Competitive intelligence private equity investors and Venture capitalists
Competitive intelligence is acquiring and using information about competitors to create a competitive edge. This information can be used to understand the market better, identify opportunities, and make better decisions. Competitive intelligence is essential for private investors, Private Equity and Venture Capital firms because it allows them to understand their competition better and predict how they will respond to changes in the market. And, of course, their portfolio companies competitors are better too. By understanding these factors, private investors, Private Equity, and Venture Capital firms can create more successful businesses.
1. Private investors, Private Equity and Venture Capital firms have become increasingly reliant upon competitive intelligence to make informed decisions when evaluating potential investments.
2. Competitive intelligence can help identify key trends and insights that can provide valuable strategic information.
3. Understanding the competitive landscape can help investors identify potential threats and opportunities.
4. Effective use of competitive intelligence can help firms avoid making costly mistakes in their investment decisions.
How competitive intelligence enhances the value of private investment portfolios
Following are some of the competitive details that can be uncovered to ensure portfolio companies are well-positioned to maximise present and future value:
Corporate strategy: Where are their competitors focused—profitability, price leadership, product quality, customer service, or something else?
Products and services: How do competitors differentiate new and existing products in the market? What role do innovation, pricing and other factors play in their product or service offerings?
Financial strategy: Where is the competitor currently investing? How much risk are they willing to absorb? What cost burdens and other financial weaknesses do they bear?
Distribution and go-to-market strategies: How does the competitor currently distribute their products or sell their services? Where and how are they entrenched, and what are the positive and negative impacts?
Brand strategy and brand promise: What are the competitors’ branding strengths and weaknesses? What are the market perceptions and rationales about a competitor’s brand?
Pricing: What are the competition’s goals regarding pricing models, profitability, and market share?
Research and development (R&D) strategies: Is the competitor’s research focus on innovation or on refining existing products? What is the extent of a competitor’s intellectual property? What is the size and scope of a competitor’s R&D budget and staff?
Investments in gathering competitive intelligence can pay off for PE and VC firms by giving them a unique, close-up view of the competitive landscape in which their portfolio companies operate. This information can help the firm identify and exploit strengths and weaknesses to its advantage.
Competitive intelligence versus market research
Unlike conventional market research, competitive intelligence is viewed as a more strategic and future-focused activity, striving to go beyond a straightforward understanding of the current environment.
A good working definition of competitive intelligence is an approach to collecting and analysing information whose goals are to:
- Understand and anticipate the activities of competitors.
- Objectively perceive and interpret industry and market events.
- Spot and negotiate market disruptions to manage risk and gain an organisational advantage.
Competitive intelligence initiatives may engage what-if scenarios or “war gaming” to try to understand what competitors might do in the future. It may try to assess the likelihood of future scenarios to justify specific business directions or decisions.
Using both published and non-published sources, insight is gathered on marketplace dynamics and challenges in a structured, disciplined and ethical manner.
Strategic activities that grow out of competitive intelligence:
- Bringing a current and accurate understanding of external competitive and market forces into strategic planning.
- Developing applicable insights through research and structured analysis.
- Strengthening marketing, financial and operational activities.
- Minimising decision-related risk and lowering uncertainty.
Competitive intelligence now plays a crucial role in business planning and strategising.
The cost of competitive intelligence
While competitive intelligence gathering can include standard information like company and industry profiles, competitive intelligence projects are not off-the-shelf and are customised to meet specific requirements. And while discrete, “one and done” competitive intelligence reports are useful, the most effective way to leverage competitive intelligence is through ongoing monitoring and assessing the competitive landscape.
When looking at outside providers of competitive intelligence services, costs depend on various factors like the number of companies and industries involved, the cost of news and data sources and the scope and duration of a competitive intelligence engagement.
Applications and subscriptions to business information services from companies like Thomson Reuters, Relx Group, Standard & Poor’s and Bloomberg contribute to competitive intelligence costs.
One small step
Take an incremental leap into the competitive intelligence/business intelligence analytics products market, conducting a pilot to identify the most meaningful metrics for their needs.
However, it’s still early adoption, and these products are not necessarily providing the reporting that C-level executives need for strategic decision-making, which means a lot of tweaking and customisation of the outputs are still required.
It requires specific skills and practices to pull relevant news and data from these services, scour the deep web for hidden information and do the customisation that brings it together in a useful way for executives. Many private investment firms believe they can do this with the people they have. Yet, their researchers are mostly financial analysts, narrowly focused on numbers and unfamiliar with broader information searches.
Competitive intelligence and private equity investors and Venture capitalists
As performed by experienced researchers and information specialists, competitive intelligence indeed can be the spark for more creative, strategic thinking and informed decision-making. It allows private equity firms to closely monitor the industries and markets they invest in, deepen their understanding of known areas and explore new areas for continued investment success.
