By Natalie Cramp, Partner of commercial data business, JMAN Group
The ecommerce industry is no stranger to technology led disruption. Indeed, one could argue, as a sector, it has seen some of the biggest transformations over the past few years. Generative AI is the latest innovation to make its presence felt. While its potential impact on ecommerce itself has been discussed writ large, less talked about is how AI’s impact on the world of private equity will have profound implications for how many ecommerce companies approach their business strategy.
Investors, particularly private equity and venture capital firms, are moving beyond traditional financial metrics. They are leveraging advanced data analytics to identify promising companies and optimise their portfolios – they’re not just interested in the ‘what’ but also the ‘why’ behind the numbers. This shift demands a new approach from ecommerce businesses seeking investment or an exit.
The good news for ecommerce businesses is that they are in essence data factories. With every transaction, customer interaction, and operational process, a vast amount of information is created and often automatically captured by ecommerce platforms already used by the business. This includes customer demographics, purchase history, browsing behaviour, inventory levels, pricing data, customer feedback, and supply chain metrics. The sheer volume and variety of this data can be overwhelming, but it also represents a goldmine of opportunity.
Having the data is only one piece of the puzzle though. As mentioned above, investors are interested in the ‘why’ as well as the ‘how’, not your skill at collecting data. Data requires a strategic approach and appropriate data management, otherwise, it’s just numbers in a spreadsheet.
What does the data behind your customer behaviour tell you when it comes to purchase patterns or lifetime value? How can you leverage insights into inventory management, pricing and customer services? Can you tell a story of potential growth by connecting the dots?
The data points that PE firms now really value are the same insights that will make a fundamental improvement to how effectively you make decisions as your ecommerce business scales.
The important thing to remember with any data project is to start with the questions you want to answer. This means understanding modern PE professionals. Ask yourself, what metrics, beyond simple revenue figures, will tell the story of your company’s success and potential? Do the ‘pre-mortem’. It could be the diversity of your customer base – both geographically and by sector. It could be how strong your recurring revenue figures are. Perhaps it’s the longevity of your products or the exponential growth of a new service you have launched. It may even be the approach you have to customer service and marketing and how that links to customer retention and growth.
When you have a clear picture of where your real strength and USP exists, the next step is to develop the data collection, management and analysis systems and policies that will prove what you know to investors.
The benefit of this approach isn’t confined to proving your company’s worth in its initial pitch. Investors are increasingly using near-real-time data analysis to monitor the performance of their portfolios. If you have your data in order, it is much easier for investors to undertake this type of ongoing analysis. Consequently, it can be more attractive to them knowing that their potential acquisition or investment can offer visibility of business insight from day one. In addition, for buy-and-build firms that prioritise the compatibility and synergy of their acquisitions, deep data insights are very attractive. Most importantly, it will make it easier for you as leaders to run the business day-to-day, and know where to spend your time, enable you to empower your team, and help you decide where to place your bigger bets.
Building a strong data foundation is essential, but it’s only the first step. To truly harness the power of data for your ecommerce business, you must cultivate a data-driven culture. This means equipping your entire team with the skills to understand, interpret, and leverage data insights. From the C-suite to the front lines, everyone should have a basic grasp of data analytics. By empowering your team to become ‘data-literate’, you’ll not only improve decision-making but also enhance your company’s ability to communicate its value proposition to potential investors. When the time comes to pitch your ecommerce business, a deep understanding of your own data will be a significant advantage.
