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Greenfield Online Case Study: Innovation in an established industry
written by Nisan Gabbay, posted on October 22nd, 2006
Why profiled on Startup Review
Greenfield Online pioneered the use of the Internet for conducting market research surveys in the mid-90’s. They had their IPO in 2004 with shares trading in the $20 range, but have since seen a decline to $10 per share (see share stock chart). The market cap of the company is ~$270M as of this writing. The financials of the company leading up to the IPO were strong: 2002 ($15M sales), 2003 ($26M sales, 17% EBITDA), 2004 ($44M sales, 23% EBITDA).
Greenfield Online is an interesting case study because they faced some difficult strategic decisions in the post-bubble time period. Greenfield shifted company strategy, helping them to grow revenue more quickly, but may have compromised a larger long-term opportunity. It is difficult to say what the right decision for Greenfield was, but makes for an interesting discussion below.
Interviews conducted: Steve Cook (ex-Sr.VP of Sales ’96 – ’01, 3rd employee) – Steve is now CEO/President of Target Research Group, a full service marketing research company. Rudy Nadilo, former CEO of Greenfield Online.
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Key success factors
I’d like to first chronicle what Greenfield did between 1994 and 2001 to establish themselves as the leading player in the online quantitative market research industry, and then discuss a turning point in the company’s strategy that began in 2001. The change in 2001 propelled Greenfield’s revenue growth and path to liquidity. It could be viewed as either a success factor or perhaps a misstep, based on whom you ask.
Company and management credibility
Greenfield Online was originally a division of a traditional, successful market research firm, Greenfield Consulting Group. This background was important in establishing the use of internet surveys as a valid methodology in the early days. Being a pioneer in a traditional, established industry is a hard thing to do without credibility and pre-existing business relationships. Greenfield Online had both, an important factor in winning over early adopters to try a new methodology.
Clear value proposition over existing approaches
Using the Internet to administer surveys had a greater than 50% cost advantage over traditional methods, with greater flexibility in turnaround time and targeting. While Greenfield was not the only company to have this advantage, I felt that it was important to point out that surveying was an application that clearly made sense for Internet delivery.
First mover advantage coupled with slow moving incumbents
Greenfield Online was the first company to build an online survey “panel”, i.e. a database of people willing to take surveys over the Internet. Being the first mover enabled Greenfield to establish the largest panel at the lowest cost of customer acquisition. The incumbent market research providers (Harris) were slow to embrace Internet surveying because existing methodologies (both quantitative and qualitative) had higher price points. Greenfield Online was mostly focused on quantitative online research, so didn’t have any cannibalization / product conflict issues to deal with.
Change in product strategy to better leverage channels
So what happened in 2001?
As Greenfield Online was preparing for an IPO in early 2000, the market collapsed, causing the company’s investors to shift the company’s strategy. While the focus of the company had been on building a full service market research firm that offered a variety of services, Greenfield instead focused on selling “sample” or access to the panel to other market research firms. Thus, Greenfield Online removed product conflict barriers and chose to embrace other market research firms as channels.
This strategy had several benefits in the near term. It enabled Greenfield to ramp revenues more quickly using a smaller number of less expensive employees. Greenfield had been creating syndicated research products and providing custom services which required more up-front investment. Given the emphasis on profitability and a faster path to liquidity, this part of the business became less appealing when viewed through a shorter investment horizon.
However, one could argue that this focus on selling sample was the wrong long-term strategic decision. Selling Internet survey sampling has become a near commodity business with little differentiation amongst the top players Building a database of survey takers and the technology to administer those surveys is not a highly differentiable product. Greenfield’s early management team felt that the sample-focused strategy didn’t properly leverage the blue chip brand that Greenfield had built. Had they not shifted strategies they could have become one of the pre-eminent market research firms in the industry. It is difficult to say whether the change in company strategy was the right decision or not, and clearly, many factors were involved. It did help to achieve the objectives of a quicker path to liquidity for investors, whether explicitly intentional or not.
--------------------------------------------------------------------------------
Launch strategy
Greenfield Online built its panel of survey takers in the early days through pretty basic affiliate relationships. Greenfield contacted the webmasters of high traffic websites and asked them to link to Greenfield, with Greenfield paying a sign-up fee back to the affiliate site. This type of rudimentary affiliate marketing was how Greenfield got off the ground in the very early days of the web.
--------------------------------------------------------------------------------
Exit analysis
As of October 17, 2006, Greenfield Online had a market cap of $270M (enterprise value of $246M). Trailing twelve month revenues were $93M, thus the EV/sales multiple is 2.63. Operating margin over that time period was 10.4%, and EV/EBITDA multiple was 11.1. For a basis of comparison, the average EV/EBITDA comp for all public Internet companies is ~17X. Considering that the stock is down ~50% since its IPO, it has not been a strong performer. How does this compare to a traditional market research firm? Some of the publicly traded companies (TNS, Gfk, and Aegis) seem to trade in the 10X EBITDA multiple range and have 10%-20% profit margins. Thus, it does not appear that Greenfield would have been more highly valued had they stayed the course of becoming a full service research firm.
