By Russel Taplin
We all know the saying right? If it looks like a duck, if it quacks like a duck… Come on, say it with me… you know that you know it! All together now…
…That’s right! It still might not be a duck!
Now, I know you are all a bright and clever bunch, so I’d already realised that none of you would think that picture was actually a duck – you all knew that was a bath toy, right? Thought so!
Whenever you are looking at something, particularly if you are investing into it – whether you’re investing in a stock, another business, or even your business as a start-up you need to do your due diligence or ‘DD’. For a start-up, we don’t call it due diligence – maybe we should though? Doing your research into the market, any regulations, SWOT, competitors, your potential suppliers, manufacturers and pulling this all together into your strategic plan is really just the same – you are creating your business plan, your story (and who doesn’t love that?). Compare this to when doing due diligence for a purchaser or investor, you are really doing very much the same - to tell a story, in an understandable way so someone can make a decision.
Due diligence became part of the standard set of business processes during a transaction in 1933 (the phrase has been around much longer than that – and meaning exactly what you think it means - to take a reasonable amount of care and attention). It became a key business process when someone got shafted buying some securities in the US and new laws came in about having to make full disclosures – at the same time it became a fair defence to say that if everyone had disclosed all the material things they were aware of, then the onus is on the due diligence. That principle still applies, and in the UK there is an element of ‘seller beware’ but ‘buyer beware’ is very much still there. If anyone can tell me (without Googling – honest policy applies) where the phrase “You’ve been shafted” comes from, then let me know and the next blog can be yours on “How to get ahead of your competitors and let them know they’ve been beaten badly at the same time” – or “Put a lid on it…”.
What made me think of this? I had the huge pleasure of chatting to Matt Hawkins (former founder of C4L and now founder of Cudo Ventures) and Jonathan Davies (former founder of The Training Rooms) on a panel at the last #ScrewItJustDoIt event – The Start Up, Scale Up Summit. We talked exiting a business, and it was clear when talking to both Matt and Jonathan that the whole commercial and due diligence process was a significant strain on them, their families and their business, at a time they really needed to concentrate on their business value the most. We also talked exit plans, and it completely re-framed my thinking.
I always thought I was being a smarty pants making sure I added the ‘Exit Plan’ page to a business case. I’d land it on someone and with a smile say “What’s your long-term plan?” Matt and Jonathan both made me realise that an exit isn’t right for everyone, that actually some are doing this for them, because they want to, it’s the life they want to build. If this is the case you might think that due diligence isn’t for you, but that isn’t true. Why’s that then?
Well, even if an exit isn’t your plan, you may still end up needing to do it yourself on others. Now there is a famous chicken shack that had a problem with its chicken suppliers – because the ‘DD’ didn’t pick up that they couldn’t cope with that much capacity.
What if you as an entrepreneur own a restaurant or food service (or anything else that makes stuff) and you get a supplier that you sign up to and they let you down because they can’t cope – it’s all relevant. Similarly, even if you are building something you want to keep, you may still need investors – you’re going to need to make sure you keep all your back-up documentation, proof that it is as good as you think. Check out the story on Theranos – the shining example of Silicon Valley, this amazing new tech that could test your blood without taking a blood test. Apart from that it was fake, they hoped the tech would catch-up and, in the meantime, they were selling vapour. $2Bn later….
The message here is that through the course of your business, from start-up, investment to sale, you need to be really disciplined in making sure you do your admin. Store everything in a logical way, make sure every contract is signed and saved. That everything is up to date – that you can prove everything that you say. That way when, not if, you get there you can have a bath with a duck (toy) instead of burning the midnight oil trying to get it all done. Easier said than done when you’re moving at the typical pace of an entrepreneur, I know, but worth it in the end.
#ScrewItJustDoIt or in the case of due diligence #JustDoitDontScrewIt