Empower Your Sales Team with Sales Due Diligence for Technical Support

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think we're going to get started good afternoon everyone and welcome to today's complimentary educational webinar taking customer due diligence to the next level this is going to be presented by Kate Cruz and Anthony Barr of the strata Jack's my name is John Poulos and I will be a webinar moderator today I am the chief operating and technology officer for your webinar host star mountain capital we are a specialized asset management firm focused on investing in the large and underserved u.s. lower middle market of companies with typically under 15 million of evide star mountains differentiated business model includes a custom built media and technology platform bringing proven large market resources to smaller businesses as a value-added lender and investment partner before I hand over the reins to Kay and Anthony I did want to let you know that your audio is muted and will be for the entirety of this presentation also we have allocated time at the end of the presentation for Q&A if you have a question you can type it into the Q&A chat box of your WebEx client we will try to get as many questions as possible before the hour is up now that our presenters k-crew serves as voice of the customer vice president for strategy X with nearly 20 years of client engagement and strategic marketing experience Kay provides strategic marketing leadership to the voice of the customer practice with a background in customer research market strategy brand development and strategic opportunities Anthony Barr is a vice president in strata Jax's voice of the customer strategic practice where he leads research based consulting engagements Anthony works in partnerships with clients to design and implement research initiatives to address common questions that arise during due diligence Kay and Anthony were very excited to have you with us today thank you John thanks everyone for taking time to join us today really quickly just a brief overview of who we are for context we are a research based consulting firm in Chicago that specializes in the voice of the customer or vo C methodology firm was established in 93 and since then we've done over 700 of these BOC engagements mix of domestic and international work industry agnostic with the common thread being everything that we touch is b2b and just to give you a sense of scale last year we did just shy of 4,000 interviews and this year we're on track to probably over 5,000 customer interviews today the agenda is really to talk about why we should consider doing customer diligence either on the buy side or the sell side how to do it well and then demonstrate what the value add is of doing this and we'll demonstrate that through the three case studies that we have for you and then a few minutes blocked off at the end for Q&A to kick things off a stat that I'm sure we've all seen the notorious Harvard Business Review finding that up to 90% of steel sales will up to expectations but I think what's really interesting is that we don't always ask ourselves the next intuitive questions which is why why our failure rates so high you know we often hear integration but what does that mean and more importantly what can we do to mitigate the risks that are known contributors of deal failure in b2b we know that customer retention is essential to a successful deal you know you know we've seen it time and time again especially in situations where there's a customer concentrate a concentrated customer base that a top account that is lost or that lower share of wallet is quite often one of the primary indicators of a dealer's at risk but how many times have we receive Sims or been part of writing a sentence that says hey potential buyer of one of our top accounts is at risk right that never happens often were gloating about how strong our customer relationships are how our market share is expanding how margins are improving well there's really no competitive threats and how there's no foreseeable disruptions but in reality we know that quite often and b2b transactions top customers do leave top customers do lower their spend which has a material impact on the valuation of the deal so then when that reality sets in post closed we often see price concessions are made we see competitors come in become more aggressive trying to peel off our customers that are at risk new innovations new offerings don't quite take off and the result is what we've all seen revenue fall short of expectations which leads to margin compression which means even up fog behind projections now we what we just ran through is sort of a situation from the buy side but I think it's also worth noting that this is equally as powerful on the sell side you can do this leading up to sale and we have a case study later on to demonstrate how this works but when we go through that we're not we're not picking just on by side diligence we also see value in doing this leading up to sale as well so if you buy into the premise that customer retention customer concentration margin compression these are all risk factors then we have to ask ourselves does our due diligence uncover the red flag that can lead to situations like this does the due diligence we're doing today answer the question how loyal are our top customers does it tell us what our competitive advantages and weaknesses are does it tell us what our future growth outlook look like looks like and how we can adapt new innovations odds are the answer to that is no and if you say no you're not alone because we also find that McKinsey publishes the stat that 40% of due diligence is often considered inadequate right we're not always answering the questions that we need to answer or not always mitigating those risks that we know contribute to fail deals and I think part of the reason for that is that most of the customer diligence that's being done today is pretty limited right we're reviewing contracts we might have a panel of experts we reach out to we may even go so far as engaging directly with customers but when we do it tends to be short and cursory reference trucks that are done internally without third party validation and we see that a lot of this work is done through online surveys which we the whole webinar on the pitfalls of online surveys but we know the response rates are very low the quality of the data is questionable and we're not really getting the qualitative insight that we need to adjust the objectives so we think there's a better way of conducting customer diligence and Kay is going to walk us through what that looks like so when we look at best practice for customer diligence we start with the basics of what are we really where do we start and typically most of the most