Investors often entertain the idea of conducting customer due diligence themselves. Some may even review a recent check-the-box style, seller-initiated survey, see high NPS scores, and be satisfied. There are many reasons, though, to have a 3rd party conduct in-depth customer due diligence. Here are three, with real-life examples.
Investor Concerns That Are Difficult to Address
Investors should ask the tough questions. Occasionally, they are worried about something that is difficult to address.
A recent investor group expressed concern over whether the business' client base was more devoted to the sales representatives than the company itself. Many of the sales reps had been with the seller’s company for years gaining much loyalty from their customers. Here we used our normal opening - the seller’s company wished to better meet their needs in the future. We asked the standard questions regarding decision factors, NPS, etc., but also formulated questions regarding who were their contacts, the strengths and weaknesses of each and a few more specifics about these contacts. Very powerful information.
Experienced View When Interpreting Data
You need someone who can interpret customer feedback based on experience. An unbiased third party will know the difference between an isolated incident that upset a single customer and a company's systematic failings that require a complete process redesign.
For example, on our very first call for one investor client, we found a very unhappy customer. The seller’s company didn’t respond quickly to the customer’s concerns, so the customer pulled some (but not all) of their business. Following that call, however, we discovered 13 very satisfied customers with high NPS scores and the dissatisfied customer had still retained the seller’s company for some offerings. It was important that we had a good size sample (based on % of revenue) and were able to actually ask for input on the seller’s many different offerings. We reported back on the stats and our insight to our client. Our experience in interviewing and data interpretation made us confident that the lack of responsiveness was more of an isolated incident than a systemic one.
Understanding Customer’s Pain
A check-the-box customer survey is frequently shown to prospective investors by sellers, who then explain, "Look, we have a satisfied customer base – see high NPS scores; no need to do more customer due diligence." However, these polls just reflect the past. They don't offer any insight into new strategies being contemplated, and they can't accurately forecast future growth.
Asking open-ended in depth questions encourages respondents to discuss their future – what their challenges are and how a supplier could best help them address these challenges in the future. This can provide much insight into the investors strategy and plans. This is how Mayfield conducts its customer surveys.
In one case, in a “commodity” industry, we were informed that price was always the defining decision factor. We think that goods and services can always be distinguished from one another, but that discussion is for another time! In this feedback. Most customers obediently informed us that price was the most important decision factor and because of our more than forty years of experience we knew to inquire, "So, do you always take the lowest price?" The majority of responders stated "Of course not.” The construction project where the product was going to be delivered, would be in jeopardy if that commodity product wasn’t delivered when needed. It goes without saying that delivery became this company's (very successful) strategy and mantra.
In conclusio
n, third-party customer due diligence can shed light on complex issues or concerns, extract valuable information from the data, and assist purchasers in comprehending the motivations of the seller’s customers—all of which can be crucial to future success and revenue growth.
Put Mayfield Consulting's extensive 40+ years of experience to work for you. Let us assist you with your next customer due diligence.
