Can other vendors copy Israeli firms’ exceptional success in earning Gartner, Inc.’s Cool Vendor designation? Maybe not. Their success reflects both Israel’s unique start-up ecosystem and those start-ups’ ability to leverage Gartner’s experienced account management in Israel.
The numbers of Cool Vendors in Israel continue to rise. At the recent Cool and Hot Vendor Forum, Suwen Chen’s presentation showed, using data from Gartner, Inc., that there were more Cool Vendors in Israel than, for example, in China and the UK added together. The gap is widening: It has grown from 15 Cool Vendors in 2012 to 33 last year and 35 in 2016. The count could be even higher if we account for the many Cool Vendors originally founded, funded and staffed in Israel which have moved headquarters to the USA, such as Loom Systems. Twenty firms founded in Israel have gained the designation so far this year. More will probably be added in the rounds of Cool Vendors later this month and in September.
Israel’s technology industry as an ecosystem
The tech talent in the country benefits from an astonishing degree of support: from the government; the military; and from a national understanding of the need to innovate and export. It’s like the early growth of Silicon Valley, where the pro-active West Coast spirit combined with support from the federal government gave many firms the initial boost they needed. Israel offers both initial and ongoing support.
Israeli vendors have a strong infrastructure from the IDF, Israel’s armed forces, and the government: both help tech firms to achieve innovation. The process is aided by a special provision within the army: people can develop a technology solution and take the IP out afterwards to the market. Cyber-experts also get invaluable, practical experience in the army (notably in areas like hacking and protection). The government’s innovation authority also funds R&D, while the government’s Export Promotion Fund subsidises tech firms’ marketing. Export guarantees are also available.
Partly because of this leavening, and also because of Israel’s deep capacity for innovative and out-of-the-box thinking, Israeli firms are often more ambitious for growth than, for example, European businesses. Unlike European firms, which can boot-strap their growth from the revenues of customers in the domestic markets, Israel must export. Israeli firms are born global, both in looking for funding and for looking for customers. As a result, many analysts track Israeli innovation: some even visiting.
This is amplified by the greater openness of many Israel vendors to analysts than, for example, is generally the case in Europe. Of course, some are more secretive. However, most Israeli vendors will try to get analysts to visit on site. In addition to promoting site visits, Israeli tech firms are often more candid, engaging and less formal with analysts. Their technology and product teams will pitch to analysts, rather than just the marketing team. Analysts appreciate the deeper dive into the technological solutions. In our experience, Israeli firms are less formal and have less use for hierarchies, channels and protocols of seniority. Many have found ways to challenge analysts’ assumptions in ways that don’t endanger their ability to grow a relationship with the analyst. Many vendors around the world are on the cutting edge of new technologies: Many Israeli firms also play a role in educating analysts.
Gartner, Inc. research as an ecosystem
That said, it also seems that Gartner has a talent for identifying Cool Vendors in Israel which benefits both the vendors and Gartner itself. Dozens of Gartner analysts travel to Israel throughout the year to study different industries: there can’t be many other countries, if any, where that is the case.
Many Israeli start-ups work very closely with Gartner’s account managers and analysts. Not only have Israeli vendors learnt how to work closely with the local Gartner team in Israel, but also whole ecosystems of vendors, end users and investors align. Vendors can find themselves with the best platform imaginable from which to make the case for their recognition as a Cool Vendor. Vendors actively encourage Gartner to bring the analysts to meet the vendors and, partly as a result, the local Gartner account team is also proactive: It has a better-than-average understanding of how firms meet the analysts’ criteria for the Cool Vendor designation.
According to my research at the University of Edinburgh, Cool Vendors get better recognition from investors. Cleary, they must use Cool Vendor lists. Many vendors actively looking for acquisitions in Israel, including Microsoft, Symantec and IBM. The paths are well-trodden, and many US venture capital and private equity investors invest more in Israeli and, for example, in Europe. The results are especially strong in cyber-security, Israel’s biggest group of Cool Vendors. There are reportedly over 400 cyber-security start-ups in Israel. For many, the goal is their acquisition. For example, in the last three years many, and perhaps most, of Microsoft, Symantec and Palo Alto’s cyber-security acquisitions were Israeli Cool Vendors.
The Cool Vendor endorsement is also, of course, reflected back on Gartner, Inc. by its winners. Cool Vendor holders send out Gartner’s model press releases, plaster the Gartner Cool Vendor over their online and offline materials, mention the awards in their press releases and email signatures, and in one case even incorporate it into their company’s name on LinkedIn. That all boosts Gartner’s credibility in emerging markets where it has lost some of its leadership.
What to learn?
- Firstly, there’s clearly a public policy opportunity for vendors. In some countries (Australia comes to mind) the public sector represents most of many IT markets. In many more, like the UK, the biggest IT buyer is in the public sector. If these countries tried to develop alignment to help domestic talent grow then more non-US firms would be earning awards like the Cool Vendor designation. Ironically, Gartner, Inc., research constrains this process. Because some countries are more visible on Gartner’s radar (clearly the US and Israel, but there must be more), other countries are probably underrepresented. And in those countries, Gartner clients are more likely to be recommended US or Israeli software than domestic software. There’s no simple solution there, but there’s something to learn from the Frankfurt model of multi-vendor, multi-analyst, briefing days at a major airport.
- Second, tech start-ups will only leverage their local Gartner teams under certain circumstances. Necessarily, they must first know that the Cool Vendor designation exists and that it is valuable. However, they also need to be able to develop the sort of push-pull relationships that will get account teams working hard and thinking about how to generate extra value for local start-ups.
- Third, start-ups need to understand that Hot Vendor and Cool Vendor awards are the start of the relationship with the analyst firms. Israeli firms don’t only become Cool Vendors: they graduate into other Gartner coverage areas. In areas like cyber-security, CRM, digital workplace and telecommunications, Israeli vendors have been aided by analyst recommendations and continued to be covered as the markets grow.
In a UEBS Gartner Observatory webinar, former Gartner research director Perry Carpenter and long-time AR leader Donna Stein predicted that other analyst firms will produce similar signature research awards for newer vendors, as Aragon Research and HfS Research have done. They are almost certainly correct.
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