Penteo: a case study in defendable borders

Penteo, the main analyst house in Spain, is a deeply influential firm: almost all its revenue comes from end-users; it is independent, and is seen to be independent; its business model is based on deep relationships, meaning that it has strong customer loyalty.

Penteo is, in many ways, the archetype for the analyst firm that ‘owns’ a national market. Other analyst firms outside the English-speaking world will be well advised to learn from it. Over 14 years the firm has focussed on building itself as both a research and advisory firm, and as the host of the Penteo forum for CIOs. The Penteo forum groups together Spain’s best known heavy users of IT from the public, commercial and academic worlds. I can’t think of any firm, in any country, that has such dominance in its domestic market.

Penteo’s dominance partly because of its tight focus on helping clients to improve themselves against benchmarks for the purchase, implementation and management: the strategy is explained very clearly by the firm’s president (and how many firms could explain their strategy so clearly?). It is as if Penteo and its clients are in a permanent action research process aimed to optimise the technology that drives their business. In contrast, other analyst firms watch markets dispassionately and are less likely to consider themselves partisans of optimising measurable business outcomes.

It’s a unique business model, which allows Penteo to strongly defend its market position: it already has the advantage of national, linguistic, cultural and other barriers to entry which English-speaking firms will not often want to cross. The extreme stability if its business model is in some contrast to that of Forrester and Gartner, which delight those customers seeking change.

Furthermore, because overseas firms operating in Spain may tend to bring in outside analyst firms, Penteo has a strong focus on Spanish-headquartered firms. In particular, that gives it a very strong position in the upper mid-market and mid-market in Spain. It would be almost impossible to uproot Penteo.

However, take away those national defences, and Penteo still has a highly distinctive business model which is hard to copy: a real research firm (unlike the procurement firms); a singular focus on end-users (most firms have a mixture); community is at the heart of the business model (unlike events businesses, which are a cross-sell); and the building of deep, career-long, client relationships (unlike the transactional, one-by-one approach of other firms).

There are some other things that one could imagine about Penteo: as a premium-service incumbent in a less-than-competitive high-growth market, it is a company that (I guess) can comfortably make strategic investments in growth.

And that is where it gets interesting. Penteo’s website mentions that offices in London and Paris are coming soon. These are seemingly developed markets: highly valuable, but hard to crack. It will require strong, patient work to build up the market position of any new entrant. But, of course, most firms funded by outside equity will shy away from medium-term investments – meaning that few try. Firms with a long ‘time orientation’ and a low opportunity cost of capital, on the other hand, could make it work.

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