So how did the VC investors do? According to my calculations from the SEC filings, the three largest VC investors (Insight Venture Partners, UBS Capital, and MSD Ventures) invested a total of $29M over three rounds and owned ~35% after the IPO. I didn’t go through a painstaking effort to check when the VCs sold their shares and how many they might still hold, but a 35% stake of $270M would equate to roughly a 3X return. Both Insight and UBS sold some shares upon IPO at a price of $17 (well above today’s price of ~$10), but it appears that these sales only accounted for about $30M of their combined holdings.
--------------------------------------------------------------------------------
Food for thought
Most venture capitalists will never publicly state that they are looking for an exit with an investment. For the most part, both entrepreneurs and their investors are trying to build successful businesses and usually goals are aligned. However, part of the value that a VC brings is identifying the right paths to liquidity for a company and the appropriate timing for such exits. I believe that understanding exit options in today’s M&A environment is more important than ever before. The supply side of tech start-ups outstrips the demand in most markets, i.e. buyers have many options from which to choose. There will always be a few hot companies that can dictate their own future, but most start-ups need to take an active role in navigating towards an exit. Sometimes it’s a game of musical chairs and you don’t want to be left without a seat. As an entrepreneur or company management, keeping an open line of communication with your investors about exits is important.
At Greenfield Online, the early company management that I spoke with wanted to build a premier brand as a market research firm and create syndicated research services (thereby leveraging their panel of survey takers). Greenfield’s investors took the company in another direction, becoming more of a service provider to other research firms. I assume that the investors felt this strategy was more scaleable and capable of providing the growth necessary for a shorter path to liquidity. Most VCs don’t want to be in services businesses, preferring to be an infrastructure or software provider as they tend to have better valuation multiples than services firms.
This was a case where there was disagreement between management and investors. It does happen - and probably more often than either party would like. My lesson learned: as an entrepreneur you should be aware of the motivations of your investors and have the hard conversations with them early and often to help prevent misalignment. These conversations should also be re-visited when changes occur in the market – when either a competitor has been acquired or market requirements for exit shift.
Secondly, I believe that it is worth pointing out that the start-up (Greenfield Online) that became the winner in pioneering the use of the Internet for quantitative market research came from management with a strong history and brand within the industry. This is a pattern that I have seen often in industries that are well established and haven’t had much innovation in many years. These types of industries are slower to embrace change, and as a result, prefer to buy from companies where there is a high degree of trust in the people behind the product, as much as the product itself. When the value proposition for competing alternatives is similar, customers will opt to buy from people that they have pre-existing relationships with. If you are operating in a traditional industry, hiring management that can establish your credibility as a company is a critical success factor.
--------------------------------------------------------------------------------
Reference Articles
There were only a handful of articles that I could find on the history of Greenfield Online and the reasons for their success. The above analysis has largely been based on the interviews conducted with early company management. One article that I did find interesting was a January 1997 interview with Greenfield Online founder Andrew Greenfield which discusses the origins of the company.
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4 Comments »
Having come from the market research firm Telephia, this analysis was right on the mark. Telephia, a wireless market research firm that conducted HUGE online surveys, used Harris and Greenfield as it’s
Comment by Kevin — October 23, 2006 @ 9:55 pm
(sorry last comment got cut off)
primary provider. Telephia made the great decision in 2003 to go upstream and wrap more services around the core research data, as opposed to simply being a data provider. That strategy has helped Telephia to build solid relationships with all the carriers’ senior exec teams, which helped them survive the telecom meltdown at the time. Telephia also made a concerted effort to build relationships with the most senior execs at the carriers (going all the way to CXO level), insisting that survey results be presented directly to CXO instead of simply working through the marketing or advertising groups. This strategy took a huge investment, as the company hired a bunch of pricey senior ex-McKinsey consultants instead of a traditional sales team. But those solid relationships saved our allocated budgets — when our customers’ execs went through to ax their division VP’s budget dollars, they carved out special dollars from corporate budgets for our research.
Nice work analyzing a non web two doh company.
Comment by Kevin Chou — October 23, 2006 @ 10:08 pm
Nice review..
do you know of any “Hot New” trends in the Industry Greenfield started..any comments..?
Comment by A Mkt research geek — November 20, 2006 @ 11:29 pm
Thanks for the review! My company has been purchasing sample from Greenfield for over 6 years. While they continue to innovate (most recently real-time sampling) we primarily use them because of their management team’s credibility.
