This action might not be possible to undo. Are you sure you want to continue?
WHY START-UP COMPANIES FAIL TO ADOPT CI
As more Israeli firms implement competitive intelligence (CI) into their activities and organizational chart, Israeli start-ups have not gone in the same direction. Just a few years ago, Israel was one of the world leaders in new imaginative business ideas and hi-technology firms. But many start-ups have not survived the last four to five years, and CI rarely existed in start-up firms in Israel (Barnea, 2004). Only five to seven percent of the Israeli start-ups have adopted CI as a discipline or used CI processes skillfully. After interviewing 26 executives in start-up firms and investment houses, I found that most did not have sufficient information about their competitors and the global marketplace. They lacked a systematic approach and did not have competitive intelligence professionals in charge of CI. As a result, the CI supplied to decisionmakers was incomplete and the overall picture regarding competitors and the marketplace insufficient. When intelligence existed, it was not obtained through systematic working plans but usually was a result of specific demand or random flow of information. Products developed by local start-ups were aimed toward markets outside Israel and their opportunities to break through were low even if the ideas behind them were brilliant. When the CI function was not operating from the beginning, the likelihood of implementing it later on was low or non-existent. But for startups, having advantageous intelligence is essential from the start and particularly later when markets mature and new competitors turn up. By definition, start-ups enter new markets, often without sufficient information regarding the actual challenges they will face. This makes it difficult for them to quickly recognize significant changes in the marketplace. Decision-makers believed that “our product does not have any real competition” as well as “we know the marketplace and our competitors very well.” Both views were often groundless. Later on, when progress did not match the business plan or when the start-ups did not succeed, it was clear that this confidence was unjustified and not based on valid knowledge. In addition, most of the existing intelligence clearly overestimated the product’s potential and defined markets without real basis. Their intelligence information was also frequently outdated. Some decision-makers knew more, but this was personal information and not shared with others. Start-up managers acknowledged that they had insufficient information about strategic goals of their firms and many did not realize when a real domestic or international competitive threat appeared. As these start-up firms lacked the methodological activity of competitive intelligence, they were not informed when changes in the marketplace emerged, and it had significant impact on the overall performance of these start-ups. Management was surprised, often shocked, to learn about the difficulties they faced and their real market challenges.
UNDERSTANDING THE COMPETITION
Start-ups required intimate understanding of their contemporary marketplace and the global competition. When current and prospective investors asked about this competition, the new firms’ executives presented information that was not based on intelligence analysis and often included information that can only be identified as wishful thinking. In retrospect, not only was the information as well as the evaluations inadequate, but the information required was actually available if the firms had made the effort to find it. When marketplace and competitive information was available during the initial stages of the start-up, they often missed significant information on later developments because there was no systematic follow-up. Other new entrants, especially in technology, can produce critical threats to existing start-up firms. These start-ups have to develop systematic intelligence coverage to eliminate surprises and allow time to prepare for changes. A lack of framework to identify wide range of competitive types, especially new entrants, in the dynamic competitive landscape dramatically affected the startups, ability to succeed.
DIFFICULTIES OF USING CI IN START-UPS
One of the familiar reasons given regarding the absence of competitive intelligence in start-ups was insufficient budget, which makes almost no sense when you look at their expense structure.
56 SCIP 2006 www.scip.org
MORE THAN PRODUCT QUALITY
The efforts by start-ups to gather information through primary sources, including people, was often limited when intelligence had a low priority. Sometimes the competitor research
Competitive Intelligence Magazine
was aimed at verifying positions that have already been decided upon. After examining the gathered information, the strength of competitors was often underestimated because these firms only looked internally at the quality of their products. When a firm guesses that the quality of its product and its ensure uniqueness will be enough to convey success, it tends to ignore the essential need to understand the dynamic environment. Start-ups rarely applied competitive intelligence during their business planning process. As a result, business plans included vague assumptions about the industry, the global marketplace, and the competitors. There was little evidence of systematic scanning of open source information. that internalized the contribution of CI and its value. These firms usually had an informal organizational structure, which could make the flow of information easier, but even the information that was obtained was not shared and used consistently. Many of the Israeli executives of start-up firms served in the Israel Defense Force as qualified officers and thus knew the importance of intelligence to the decisionmaking process. But in the start-up environment, they admitted to being focused more on the technological aspects and ignoring the necessary contribution that could be supplied by competitive intelligence. Furthermore, there was a broad feeling among them that the information they had was actually sufficient. The market research surveys startups conducted usually contained little information relating to competitors and potential competitors. Their studies mostly focused on the customers. Research firms received requirements that did not include information about competitors. the investors to reconsider the direction of the firm and might even lead to the decision to halt the investment or to look for new business directions.
