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CI considerations for PE and VC firms

How competitve intelligence adds value to firms

September 24, 2018

Home Blog Research & intelligence CI considerations for PE and VC firms
CI meeting

Competitive intelligence (CI) can be especially valuable to private equity (PE) and venture capital (VC) firms, which often operate somewhat in the dark within their industry segments. Holdings in newly-forming or niche industries have few public companies or established business models to provide adequate references for benchmarking and other meaningful insights.

Given this reality and the goals of private investors, PE and VC firms have a shallow understanding of their portfolio companies’ key competitors, limited to core strengths and weaknesses and basic knowledge of product or service lines. They lack detailed information on products, key employees, clients, financial performance and other areas. Good CI gathering can fill in the gaps, offering the context needed to foster ideas and support decisions to identify the best new investment opportunities and maximize the value of their existing portfolio.

How CI 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 maximize present and future value:

  • Corporate strategy: Where are their competitors focused—profitability, price leadership, product quality, customer service, something else?
  • Products and services: How do competitors differentiate new and existing products in the market? What role does 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 pertaining to a competitor’s brand?
  • Pricing: What are the competion’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 CI 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 their 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 CI is an approach to collecting and analyzing 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 in order to manage risk and gain organizational advantage.

CI 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 potential future scenarios in order to justify specific business directions or decisions.

Using both published and non-published sources, insight are gathered on marketplace dynamics and challenges in a manner that is structured, disciplined and ethical.

Strategic activities that grow out of CI:

  • 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.
  • Minimizing decision-related risk and lowering uncertainty.

Competitive intelligence now plays a crucial role in business planning and strategizing.

The cost of competitive intelligence

While competitive intelligence gathering can include some standard information like company and industry profiles, CI projects are not off-the-shelf. They are customized to meet specific requirements. And while discrete, “one and done” CI reports can be useful, the most effective way to leverage CI is through ongoing monitoring and assessment of the competitive landscape.

When looking at outside providers of CI services, costs depend on a variety of factors like the number of companies and industries involved, the cost of news and data sources and the scope and duration of a CI engagement.

Applications and subscriptions to business information services from companies like Thomson Reuters, Relx Group, Standard & Poor’s and Bloomberg contribute to CI costs.

Robyn Rebollo, LAC Group VP of Spend Management Services, recommends buyers take an incremental leap into the CI /BI analytics products market, conducting a pilot to identify the most meaningful metrics for their needs.

According to Robyn,

Forbes is reporting that 60% of CIOs predict their spending on analytics and applications for business and competitive intelligence will increase in the next 12 months, and we see a similar pattern with our clients. 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 customization of the outputs are still required.

It requires certain skills and practices to pull relevant news and data from these services, to scour the deep web for hidden information and to do the customization that brings it altogether 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.

As performed by experienced researchers and information specialists, competitive intelligence truly 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.

John DiGilio

John DiGilio

John DiGilio is a former employee at LAC Group. He has written for numerous regional and national publications as well as taught college and graduate courses in such topics as business ethics, e-commerce, fair employment practices, research methodology and business law.
John DiGilio

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