of the groups that we work with start with some kind of commercial due diligence the market sizing approach tends to look at basically the growth of the category might look at some industry trends or category trends it might deal with who are the competitors and how much how much influence do they have as Anthony mentioned there may be a few customer insights but as a general rule most of that custom commercial due diligence is driven by secondary research that's pulled together from large reports large large customer concentrations studies that have been done by industry research experts so when we look at customer due diligence as a separate animal basically what we're able to do again through a third-party validation is really try to identify the strengths of the relationship are there any accounts at risk because in other words are they going to be stable look at what customers would expect relative to how do we retain those customers what does the account have to do what does the target company have to do to make sure that this customers stay with us what's the share of wallet importantly how does this how does the company rank what is their growth outlook so in essence what we do is we pay kind of do they'll then then draw here we try to look at insights that will drive and make the commercial diligence better things that the commercial diligence alone can't really uncover and can't really identify so when we look at best practices how do we do it certainly from the standpoint of interviewing we do one-on-one interviews phone interviews that are relatively see in in their in their content we position it as a customer satisfaction studies there is never any mention of a pending deal so again we asked that the seller sponsors the fact that they have hired us to do this study on their behalf so that we can end up having engaging phone conversations with their customers engaging conversations that will last anywhere from 15 to 20 minutes on up to 30 we don't do and don't recommend static web surveys because we find that the web survey results are reaching into the single digits and lower so we want to look at both importantly the qualitative questions what do we need to be finding out but we also want to put in how do we quantify those qualitative issues we want to do some very very deep probing and understanding what's going on now in the diligence world there's a fast-track we know the general rule company and buyer and seller have to get pretty comfortable with one another certainly from the financial standpoint the legal standpoint and oh yeah by the way we better start looking at the at the customer side so we want to make sure that we have a very accelerated timeline traditionally we're in that last portion of the relationships building we're right before deal clothes to make sure that in fact it is going to be a good deal to close so we have a very accelerated timeline that we're able to produce this kind of work generally speaking about a three to four week time period it has to be done faster than that certainly we can but who do we interview all right make sure that we have the right number of interviews that again we wanted to look at more so that we can start seeing a common theme if we're studying four or five six interviews everybody's going to worry and pour over every single portion of that interview and wonder if this is representative of the whole so we want to apply would call the 80/20 rule everybody knows it 20% of your customers are driving 80 percent of your revenue or in some cases if there's heavy concentration as Anthony said we better make sure we understand what that customer relationship is really like we want we say let's look at those who have a a greater amount of revenue from you because they will know you well they are going to be able to understand what you do well and where your areas of improvement and importantly those are the ones we have to make sure we retain after clothes how many contacts we talk to at each customer a lot of it depends on the business model certainly at top customers we want to talk to multiple people because a lot of people are involved in the decision could be procurement could be design engineering it could be ownership who is really trying to to control that relationship and make sure that vendor stays in place that company stays in place so this helps us get a more holistic view of the relationship we don't want to talk to just one role versus another we want to make sure we get kind of an overview we want to make sure that the sellers aren't biasing the live of the list in other words they are only letting us speak to the customers that love them a lot and we want to make sure that we ask them to provide a good range of customers so that we can look at what's going on certainly balancing off the amount of revenue that each one is supplying to us and we want to look at other stakeholders for instance if there are some lost customers or if there are some prospects of companies that customers that have had exposure to the target company but for whatever reasons haven't quite purchased yet that's a good audience to try to understand what are they doing what do we need to try to help them move over to the our side of the equation so what do we ask obviously we're going to look customer loyalty we're going to look at pricing risk and opportunities we generally would say if you're in if you're talking to a procurement person of course they're going to tell you that you need to lower your price but we oftentimes will turn that question around on its head and say what do we need to do in order to justify the premium price that we're asking what value does the company need to provide in order to make sure that their pricing can remain where they would prefer to have it competitive benchmarking very important what do we do well what are our competitors do well customers of a target company are very willing to share that information with a third party probably not as willing to share it with the actual seller himself or herself looking at certainly market trends unmet needs certainly looking at innovation where are there other opportunities going forward the value of this particular kind of conversation let's us dig deeper into the relationship to understand what do we need to do to become a better partner what do we need to do to help you grow your business so that we in turn grow ourselves and certainly looking for prioritizing these areas of improvement that we'd want to have so how do we do it we measure it with a Net Promoter Score I guarantee every single one of us sits on this conference line today has experienced the Net Promoter Score on a scale of 0 to 10 how likely would you two be recommend this company to a friend or a colleague in the customer in the