LACK OF RESOURCES
The explanation for the low impact of competitive intelligence on start-up firms was not the lack of resources, as many would say. The main reasons are as follows: • Lack of sufficient awareness of competitive intelligence’s potential and contributions. In the stage when start-ups made their breakthrough, their appreciation of the importance of CI was in its primary stages, as was the development of their information resources. No emphasis by the firm’s senior executives on the need for qualified intelligence. One of the explanations was their overconfidence in the future of their products and the prospect’s ability to succeed. Not understanding the cost of implementing a CI program that incorporated the human and the technology aspects. They also assumed that the return on this investment is low. Missing the business atmosphere that boosts the external point of view. This created low demand for a professional competitive intelligence approach to the external environment.
Gathering business information often became the responsibility of the business development unit, marketing, R&D, or even the managing director. This low priority undertaking had no real focus on the main competitive issues and had little influence on significant decisions. In addition, a conflict of interest often existed between these units and the competitive intelligence needs of the firm. When outside experts provided information, their input was usually limited and lacked a competitive intelligence focus. Executives personally gathered information at conferences, exhibitions, meetings, networking and other events. Some firms invested significant resources on obtaining information in, but they did not complete the process by organizing and analyzing the collected information. Only rarely did senior management require analyzed intelligence for decisionmaking decisions; they considered the information they had sufficient.
VENTURE CAPITAL KNOWLEDGE
Venture capital houses themselves were not familiar with competitive intelligence. Although they shared an awareness of the need to have intelligence on the marketplace and the competitors, they had little knowledge regarding the abilities of a competitive intelligence process and did not insist on having systematic information on the competition. As a consequence, their ability to obtain early warning on technological threats and other unexpected developments was almost non-existent. Ultimately, having competitive information is in their best interests, as it increases the likelihood of improving their performances and the value of their portfolio. The information gathered during the interviews raised the possibility that more quality information could influence •
USING CI IN START-UPS
The few start-ups that did incorporate competitive intelligence into their decision-making had better scanning of the competitive landscape. They were also able to: • • Identify new products in time. Recognize new competitors, usually based on similarities in product and resource.
SCIP 2006 www.scip.org 57
INTERNALIZING A CI CULTURE
Start-ups were not successful in implementing an organizational culture
Volume 9 • Number 1 • January-February 2006
• Receive early warning on new developments in the marketplace, new entrants, and intentions of current competitors. a new professional discipline that is not well-known. As the competitive intelligence discipline becomes more familiar, both in the academy and the business environment, it is time to study this issue again. To make it happen, there is a need for support from the investment houses and the entrepreneurs. Investment companies also need to set up a competitive intelligence capability. Initially it can provide support to various start-ups in their portfolio, while later on helping them to set up their own internal CI function. It will help investment companies monitor the developments relevant to the firms in their portfolio, and supply the directors with independent information on threats from the competitors and the changes in the marketplace. Competitive intelligence has to act as an integral part of the firm with the close cooperation of employees and executives. Doing competitive intelligence internally ultimately has a higher added value to the firm. The difficulties that have been pointed out are not unique to Israeli start-ups. It will be interesting to study about lessons that have been drawn from embracing CI in start-up firms in other countries. At present, start-ups in Israel are on the rise again, this time in a more mature manner. It remains to be seen how they will approach establishing a professional CI capability. Competitive intelligence can be highly effective to these kinds of firms especially if it has have the right positioning and internal backup. A start-up senior executive I interviewed in 2003 put his conclusion this way: “I’m now more aware of the requirement of constant monitoring and understanding of the business environment, primarily the competitors and other threats, while CI is a key tool that could prevent many obstacles.”
Those start-ups that were more successful in focusing on systematic monitoring and incorporating the new CI information found that these contributions helped direct the new firm. As a result, they have improved their ability to compete globally and to anticipate and counter competitive threats. Start-ups need to have a competitive intelligence manager in place from the initial stage, possibly also defining that person as a senior executive. A senior position guarantees that professional eyes will be dedicated to observing the external world. Furthermore, the information gathered and analyzed will be presented and shared with the top management and the decision-makers, improving the impact of the intelligence. This position also serves as a symbol to others in the firm that its management sets a high priority on learning about the marketplace and the competition.
A PERCEPTION ISSUE
The critical obstacle in implementing this proposal could be primarily psychological – creating a senior position responsible for adapting
Avner Barnea is a former senior member of the Israeli intelligence community, holder of an MA from the Hebrew University of Jerusalem, and the top executive program in marketing management from the Tel Aviv University Graduate School of Business Administration. He is a consultant in the ﬁeld of competitive intelligence and business strategy in Israel and abroad. Avner is a guest lecturer on CI at the Hebrew University of Jerusalem Business School and at the Business School of the Academic Studies Division of the College of Management and at the Business School of The Interdisciplinary Center Herzliya. He can be reached at firstname.lastname@example.org.
58 SCIP 2006 www.scip.org
Competitive Intelligence Magazine
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.