How to research companies in a particular sector?

One of my first ever projects as part of the OpenView team was to create a report on all potential investment prospects for our fund that are in a particular sector of the industry ( I don’t exactly remember whether it was Medical Practice Management or On Demand Medical Billing software). As a green analyst back then, I dove straight into the thick of it and was very close to being overwhelmed with the amount of data, contradicting viewpoints and diversity in these seemingly well defined, concrete corners of the medical software market. Later on, as I went on to research other sectors and looked into many potential prospects for our firm, I found that my experiences kept pointing to three pillars of market research:

* Output definition
* Comprehensiveness
* Pragmatic prioritization

Before starting a major research project, be it for sourcing expansion stage software companies or to gather business intelligence for due diligence, an Analyst has to define the research output very clearly. For example, it can be a prioritized list of companies with supporting data, or it can be high level insights on growth, M&A opportunities and market development trends. It can actually be a study on the market size, or a list of influential players (companies, people, publications etc.). The output has to match with the intended use of the data, not more, not less.

The nature of the software industry, being at the technical forefront of the economy, is that there is always a lot of experimentation, a lot of innovation and hence a high level of heterogeneity in any sub sector. The sector-based research approach will fail if comprehensiveness is not a prerequisite from the start. In the next post I will discuss actual Internet research strategies that will help ensure that a sector is comprehensively studied and all possible data sources considered. From my experience, the best research strategies and methods come with lots of trial and errors, tenacity, creativity and open-mindedness.

Lastly, comprehensiveness can be both a blessing and an issue with an inexperienced analyst. The huge amount of data is close to impossible to digest, and the diversity in the microtrends within the data can confuse even more seasoned researchers. Therefore, there must be a prioritization of the data to be considered, as well as the prioritization of the outputs. It is a pragmatic approach to give the most important pieces of data the most scrutiny and analysis, while automatically avoiding the noise that more peripheral data can cause. However, the prioritization should be pragmatic in another sense – it should be flexible and responsive to changing conditions. A market research report repeated after 12 months of the original report should incorporate new market conditions, new data sources and changing priorities.

At OpenView Labs, while we are not actively sourcing for new investment, we are applying the same principles in doing market research as part of our strategic consulting services for our portfolio. We find that these capabilities are incredibly important to help companies develop their business growth strategies, market segmentation and product management.