Why investors should use Competitive Intelligence to create better returns?
We have written another article on this subject after many similar enquiries. We explain why investors should use Competitive Intelligence to create better returns?
Browsing social media and LinkedIn is often frustrating. Witnessing investors promoting how much return they made from recent investment journeys. An investor reflecting openly about the failed projects is rarely seen. These lessons and reflections would be so much more helpful for the reader. Especially the would-be start-up founders and the desire to have someone else’s money.
Of course, people don’t tend to wash their dirty laundry in public. And in any case, it could inhibit their image as a market-leading thought leader. We know that projects fail that could have been avoided at source. Or corrected earlier in their rotation before things got too hot to handle.
They are not stories. They are facts
By way of example, here are some of the episodes we have witnessed…
“The product’s IP was tremendous, but someone else brought something out and killed us”.
or
“The latest investment went south because the market was just not there”.
or
“we have just had to get rid of the founders because they were useless”.
or
“We had a personality clash from day one”.
or
“The founder wouldn’t listen to anything or anyone and is a control freak, and no one wants to work for him”.
or
“The company ran off with/ hemorrhaged my money”.
or
“The founder thinks he is Mark Zuckenberg and spends the day playing the Oboe rather than getting on with it”.
or
“We injected £650,000 to a firm only to find out they were known locally as the family. They controlled everything”.
or
“We invested in this business. When we visited the site, we were greeted by the fraud squad. And they got six years, which was nice. We are still waiting for our money”.
Do these examples sound a bit far-fetched? Over the years, Octopus have come across stories such as these. They are not stories. They are facts.
Either the investor had a close call, or they were counting their losses in millions. And yes, the Oboe part is a true story.
Are they underestimating the true investment risk horizon
However, be careful not to get too swept up in enthusiasm and self-assurance. A common mistake investors make is underestimating the true investment risk horizon.
Competitive Intelligence helps identify and clarify potential threats before becoming critical problems.
Like the above family example, most issues can be averted with minimal research.
Aside from the small cadre of investors investing because they feel they are ‘the right sort’. Or went to the right school or anything like that. These and many others fail for superficial reasons. Firstly, many don’t sufficiently do compelling research. They don’t do Competitive Intelligence. At least not to the level that finds the things vital to their decision-making efficacy. They tend to comfort themselves with the traditional expectations. 8 out of 10 investments are expected to fail anyway.
But what if this figure was improved upon? How much more return would an investor achieve? And how much heartache and loss could be avoided?
So how can investors, PE and VC firms use Competitive Intelligence?
Legitimately effective Competitive Intelligence is valuable to private equity and venture capital firms. Many operate in the dark within their industry sectors. Just sticking to pre-set procedures and pre-set expectations.
Relying on industry zeitgeist and media is now not good enough in the current climate. Almost every claim must be verified. And using historical data and comprehensive analytics is dangerous. It’s a potential disaster waiting to happen. Even within the specialist niches, there’s often just a vague reference to benchmarking.
Even investing in what they know can also be problematic. Being blinded by experience and repeating the same thing time and time again can work well… until it doesn’t. As Mike Tyson once eloquently reflected, “Everyone has a plan until they are punched in the face”.
It’s about ‘really’ understanding the portfolio companies’ competitors both qualitatively and quantitatively. By understanding:
- The key competitors’ core strengths and weaknesses.
- Their products, services, culture, values, innovation, expansion plans, and investment environment.
- And knowing their key employees and key client relationships.
- Competitors market-facing messaging and core value propositions heat mapping thoroughly and regularly.
- Their financial performance. Their gearing, developments, supply chain, geographical influences and other similar focus areas.
Don’t scratch the surface
Many feel falsely assured whilst having limited insight into their own portfolio companies. Never mind the competitor landscape and the actual situation(s) in the marketplace. All the good stuff that goes way beyond the spreadsheet!
Competitive Intelligence fills in the gaps in understanding. It provides content and context to create ideas. It increases certainty that supports the critical investor decision-making process. Thereby enabling the identification of optimal new investment opportunities. As well as the threat recognition of existing portfolio returns.
Bespoke Competitive Intelligence also creates more value from private investment portfolios. Uncovering insight that ensures portfolio companies are well-positioned to maximise present. And most importantly, creating future investor value.
Enhancement of competitive advantage by knowing where competitors focus their resources and what they intend to do next. How they think they will maintain an edge via:
- Superior profitability
- Price leadership
- Customer service
- Product quality
- Or something else?
What can your portfolio company learn from them?
This all leads to the enablement of investor understanding of how competitors differentiate their new and existing products and services. How they define pricing strategies, innovation, and other factors play in their offerings. A massive advantage is gained if investors know where the competitor is investing. How much risk are they willing to absorb? And the costs and other financial weaknesses they have to mitigate.
Similarly, the competition’s pricing models, profitability and market share. How do they go to market and distribute their product or sell their services? Where and how are they entrenched? What could they do better, and what can your portfolio company learn from them?
- Understand their portfolio companies’ competitors’ branding and messaging strengths and weaknesses.
- How are they perceived in the market?
- What are they saying in the marketplace?
- And is their messaging consistent, and ‘is it working’?
And finally, knowing if their portfolio company’s competitors’ research activities focus on innovation. Or the development of their existing products. And also, what does their intellectual property look like? And even more significantly, what does it mean to the efficacy of the investment long term?
Why investors should use Competitive Intelligence to create better returns?
We intend to inspire investors to consider their future options. By applying bespoke, cost-effective Intelligence in pre and current investment activities.