consumer world it's starting to get kind of weak we generally find that no one is going to answer it unless you've absolutely surprised and delighted the consumer beyond all belief and maybe they'll give you a 9 or a 10 or maybe an 8 pretty rare hard to get customers consumers to respond and conversely if they have had a hateful experience absolutely positively they're going to respond right away slowness tells us as well as a lot of other research that satisfactions drives loyalty loyalty drives market share we know that customers are going to be willing to buy from a b2b customer more more frequently if you make their life easier aka satisfaction and loyalty certainly from that standpoint so we've calculated a lot of us have experienced this but we never know how you do it we take the percent of people that give us 9 and 10 and we subtract the percent of people that give us 6 and below and of course everybody says well wait wait wait it's a good score 7 is pretty decent what's going on why don't we count those well we don't count those because in essence they're somewhat satisfied but not necessarily loyal they tend to want to try to shop around but you leave there's some issues promoters are very people of those 3 individuals it was in your customer base who are extremely loyal they are repeat purchasers they're easier for you to service because they likely would recommend you to others they're willing to pay a little more because you make their life easier conversely on the flip side of the table the detractors a lot of negative word-of-mouth difficult to service always unhappy certainly presenting a very high risk of leaving oftentimes will ask well should we talk to lost customers if you have customers that we're interviewing that are giving you a 2 or a 1 or 0 they're virtually out the door they're ready to jump ship as soon as they possibly can so what do we do with these scores how to engage whether you got a decent score or not and importantly in our world in the b2b world we generally will say if you have a 35% Net Promoter Score or above you probably are gaining share you're growing probably two to three times faster than your industry peers somewhere in the range of 15 to 35 kind of maintaining basically you're gaining an account and perhaps losing an account certainly from that standpoint but when we look at less than 15 obviously we find that your detractors are 2 times as likely to lose certainly from our standpoint when we look at High Net Promoter scoring companies certainly they consist sustained a price premium value so Net Promoter scoring though is one element it's not an end-all to be all it's a benchmarking tool that we use importantly to balance off what we call a triangulated approach yes we look at Net Promoter scores but if you're only measuring a Net Promoter Score you're losing a lot of valuable information we want to understand the customer experience what do they love about you where are their areas of improvement we want to benchmark that on the scale as well we want to look at how you compare competitively what are the issues going on from a competitive standpoint how do you perform versus your competitors where do you lead and where do you where do you lag where the customers Excel where we should actually be emulating some of that some of that critical characteristics or behavior so that triangulation basically enables us to come up with a very effective way to distill all of our results we look at the findings tie those to the objectives we basically ladder the findings in to some insights make recommendations and certainly back it up with customer commentary we arrive at conclusions based on what we're seeing quantitatively from customers that's a number that's a value but in order to find that's basically the one side of the brain that's going to be very logical we want to be able to in the emotional side we want to use quotes that will help the target company understand that these are not just some pie-in-the-sky analytical reasons and why customers are saying what they say we want to provide those a direct quote so that they can see it we provide a separate presentation first to the buyer before the deal closed now once the deal closes we provide a combined buyer and us presenting to in essence this teller this starts the beginning of the strategic planning process because this miss works can provide a great deal of insight into the first strategic plan to both the acquire and the now newly acquired company advance going forward so how do you look at the findings and how do you analyze them certainly from the standpoint of looking at for instance the Net Promoter scores in this case we've run a series of scores that this company has done with us over the course of basically six years when we include all of the new acquisition respondents that they have acquired we find that in reality our score goes up quite a bit what that means to us from this standpoint is that the acquisition is a good add-on because it makes the acquiring companies much stronger we also are able to look at what we defined as accounts that are at risk what's the loyalty rating and how secure is the relationship we do that by looking at what's the tone of their commentary this certainly is giving an 8.0 percent rating but they counted it risk because they all have trailing technologies and they expect to spend to be down there not being compliant with certain regulations that need to occur so again looking at the insights provided to the customer relationships of course there you see the one 14.0 certainly from the standpoint is the spend it's going to be pretty flat or he's going to be out the door so again this is how you do some of the analytical work importantly when we look at comparing them to the competition how do they compare are they much better slightly better equal or slightly worse we can see that our famous company asked me is is certainly an industry leader but there's also certain degree of parity in the marketplace so there we know they can do much more if you look at the site lighting solution side they need to be doing quite a bit more in that particular market segment that they're in looking at strengths and areas of improvement this is one way to do it and you're going to say well wait time out time out you got customer services is great and customer service is also an area of improvement not at all uncommon for us to hear that from customers of the target company well we look at is what's the drag in this case customer service only has a little bit of drag compared to 91% of the commentary that said customer service was outstanding where we do see some issues here are the issues the portfolio look at the huge drag on the portfolio this particular company was not keeping up with innovation and