How Can Market Research Founders Succeed with Mark Simon, Partner at Traction Advising M&A

[00:00:00] MRII Announcer: Welcome to MRII’s Insights Innovators podcast, where we talk to top market research professionals to get their inside stories about innovative and enduring best practices. Today’s episode is sponsored by L& E Research. L& E is the expert in qualitative research recruitment with nationwide recruiting, advanced technology, and industry leading client service to unlock powerful business insights.

[00:00:26] MRII Announcer: That’s why L& E Research is 99 percent client recommended. Now, here’s your host for today’s episode.

[00:00:34] Katie Gross: I’m Katie Gross, president of SUSI. In today’s episode, we’ll hear from Mark Simon, partner attraction advising M& A. Mark is a visionary executive and strategic advisor with more than 25 years of experience in market research leadership roles and board director positions across leading SaaS companies.

[00:00:53] Katie Gross: He’s a strategic advisor in the mergers and acquisitions space and understands how investors see market research [00:01:00] companies. So we’re gonna answer the question, how can founders of market research businesses succeed with their startup? Hi Mark. So great to see you, but anyone doesn’t know. We go way back to 2008 when I joined to Luna as a an account director.

[00:01:16] Katie Gross: And over those years you were such a great mentor to me. Acquisitions, product launches, and a significant amount of growth. And of course we work together in both the UK and us. So good to see you again.

[00:01:27] Mark Simon: You too. I suppose we’re kind of that rare group that’s kind of. Lived and worked both sides of the Atlantic and in the market research industry, which kind of has been useful experience over the years.

[00:01:37] Katie Gross: Yeah, for sure. So for the audience, tell us a little bit about your career history and then we’ll kind of focus on what you’ve been working on the last couple of years since you moved back to the UK.

[00:01:47] Mark Simon: Yeah, so I’ve been fortunate in my career to work in quite a few different industries, um, five at the last count.

[00:01:53] Mark Simon: Um, market, market research wise, um, I was at Taluna for a long time, about [00:02:00] 14 years and lots of different leadership roles, including product around the US, around the UK. Also worked in the marketing agency world at the start of my career, uh, those of you old enough will remember AOL bombarding the world with CDs in the mid 90s, that was partly my fault in the UK at least.

[00:02:16] Mark Simon: Uh, worked in the IT services industry for a while, um, flirted rather unsuccessfully with the music industry for many years,

[00:02:24] MRII Announcer: and

[00:02:24] Mark Simon: The last five or six years, I’ve been working, um, as an M& A advisor, primarily selling small SAS businesses, mostly not in the market research industry, actually, but across a wide range of verticals and speak to loads of founders who are kind of on that exit journey and thinking about what their future might hold.

[00:02:42] Katie Gross: That’s awesome. All right, well, I’m excited to dive in because there’s a lot of, uh, founders, of course, in our industry, um, who are definitely interested in this key area. So let’s start with something, um, kind of punchy. In your opinion, what really creates long term value for companies in this industry, but also beyond?[00:03:00]

[00:03:00] Katie Gross: Is it the technology? Is it innovation? Is it talent? Or is it something else?

[00:03:04] Mark Simon: Well, the market research industry is is unique and the same in lots of different ways. We’ll start by what makes it the same. I think there’s the, the reality is that value is in the eye of the beholder, right? So what does value mean?

[00:03:17] Mark Simon: Is it the value? Hopefully it’s what your customers get from it or your employees and stakeholders as opposed to valuation, right? Um, I think in terms of what makes a company valuable, um, just pure financial metrics, uh, very consistent across industry. So it’s, absolute revenue, it’s profitability, it’s growth.

[00:03:39] Mark Simon: Um, but increasingly it’s, it’s doing it’s, it’s retention. I mean, whether that’s a software business or whether it’s a project based business, which the market research industry, um, is to, uh, Some somewhat large extent, um, it’s really about how you, how you keep and grow customers. So I think if you have a great retention profile, um, this is what builds a long term value.

