Thursday, August 27, 2009

@jowyang and the Circle of Life



A hot news item out of Silicon Valley is that my old friend Jeremiah Owyang has left Forrester Research to form the equivalent of a rock supergroup by joining Charlene Li, Ray Wang, and Deb Schulz at Altimeter.

This is great news for all of those aforementioned rockstars, but it is also a classic example of the Circle of Life, at least as it applies to professional services.

When you first join an analyst firm like Forrester, the benefits far outweigh the costs. You get to leverage an established brand, which gives you tremendous access to the players within the industry. You have a sales force that takes care of the messy work of finding and squeezing money out of clients.

But over time, if you're good, you develop your own brand. And at some point, you start to wonder, "Hey, if I'm creating all this value for the analyst firm, why aren't I getting paid accordingly?"

Because while analysts make a decent living, the dirty secret is that a small number of stars generate a disproportionate amount of the value. Inevitably, the only rational move from a financial perspective is to leave the firm and hang out your own shingle, so that you can capture the majority of the value you create.

Jeremiah, Charlene, Ray, and Deb all built their brands thanks in part to their employers' platforms, but those same employers simply couldn't pay them enough to keep them on board. (But don't feel bad for the analyst firms; Forrester made plenty of money off of Jeremiah during the 2 years he was there)

The funny thing is that I've been around long enough to have seen the entire pattern happen before.

Back in the late 1990s, Forrester was riding high as the leading analyst of all things Internet, and two of its leading analysts were Julio Gomez (who was the big wheel on the online brokerage beat) and John Robb (who was an expert on e-commerce and platforms). Julio and John left Forrester, then teamed up with my first boss, Alex Stein, and formed Gomez Advisors.

Of course, over time Gomez Advisors grew into an analyst firm on its own, with its own analysts and associates, its own sales force, and its own support staff.

Because once you're on your own, the same economic factors inevitably lead you to the conclusion that the best way to leverage your brand is to expand your business, which eventually leads to hiring your own analysts and associates, who will someday develop their own brands and leave you.

That's the Circle of Life. And just because you know how the story turns out doesn't mean you can't enjoy the show along the way.

3 comments:

Shefaly said...

Very true and hard to resist the temptation to scale analysis teams. But can you scale insight? That IS the $64 Million question, non?

Chris said...

I think it's hard to scale insight. Ultimately, work is performed by human beings, and we work best in small groups.

Shefaly said...

Indeed. On a tangential note, if you are ever in London, do try and see Lion King at the Aldwych Theatre. It is a spectacular production and in the guise of taking friends' kids etc, I have watched it 4 times. As you say, I do know how the story turns out, but the show is cracking fabulous!