House of Cards?

Traditionally, the term due diligence is used to describe the process during a merger or acquisition that provides a financial snapshot of a business so the buyer has a clearer sense of the what they are getting into. Knowing the current quantitative/financial situation is essential, but that’s only half the story. If you don’t understand the qualitative situation as well, you don’t know if you’re looking at a house or a house of cards.

Qualitative due diligence(QDD) identifies improvement opportunities for the business, immediately and long term. It provides additional information that answers two critical questions.

How strong is market demand for a company’s products, now and in the future, and why?
What opportunities exist to improve a business’s operations?

Let’s take a closer look at the first question.

A business’ sales are only as strong as its product’s demand in the marketplace by the customers who buy them. Qualitative due diligence should tell you how the business’s current products are doing now with customers and predict their future success.

Likewise QDD should do the same for new products the business has in development and plans to launch. The qualitative questions to ask are:

• Need – What unmet needs exist for today’s products and for future new products?

• Opening – What event or situation is creating each unmet need with customers?

• Value – How much is a solutions to the unmet need worth to the customer?

• Advantage – How has the business for today’s products, and how will it for future products, establish a competitive advantage with its offerings?

A due diligence process that also address these qualitative questions we believe really matters to improving results. whether used during an M&A transaction or during the course of running a business . And we have found that 9 out of 10 businesses that answered these questions gained the insights essential to improving their performance as well as enabled them to accurately predict future success.

The next posting will address the second question.