they were not keeping up with making the market aware of what they actually were doing therefore their price was beginning to be compressed this was an LED client and in essence what we were learning was the LED market had gone from being a very very expensive market to now is quite commoditized and the company had not kept up by building and innovating a stronger portfolio so in essence we can start to see that just in in this particular chart so thoughtful interviews certainly do add value post clothes importantly pets lets us look at what do we need to do to retain at risk accounts are there things that we should address right away we want to look at growing share of wallet we can look at for instance we can see where we have a high net promoter score and company yet the shared wallet is less than 25 percent why is that we need to make sure we understand what do we need to do in order to make that customer a better buyer of sharing wallet with us look at the value proposition what are the things that we need to improve on how can we optimize pricing and certainly looking at developing an innovation pipeline based on the market needs because we ask very specifically what unmet needs does do you have that this company can in essence fulfill so what do we do for post closed basically starts the strat plan we'll do a couple of case studies nowadays being able lead off alright so the methodology that we use voices a customer you know we've been talking a lot about that value it adds in the diligence phase but it's also a pretty effective management tool throughout the duration of the holding period so what often happens is we do a customer diligence baseline project withholding period being you know five six years now that means we have an opportunity to touch base with consumers a few times during the holding period to really make sure we are enhancing the strength of customer relationships so that when it comes time to go to market on the south side not only do we have a compelling financial story to tell we can validate that with a compelling customer story so the three case studies we have lined up kind of follow that linear process and the first one that we're going to start with is a situation where was a buy side diligence project where there's a high degree of customer concentration the seller was an industrial plastics manufacturer and they had about 20 customers that generated 90% of the revenue given that high degree of concentration the our private equity client naturally wanted to validate the stability of those relationships and what we ended up finding that particularly through the Net Promoter Score was that their NPS was positive 14 which if you recall the ranges that Kay provided earlier is typically indicative of a company that is losing sheriff right because we know to get up to get a +14 that means you have a fair amount of detractors detractors are often twice as likely to leave as a promoter so given that the Net Promoter Score was pretty low and there were some fundamental issues with the customer experience a lot of late deliveries poor customer service and we didn't hold a preference in the marketplace when we benchmarked ourselves against competitors we found that we were often third or fourth or fifth there were there were quite a few other players that were preferred by by customers so with all these things taken into consideration the Net Promoter Score the customer experience competitive benchmarking that triangulated approach that we showed you the the results actually impacted the buyers decision and the offer for the target was drawn and what we see over on the right at the top is one of the quotes from one of the actual customers we interviewed there's nothing I like about them our current plan that is in two years or about autumn is going to start going down right this is what I was talking about earlier how often do we see a quote like that innocence not that often how often do we see this in reality more often than we might think and the impact that you see in the lower-right quote directly from our client based on a postcard interview that we ended up saving about 400 million dollars and maybe more importantly a lot of headaches I think it's worth noting that you know we can come across a situation where we identify a lot of the counselor at risk and the deal still goes through because the approach is not just diagnostic right you're not just getting a score you're getting qualitative insights to improve those scores over time so even in situations where we have a negative net promoter score for example we may see the deal still go through because we're able to develop retention strategies to make sure that those that come stick around okay we'll take the second case study okay the innovation roadmap obviously everybody says you know that's the best way for us to to really make this company acquisition work is we're going to go through and do a lot of operational improvements right from the get-go but that will only get us so far importantly we know that in order to get a really strong growth trajectory you have to look at what else can we be doing where do we need to go from an innovation standpoint so this particular one was done basically using customer insights we can identify for instance if they're gas in the offering or are there any specifically unmet needs or their pain points things that the industry is struggling with again we talked about what competitors were doing better oftentimes we'll hear you know this is a great little company but if I'm getting a new go-to project they're not my go-to supplier another competitor is because I know they're more innovative so we want to look at are there any industry trends that are impacting how how much innovation can or should be done certainly we're going to validate importantly we always know engineers have a great pipeline of these are the next best ideas that our customers are going to want and heartily what we have to do is look at are they relevant to customers are they really in fact the next best ideas that customers would find most appealing oftentimes we will stress test several different ideas only to find out that two of the four are going to win and the others we shouldn't be paying any attention to because it's just not going to find the reasonable market to to identify and looking importantly at some pricing strategies for innovation how far can we stretch so this particular case study we started with a global manufacturer of specialty chemicals they had invested quite heavily in research and development for new projects for new products but in essence once they were in the market there was very little demand they had a lot of commodity products that they were very few new products that were in the in the offing that