What Makes Good Due Diligence Great
A great due diligence report is a due diligence report worth reading. A great due diligence report generally has the following attributes.
1. You know more after having read it than before. It isn't just a list of negative findings. You can't make a better decision by just reading a list of what wasn't found. It is a report that draws a picture of how the company is navigating the risky business environment they find themselves in. To do that, the report has to consider the particular set of risks companies in that industry, in that market, face today and are likely to face in the future.
2. You feel better about making the decision after reading the report. A due diligence report should leave you confident you have the best insight possible. Beyond just reading, maximum confidence comes from interaction with the report writers before and after the investigation. Interaction produces an understanding of just how the investigation was planned and executed, and should leave you feeling confident that the job was done right.
3. A good DD should be surprising. It should tell you something material that you didn't know before and should have known. Not all of the risks a company faces can be scoped out ahead of time. Sometimes due diligence is about heading off in unexpected directions. Because you don't always know what you don't know. There is unquestionable value there.
4. A good DD should be focused on more than just dismissing surface negatives. It should also seek to understand the company deeply enough to uncover the deep negatives. The ticking of time bombs can't be heard from an armchair outside the building. It takes a true understanding of the industry and the forces shaping it to figure out what keeps a company's executives awake at night. Finding out whether those worries are founded or not is what due diligence is all about.
5. Real due diligence is about empathy with the report's consumer. Report consumers should feel confident that due diligence investigators put themselves fully in the client's shoes, as if their own money were at risk in the client's planned decision. A good final question to ask investigators is "Would you do this if you were me?" You'll then figure out how confident they feel in their own homework.