[00:03:59] Mark Simon: It means that [00:04:00] your customers love you. It means that your employees are sticking around, probably becoming more expert and helping their customers grow. So I would say, you know, the great measure of value is how cohorts of customers grow over time.

[00:04:13] Katie Gross: Yeah, that makes sense. And outside of kind of that area, are there other, you know, key metrics and performance indicators that those investors prioritize over others when looking at firms in market research or, or outside?

[00:04:26] Mark Simon: Yeah, so I probably speak to 100 to 200 founders a year, and they’re all, they pretty much ask the same question. And SaaS world, um, I think you can also transfer it to the sort of non software business. The thing that keeps coming up again and again is what’s called net revenue retention. So that is that notion of a business growing even without adding extra new customers.

[00:04:50] Mark Simon: So if you had 10 customers, are they worth, you know, double what they were the previous year? Profitability and, uh, and growth are very [00:05:00] interesting bedfellows, right, in 2021. Everyone was like growth at all costs profitability is a bit of a dirty word, particularly in the software industry, but to some degree in any high growth sector, that’s totally changed now.

[00:05:13] Mark Simon: And the bar is much higher for investors. They want to see. Um, at least break even a path of profitability, solid growth, controlled growth, and in a, in a market where you’re solving a real problem, um, we, you know, there’s, there’s no point being like the 800th survey tool on Mike Stevens Insight Partners list, the true Insight Platforms list.

[00:05:33] Mark Simon: The reality is there are loads of those companies. Do something different, something unique, uh, and really add value.

[00:05:39] Katie Gross: Yeah, that makes a lot of sense. What kind of number do you put on kind of, you know, unicorn style net revenue retention rate? What is that percentage that folks should be really aiming for?

[00:05:49] Mark Simon: Yeah, well, that depends enormously on the profile of the customer. So if you’re selling to small and medium businesses, retention, those kinds of companies tend to churn. So In the [00:06:00] market research industry, for example, you’re probably not smelling selling to rather small companies where they tend not to have market research budgets.

[00:06:05] Mark Simon: You tend to be sent, but certainly enterprises mid market, you know, if you’re over 120 percent net revenue retention, you’re best in class. If you’re selling to purely mid market anything over a hundred, it’s pretty good. Uh, and now if it’s below 90, 95. You know, that means that you have a leaky bucket basically and you have to win those new customers to keep growing as quickly as you would like to and that that is something that investors will dig into.

[00:06:32] Mark Simon: And then just losing customers in general is perceived as one of the main reasons not to. Not to kind of invest a lot.

[00:06:40] Katie Gross: Yeah, that makes sense. We also talked SAS models and net revenue retention rates and GRR and all those kind of great metrics and, you know, where you and I started was in very much market research project based research and The industry has really had to pivot into more of a SaaS model.

[00:06:58] Katie Gross: So we’d love to kind of hear a little bit [00:07:00] more, um, on, you know, the advantages of SaaS offerings over traditional service based kind of models and particularly how that works here in market research.

[00:07:09] Mark Simon: Yeah. So I think, you know, this is, this is a really interesting topic. So first of all, the, in my opinion, the market research industry is not for the most part, well suited to the SaaS model at all, because.

[00:07:21] Mark Simon: The vast majority of the things that happen that make market research so great is because they’re highly customized. Or they’re very, they’re addressing a very specific problem in great depth. And that doesn’t always lend itself brilliantly to, um, to kind of recurring revenue subscription model. So that, that part has been, well, I’ve seen quite a few issues with companies who have tried to put the proverbial square peg in the round hole by transitioning their business to a, a subscription model from what was a, uh, a project based model.

[00:07:51] Mark Simon: Uh, the reality is I don’t think I’ve ever seen a company do it totally successfully. My old company, Taluna, you’re very familiar with, of course, [00:08:00] because you worked there as well. We did that pretty well, but we actually started out as a tech company that started to build a panel. But even then, it was, you know, there’s still a big mix of services.