they felt they could make six so the challenge was are we going to go forward or do we need to try to cut R&D funding based on the category where we can monetize there's nothing we can do that will shake these people out of what they're buying so we went into an entirely different approach talking to their customers about new product offerings rating them on how they viewed themselves as being innovators so were the customers were the customers of the client viewed as innovators how many engineers do they have on staff that were dedicated to innovation how many new projects did they have going forward and in essence we found that 16 of the top 34 accounts consider themselves to be innovators and they wanted a supplier that would innovate with them well we were a supplier but they didn't think of us as being innovative so in essence they were saying we we are innovating but it's not relevant to us so what we ended up looking at and identifying there were over 200 customers submitted innovation opportunities that we were able to identify to go back to our clients and stay these are innovators they want a co partner and co develop with you on over to basically over 200 different initiatives so it became important for our client to prioritize which ones did they feel would commercialize best but they already had a partner towards that commercialization effort so in essence they were able to turn around and say no we do need to increase the R&D budget budget and we do need to really dedicate ourselves to co-creation programs with our key partners with our top accounts because they view us as a partner and they want us to innovate along with them so pretty remarkable and you can see their net promoter score was drawn 46 percent so even though they weren't viewed as being an innovator they were certainly indicative of one that was a partner one that was gaining share and the last case study will share with you basically what we call the self I go to market this is a company that said you know in essence we want to get ready to sell this company so we're going to do a customer satisfaction study to understand what opportunities are out there for us how strong are these relationships so this was all in preparation for getting the company ready to be sold to the next to the next buyer so we know that sell-side diligence basically is a European model much as as legal diligence and much as Oddie running diligence started on the other side of the pond so too has sell side diligence from a customer standpoint it's done more frequently than not basically its chart to try to determine is this the right time to sell can we attract buyers and help persuade buyers that we have a vanessa is a good a good product a good company to be able to buy it helps us control the message as opposed to having them look at us from a buy standpoint in essence we're able to see what's going on if there are some issues it gives us the opportunity to kind of tweak those and control those over the course of the next twelve to fourteen to eighteen months before we really are ready to buy or to sell importantly we want to look at is there a runway for future growth and certainly again we want to try to accelerate that timeline we want to take a snapshot to see what's going on in this case for us from the case study the manufacturer and distributor of industrial carpet now look in the top right-hand corner Net Promoter scores off the charts at plus 80 certainly gaining shares one of the things that the PE client was looking at was it's time to sell we think we've gone about as charged we can go with this but we also want to make sure that we leave enough on the table that the next buyer will feel that it's a strong the strong company to buy certainly from the standpoint of another private equity group was interested but they felt the value is too high so how are we going to try to justify the value multiples that we're looking for so certainly from our standpoint we looked at the Net Promoter Score and said wow this is a plus 80s company certainly strong they have great fundamental performance numbers on their fundamentals quality on-time delivery all of those issues technical support customer support all of those were high high rated numbers there were a few quality issues but certainly nothing that was off the chart and certainly from the standpoint of one of the things that we wanted to look at was what's the next runway what else do they have to enable to grow them to grow we basically had isolated a number of new products basically there were about four new products on the on the drawing board and we validated two or off-the-charts wins absolutely positively they were into Excel a third was yeah that's interesting but I mean the other two are much much better and the fourth was I'm not not going to make it just not very interested in it what we ended up being able to provide was that yes there was runway and yes importantly it was worth the price so the validation was was documented and as a result of the finding that both the buyer and the seller became comfortable with the validation became comfortable with the multiples that they were willing to pay importantly we've checked in basically about a year later the buyer is extraordinarily happy the numbers are still going up the new product sales are advancing and importantly this is a win-win on both sides of the equation which is exactly what you want to have when you're starting to do a go to market kind of planning strategy for companies that need to move out of your portfolio and go to the next to the next spire so with that we'll open it up to some questions all right great that was a fantastic presentation kay and Anthony we really appreciate that we have a we have a couple of we have a couple of interesting questions I think some of them will will extend out so the the first question we have is don't many sellers consider customer access to be mostly opening negative information what if they won't support the customer satisfaction approach one of the things that we we balance out is we're going to look for strengths as much as areas of improvement we want to in essence we want to document what is going well with the company so that we know that we've got a justifiable reason behind the asking price paying the asking price so in essence because this is a satisfaction study done on behalf of the target company we will always say we're going to leave these results ultimately in your hands because this is a way for you to help your company grow if there are if there are concerns for instance if they say oh no you're not going to talk to any of our customers at all let's get the red flag that says something's going on here why can't we talk to some of the customers particularly if the seller is the sponsor