Comment by Jamin Brazil — December 25, 2006 @ 7:22 am
written by Nisan Gabbay, posted on October 22nd, 2006
Why profiled on Startup Review
Greenfield Online pioneered the use of the Internet for conducting market research surveys in the mid-90’s. They had their IPO in 2004 with shares trading in the $20 range, but have since seen a decline to $10 per share (see share stock chart). The market cap of the company is ~$270M as of this writing. The financials of the company leading up to the IPO were strong: 2002 ($15M sales), 2003 ($26M sales, 17% EBITDA), 2004 ($44M sales, 23% EBITDA).
Greenfield Online is an interesting case study because they faced some difficult strategic decisions in the post-bubble time period. Greenfield shifted company strategy, helping them to grow revenue more quickly, but may have compromised a larger long-term opportunity. It is difficult to say what the right decision for Greenfield was, but makes for an interesting discussion below.
Interviews conducted: Steve Cook (ex-Sr.VP of Sales ’96 – ’01, 3rd employee) – Steve is now CEO/President of Target Research Group, a full service marketing research company. Rudy Nadilo, former CEO of Greenfield Online.
--------------------------------------------------------------------------------
Key success factors
I’d like to first chronicle what Greenfield did between 1994 and 2001 to establish themselves as the leading player in the online quantitative market research industry, and then discuss a turning point in the company’s strategy that began in 2001. The change in 2001 propelled Greenfield’s revenue growth and path to liquidity. It could be viewed as either a success factor or perhaps a misstep, based on whom you ask.
Company and management credibility
Greenfield Online was originally a division of a traditional, successful market research firm, Greenfield Consulting Group. This background was important in establishing the use of internet surveys as a valid methodology in the early days. Being a pioneer in a traditional, established industry is a hard thing to do without credibility and pre-existing business relationships. Greenfield Online had both, an important factor in winning over early adopters to try a new methodology.
Clear value proposition over existing approaches
Using the Internet to administer surveys had a greater than 50% cost advantage over traditional methods, with greater flexibility in turnaround time and targeting. While Greenfield was not the only company to have this advantage, I felt that it was important to point out that surveying was an application that clearly made sense for Internet delivery.
First mover advantage coupled with slow moving incumbents
Greenfield Online was the first company to build an online survey “panel”, i.e. a database of people willing to take surveys over the Internet. Being the first mover enabled Greenfield to establish the largest panel at the lowest cost of customer acquisition. The incumbent market research providers (Harris) were slow to embrace Internet surveying because existing methodologies (both quantitative and qualitative) had higher price points. Greenfield Online was mostly focused on quantitative online research, so didn’t have any cannibalization / product conflict issues to deal with.
Change in product strategy to better leverage channels
So what happened in 2001?
As Greenfield Online was preparing for an IPO in early 2000, the market collapsed, causing the company’s investors to shift the company’s strategy. While the focus of the company had been on building a full service market research firm that offered a variety of services, Greenfield instead focused on selling “sample” or access to the panel to other market research firms. Thus, Greenfield Online removed product conflict barriers and chose to embrace other market research firms as channels.
This strategy had several benefits in the near term. It enabled Greenfield to ramp revenues more quickly using a smaller number of less expensive employees. Greenfield had been creating syndicated research products and providing custom services which required more up-front investment. Given the emphasis on profitability and a faster path to liquidity, this part of the business became less appealing when viewed through a shorter investment horizon.
However, one could argue that this focus on selling sample was the wrong long-term strategic decision. Selling Internet survey sampling has become a near commodity business with little differentiation amongst the top players Building a database of survey takers and the technology to administer those surveys is not a highly differentiable product. Greenfield’s early management team felt that the sample-focused strategy didn’t properly leverage the blue chip brand that Greenfield had built. Had they not shifted strategies they could have become one of the pre-eminent market research firms in the industry. It is difficult to say whether the change in company strategy was the right decision or not, and clearly, many factors were involved. It did help to achieve the objectives of a quicker path to liquidity for investors, whether explicitly intentional or not.
--------------------------------------------------------------------------------
Launch strategy
Greenfield Online built its panel of survey takers in the early days through pretty basic affiliate relationships. Greenfield contacted the webmasters of high traffic websites and asked them to link to Greenfield, with Greenfield paying a sign-up fee back to the affiliate site. This type of rudimentary affiliate marketing was how Greenfield got off the ground in the very early days of the web.
--------------------------------------------------------------------------------
Exit analysis
As of October 17, 2006, Greenfield Online had a market cap of $270M (enterprise value of $246M). Trailing twelve month revenues were $93M, thus the EV/sales multiple is 2.63. Operating margin over that time period was 10.4%, and EV/EBITDA multiple was 11.1. For a basis of comparison, the average EV/EBITDA comp for all public Internet companies is ~17X. Considering that the stock is down ~50% since its IPO, it has not been a strong performer. How does this compare to a traditional market research firm? Some of the publicly traded companies (TNS, Gfk, and Aegis) seem to trade in the 10X EBITDA multiple range and have 10%-20% profit margins. Thus, it does not appear that Greenfield would have been more highly valued had they stayed the course of becoming a full service research firm.
