Strategic Due Diligence – Decisions are the ultimate leading indicators

In its most common usage, a leading indicator is defined as a metric that changes before the economy has changed, i.e. one that gives an advance notice of a change that is about to occur.

Your decisions create your future.  This is true whether applied to your life or your business.  Decisions are the events where an act of your will (your commitment to a specific alternative, backed up by the application of resources to make it so) changes the future that will come to pass.

Therefore the ultimate (earliest possible) leading indicators of your future state are your decisions, at the point of decision.  This is true in every situation, but particularly useful in an entrepreneurial startup or whenever a new strategic initiative may trigger a significant change in direction or focus.  In such cases, the future isn’t already written; it can’t be projected very well from a trend line based on past performance.  It all hinges on the quality of the decisions being made that will create a new future reality.

If you are considering an investment in a stable business with an operational track record, your due diligence research can focus on past performance, operational excellence and the potential for incremental improvements and growth extrapolations.  If you are evaluating a startup built around a new-to-the-world technology, product or business model, all you have is their decisions; you have to understand what they are thinking, their vision of a yet-to-be-created future.  You need to make visible and explicit the strategic decision baseline that undergirds their business plan.

Most investment opportunities are somewhere between the ho-hum operational case and the disruptive startup, so due diligence should be mix of traditional methods (analysis of past financials, the management team, etc.) and exposing critical future-creating decisions and assessing the thinking quality (assumptions, rationale) behind these decisions.

Most business plans don’t expose the real logic (criteria, performance estimates, alternatives considered but rejected, summarized rationale) behind the top 10-20 future-creating decisions that will drive business success or failure.  It takes some digging (interviews, tough questions) to get at this data.  This is where a proven decision pattern like the one I’ve embedded in my Decision Driven® Solutions Framework (DDSF) pays dividends.  Every business has to make essentially the same set of decisions; each decision is a “fundamental question/issue that demands an answer/solution“.   Armed with this pattern, you can quickly reverse engineer the decision baseline that is hidden in the business plan documentation, make visible the critical decisions and expose inconsistencies or gaps in their story.  This isn’t a gotcha exercise, but the start of a mentoring relationship that creates value.

Speed matters in such situations, so I offer a strategic due diligence service that reverse engineers the strategic decision baseline and roadmap behind a business plan.  It typically takes 1-2 days to analyze a business plan document, map it to the decision pattern and present the findings (top 30-50 decisions and gaps or whitespace in the plan).  These findings can then be used immediately to guide further data-gathering and drill-down efforts; it enables a highly focused and efficient strategic due diligence effort.  By capturing the decision/roadmap baseline within the Decision Driven® Solution Framework (DDSF), it enables the on-going ability to refine the business plan and proactively mentor the management team one decision at a time.

If you are involved in due diligence research to guide investments in businesses with a high strategic decision content, give me a holler.  I’d love to prove to you how a strategic due diligence jump-start can improve the quality of your investments and accelerate value-creation through decision-based mentoring.

In parallel, get started with a free trial of the Decision Driven® Solutions Framework (DDSF). Please contact the Decision Driven® Solutions team at trial@decisiondriven.com or solutions@decisiondriven.com.

About decisiondriven

Innovator in Decision Management, Systems Thinking and System Engineering methods and tools
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