of the study aka letting the customers know that they've asked us to do this on their behalf not that they're paying for it that always is usually on the buy side but certainly from the standpoint of saying we want you to talk to our customers to understand what we're doing well and where are their areas of improvement so try to balance it down yes then we get you know it's interesting even if sellers don't necessarily want us to talk to their customers their customers certainly want to talk to them right we get about a 75 80 percent response rate so customers are eager to share their feedback because they know it's in their vested interest right that the the hope is that they're going to take time out of their day to share feedback on how their experience can be improved so even if there's hesitation on the sellers part you know I don't want to bother my customers you know I don't want to have one more touch point with them this is one of those instances where they're often happy to do it because they want to give it that feedback so in general how is this methodology or voice of the customer methodology different from other types of methodologies and market research I think we're a lot of what we see from a customer perspective is done with web surveys and we touched on this earlier you know web surveys the response rates are now in the single digits you know 10% of your blocky but they're more concerning ly when you're doing web surveys you have to ask yourself who is actually responding and it tends to be the one kind of Kay alluded to that are really really happy with you or really really upset with you so you get a very polarized set of feedback you're not getting a well-rounded eliptic sense of the customer relationship the other pitfall is that they tend to be very heavy on quantitative findings which are helpful right we certainly need statistics we certainly need empirical measurements to give us a sense of where we stand today but when doing this type of work where it's not just about knowing where we are but how we can move forward that's where we tend to find qualitative insights lends just as much if not more value and you just don't get that what surveys you know you can you can have people respond to an open-end but you'll get one or two sentences at most when you're having a dynamic phone conversation and you pose a question you know customers can can talk for for five or ten minutes on a single topic so I think it's the response rate combined with just a higher-quality insight yeah only other elements to add to that is when we are for instance when we are doing the interviewing as a third party and we're not mentioning the transaction that gives us kind of a level playing field of understanding what's going on yes if the private equity firm or the for the buyer is doing the interviewing they pretty much have to reveal that there's a transaction obviously just just from the standpoint of their methodology that transaction can be the fact that it's known now to the interviewee can change the deal we've had one situation for instance where the company that was the acquirer went out and talked to all of the top customers and literally after they closed because it looked like everything was perfect that one of the largest customers said okay now that you're here I want to price concessions and of course the acquirer says whoa whoa whoa whoa you didn't mention any of that when we were talking and they said well of course not you've got deep pockets they don't now that you're here I want to price concession so the value of their deal went south dramatically because they had to make that price concession because it was the number one largest customer with a lot of concentration so that's kind of the what we've always called the balancing point of why this is a good idea to do with a third party we can get into that insight because we're going to ask more questions and never mention a transaction which gives us the ability to triangulate around what's going on with the relationship so how do you convince or how yeah how do you convince the sellers to allow customer staff third party's contact them and then how do you make sure that the sellers doesn't give you customers that are only going to talk well about them yeah so a crucial step in the process is to have seller buy-in from the beginning and also to have the research from the perspective of the customer be sponsored by the seller and one of the best practices we have for doing this this prior to researchers getting on the phone and calling on a customer that customer first receives an email from someone senior at the seller organization saying hey we're doing a customer satisfaction study we're simply trying to find ways to better serve you so this gets back to what we were saying earlier where it becomes a mutually beneficial process the customer gives us time the seller gets feedback that's valuable whether or not the deal goes through it helps reinforce quv and other diligence and it gives acquires peace of mind to disclosed great if it doesn't it still adds value to the seller because it gives them a nice set of account level plans to improve relationships going forward and you know next time they put themselves up for sale there might be a more optimistic picture we often will encourage that you put it in your LOI as a as an element that it's there from the very very beginning it's known that it will occur only after a lot of other diligence has been done so that everybody is comfortable with one another we find the best cases are usually where buyer and seller have been around the table enough and yeah it's always drinking from a firehose but they've gotten to know one another and there's a feeling of a certain degree of trust at that point a certain degree of protection relative to the customers certainly we're going to say hey we know customer relationships are your most important asset there's nothing we're going to do to screw those up we also know that the exposure of customer satisfaction and the relevance of the customer experience these days is getting a lot more press in the business business world so this becomes kind of a natural add-on to say the best companies are doing this level of work in order to improve customer relationships so that feels pretty natural to customers so again we do it there's no threat and then to the second part of the question how do we ensure that you know sellers aren't stacking the deck and just giving us customers that they know will be favorable you know I think that the approach that Kay outlined were you know you really eliminate bias because we're saying don't give us a random sampling of customers because it may not be random we say apply that 8020 rule let's interviewed top accounts within top accounts let's