When searching for an investment opportunity, it was typical for investors to use static models, which span numerous years, to determine the best investment opportunities. Some may have even used ‘gut feeling’ as a justification for their investment choices. ‘Gut feeling’ is a primitive concept in a now quantitative world that values undisputable data; times have changed. Recent commercial dynamics are not enough to model the future of an industry or company over the next five years. For some time, there has been a concern by those who are more data-driven that private equity investors would continue to be resistant to the use of data analytics when considering acquisitions. Thankfully data analytics is no longer exclusively the realm of high-tech industries; it is available to all that want to use it.
We now have access to a wealth of real-time data that can help investors choose where they should put their money to reap the optimum financial reward. Digital data allows investors to get more comfortable with short to mid-term forecasts, rather than relying on long term models. With ongoing monitoring, investors can clearly see changes in sentiment, demand, and all other aspects around investment decisions that determine the likelihood of success. To put it simply, a data-first approach leads to more objective decision-making and a stronger bottom line.
Why is data gathering and analysis vital in commercial forecasting?
Without sufficient data, investors cannot adequately determine the performance of a company. Without determining performance, an investor cannot confidently acquire the said business without a huge amount of risk; they would effectively be going in blind. Data is a key driver of innovation and allows new firms and investors to enter new markets confidently. Not only does access to data matter to investors, but it is also important for consumers. Data sharing allows investors to locate companies that they can improve and grow with their investments, which translates into more tailored and innovative services for consumers. It’s a win-win scenario.
Why is data gathering important during uncertain times in particular?
The coronavirus pandemic has created an environment of uncertainty in most aspects of life. For experienced investors and business owners, crises are not entirely uncharted territory. They experienced the consequences of the financial crisis in 2008 and have formulated strategies to ride out the economic implications. However, confidence may be undermined due to financial uncertainty. During periods of economic turmoil, many will fight fires and embrace conservatism in spending. A trend that has emerged this year is the view that opportunity lies in uncertainty. A panel of dealmakers at the Milken Institute Global Conference said that they continue to evaluate investment opportunities across all sectors, even those hit particularly hard by the coronavirus pandemic. Digital data allows potential investors to see in real-time how companies are performing throughout a crisis, and whether they are a viable acquisition in the circumstances.
What data should be gathered?
To gauge the market dynamics of a chosen industry, it is important to capture search demand and web traffic data for a specific asset. This data acts as a proxy for market sizing and overall growth benchmarked against other competitors in the same industry. Digital data can answer various market dynamic related questions, such as what are consumers actually searching for? How has search volume changed over time? How is a particular asset performing against competitors? Are key market players capturing market share and achieving success in the process?
By capturing demographic, conversion, engagement and clickstream data, individuals can identify different demographics that engage in the market and attribute specific segment preferences or behaviours which can potentially guide future strategy based on retro-fitted attribution. Raghuram Iyengar, Professor of Marketing at Wharton University of Pennsylvania, explained that “there’s huge power in segmentation… the real action is under the hood, once you start looking at different demographics.” By establishing audience segments, potential investors or business owners can base their future strategies on factual data, rather than an unreliable gut feeling. Audience profiling helps stakeholders answer the all-important questions about target audiences that need answering, such as how loyal are consumers? How are they talking about a particular asset?
Analysing data from inbound traffic channels, such as email newsletters, social media, and blog posts, and investigating keywords for SEO and PPC purposes, is integral. A thorough analysis of marketing strategy across a sector can help businesses capture custom from their target market. This data will also reveal if there are enough affinities to prove the positive impact of marketing spending in certain areas. This vital data will help stakeholders answer various questions, such as which digital marketing channels are being leveraged most effectively, and how can the strategy be improved?
Website Engagement and Technological Affinity
By capturing engagement metrics, on mobile, desktop and apps (if applicable), the data reveals how consumers engage with a website on each device. By comparing device engagement data with competitors, it reveals how companies are performing against each other. For potential investors, it shows them which businesses may be best to align with. For company executives seeking business improvement, it may reveal shortfalls that need to be addressed if growth is to continue. This data can be used to answer questions such as are digital platforms used effectively? And which ones are driving the market? Website engagement data will reveal the impact of brand marketing over time. If a brand’s marketing is not having the desired effect, website engagement data will reveal this.
By capturing relevant data from online conversations, consumer sentiment can be effectively analysed. This can help companies compare sentiment to their competitors, which may reveal aspects of their business that need improvement. Not only that, but online sentiment data enables stakeholders to break down key topics of conversation within the sector to test loyalty and the stickiness of the customer by relevant cohorts. If customers fail to return to a business or they oscillate between brands, a change in strategy is needed.
Onefourzero can help you strategise during uncertain times using reliable digital data.
We can help investors and business leaders use digital data to answer burning commercial questions. We combine more than 17 data sources, which we triangulate for robustness. Our team of expert consultants, we deliver commercially focused reports and diligence. Our robust, global datasets provide the foundation for our expert consultants and proprietary tools that help private equity, venture capital, portfolio companies and independent brands make commercial sense of digital metrics. Why is this important? With a clear understanding of digital metrics comes informed decision-making that yields results.