The CEO dared us to research his company. We did.
Competitive Futures discovered the greatest case study for how real, no-nonsense, skeptical competitive intelligence can improve your understanding of the market. Actually, more than discovering it, it happened to us by accident.
Over at Founder and Director Eric Garland’s personal blog, he put up a brief post about the financial condition of Guitar Center, a large musical instrument retailer where he occasionally shopped. He had heard a rumor that the big box retailer was in trouble and that its financial stability had eroded to the point that New York ratings agencies called its corporate paper junk, and merely confirmed this with some brief commentary about how suburban retail has probably already seen its best days. But what happened next shocked him.
Suddenly, the traffic on his site surged to tens of thousands of readers per day. The music instrument industry is relatively small – $7 billion total in the United States, $13 billion globally – and Guitar Center represented fully $2 billion a year of that. Being small compared to other industries, it had relatively few analysts covering it, which had allowed Guitar Center’s press releases to go relatively unchallenged in the media for years. The appearance of someone decoding Moody’s ratings (“These guys are broke.”) shocked the industry and the thousands of musicians interested in their retail options. Soon after, Guitar Center’s executives were in the comments section spreading talking points while pretending to be from other companies. Its CEO came by to make a statement…on Eric Garland’s Facebook page. Everyone from bar band guitarists to local retailers to Guitar Center’s employees were out in force to debate the financial stability of the company that had been rated junk. The corporation took a position and stuck with it – that their company was doing great and that Mr. Garland simply hadn’t done his research.
To a degree, they were correct – Garland, writing on his own blog, had not intended his post to be a major dissection of the industry, but just a quip about a news story reported in Reuters passed to him by a jazz guitarist at a jam session. But when you challenge a professional strategic analyst to get his research right – fasten your seat belt.
Secondary data + human intelligence = predictive insights
Working for the pure pleasure of getting the story right, Garland joined together with Tech Industry Practice Lead Monica Nixon and got to work. Long time experts in competitive intelligence, they knew that you never see a group of executives overreact in such a fashion without something much bigger lurking just beneath the surface.They pulled every publicly available document and news story in the past several years, mostly concerning the actions of Bain Capital since its acquisition of the company 2007. They compared balance sheets and researched the arcane sorts of finance used to take the retail from relative health to junk bond status.
They had another asset – a primary intelligence network that spontaneously produced itself as a result of the notoriety of the article. It seems that the transformation of a once-healthy market leader to the unstable fiefdom of private equity financiers concerned a great many people were willing to share their understanding of events.
Within days, it was clear to our staff that not only was the official PR line of the company – Guitar Center was healthier than ever – patently untrue, it was likely going to go into bankruptcy and total receivership within a matter of weeks.
Within weeks, the events unfolded as our analysts had projected, only with one catch – while the company indeed had been completely insolvent, there was one final way out before Chapter 7 bankruptcy: Bain Capital could lose its entire investment in the company, some USD$500 billion, and convert the debt of one of its partners, Ares Capital into equity. With hundreds of millions of dollars of the company’s valuation vaporized, it could limp along a little further, this time chock full of subprime and junk debt instead of just junk. Eric Garland explored what this meant for the musical instrument industry, finance, and society at large in one of his most acclaimed essays to date, “How to get beyond the parasite economy.” Since that time, the corporation continues its operations with its prime accomplishment being the repayment of $1 billion in loans at high-rates of interest for risk-seeking investors at 7-10%.
Competitive intelligence proves its value.

Competitive intelligence is a field with decades of history. Throughout that time, most of the work has taken place behind closed doors. The Guitar Center escapade which took place between November 2013 and April 2014 likely could never be replicated – a fascinating accident of timing and personality. Still, the lessons we took from the experience should be of interest to all executives and the analysts who would serve them.
1. You can never be too skeptical.
Sheer size, glossy ad campaigns and glib executives can give an air of confidence. The soul of intelligence is to be skeptical without falling over into cynicism. Guitar Center, to the final day its parent company had to hand over the keys to its major debtor, continued to falsely project a message that everything was copacetic. Once the executives of the company challenged us to do proper research, we simply believed nothing they said without the presence of corroborating information.
2. Get the data.
The real story of Guitar Center was available to anyone who wanted to do the analysis. Right there in the SEC’s EDGAR database, for free, were the documents that showed how the retailer was dramatically over-leveraged and that it was out of liquidity. The data necessary to make a market analysis with a high degree of predictive quality was available without even the need for recourse to internal sources. You just needed the drive and the skill to pull the right data.
3. Human intelligence networks rule.
Eric Garland actually only wrote down a small fraction of the information given to him by sources all around the industry about Guitar Center’s near- to mid-term fate. The vendors, former employees and competitors that were available to help guide our analysts were invaluable in understanding the publicly available data and the lack of transparencies in the company’s statements. “Hard data” is almost nothing without subjective, first-person analysis of just what is happen in any circumstance.
4. Dive into the implications.
This was clearly a major moment for the musical instrument industry, and continues to be. (See the recent feud between music industry giant Behringer and Guitar Center to see how this situation is nowhere close to resolved.) But the natural human tendency (not to mention the fervent wish of the company’s PR staff) was to normalize the fact that a market leader’s finances were reduced to the same level of uncertainty normally reserved for risky startups. This meant something. In the case of Guitar Center, it meant that the industry was on the way to a major shift. When you see change, ask what that change means.
5. Do not be intimidated to draw your own conclusions.
Within organizations, analysts are sometimes cowed into silencing their best observations because they will be politically inconvenient. In this case, it was Guitar Center’s executives and hapless PR department who were the ones trying to shout down the obvious conclusion that a major event was imminent for the company. A true analyst keeps thinking even when the politics are complex. (It’s what makes this as much of a calling as a profession.) So do not be intimidated – make a daring analysis of what you think is next in the market. Today, with the speed and intensity of change being what it is, you may find yourself vindicated when your predictions look increasingly accurate..