only talk to people who we know are influencing or making the ultimate decision about which suppliers to use so we're really narrowing it down to a pretty narrow target and if the feedback is all great we know it's great because it's great among top accounts and it's great among people who are making the decision about whether or not they use us if it's not so great again the bias isn't there is we know the feedback is coming from the hearts and minds of those who are choosing whether they go with us or whether they go with a competitor so when you're contacting when you're contacting customers what what what do you what do you articulate as the purpose of the study being just just to just to gather information - for the clients so that they can do it better so they can be better yeah I mean I think everyone I mean I think most everyone especially in the b2b world is used to getting those you know after a flight or after a hotel you get those emails saying hey take the survey so customers are absolutely attuned to uncomfortable with being reached out to to provide feedback and we take a very similar approach we just asked for more of their time so we say you know give us 30 minutes have a conversation with us if you want to be anonymous you can but if you choose to put your name behind your comments someone will follow up with you and tell you what they're going to do to address your concerns improve your experience so it really is kind of a closed loop where we get the feedback we distill it we make recommendations we hand it over to a portfolio company or seller whatever the case may be they implement those findings and they have follow-up conversations with the customers so that it's a continuous improvement process where the whole mechanism is being driven by the desire to improve the customer experience what about is something that says customers you know they buy into that they get that I think they appreciate it - right well what about companies that have you just a few top accounts yeah doesn't does the size of the sample how important is that yeah and I think that that kind of dovetails to what questions another question that you know for those that leaner platforms who often have to do this internally I think that that lends to that question too because we often hear well there's only two or three top accounts I don't need to do this or I can do it internally and we would actually argue in instances where there are only two top of two or three top accounts those are the cases where there is the most customer concentration it might not be the 80/20 rule maybe the 95/5 rule so it becomes even more important to validate those relationships and instances where everything may be riding on one or two customers yeah the other important element to say is when you when you are doing it internally and we've had private equity companies that say well we do these calls all the time we used to and when they listen in to the variation of the interview that our researchers are able to conduct versus what they conduct they say well there's there is a methodology behind how you conduct an effective ongoing engaging conversation now importantly from our standpoint one of the things that we find is if you are going to do it internally you've got to take the next step you've got to be able to document importantly what you really heard not what you think you heard or what you wanted to hear and that's what we find is most often the case with people who are not trained to be interviewers and researchers they tend to hear only the things that they want to hear not necessarily the things that the customer is really saying now that's one thing the other element is to say you've got to do something with it you can't just look at your notes you have to be a little more analytical about your notes you have to be able to put those down into some kind of categories so that you're not looking at what you think you see in essence we might find a range of preliminary themes that everybody's as oh these are all very common and once we put it through the analytical sieve we may come up with an entirely different animal for instance if you go back to that string areas of improvement 91% of the commentary has to do with how great the company was but yet there was a twenty seven twenty one percent drag on it which meant there were still areas that the company needed to address a non trained non analytical person would be to say up customer services great check the box it takes it takes some it takes some expertise and dig through what are you really seeing in your findings and if you're going to do it internally don't just do it at a set of check the box don't just do it because on investment banks that you have to do it really be opportunistic about it realize that customer feedback can help validate a deal but a lot of the the applied insight happens post closed when you can use their feedback to accelerate your value creation plan so think longer-term if you're going to do this internally most of our clients also share the work either to the presentation itself the a.k being a part of the presentation or through at least the document share with their financial partners so that in essence it starts to level out that the debt that we are the deaths going to be secured yes this is going to be able to be paid off it's going to work for all of us but then I'd also argue would you have would you do a quality of earnings internally just to say good point so so you know we all know that customer diligence is only a piece of diligence so how does this a fit into the broader you know due diligence strategy and then you know in general can you give us some idea of how long customer diligence you based on the the the way that you've outlined takes as part of this as part of the diligence process yes I think the way interfaces other diligence efforts are validation and to supplement you know we would never expect that we do this in this alone we know Q of V is going to happen we know on larger deals or when you're building out a platform that commercial will happen legal all those other things so what we try and do is design our approach to complement everything else you're doing so we're out to validate QV by saying yes there is future growth potential at these accounts and here's why right we're out to validate contract diligence by saying these accounts intend to renew their contracts their purchase intent is high we're out to supplement commercial by saying here's all this great category level insight you have here's how it fits when we're talking specifically to your potential customers right so here's the competitive set across the industry here's the more narrow down list of competitors for the target here our industry white runs here's what's really