[00:08:09] Mark Simon: Qualtrics, it’s an amazingly successful business. 40 percent of what they do comes from services and sample purchasing and so forth. So the industry in of itself is not brilliantly suited for the large part to, to pure SAS models. Um, that said, there are some really interesting kind of license plus usage models.

[00:08:28] Mark Simon: I’ve seen some companies be very successful with that. And I think ultimately you have to listen to what your customer is saying or your client, because if they don’t. And if you’re selling to agencies like a market research agency or an ad agency, they don’t want to pay a subscription. They need a best service, best price.

[00:08:43] Mark Simon: If you’re selling to brands, they may be a bit more flexible, but it’s really, you have to be careful not to try and shoehorn in the business model du jour into something that frankly doesn’t fit what makes the market research industry so great, which is high EQ, high customization, um, and [00:09:00] great curiosity.

[00:09:01] Katie Gross: Yeah. Yeah, you’re absolutely right. I think in, in my experience, and obviously Susie is. I’m a very much SaaS based. When I’m working with those enterprises that you had talked about, and that’s our real cohort of customers, the key benefit for them is it can be quite cumbersome to raise a PO, get a project scoped, get it off the ground.

[00:09:18] Katie Gross: And actually having that always on licence enables them to be much more agile with their research. And so, although it may take us a couple of months to kind of. enable and help that brand understand the benefits of an always on license. Once they’re there, they can’t kind of turn back. They are delighted to be able to answer that CMO question at 5pm on a Friday, come in on a Monday, have data all ready.

[00:09:40] Katie Gross: So when it works, it works brilliantly and to the benefit of the customer. Um, not just, not just the investors.

[00:09:46] Mark Simon: Yeah, no, I would agree, but that’s because you started in that world.

[00:09:51] Katie Gross: Yeah, it would definitely have been much harder had we not started there. Yeah,

[00:09:55] Mark Simon: I think so. The other advantage though, that it does give is budgetary certainty [00:10:00] for the, for the client.

[00:10:01] Mark Simon: They know how much they’re going to be spending and therefore things don’t can be controlled. So that is, that is a reason to, to move to that model. Um, but I’ve seen it executed so poorly so many times that, you know, You do worry that people are trying to do it just because they think they should do it, you know?

[00:10:16] Katie Gross: I’m sure. Yeah. Yeah, exactly. Yeah. And on that kind of point, our brand clients call it, um, research insurance. It’s always there. So they can put it in for the year. They know they’re not going to have their budgets cut necessarily. Um, so it’s like that security of always having the credits available to, to launch.

[00:10:33] Katie Gross: So talk to me a little bit more about kind of how investors generally perceive the market research industry today, the term of the market research industry, are there any misconceptions that you think they’re seeing? And what kind of trends or shifts have you seen, particularly around 2024?

[00:10:48] Mark Simon: Well, I think the, everyone talks about AI and I think that AI, let’s start there.

[00:10:56] Mark Simon: I think that is, that is the way actually the market research industry can benefit [00:11:00] enormously. And it, it sort of falls into three groups. I think you’ve got the, the notion that your science investors look at AI and the research industry as, okay, is it optimizing operations or, or helping us be more efficient with what we already do?

[00:11:12] Mark Simon: And the answer is undoubtedly yes. Cause Parts of the market research industry are incredibly labor intensive, they’re, you know, they’re volume based and so forth, so it works quite well there. Um, Investors are also looking at are there adjacencies in the core business that can be done? So, I mean, uh, for example, can you use AI to, to build, you know, brand segmentation that was not there previously, you know, brand tracking, for example.

