Intentional Growth Increase the Value of Your Customer Base to a Business Buyer
My guest today is Anthony Bahr, the vice president of Strategex, a customer research firm. Customer research dives into your customers’ experiences and compiles your strengths and pain points into a presentable report. Our conversation focuses on two aspects of customer due diligence. We look at it from both the buyer’s and seller’s perspective. Strategex serves both parties in a sale to give an honest bigger picture of the company’s worth.
Anthony highlights the benefits of using Strategex to give both the seller and the prospective buyer peace of mind during the negotiation process. He walks through the process his company undergoes when doing customer due diligence and reflects on some of the recurring themes he is seeing in recent research.
You will learn about:
- How customer due diligence is different from traditional market research.
- How both sellers and buyers can benefit from hiring Strategex.
- The key aspects customer due diligence shows the client.
- Customer research can improve organic growth and control the message you want to convey to a potential buyer.
- The triangular approach to making sense of the data collected.
- How customer due diligence can direct a business decision.
- The importance of having good fundamentals in your customer experience.
- How customer due diligence can affect a customer contract negotiation.
- How Strategex filters through all customer feedback.
- The top 5 points highlighted in a Strategex report.
- The common trends Anthony is seeing in recent research projects.
- A recap of Anthony’s takeaways.
- Why you need to take the emotion out of business deals.
Today’s guest provides lots of real-world experience regarding customer due diligence—and he should, as he works for a company that provides in-depth, unbiased reports on this very topic to clients before they buy (or sell) a business.
Let’s start with the big question…
What Is Customer Due Diligence?
Honestly, this is something I wish we had done before we sold our business. It’s not that we would have wanted to restructure all our contracts or even add a few new customers; rather, we would have been able to address any risks associated with the clients we had at the time and therefore address any possible concerns our buyer had, leading us to possibly better terms or price.
However, we did not, and this is why I started the show.
So what is customer due diligence? It’s something that comes up eventually, usually after an LOI or some other legitimate expression of interest, when a buyer inevitably contacts the clients he or she will be gaining once this deal closes. Essentially, customer due diligence is contacting your current customers and finding out how satisfied they are with your services and if they have any plans on increasing, decreasing or maintaining their present contract with your business.
Sounds simple, so why doesn’t every business do this anyway?
Most of us are afraid of the answer to these questions. The rest of us perhaps don’t want to put in the effort. However, you don’t have to do it yourself! Companies like Anthony’s exist for that sole purpose—and, as he notes, it can be a lot easier for a third party to get honest answers from your customers than it can be for you, the owner they have worked with for 20 years.
What Do You Look For in Customer Due Diligence?
If you are selling and want to get a leg-up on the competition or your potential buyers, or if you’re buying a business and really want to know how strong the customer base is before you sign the deal, there are some key things you should always be looking out for.
The first thing to look out for is the number of clients. We’ve had people come on the show before and talk about customer diversity or the downside of customer concentration. You may just have to accept facts: having three businesses that equal 100% of your revenues is not going to be a strong selling point to a potential buyer. If you’re able to show strength of contracts (so lock them in for 10 years if you can), great. But most buyers will want to see a number of contracts, so you’ll want to be able to show where growth is possible here.
Plus, what if you find out during your customer due diligence that one or two of these customers is leaving? Better deal with it now, because no buyer will see value in clients who are planning on leaving the business sooner than later.
The other thing to look at is cost of product or services. Anthony’s firm has a unique, triangulated approach to this to get the real answer from clients. They admit that they will always receive a biased response when asked if they are paying fairly for the services or product they receive. All customers and clients will say they are overcharged; everyone wants a deal!
But this is why Strategex has two other questions to ask which better qualify the answers they receive. Further questions to ask include, Do I pay more or less than my competitors? and, Do I receive quality and timely fulfillment of my contract? If your clients think they’re paying less than their competitors, but also having their needs fulfilled, chances are (even if they said they’re paying too much already!) they would be open to a higher fee. At the very least, they’re likely to stick with you.
Unless…
They have grown past what you offer. If that’s the case, it’s still better to know that now! No buyer will walk into a deal and pay full price if your clients are already expressing needs beyond which you are prepared to meet. That being said, if you’re able to expand that department or at least show your potential buyer that this expansion is both possible and practical, then you should have handily taken care of a potentially deal-threatening risk.
So you can use your customer due diligence as yet another way to keep your finger on the pulse of the market as emerging technologies constantly radically change the playing field.
If you’re thinking of buying, what a nice gesture to receive this comprehensive report earlier on in the process, saving time and money on both sides. And, as the seller, it’s nice to be able to show some evidence for why you’re looking for the terms and price you’ve asked for. In Anthony’s experience, 85% of the time the customer due diligence serves to cement the deal; only 15% of the time does it unearth a deal-breaking bit of information.
As you look to establish the right exit plan for you, don’t overlook doing customer due diligence to strengthen your position in the market and identify risks as early as possible to provide you added ammunition at the negotiation table.
Takeaways:
Straegex provides a valuable service to both company sellers and potential company buyers. Customer due diligence teaches you a lot about your business and what works and what doesn’t. Asking a third party to interview your customers provides a direct line to honest, unfiltered feedback. A service like Strategex is a proactive way to get ahead of any problems that could arise during an inquirer’s due diligence. If you face the issues head-on, it creates a cleaner sales process and a deeper sense of trust.
Links and Resources
About Anthony:
Anthony devotes much of his time to expanding the firm’s Quality of Customers® (QofC®) offering – a proprietary process that incorporates voice of the customer research into customer due diligence pre- or post-close on behalf of private equity and strategic acquirer clients.
He works in partnership with clients to design and implement research initiatives to address common questions that arise during the due diligence process (the stability of key accounts, the target company’s ability to service key accounts, confidence in senior management, etc.).
Through the QofC® process, he then provides deep insights into a customer’s level of satisfaction and loyalty as well as competitive positioning, innovation pathways, pricing optimization, etc. Ultimately, this work enables Strategex to transform research findings into actionable growth strategies.
Before joining Strategex, Anthony held senior-level positions at two leading market research firms where he specialized in insight, strategy, and innovation projects for global financial services, consumer packaged goods, and pharmaceutical clients. He is well versed in multiple methodologies including brand positioning, segmentation, advertising effectiveness, and pricing optimization.
A veteran of the United States Air Force, Anthony holds a B.B.A. in economics and international business from Loyola University Chicago as well as an M.S. in public policy from the University of Oklahoma.