In my previous post, I walked through what “diligence” means to various roles in the business world. Each purpose of a diligence is slightly different, though the rigor involved in each is essentially the same: get to the truth at-all-cost. In this post, I’m focused on what we should expect to result from a successful diligence. The basic questions you are trying to answer in a diligence can be grouped into a few categories.
Market size: How much can I sell?
- How is the market defined?
- How large is the market? Potential customers, total potential revenue for all players.
- How quickly is the market growing? CAGR
With these answers, is it an attractive market?
Customer identification: Who will buy it from me?
- Users: who will actually use the product?
- Purchasing: who pays for the product?
- Influencer: who is the decision maker?
- Size: what market share does each customer have?
Where & how can I find customers?
Competitors: Who will try to stop me?
- Who sells the same thing I sell?
- Who sells a substitute for what I sell?
- What market share does each competitor have?
- How am I different from other competitors?
Can I beat the competition?
Execution: Is my plan to succeed reasonable?
- Does it pass the ‘sniff test’?
- What are your resources? People, time, money.
- How much runway do you have?
- What other life events might impact you and your team’s ability to execute?
Can I get there from here?
When you have the answers to these questions, you have the criteria for the decision that you wanted to make in the first place. In other words, you now have the intelligence you need to make an informed decision. Even if some of the answers from the above questions are not great or even really bad, you are making an informed decision.
Finally, the value of the answers from the diligence is that they are the quantification of your potential risk. If you choose to “go” on this decision, even though there are several high profile, successful competitors, you do so while acknowledging that particular risk.