keeping customers up at night so I think that's the way we the complement the other methods that are being done and not at all uncommon for us to work side-by-side with a commercial diligence provider in that in other words letting them contribute to okay but we need the answers to this this and this question can you give us some insight can you dig into that absolutely we can because we know we don't want the commercial diligence provider talking to the same people that we're talking to because that will do nothing but red flags all over the place so we have to make sure that the customers are treated discreetly and that they're not they're not asked repetitively what's going on and you know as Anthony said one of the things that our queue of people will tell us is that our interviews will add insight and validity to the earnings it basically not only says the historical earnings are secured importantly it lets us look at future earnings to make sure the future earnings projection is it's going to be valid and go forward I think I think it's probably worth noting that well you know we are supplementing and validating during the diligence window where customer diligence really stands alone as post closed because what other diligence are you getting that helps you with strategic planning for the first hundred days six months post close right that gives you really specific account level feedback on precise actions we need to take to retain accounts to grow accounts to improve the experience so it's probably more forward-looking than a lot of other types of diligence that's being done most of our buyer clients will tell us this was a great way to become intimate with the target company's customers in a very quick fashion quick it's fashion to you know very efficient very quick again because they're looking at they're looking at those transcripts they're asking questions post clothes if there are some red flag interviews it enables them to go to the seller to say tell us a little bit more about the color behind your relationship with company ABC and that lets the sell and be able to set the stage because clearly some customer interviews are red flags and we just have to understand is that a true reading or not that's why we encourage multiple interviews so that we know we're not looking at one one died or gal that was having a particularly bad day and that changed the whole rest of the discussion he listening tools that help that tap into the voice into voice of the customer data first of all do you do you take advantage of them are they part of your process and if so you know do they help you identify any insights how does that how does that work yeah in the in the consumer world absolutely that's a very powerful tool in the b2b world where the decision maker and the influencers that we're really looking to talk to they're not you know that they might be engaged with those platforms but they're probably not expressing you know or sharing content that we could use necessarily for insight I think that the the preferred approach is to just engage with them directly because it kind of goes back to the you know what we were saying earlier that's it I think the content you might scrape off eat listening elearning tends to be again that polarizing feedback if the people that are going to take time out of their day to go and say something really positive about you are really negative so it's not really representative of the total state of relationships gotcha so so last last topic and then we'll wrap off we're coming up on the hour and this has been fantastic you know here at star mountain we are we are we play place a huge focus on leadership and culture what is based on what you've learned what is the connection between leadership and culture and mergers and acquisitions we find that we are able to one of the things that that we're able to do with this work particularly if it says it was an ad or on our Pizza Street strategic acquirer is we can identify culture form and fit for instance if you're acquired company has a high level of love for the customer and the customer loves them they constantly focused on the customer experience and yet your strategic company acquiring them does not then you know there's going to be a difference for instance we had one client who is a strategic acquirer who is buying a a really really remarkable niche company and they ended up saying to us as we were going through the presentation so in essence you're telling us don't screw it up after we acquire it makes it was yeah I hate to say that but yeah that's true and with that in mind they took and he said we are going to change our whole integration process and I want to put the integration team together for another presentation with you so they understand what we're doing because if we put this through our usual process I guarantee we'd kill the company so that's that is great that's great insight to be able to share with us an acquirer to understand what's the culture fit how much of a leading how much of a leading company are you acquiring from an industry leadership standpoint what are the what what are you really getting here what kind of gem are you getting and with some of these smaller you know foundation of founder owned businesses you are buying great little gems the question becomes how do you not screw it up and we were able to really pry probably privately give a good assessment for again that integration fit and cultural fit culture fit yeah that's especially true you know lower mid market b2b companies where you have very long standing accounts they're long-standing for a reason right it tends to be the personal relationships that people do business with other people they don't necessarily do business with companies so it's a case point it's super critical to establish the ability of that and make sure that we essentially aren't screwing it up so Anthony Kay it looks like looks like that hour hours is coming to a close thank you very much is fantastic thank you for letting us talk to the group we really appreciate it sure I'd like to thank everybody who signed in for the hour and to let everybody know that within the next day or so we will be emailing everybody a copy of the president of Kay and Anthony's presentation along with a link to a complete replay for this webinar and should anyone have any further questions you know there's Kay and Anthony's contact information if they have any feedback about this webinar please feel free to email them to us at webinars at Star mountain capital calm and please check our our events page on some Mountain capital comm website for for future for future webinars and podcasts Anthony K again thank you very much and and hopefully we'll do this again soon all right thanks thank you all for Mike bye-bye