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Why Investors Need Competitive Intelligence To Create Better Returns?
Why investors need Competitive Intelligence to create better returns?
This article explains why investors need Competitive Intelligence to create better returns? When browsing social media and Linkedin can be frustrating at times. And you see investors telling you how much return they made from their latest investment. Or, this is great, and more of it, please.
What about the mistakes?
But you never see an investor saying that they screwed up an investment. And telling everyone these sort of things:
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.
We had a personality clash from day one.
The founder wouldn’t listen to anything or anyone.
The company ran off with my money.
The founder thinks he is Mark Zuckenberg and spends the day playing the Oboe rather than getting on with it.
We lent £650,000 to a firm only to find out they were known locally as the family who controlled ...
... everything. Think Vinny Jones and Lock Stock and Two Smoking Barrels
The founder is a control freak, and no one wants to work for him.
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. But we are still waiting for our money.
An investor invested £30m into a MedTech business and was subsequently disappointed that the management team didn’t have a clue about their market and competitors. Fair criticism, but who put £30m into a business without knowing this for themselves?
Not made up
Sound a bit far-fetched? Over the years, Octopus have come across these sorts of stories. Well, they are not stories. They are facts. And either the investor had a close call, or they were counting their losses in millions. And yes, the Oboe is a true story.
However, be careful not to get too swept up in enthusiasm. A mistake investors can make is underestimating the associated risk of their investments. And Competitive Intelligence can help identify potential threats before they become actual problems.
All of these problems could have been averted with an hour of research. The Vinny Jones one immediately springs to mind!
Do they do proper research?
We are not saying that investors just invest in businesses because they are the right sort. Or went to the right school or anything like that. Those above and the countless others fail for one reason. Investors don’t do the proper research. Or, more to the point, they don’t do Competitive Intelligence. And they comfort themselves that 8 out of 10 investments are expected to fail anyway. What if this figure was improved upon? How much more return would an investor achieve. And how much heart acre could be avoided for a founder whose dreams have gone up in smoke?
So how can investors, PE and VC firms use Competitive Intelligence?
Competitive Intelligence is valuable to private equity (PE) and venture capital (VC) firms. Many operate in the dark within their industry sectors and just invest in what they know. Sticking to investing in the newest industry or their specialist niche often means there’s a vague reference to benchmarking insights. And even investing in what they know can also be problematic. Blinded by experience and repeating the same thing time and time again. This can work well until it doesn’t.
What is Competitive Intelligence?
Competitive Intelligence is the finding, sorting and critical analysis of information. To make sense of what’s happening and why. Predict what’s going to happen and give the options to help you control the outcome. Competitive Intelligence offers more certainty, competitive advantage, and insight.
It’s about portfolio companies’ competitors
Given this reality, investors have a limited understanding of portfolio companies’ key competitors:
Core strengths and weaknesses
Products or services
Key employees and clients
Financial performance and other areas
They can also have limited information and insight into their own portfolio companies. The stuff that goes way beyond the spreadsheet.
Competitive Intelligence fills in the gaps in understanding. And offers context to create ideas and increase certainty to support investor decisions. Enabling them to identify the best new investment opportunities. And to maximise their value from their existing portfolio.
Competitive Intelligence creates more value from private investment portfolios
Competitive Intelligence uncovers insight. Ensuring portfolio companies are well-positioned to maximise present and future investor value. Enhancing portfolio companies’ competitive advantage by knowing where their competitors focus their resources. And how they think they maintain an edge. Be it profitability, price leadership, customer service, product quality something else?
Allowing you to understand how competitors differentiate their new and existing products. And define how much pricing, innovation and other factors play in their offerings. Competitive Intelligence also helps investors know where the competitor is investing. And how much risk are they willing to absorb. As well as the costs and other financial weaknesses they have to mitigate.
What are the competition’s pricing models, profitability and market share? Then 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? And:
Understand their competitors’ branding and messaging strengths and weaknesses?
How are they perceived in the market,
What are they saying to the market
And is their messaging consistent and working?
Are their competitors’ research activities focused on innovation or developing their existing products? And what does their intellectual property look like, and what is it telling you? Who’s in their R&D, and what skill sets are they recruiting for? What does it mean for you?
And all this is on top of the additional benefits that Competitive Intelligence brings when a PE or VC firm looks at its own competitors and markets.
Why investors need Competitive Intelligence to create better returns?
This article asked why investors need Competitive Intelligence to create better returns? Insight gives PE and VC firms a view of their portfolio’s competitive landscape. And it is unique. Not
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