A growing industry will help you keep tabs on—and stay ahead of—your company's competition. A guide to ethically gathering data on your rivals
In a world in which knowledge is power, what you don't know can hurt you. The good news: It's not so hard to find out what your rivals are up to. Some savvy (and perfectly legal) snooping—otherwise known as competitive intelligence—can drive your strategy, soothe your fears about the future, and give your company a competitive edge. In the pages that follow, we will show you how to mount an operation and wring key data points from reluctant sources. We will also explore the often murky line between what's ethical and what isn't.
Mikal Lewis has an M.B.A. from Florida A&M and spent four years at Microsoft working in product planning and strategy. But the way the Seattle entrepreneur sees it, the most valuable business training he ever received was a two-week course he took at the Academy of Competitive Intelligence in Cambridge, Massachusetts, in 2007. It was there that Ben Gilad, a former intelligence officer with the Israeli police force, taught Lewis how to use spy tactics to help him get and keep a competitive edge.
Gilad's advice came in handy in early 2010, shortly after Lewis launched his software company, Qworky. A competitor, he feared, was poised to launch its own version of what was to be Qworky's first product, a Web application designed to improve company meetings. Like Qworky's, the rival's app was still in test mode, and the first one to market could wield a crucial advantage.
Lewis began tracking his competitor's every online move: blog posts, e-mail blasts, the CEO's Twitter messages, changes to his LinkedIn profile. Following Gilad's teaching, Lewis noted the dates of each dispatch on a spreadsheet and looked for patterns. Soon enough, the CEO's chatter became more frequent. The company was broadcasting more and more positive messages about its new product. "It led me to believe they were entering launch mode," Lewis says. So he and his partners quickly put together a limited version of their software and released it to get the Qworky name out first. "We wanted a fair shot at being heard," says Lewis. "So we had to make sure we were prepared."
Lewis had just engaged in an act of competitive intelligence. That's a fancy name for what essentially is a kind of supercharged market research. Competitive intelligence uses many of the same techniques as market research but deploys them to answer highly targeted and specific questions, rather than to gain insight into broad market trends. More people do competitive intelligence than you might think. And it's easy to see why.
In a competitive marketplace, up-to-date information can make the difference between keeping pace, getting ahead, or being left behind. A smart intelligence operation can serve as an early-warning system for disruptive changes in the competitive landscape, whether that change is a rival's new product or pricing strategy or the entrance of an unexpected player into your market. No one can be totally stealthy, after all. All corporate maneuvers leave a trail. It is simply a matter of knowing where to look. In some cases, entrepreneurs have used intelligence-gathering tactics to learn what is really going on at their own companies, with startling results.
Hedge funds and large corporations regularly contract out competitive intelligence work, often paying top dollar to the private investigators and former intelligence agents who ply the trade. But there are plenty of ways to perform competitive intelligence on a budget. Inc. spoke with some of the nation's top security consultants for advice on how an entrepreneur with limited resources can stage a successful cloak-and-dagger operation. Here's what we learned:
What Do You Want to Know?
This seems like an obvious question, but a sharp focus is essential to any successful intelligence-gathering effort. "Don't say, 'Find out everything you can about every competitor in the marketplace,' " says John Nolan, who spent 22 years as a military intelligence officer and is now a business consultant. It's far more productive to think of a specific question or problem that is crucial to your company's success. The goal of your intelligence operation will be to gather information to help address that one matter.
"I ask clients, 'What keeps you up at night?' " says William E. DeGenaro, a private investigator and founder of business intelligence firm DeGenaro & Associates in Republic, Michigan. Two common examples: "Will my competitor introduce a product that makes mine obsolete?" and "Will a supplier suddenly increase prices?" Competitive intelligence operations can also help you spot openings in the market. Careful monitoring of large companies, for example, could give you a jump on subcontracting opportunities.
Some operations, such as gathering data in advance of a key strategic decision, will require you to set hard deadlines. Others, like identifying emerging competitive threats, can become ongoing and incorporated into day-to-day operations. In either case, never lose sight of your goal.
You Are Only as Good as Your Sources
Every operation needs an effective network of informants. Fortunately for entrepreneurs, part of that network already is in place—the employees.
"The Army has a phrase, Every soldier a sensor," says Nolan. "If your people are astute enough, everybody in the company can become an intelligence resource." Encourage staff members to gather competitive information as they interact with people outside the company. Salespeople, for example, talk to customers, who talk to competitors. Human resources staff members interview job candidates, who work or may have worked for rival firms. Purchasers talk to suppliers, who know who is demanding what and when it is needed. So get the whole company involved. Interview every employee about his or her knowledge or expertise, says Ken Garrison, CEO of Strategic and Competitive Intelligence Professionals, a professional organization. Find out where employees used to work, what kind of data they use to do their job, whom they work with outside the company. It's possible they have easy access to the kind of information you are looking for or have a relationship with people who do. As they begin to ask questions and report back, keep track of what they say in a centralized place—a wiki or a database. Each independent information source can help complete a larger picture.
Even a receptionist can be an intelligence asset. At one of Nolan's client companies, visiting salespeople are kept waiting for several minutes after they arrive for appointments. Should they start chatting about anything that seems germane—negotiating strategy, the possibility of a discount—the receptionist transcribes their conversation and sends it to her colleagues before the meeting starts. "She's one of those many invisible people in the company," says Nolan.
