Opportunity Mapping (Part 6): 'Deals'
People start businesses because they believe they can serve a group of customers more effectively than anyone else. And because start-ups don’t enjoy some of the benefits of more established businesses (such as scale, relationships or brand), they have to address their market in innovative ways in order to carve out competitive advantage. This makes start-ups an amazing source of insight into the disruptive opportunities in your market, especially when you begin to analyse them in a more granular way. Which niche of customers are they targeting? What needs are they addressing? What new technologies are they exploiting? How does their product differ from yours? How does their business model differ from yours?
Of course, not all start-ups are equal. Just because someone has started a business, it doesn’t mean it is destined to become the Next Big Thing in your category. This is where deal flow comes in: where is the investment dollar going in your category? As an opportunity mapper, you need to watch deal flow because it offers tangible evidence of where the investment community believes the high-growth opportunities are in your industry. If a young company has attracted several million pounds of investment from high-profile VCs, it is likely that due diligence has been done and disruption is in the air.
Remember not just to consider the size of the investment, but also the stage at which it has been made (seed, series A, B etc.) and the company valuation on which it has been based. Early round investments are typically smaller and more speculative, whereas heavy investment in later rounds could be an indication that a business has proven its profit model and just needs capital to scale. The higher the frequency of heavy, late investment you see in your category, the more urgent the problem you have as an incumbent!
Thankfully, start-ups are an industry unto themselves, which means there are some great resources for tracking new entrants and the deals underpinning them. Following daily news sites like Tech Crunch, Venture Beat and Vator News will quickly give you a sense of the money changing hands and the bets being made. Crowdfunding platforms like Kickstarter, Indiegogo and Seedrs will also help you identify start-ups generating significant interest and, in some cases, financial backing. Product Hunt is great for unproven wildcards. I also search within a database of over 35,000 start-ups, assembled from sources such as Angel List, the portfolios of leading VC firms and the graduating cohorts of accelerators like YCombinator and 500 Startups. And then there are the tools specifically designed to help professional analysts track deal flow, quarter by quarter. The one I have found most useful is CB Insights, which allows users to search for deals by sub-industry, geography, deal size, deal date and more besides — it’s not cheap though!
In my experience, looking at deal flow brings out a variety of responses in the clients I work with. On the one hand, heavy investment gives cause for optimism: there really are exciting opportunities out there to shake up your category. On the other hand, seeing a pack of hungry VCs lining up to fund your competitors can be intimidating, if not downright scary. To alleviate the fear factor, remember those assets we mentioned at the top of the article: scale, relationships, brand… These are things that only time can buy, and you have them. The best strategy is the pre-emptive strike: steal a march on the start-ups by disrupting yourself before they have a chance to do it for you.