Reshaping Due Diligence – Measuring the Potential for Growth

Be you pessimist or optimist, the current landscape for investment and business growth can support your view.

For optimists, we live in an era of exceptional step growth, where normal rates of acceleration are blown out of the water; research indicating that over the last 10 years the Compound Annual Growth Rate across 300,000 PE backed companies has grown by 10.5X or more.

View the data from a different angle and we find that the real growth of companies can be limited. The growth of micro/small businesses to mid-size in the UK is lower than in many developed nations. Statistics vary, but most recognise that a startup’s ability to survive, let alone grow, past the first 5 years is 50/50.

Portfolio Managers need greater certainty
There are many factors involved in the potential fortune or failure of an organisation with investment playing no small part. But with success being hard to predict, we must ask whether Due Diligence really drives enough certainty, both for the investor and business, in a frequently turbulent landscape.

In a world where data is used to predict the future; everything from a break-through in medical science to the potential of individual consumers to pay back a debt, it’s surprising to find that senior investors are still relying on intuition and experience when assessing the data for a potential investment.

The Due Diligence process, of course, focuses heavily on the financial aspects of a business, those areas that can be considered rationally rather than emotionally. Increasingly, consultants are also playing a critical role in the investment team, measuring the commercial aspects; ensuring markets are large enough and the management team is sound, but that’s still not enough.

Due Diligence can be more than a single snap shot in time
Whilst the position of the company on the day the deal is signed is usually extremely favourable, the only constant from there on in is that everything can and will change. The Due Diligence process is a snapshot in time, yet the world around us is changing quickly. Looking at Due Diligence in a new way can hold the keys to not only managing the changing landscape, but also providing the blueprint to help drive investments forward.

StepIQ™ is a tool which can measure the growth potential of a deal at any point in the lifecycle, for free.

Growth is the new critical measure
StepIQ™ provides the key indicators to growth and helps to develop the strategy to deliver it. It brings certainty to the Due Diligence process at the start of an investment and can uniquely be used throughout the life of the investment/business, ensuring organisations continue to focus and refocus during periods of growth or decline. Step IQ™ adds value to your investments and allows businesses to be fleet of foot, focussed on growth, no matter the market conditions.

Step IQ™ can be used to manage single investments/businesses or a portfolio of companies from any vertical sector. The tool is designed to be used by those closest to the business and the business plan, namely the Executive Management team and Investors, and is free to use.

Step IQ™ makes portfolio companies perform better
The tool measures organisations against 10 growth dimensions which each contribute to the success and failure of business, outside of the current Due Diligence process. Changes in leadership, uniqueness of an organisation’s proposition (and factors which affect it, such as increased competition), business model decline, length and breadth of the sales pipeline, and influence of staff on the bottom line; to name a few.
This is reviewed through a growth lens that considers an organisation’s current position in relation to how quickly it can grow, the strength it has to achieve its ambitions and whether or not it’s pointed in the right direction to achieve and exceed ambitions.

SPEED: Often potential growth is visible in the DD process but the speed of growth is not.
Typically, this is a consequence of growth being steady and incremental rather, than rapid and exceptional.

By identifying the rate of this growth and how factors such as the sales flow and growth agility contribute to this; organisations can make well-informed investment decisions that can reduce the time necessary to meet growth targets.

STRENGTH: The strength of growth is also a critical factor in realising and exceeding valuations. Strategically focusing sales and marketing to deliver larger, longer and more valuable revenue from customers pays off immediately on the balance sheet and significantly at event time. However, businesses can underestimate the time it takes to deliver new sales and the market’s opinion.

DIRECTION: Focus comes from accurate data, defined customer journeys and a clear value proposition to bring clarity. This narrowing of the target, of the budget and of improving communication in the marketplace, improves not only tangible results but also the value of the intangibles in the company such as brand, exec reputation, and market leadership.

Free measurement of your growth potential
To find out how our free Step IQ™ tool can impact your Due Diligence process and help improve your existing investments/business growth, visit StepIQ.Powershift.co.uk and build a Step IQ™ today. Alternatively, get in touch with [email protected] to discuss a free site visit.