Of course, you will also need to expand your network beyond your office's walls. Develop a list of outsiders who are positioned to know what your competitors are up to—such as consultants, headhunters, members of the trade press, suppliers, and customers. (Keep in mind that members of this group can just as easily inform on you as they can dish on your competition.) The best way to keep outsiders talking without tipping your hand about what exactly you are after is to look for opportunities to speak with them during the normal course of their business. When you interview consultants, ask them to share examples of their work. With a little guidance and skill (see "Make Them Talk"), you may be surprised at how easy it is to get people talking. Consultants, for example, often are focused more on chasing your business than on determining your hidden agenda. Indeed, people volunteer information most readily when they are talking in their self-interest.
Stalk Your Prey (Virtually and Actually)
It's not as romantic as speeding along the Amalfi coast in an Aston Martin, but the first thing you probably should do is jump online and take a close, nuanced look at what is available publicly. A rival company may release a lot of useful information on its website. Press releases announcing new hires, for example, can indicate what type of talent the company is hiring. Web services, such as one called Versionista, let you track all the changes anyone makes on a company's website, giving you an indication of which areas it is thinking about and where it might be headed.
There are many free and subscription-based databases with information about private and public companies that can provide even more data. Leonard Fuld, co-founder of the Academy of Competitive Intelligence, keeps a list of more than 600 such sources in his Internet Intelligence Index on his website, at fuld.com. If the target of your inquiries has government contracts, you can obtain related documents by filing a Freedom of Information Act request, which mandates the disclosure of unclassified government paperwork.
You can learn a lot by profiling the competitor's top executives. Private investigator DeGenaro works with a psychologist to develop profiles of the people he investigates. He will examine the decisions they have made, for instance, to determine how decisive or methodical they are. This can help you gauge how likely they are to make a particular move.
If public sources of data do not yield enough, the next step is to approach a target directly—either yourself or through a proxy. J.J. Gradoni, a private investigator in Houston, often performs this role on behalf of clients. "I will pose as a potential customer and ask questions about a company's pricing structure, how fast they ship, turnaround time, number of employees, and so forth," says Gradoni. "Then I ask for references. I call those people as well."
In one case, Gradoni posed as a customer to help a client, a Houston storage facility called Space Place, figure out why business precipitously dropped off the month the owner left for surgery. Space Place's owner suspected the manager of malfeasance but couldn't prove she was up to anything. Gradoni called Space Place and began asking about storage rates. Rather than answering this question, the manager suggested that he try another facility instead. It turned out that the owner of the rival firm was paying the manager to send customers his way. Indeed, Space Place's owner checked the fax machine's log—and learned that the manager had sent along customer lists as well.
The Deep Analysis
You have set your agents loose, and now you have lots of scraps of data but no clear answer to the operation's central question. That is to be expected. It's not as if people's strategic plans come gift wrapped. So think of the operation as a science experiment.
Garrison, of Strategic and Competitive Intelligence Professionals, recommends comparative analysis. Here's how it works: Hypothesize several possible outcomes to the original question. List the various data points you have collected underneath the hypothesis each one supports. Continue doing this as the operation continues. After a while, the data should start stacking up under one hypothesis, pointing toward the answer.
It also helps to ask someone who hasn't been involved with the data collection to look at the assembled information to check against your own biases. The nightmare scenarios that you started with, all those unknown dangers and questions, can be turned into a few realistic threats for which you can prepare. "The last thing you want to do is be surprised by something," says Helen Rothberg, a professor specializing in competitive intelligence at Marist College's School of Management in Poughkeepsie, New York.
Consider the Consequences of Getting Caught
Nothing we have suggested is illegal. But that doesn't mean that intelligence gathering doesn't include important risks to keep in mind.
Here is a cautionary tale about a Toledo-based importer named Gary Marck. Marck allegedly got his hands on a competitor's trade secrets via a time-honored but somewhat unsavory method: searching through the trash. (For a look at what goes into such an operation, see "Garbology 101.") According to court documents, Marck's plan worked well at first. His private investigator, David Richter, allegedly paid a garbage collector in West Chester, Pennsylvania, where CDI International, a beverageware reseller, had its offices. After each trash pickup, the garbage collector handed over the bags to Richter, who would sort through the refuse in search of internal memos and ledgers.
But something happened that neither Marck nor Richter had prepared for: The garbage collector decided he couldn't handle the dirty work. Racked with guilt, he marched into CDI's office and confessed.
CDI's chief executive, Fred Edelstein, says he was shocked, but after some reflection he figured Marck, his biggest competitor, was the prime suspect. (Marck didn't respond to requests for comment. Richter declined to comment.) To confirm the garbage collector's charge, Edelstein asked him to make one last pickup. But this time, Edelstein hired his own detective to tail the collector. Edelstein's detective spotted the opposing PI's car, then traced his license plates to Richter's detective agency.
Edelstein filed a suit for misappropriation of trade secrets against Marck and his company. In an early discovery meeting, according to Edelstein, Marck arrived with three large cardboard boxes filled with CDI's discarded files, including pricing information, vendor invoices, and customer lists—a trove of competitive information crumpled and ripped and covered in coffee and food stains.
Marck hadn't done anything illegal in obtaining the garbage, because it was already off CDI's property, so Edelstein didn't have much of a legal case. (Marck protested his innocence in his own suit against Edelstein; both suits were eventually dropped.) But Edelstein still got revenge—at lunches with customers. In the beverageware community, Marck's covert trash pickups made for delicious gossip. "I'd say, 'Gary went through our trash!' " says Edelstein. "It was a great story." Edelstein continues to wonder whether the information Marck got was worth the embarrassment of being exposed.
Of course, that doesn't mean that Edelstein doesn't do some competitive intelligence himself. Chats with those same customers—the ones with whom he had casually joked about Marck—yielded all sorts of useful information. "It never hurts to find out who your competition is," he says. "It's how you gather the information."