For those of us in high-tech investing or management, the “quadrant,” a slide containing four equal sections that visually presents a company’s market and competitive position, has been a common site for many years. Ever wondered why?
For starters, a picture is worth a thousand words, and graphics are the pictures of business. A well-organized graphic often explains a company’s prospects in one slide better than does a 12-page business plan. Perhaps the best-known graphic in technology is the Technology Life Cycle Adoption Curve, which Geoffrey Moore ably expanded into his great tomes such as “Crossing the Chasm” and “Inside the Tornado.” Used (and abused) by many of us in technology, this graphic illustrates the position of a company or product’s acceptance for a specific use. However, without further explanation, it does not readily position a company vis-a-vis the competition. For that purpose, the quadrant, which can be quick and powerful in its message, has become a widely used snapshot.
When presented by a young company, it usually looks something like Figure 1. What is the genesis of this picture and why is it used so frequently? Arguably, it owes much of its prevalent usage to the Gartner Group, whose “Magic Quadrant” presentation Figure 2 bears resemblance to Figure 1 only in its carving up of the square’s real estate.
Gartner certainly did not invent quadrant analysis. The graphic, in various forms, existed long before Gartner existed. One of the best known was an animal-oriented version from the Boston Consulting Group (BCG), which featured cash cows and dogs. The graphic typically focused on large, complex and mature organizations and the options for their various business lines. Many technology research firms have their own special analytical graphics, but Gartner, as the biggest and one of the oldest firms in the business, probably should take the credit-perhaps unwittingly and reluctantly-for imprinting quadrants on the high-tech presentation psyche.
While software company executives may make light of the Gartner analysis if they feel wrongly positioned (or worse yet, left out of the square altogether), they are quick to publicize the Magic Quadrant when they are placed in the “Leaders” area. Moreover, of the thousands of research notes published by Gartner on its Web site, the Magic Quadrant entry receives by far the most views. And these views, for the most part, are immediate. Vendors seem to wait (even though they may know ahead of time their approximate positioning, or lack thereof) on the edge of their seats to see if they are to be nominated for this cubed version of the technology Oscars.
Gartner is quick to caution that its graphics neither reject “niche” players nor intentionally imply that other non-“leaders” don’t provide valuable solutions for certain markets. The technology vendors, however, understand the value of pictures. After all, everyone who receives X and Y-axis training in grade school understands that “up and to the right” is bigger and better.
That companies take this analysis seriously is evidenced by anecdotal experience. I have attended many board meetings (both as an officer and director) after a third party, such as Gartner, produced a quadrant analysis positioning the company at a competitive disadvantage, or worse yet, not even mentioning the company. This has always provoked serious discussion at the board level, if not conclusive answers. Never have I seen it summarily dismissed.
I have also attended meetings after the company in question has been well-positioned in a published report. Management always proudly shows the results to the board and then boasts about the report to employees, customers and investors. It may be promotion, but the positioning itself was the result of thoughtful strategy and good execution.
An example of inappropriate usage, on the other hand, can be as simple as showing poor judgment about the presentation itself. Recently, a young financial accounting software firm presented its version of quadrant analysis to me. In it, the company was positioned in the lower, right-hand corner. This is because its goal was to be a low-cost provider, and have the X and Y-axes meet at zero. Nevertheless, the company would have been better served to think in terms of volume or some other appropriate method so that they were placed in the more eye-pleasing position: upper right.
A more dangerous example of inappropriate usage is mixing promotion with fact. A collaboration technology company I know positioned itself as being full featured (“solution”) and broad-market oriented (upper right), while competitors were pushed to the lower left, described as point products with narrow market focus. The company then failed to deliver on this positioning, disappointing investors and customers. Why? Because the lower left was where the company actually was- along with all of its main competitors- and the upper right was where it was headed, along with all of its main competitors. This company, and its investors, would have been better served to dissect the lower left square to truly understand its actual competitive positioning. It would have yielded a smaller market opportunity and a narrower competitive advantage, but it would have provided a more realistic foundation to execute upon.
Unfortunately, use of quadrant analysis is often more tactical than strategic. This isn’t bad per se. Some usage is better than none. But blending the tactical with strategic is best. Tactically, it is used to give employees, customers, analysts and investors a snapshot of the company’s current position (always positioned positively of course) or to show the historic progress of the company (usually from lower left to upper right). The better companies take it to heart, using it often for strategic internal planning. A manufacturing software company I know critically examined the leader in their market-positioned upper right-while it was still positioned in the lower left. It determined what it would take to move its position and set out on a several year path of re-architecting its products, enhancing its sales force and altering its marketing position.
Your prospective technology investment targets and your technology portfolio should offer up a quadrant view of their marketplace and where they fit into it. If they haven’t done so already, ask them for it. Since quadrants are popular, they may have a ready-made example. If not, they will know what you mean. I would not give them guidance on the criteria since what they produce will tell you a great deal.
The tongue-in-cheek quadrant presented in Figure 1 is an abusive exaggeration, but it is nonetheless representative of a composite of all the company-generated quadrants I have seen (along with the few I have created). When companies take on the larger view of their world, they tend to categorize their competition with such “evil” characteristics as “difficult to do business with,” and their competitors as “incompetent” with products that “don’t work.” When they take a more specific and factual view, they tend to be very feature and function oriented. Indeed, when quadrants are not used to juxtapose one’s company against the competition, checklists are. These mind-numbing spreadsheets are probably useful to sales engineers, but they are generally not at all useful to investors or the buying authorities within enterprises.
It’s important to note that while the markets featured in Gartner’s Magic Quadrants are based on buyer perspectives of a market, many companies create quadrants by looking inwards. Quite often one axis will show features, and the other will show distribution strategy. In the end, your request for a quadrant will eliminate the need to read and understand the 12 pages of text in a business plan that describes the $1 billion market with no competition.
The quadrant picture will force the company to present a much more precise definition of its market and its competitive positioning. To ensure upper-right-corner status for the company and lower-left-corner status for its most feared competitor, it will have to hone its market into something realistic.
Pictures are worth a thousand words and quadrants have become preferred graphics of business. Is this analysis “magical?” Probably not. Is it helpful? Certainly.
Dean Goodermote is a venture partner for ABS Capital Partners. Previously he spent 20 years in operating roles in the technology and biotech sectors. His last Viewpoint, titled “Veteran CEO: Don’t Fall for These Five Lines,” appeared in the May 2002 VCJ.