Do We Need More Do Diligence?
How much due diligence do we need? What sort of due diligence do we need? What do we need to get to make sure we have our due diligence covered? Is this due diligence? How much is that due diligence in the window, the one with the fat messy tail?
With sloppy definitions, more than 30 plus variants I found on the web, there is no answer that will work. So before you start your “due diligence” research or you buy a “due diligence enterprise solution” you need to start with a definition.
“Due Diligence is an understanding of why we make the choices we make and choosing to make those choices, fully informed choices, in business and in life.”
This is the definition from an older article on due diligence and I am using this as a starting point for a short, but specific, rant.
It is about the difference between choice and decide. If one commits a decide to an opportunity, one kills choice. It is just as if one commits a homicide they kill a human, or if one applies insecticide ones kills insects. Linguistically it is a clumsy construct, but it makes the point is clear. To decide kills opportunity.
Due diligence is about finding information to make choices – not a choice but choices. It is a process not a thing. As more information is gathered the number of choices can grow or shrink or even change color. But you are gathering information and making choices based upon that information.
For example, you are looking to buy a business. The business looks very good, has solid financials and good technology. As you dig in you find the financials are, how do we say, aggressively rosy. Does this make the company a good company or a bad company? One would not know with out more information, but it does lower your expected value of the company. As you do research on the technology you find the technology to be resolutely sound and in a field of expected immediate growth. This a finding of your’s, unknown to selling company executives. Does this make the company more or less attractive? I would guess it would make it more attractive. So what have you learned, you have learned the executives of the company to be acquired are great with technology and bad with numbers.
Now with choice making, do you beat-up the executives of the company up on their accounting and lower the price? Sure! Do you use cash or stock to make the acquisition? Stock for strategic acquisitions, cash for explosive acquisitions is the rule. What if there are other issues you do not know about? What do you have to do? Set up an escrow or the purchase and leave some of the stock or cash in escrow to claw back funds should some unforeseen impairment or event? I am sure I do not know. But you can see bit by bit the information changes and colors your choice making. Even after you have made the choice to acquire, you can still craft a risk mitigation tool in the escrow. It is about keeping choices alive and vibrant.
So you still want to decide? Decisions can only be made after there is evidence. Evidence only comes after the fact. Too late to make a choice, too late for anything buy lawyers, Monday morning quarterbacks, politicians of the worst sort, and historians… What do these all have in common? The luxury of making decisions after they think all of the evidence is on the table – and yet they still somehow get it wrong.
Due diligence as defined above is about always gathering information, information on the risk of the choices that will be made. Remember if you choose poorly, choose again with any new information you have. You will never have all of the information, but with structured modern due diligence – you can make informed choices. So do you need more due diligence? You need enough to make informed timely choices.
Deciding is like steering the ship while squatting on the poop deck inspecting what you have left behind and plotting with great confidence a forward course.