In the last few decades, the data-driven approach to business and finance has been growing both in scope and in beneficial results. Investors use many types of data to enhance their decisions and improve the results. One broad category of such data is firmographics, which encompasses statistical kinds of information about the business and allows to categorize them by many features. Let us look at how data-driven investment benefits from firmographics.
The many types of firmographics
Firmographic data is the type of information about the firm that allows it to categorize it in comparison to other companies. It is usually described as demographics for firms because as demographics help to understand societies, firmographics does the same for networks of firms, that is markets and industries.
The data types that encompass firmographic data are, therefore, very many and varied. The most common of them involve the size of the firm, its location, or locations, it’s value in assets, revenue, age, the industry, whether it is B2B, B2C, or B2G, and many more kinds of information.
Only information that is very specific to the particular firm is not considered firmographics. For example, contact information or the name of the HR head is not firmographics because they cannot be used to meaningfully compare the firm with others.
Firmographic data is usually collected from public sources, for example, by such procedures as web scraping. As there are many types of such data, there are also very many sources for that can be utilized for business and investment insights.
Enhancing data-driven investing
Firmographics are used in many fields of business. They are especially useful for B2B marketing and sales. And, of course, investors find great value in it. Let’s turn to some ways how data-driven investing is improved by firmographics.
- Generating insights. Firmographic data can be used for high-quality data-driven investment insights. Categorizing firms based on statistical metrics allows one to see which particular companies stand out. Additionally, it provides important information about specific markets or industries which may be used to improve investment strategies. The market analysis enabled by firmographic data allows recognizing trends and market gaps that may be turned into profitable investment decisions.
- Data to train algorithms. Investors use all kinds of data to train algorithms and harness the power of machine learning as applied to investing. When firmographic data is added to such training of algorithms, their problem-solving abilities are sure to be enhanced. This is because firmographic data relates with companies directly and has the statistical form that is very suitable for AI to work with as companies can be immediately compared.
- Tracking firms with potential. Firmographic data gives a lot of valuable information about start-ups and companies on the rise. In fact, one of the firmographic metrics is the growth tendencies of the firms, meaning whether they are declining, growing, or going stable. Thus, this type of data allows to track companies that are growing or have considerable growth potential and provide a lot of information that helps to decide which of them and when should be invested in.
- Predictive analytics. With predictive analytics, investors use AI to analyze real-time data and predict likely future outcomes. Clearly, this provides a great competitive advantage as insights in real-time allow for fast decisions that can beat the market. Firmographic data greatly enhances the power of predictive analytics as it tracks many of the key features of the firms. Any change in these features might determine important changes in the market that require reactive investment decisions.
Opportunity map
When demographic data is used to analyze societies, we can then place the results on the world map to better understand the world that we live in.
A similar move is possible with firmographic data. The in-depth market analyses possible with this kind of information allow us to map out the industries and markets in many different ways. Each way to chart the network of firms will lay out different opportunities for investors.
Thus, visualizing firmographic data as a sort of opportunity map will help to notice underlying patterns or interesting features in the way firms relate to each other. Investors can use this knowledge to create novel investment strategies that would not be possible without firmographic data.
Furthermore, comparing different ways to map out the opportunities and testing them against each other will allow us to identify which variables are currently the most important when making investment decisions. Thus, firmographic data enables data-driven investors to segment and compound markets in multiple ways, leading to the kind of market analyses that would be unimaginable with traditional data only.
These and similar benefits of firmographic data for market analytics make it a very powerful asset in data-driven investing.
