Jeffrey Greenberg on Technology Strategy

The key to performing a technical due diligence is an understanding of the business goals that are driving the audit. To perform the audit well requires discipline to listen and the knowledge to ask the right questions that will uncover what is going on. A simple methodology is helpful as a guide to obtain information without bias, to remember to ask all the questions that should be asked to get a fuller picture — you don’t want to dwell on one sore spot or mine only one’s particular interest. Knowledgeable listening and experienced objectivity is key to not getting lost in the expectations and projections of the sponsor rather than the reality of situation. In the end, the client is happiest when the truth is told, even if it’s not what they want to hear. Sometimes it’s worse than the sponsor expects and sometime not.

Kinds of Technical Due Diligence

Due Diligence for an investment interest is different than that for a CEO or division head who is worried about the performance of an organization. All organizations have problems, but some matter more than others with respect to the goals of audit.

Sometimes the outcome of a due diligence has been that I am put in charge of fixing it, but that is not my intent in taking on a due diligence. I am after providing the best insight into what is going on, what is working and what isn’t, and what isn’t so clear, and what of all that really matters to the business and what’s to be done about it.

I’ve been on both the buyer’s side and the sellers side of M&A conversations and in many other angles that drive a due diligence assessment. I know what the various players are looking for and what they are wanting and avoiding. This (advice from someone being assessed I find problematic in that it’s more about defending oneself than learning. A decent due diligence should be constructive for all concerned. It certainly depends on the situation, sometimes the agenda is loaded and sometimes it is merely exploratory… and in the end transparent truth is best, for it serves the greater good.

Acquisition Perspective

In an acqusition driven audit, the team being evaluated often has much at stake, and defensiveness can come into play. However, it is best to work closely with the auditor, because that constructive play can be the best card to play. A team that represents itself as knowledgeable and effective in an audit is not only being the better corporate citizen but also serving it’s own best interests.

Investor Perspective

Buyers are after ensuring their investment is all they expect. They are looking to avoid buying problems or at least to understand them enough to price them. This requires a bit of digging since the Buyer isn’t incented to display their issues. The role of the assessor is to dig in this case, but in this case there is a win-win in the assessment. The buyer already sees value in the company, so the assessor has the opportunity to help identify with the team being assessed the challenges ahead and how to address them. The question is can they or what will it take, and with what impact. If they are worth buying they will be able to face these challenges. The assessor should be able to help the seller and enable and identify a successful relationship between investor and invested company

Seller’s Perspective

Are looking to maximize value. They need to be showing their real issues rather than hiding bad surprises for later, and they need to show how they are constructively addressing these issues.

Team in Trouble

This is always tough because these teams can be embattled. Change is imminent. Due Diligence means that something isn’t working and things have to change. But the upside is that aim is for mutual success. People in this situation typically are doing their best to fix things or to survive a tough situation. It’s not a happy occasion, but there’s lots of pride at work, and that can be a powerful factor. Engineers like to ship real working code, and when it’s not happening, there can be many factors at play. The assessor must stay focused on the business goals, and is looking also to enable the values of the business. At times this might seem cold to a team, as in the icy ‘it’s just business‘, and at other times it will seem senstive to the considerable work and care teams typically put into their work. Nonetheless, a profitable and successful enterprise has to focus on the bottom line (be it a single, double, or triple bottom line), so the truth must be spoken. Like in hiring, if something doesn’t fit, it’s best to change it rather than hope to change the person… it’s better for all concerned, eventually. But often, changes to process is what is needed, validation of what the team already knows and helping them get empowered to act is often the cure. I will often not only make recommendation to the team, but to the senior management as well who are often part of the problem.