[00:11:37] Mark Simon: Um, And then there are the, there’s a third horizons, like, can they help us do something completely new that, um, that we weren’t doing before taking new product or business lines. So investors are looking at all of those, those things. Um, I think they’re also, what was when you and I started in the industry, a very tech, um, I don’t want to say tech averse industry, but, [00:12:00] Um, I can say that was a little,

[00:12:02] Katie Gross: yeah,

[00:12:03] Mark Simon: the proliferation now of platforms in the industry focus on insights is, is amazing, actually.

[00:12:09] Mark Simon: So clearly, there is a lot of investment going into the industry. It has an industry, I would say that it has a lot of emotional intelligence that you don’t see in other industries, and I can say that with confidence having worked in, I don’t want to throw shade on any particular industry, but in other industries where you just don’t really get that.

[00:12:27] Mark Simon: Um, and I think that. That sometimes leads to a more cautious approach in terms of growth. And that sometimes, you know, investors have to really buy into the story. And, and, and therefore, you know, you can, you can, if you can position yourself well, um, you can do, you can do, uh, do incredibly well and attract lots of investment, um, investment opportunities.

[00:12:48] Mark Simon: Um, what else could I say? Um, yeah, I think just going back to the thing that it’s, because it is a highly episodic industry. It’s very [00:13:00] reoccurring. Uh, they quite often the, um, investors who are familiar with professional service models, whatever, tend to be better suited than pure SaaS investors in our experience.

[00:13:11] Mark Simon: But yeah, I’m sure other people will have different views.

[00:13:14] Katie Gross: Yeah, for sure. It’s, it’s, you know, it’s not. Slack, it’s not, um, tools that are kind of reoccurring on a daily basis. It definitely has a more lumpy kind of approach, but it definitely is reoccurring. As you, as you kind of rightly say that those brands are still going to have to launch new products, create new ad campaigns and build value for the consumers for sure.

[00:13:34] Katie Gross: So what should leaders in our industry be aware of, um, you know, to help them make their businesses more attractive to some of those investors? Are there specific red flags or green flags and investors look for?

[00:13:46] Mark Simon: Well, I think firstly, why do they, uh, why are they looking to attract investment? Is it to grow?

[00:13:52] Mark Simon: Is it to effectively exit the business? You know, what, what are the, what are the motivations behind it? So I think the, the key thing is to, to understand a [00:14:00] little bit about the recent, the investment landscape. So you, at one end you have sort of angels and sort of seed funds who basically. putting small amounts of money into early stage companies.

[00:14:09] Mark Simon: Um, VCs are slightly different. They are, you know, larger businesses tend to make moon shots and, you know, 20 out of, two out of 20 of their, their investments will pay off. They often look for larger addressable markets than kind of later stage because they want something to go very large. Private equity tends to come in later on.

[00:14:33] Mark Simon: They’re looking for profitable growth. Um, not always, but for the most part. And you have some really interesting areas like family offices. We tend to have longer time horizons than private equity in VC. Actually, Taluna, um, is owned by a family office, for example, uh, and even things like search funds, which are, um, I won’t go into too much detail, but these are companies, um, investment vehicles that basically bring in a new CEO if the, if the founder is looking to retire, [00:15:00] preserve their legacy, or even take a non CEO role, because they just don’t like being CEO very much.

[00:15:05] Mark Simon: So you have to look about what, what type of investment you want to bring on. And then it’s not just about the money, I mean, the reality is that it’s easier to, to get. Divorced probably a bit is to get an investor off your cap table. You don’t really get along with. So, you know, the chemistry, the values that they, they, they have is important.

[00:15:22] Mark Simon: Uh, can they bring things beyond the money? Can they bring connections? Expertise. Um, can they help with hiring? Have they done this before? There are so many reasons to, to really do your due diligence on them as much as them doing it on you. And I, that’s something that I think the founders often, um, sometimes stop a little short on is actually, it’s a two way street.

[00:15:42] Mark Simon: You’ve really got to. you know, understand where they’re coming from, rather than, than just about, you know, you answering their questions about, about your business and where you want to go.

