Following on from my recent post about 5 key IT Due Diligence Questions for Non-Technical People, I thought I’d share why I believe storytelling is a key skill for successful IT Due Diligence. There’s a lot about storytelling in business, no wonder as the art of selling often requires emotional engagement.
Due Diligence reports are complicated, they impact investment and the employees of the target business. I often lose sleep thinking of the information gathered, to ensure that the information is presented fairly and without unconscious bias.
Who reads an IT due diligence report?
Assuming a Private Equity engagement, a due diligence report will be read and digested by a wide audience, from the Investment Director / Partner who is overseeing the deal, the Investment Committee, the technology experts either side and will also be viewed by third-parties such as the banks that are helping fund the deal. Only subsections of the report will be utilised and many, if not all, readers will be non-technical, so this presents two challenges for the creator:
- the report must be both comprehensive yet succinct
- considering the many readers of the report – there isn’t a single “avatar” to write the report for, meaning you must be…comprehensive, and succinct.
Here’s some storytelling experimentation we’ve tried internally – click on the graphic below to open the ful document:
The 7 stories of an IT Due Diligence Report
1. The Investment Thesis
As an assessor, we need to understand your Investment Thesis – your story of why this deal will potentially work. We start by breaking down what has become a formal idea back to its conceptual components, so we understand what the assumptions are regarding the deal and the role of technology. Then, we need to bring those conceptual ideas back together so we are aligned to your plan and can then ensure we are asking the right questions
2. The Business Plan
Before we assess the technology, we need to understand the target business’ plan – what is the story they have presented about potential innovation and growth? We now hit the first stage of comparison – does the story of the business plan align with the investment thesis
3. The technology narrative
Now we have a good idea of the investor’s thesis and the target business’ plan we are in a good position to talk about technology with the appropriate staff (and look at the data in the data room, if available).
We are looking to understand a very complex area in a relatively short amount of time. So it is key that we have the appropriate knowledge and access to the right people.
The technology area is where I often lose sleep because companies are organic, and the choices they make is unique to themselves and their experience. For example, one target business of sub-100 employees had a more confusing software strategy than a major car manufacturer.
It is foolish just to overlay your experience across their environment – and see things negatively if they don’t fit your model. So we look for the risks and which ones can be changed into opportunities.
The narrative we present explains whether the technology is fit for investment, but this story is not complete until you assess the team below:
4. The Team narrative
This is my area of passion – how does the current team operate, are they the right people for the changes outlined in the business plan, and what is the psychological make-up of the team?
The story about the team needs to assess the past, present and future human resource requirements. If possible, it is key to understand how many people were working for the business in the past, who has left, who are the flight-risks, who has left on bad-terms etc.
e..g. One company we assessed was running “light” having axed a number of staff pre-investment. This meant that if the investment were to go ahead, the current team would not be able to service the scheduled technology changes planned and there would be some significant hiring required to add more capable people.
We often find that the business plan requires growth – and we, from a psychological assessment of the team, can determine if the staff can service these intended changes (which are, again, often built on assumption). We have found, some interesting facts about the psychological attributes of tech teams which I will announce in a future blog, in summary, we hire clones in technology teams – most of whom are not naturally suited for risk-taking/innovation.
The story is much more interesting now, how do the people build and operate the technology and WHO is needed to reach the next stage of growth or innovation.
5. The argument
Now we have assessed the current day people+technology; we need to determine our argument. Is it a simple YES/NO or more likely, is there work to be done now we have a better understanding? To simplify, the best approach is to assume we are investing ourselves – would we spend our own hard-earned money?
The key argument is an important story to tell – will this business/team gain the investment they want? Will the investor be making a savvy investment decision.
6. The 100-Day Plan
100-day plans are very popular, and a story for the investor and the current team at the target to assess. So we have to be careful about what we propose. One PE client explained that they had concerns with a previous DD engagement, as the technology plan and recommendations did not consider the foundations of the business and the cultural impact which caused issue post-investment.
More than a gannt chart / this 100-day plan is a narrative that will impact the employees across the target business with implications on what the firm focuses on over the first few months.
7. The money
“Follow the money“. Similar to the Teams narrative, you need to assess the past, present and future, to get a good idea of potential costs and any red flags. We met one company where the costs looked quite low until we realised that the firm allowed employees to purchase expensive kit on personal expenses and claim it back – lack of purchasing controls resulting in extra hidden expense.
Contracts need reviewing, especially if this is a bolt-on acquistion and some assumptions are being made about reducing the data centres or
Many new clients have spoken about previous deals where the costs have spiralled post-deal. During IT Due Diligence it is impossible to gather all information needed, and we are not mind-readers, but it is key to develop a good rapport across all parties to develop a solid story/narrative based on fact/intuition/experience.
I am biased towards a storytelling approach to DD. As a technologist with a screenwriting background, I enjoy using the disciplines of both tech/writing to be a way of articulating something complicated to a non-tehnical audience.
This blog is wordier than our DD reports, but I hope it helps you understand why storytelling is an essential skill for technology due diligence practitioner, as it is our job to engage and inform the reader – so that you can make good decisions.