Stock Analysis: 4 questions to ask about a company's competitive position

By Larissa Fernand |  07-09-22 | 

For a company to protect its growth, it must be vigilant about its competitors. This framework will help monitor the entire competitive landscape.

While Pitchbook designed these questions for corporates to answer, every investor will benefit from it. Answering these questions is key to your investing process as you strive to get a better understanding of the company, its business and how secure its moat is.

1. Who are the major players in our space?

The first step to understanding your competitive landscape is to identify your direct competitors. It may seem obvious, but it’s a foundational step in creating your strategy. The incumbents in your space are already likely to be on your radar—they are the companies you hear and think about often. They will usually show up in the news, industry publications and your conversations with prospective customers.

Once you have identified your direct competitor set, it’s time to go a level deeper to secondary competitors. These organizations may be adjacent or have just one line of business that’s in competition. Having just the high-level view doesn’t cut it anymore when it comes to gaining a competitive edge. You need to understand your competitors, your competitor’s competitors and so on.

Grouping or tiering organizations in your space is a quick way to visualize the landscape, making it clear where your focus should be. Based on one top competitor, you’d be able to tier secondary and even tertiary competitors.

Good competitive intelligence is not just about the companies themselves though—it’s about the people behind the product or service. Changes in management and board seats can often be a key into understanding your competitors.

2. How do we find out when new companies enter our industry?

In addition to monitoring for direct competitors, you should actively be looking for new companies with market adjacencies. These up-and-coming emerging competitors may not always be in the news though, so finding them requires more manual research. Most often, we hear that corporate development teams will do quick Google searches on companies when they learn about them. While this workflow works as a research method, the best way to stay proactive and on top of the industry is to get access to a capital market database that tracks private companies.

A tool that tracks all activity in a specific industry or vertical may not replace those one-off Google searches, but it will provide information you can’t find in an article (and aggregates it all in one place). Further, you can set alerts to get notified when a new company enters your space and look for opportunistic partnerships or acquisitions way before your competitors.

3. What deals have our competitors done recently?

Another way you can keep tabs on your competitors is through monitoring deal activity in your space. Your competitors will be investing in the areas they’re focused on, so these deals indicate where they’re planning to shift or expand their business strategy. Insight into recent deal activity also gives you a sense of what new products or services may be in the works for your competitors. Maybe they recently acquired a smaller company and are planning to launch a new product line or pivot entirely. No matter the move, understanding your competitor’s recent dealings can be an early indication of which areas they’re moving into and which ones they might be neglecting—leaving room for opportunity.

In addition to deal history, data providers like PitchBook also break down transaction details like series terms, who the participating investors were and more. You should know the other active investors in your space, such as VC or PE firms. You may come up against these other investors for a deal, so knowing their previous investments or how they structure deals can play a big role in negotiations. Understanding a competitor’s investment history allows you to evaluate their strategies, strengths and weaknesses, as well as gain a better sense of where the threats and opportunities lie.

4. Who is building, buying or partnering in the space?

Once you have identified an opportunity, it can be challenging to decide which corporate growth strategy is right for your company. Understanding everything that happens in your space is key to informing any strategy you participate in—including your decision to buy, build or partner.

The buy strategy looks to merge or acquire another company that complements or expands your line of business.

The build strategy invests in your company’s own resources and talent to build products or services in-house.

The partner strategy looks to join forces with a different company in order to reach a shared goal.

Your competitors are also evaluating which corporate growth strategy is right for them and each method leaves clues into their mindset. If your competitor chooses to go the M&A route, that could indicate they value gaining quick access to the technology or product they’re investing in, whereas a build strategy could mean that their priority is product differentiation rather than speed. A strategic partnership might tell you your competitor identified a new way to connect or reach their consumer base. Whatever the case may be, the competitive landscape should be factored into your decision to buy, build or partner.

The original article can be accessed here

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