[00:15:52] Katie Gross: Yeah, which I’m sure could be really hard when lots of companies want to invest in you. It must be really difficult to not just say yes, and instead actually have to come to have a [00:16:00] two way interview, um, in a way.

[00:16:02] Mark Simon: Yeah, and it can be difficult to differentiate, um, frankly, between someone’s investment funds. to the uninitiated pretty similar, even to the initiated, they’re pretty similar sometimes.

[00:16:14] Katie Gross: Yeah, yeah, for sure. I think what’s great, what I love about market research is, is the enormous TAM that we work within.

[00:16:21] Katie Gross: But I’m always surprised at how much of that TAM is still with the very, very large, more traditional incumbents. And there are Hundreds of thousands of small and niche companies in our industry that are either tech or, um, services based. So how can those kind of smaller and niche companies really stand out to investors in such a competitive field?

[00:16:41] Mark Simon: Yeah, I think it’s easier, less about investors, but just being successful as businesses themselves. I mean, it’s easier now to, to become. Um, to, to, to hit, to, to punch above your weight as it wears. I mean, one example is a company that I’m involved with. I’m on the board of a company called, uh, [00:17:00] Glimpse, which is a, an AI startup in the market research space.

[00:17:03] Mark Simon: You know, their first big customer was HubSpot, right? They’re talking to, you know, the very large, um, retail chains in the U S they’ve got, you know, a big CPG or FMCG, as we call them in the UK companies working with them. And. If I go back 10, 15 years to really to get on the radar of a Procter Gamble or Walmart or whoever it was, it required a certain, frankly, longevity of existence, you know, or it’s much easier now to, to be able to get in front.

[00:17:31] Mark Simon: If you’ve got something really compelling, you’re solving a problem that you can articulate really, really well, then, then actually you’re going to get a seat at that table. Uh, the, the downside is that. I think Insight, Consumer Insights buyers, the senior people at the companies I mentioned are literally bombarded day in, day out with new solutions.

[00:17:50] Mark Simon: And that was not really the case, I would say, 10 years ago. And therefore, the Smart Insights buyer who can, who can [00:18:00] quickly kind of evaluate and figure out if it works is also going to be successful on the client side. So I think if you can do that, then actually you’ll attract investment. Regardless, you won’t need to go out seeking for it, you’ll be approached and, uh, private equity and VCs are very good at outreach anyway, they do a lot of it, so, uh, you will certainly be being bombarded, I suspect, by, um, by venture capital and by private equity, depending on where you are in your kind of company life stage.

[00:18:28] Katie Gross: You raised such a good point. I think there’s unfortunately a lot of tools out there in market research right now that are tools looking for a problem to solve. And I think companies like Glimpse and kudos to Neil, um, former colleague of ours, uh, who has done phenomenally well because he has a well articulated problem that his tool is trying to solve rather than a tool looking for a problem to solve, which I think is what we see too often or

[00:18:51] Mark Simon: plug to, um, to Mike Stevens from Insight Platforms for that actually, because yeah.

[00:18:56] Mark Simon: If you go on there and you search for sentiment [00:19:00] analysis or survey tools, there are literally hundreds now. And he’s done a pretty good job of curating and segmenting that. And Seema and Patrick building the ResTech landscape. These are signs of sophistication and a technical landscape in market research that was not there a few years ago.

[00:19:15] Mark Simon: So, you know, the future is bright. But it’s certainly getting more complicated than it was.

[00:19:22] Katie Gross: Yeah, for sure. Well, Mark, we could talk all day. I’m sure each of those questions I asked could have been an entire podcast on their own. So thank you so much for your insight. This was fantastic. Um, and we’d love to catch up with you again soon.

[00:19:35] MRII Announcer: Bye. Thanks for joining MRII’s Insights and Innovators podcast. Be sure to subscribe and listen to all of our podcast episodes and visit us at MRII. org for more insights for market research professionals.