So how did the VC investors do? According to my calculations from the SEC filings, the three largest VC investors (Insight Venture Partners, UBS Capital, and MSD Ventures) invested a total of $29M over three rounds and owned ~35% after the IPO. I didn’t go through a painstaking effort to check when the VCs sold their shares and how many they might still hold, but a 35% stake of $270M would equate to roughly a 3X return. Both Insight and UBS sold some shares upon IPO at a price of $17 (well above today’s price of ~$10), but it appears that these sales only accounted for about $30M of their combined holdings.
--------------------------------------------------------------------------------
Food for thought
Most venture capitalists will never publicly state that they are looking for an exit with an investment. For the most part, both entrepreneurs and their investors are trying to build successful businesses and usually goals are aligned. However, part of the value that a VC brings is identifying the right paths to liquidity for a company and the appropriate timing for such exits. I believe that understanding exit options in today’s M&A environment is more important than ever before. The supply side of tech start-ups outstrips the demand in most markets, i.e. buyers have many options from which to choose. There will always be a few hot companies that can dictate their own future, but most start-ups need to take an active role in navigating towards an exit. Sometimes it’s a game of musical chairs and you don’t want to be left without a seat. As an entrepreneur or company management, keeping an open line of communication with your investors about exits is important.
At Greenfield Online, the early company management that I spoke with wanted to build a premier brand as a market research firm and create syndicated research services (thereby leveraging their panel of survey takers). Greenfield’s investors took the company in another direction, becoming more of a service provider to other research firms. I assume that the investors felt this strategy was more scaleable and capable of providing the growth necessary for a shorter path to liquidity. Most VCs don’t want to be in services businesses, preferring to be an infrastructure or software provider as they tend to have better valuation multiples than services firms.
This was a case where there was disagreement between management and investors. It does happen - and probably more often than either party would like. My lesson learned: as an entrepreneur you should be aware of the motivations of your investors and have the hard conversations with them early and often to help prevent misalignment. These conversations should also be re-visited when changes occur in the market – when either a competitor has been acquired or market requirements for exit shift.
Secondly, I believe that it is worth pointing out that the start-up (Greenfield Online) that became the winner in pioneering the use of the Internet for quantitative market research came from management with a strong history and brand within the industry. This is a pattern that I have seen often in industries that are well established and haven’t had much innovation in many years. These types of industries are slower to embrace change, and as a result, prefer to buy from companies where there is a high degree of trust in the people behind the product, as much as the product itself. When the value proposition for competing alternatives is similar, customers will opt to buy from people that they have pre-existing relationships with. If you are operating in a traditional industry, hiring management that can establish your credibility as a company is a critical success factor.
--------------------------------------------------------------------------------
Reference Articles
There were only a handful of articles that I could find on the history of Greenfield Online and the reasons for their success. The above analysis has largely been based on the interviews conducted with early company management. One article that I did find interesting was a January 1997 interview with Greenfield Online founder Andrew Greenfield which discusses the origins of the company.
E-MailPrint This Post
4 Comments »
Having come from the market research firm Telephia, this analysis was right on the mark. Telephia, a wireless market research firm that conducted HUGE online surveys, used Harris and Greenfield as it’s
Comment by Kevin — October 23, 2006 @ 9:55 pm
(sorry last comment got cut off)
primary provider. Telephia made the great decision in 2003 to go upstream and wrap more services around the core research data, as opposed to simply being a data provider. That strategy has helped Telephia to build solid relationships with all the carriers’ senior exec teams, which helped them survive the telecom meltdown at the time. Telephia also made a concerted effort to build relationships with the most senior execs at the carriers (going all the way to CXO level), insisting that survey results be presented directly to CXO instead of simply working through the marketing or advertising groups. This strategy took a huge investment, as the company hired a bunch of pricey senior ex-McKinsey consultants instead of a traditional sales team. But those solid relationships saved our allocated budgets — when our customers’ execs went through to ax their division VP’s budget dollars, they carved out special dollars from corporate budgets for our research.
Nice work analyzing a non web two doh company.
Comment by Kevin Chou — October 23, 2006 @ 10:08 pm
Nice review..
do you know of any “Hot New” trends in the Industry Greenfield started..any comments..?
Comment by A Mkt research geek — November 20, 2006 @ 11:29 pm
Thanks for the review! My company has been purchasing sample from Greenfield for over 6 years. While they continue to innovate (most recently real-time sampling) we primarily use them because of their management team’s credibility.
Comment by Jamin Brazil — December 25, 2006 @ 7:22 am
posted by Diane Bukowski at
9:23 PM
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