Rethinking Competitive and Complementary Positioning

Who knew that 3Par was such a hot commodity?

Not anyone on Wall Street or the IT research group community.  One week Dell is bidding $1.13 billion for a company valued on the NYSE for $605mm, and the next week, HP is bidding $1.5 billion for the same company.  Everyone is still surprised since 3Par was barely profitable on approximately $200 mm in revenues.

When a startup prepares its presentation for investors, it typically prepares a “Competition” table/chart.  This identifies the major competitors, and identifies the major strengths and weaknesses of the competition.  Almost invariably, the chart is defined as a magic quadrant chart with the startup located in the upper right – the best location.

Everyone knows that this chart is wildly optimistic “crapola”.  We don’t know of too many startups that are so “disruptive” and “revolutionary” that they can start off in the upper right quadrant.  Even nuclear fusion doesn’t fit since the cost of generating power will be prohibitive for many years, and will keep its “ability to execute” rating quite low relative to its “visionary” rating.

Very few startups will define a market position within a “Value Chain” chart which tries to define how a product/service fits into the existing value chain.  This chart defines the strategy of the company.  In other words, every company exists within a value chain of competing/complementary products, which itself sits within a community of complementary/competitor market niches.  One sees competition when viewing a company through a traditional product lens on a traditional 2D competition chart.  Viewing a company through a value chain lens, one can focus and identify a “crease” in that value chain in order to position and sell.  Hopefully, that crease is large enough to generate $1billion or more in revenue.

Therefore, the real insight occurs when a company views its product/service as part of the existing ecosystem, not simply as a product/service with features and benefits.  This view allows a management team to understand that opportunities exist for their company to be acquired by complementary vendors within the ecosystem.

For example, before last week, 3Par was viewed through the product/feature lens as a networking storage company that was trying to simplify storage by bringing virtualization, thin provisioning and automated storage management to the data center infrastructure.  It was having moderate success as an independent company, but it had “hit the wall” at the high end.

The “Cloud” has been a major theme for the last few years as it revolves around the worlds of converged and virtualized infrastructure – including storage.  As a result, a standalone technology company like 3Par is really like an island in the middle of a large ecosystem trying to sell its own independent product vision.  Being relevant requires the vendor to define a “story” and a roadmap of the future to the customer.  In order to define and articulate that roadmap, a vendor needs to own the various pieces of that stack.  In this case, both Dell and HP sell a lot of equipment to smaller organizations that value simplicity and convenience – so they purchase their equipment and services from the same organization as a bundle.

By itself, 3Par is an outlier.  As part of a larger organization, a vision and strategy roadmap can be articulated within a value chain – which becomes part of the “complete solution” portfolio of the enterprise salesperson.  If 3Par management had focused on that value chain, we believe that it would have focused on developing partnerships that promoted its position in the value chain, rather than focusing on selling features and benefits through a product lens.

Finally, kudos to Dave Johnson at Dell.  Very quickly, Dell is changing and creating its own story in the storage landscape.  While it is hard for any single person to be responsible for a turnaround at a company as large as Dell, we think that enterprise CIOs will now be thinking about Dell as a legitimate vendor of network infrastructure equipment and services.

Why?  For the first time in a long time, Dell appears to be aware of its surroundings.

Dell’s next target?  We’d be looking at Xsigo (funded by Kleiner Perkins, Khosla Ventures and Greylock), while others are looking to Isilon and Compellent.

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Richard Piotrowski CFA is a former #1 ranked securities analyst, and the Managing Partner of Outram Research LLC, which focuses on assisting startups and prospective turnaround companies to define their value chain, as well as define an executable product, partnership, competitive and exit strategies.  You can follow Richard on Twitter: @Angelpitchdoc.  He can be reached at richard@outramresearch.com, or at his blog: angelpitchdoc.wordpress.com.  Also check out our website: www.outramresearch.com

About Richard Piotrowski, CFA

Richard Piotrowski, CFA, is a formerly a #1 ranked securities analyst, who has 20 years of experience building, dissecting, and fine tuning presentations, business models and valuation models of all kinds. The experience has been gained working in the investment community on both sides of "Wall Street", on "Bay Street" (Canada), as well as on "Main St." as Chief Financial Officer, Chief Operating Officer, as well as Evangelist and Marketing Director, where he focused on building messaging for solution sales opportunities based on value positioning, high ROI and fast payback. Richard joined Canada’s investment banking community in the early 1990s as an analyst following technology companies. He was recognized within two years by the Street, and was ranked "First" for Quality of Research in the survey of institutional investors conducted by an independent advisory firm – Brendon Woods. Richard was also the founding member of the internet technology research practice at two boutique investment banks.
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