requires a lot more effort.
The UK’s firms need to drastically up their game if they’re ever going to truly compete with their rivals and our policymakers must offer more support in this area. With Brexit on the cards, the stakes for our country’s tech entrepreneurs and our economy as a whole couldn’t be higher.
Neil Pollock, Professor of Innovation and Social Informatics, University of Edinburgh Business School
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