Browse > Home / Startups / Blog article: Avoid Undue Diligence like the Plague

Avoid Undue Diligence like the Plague

June 2, 2008

/files/2008/06/2421306850_f582d7d748.jpgDue diligence is the verification of information given to an investor by a startup in contemplation of a potential investment. Undue diligence, the solicitation of information for competitive reasons, is perhaps the most unsavory you can commit against a startup. Not only are you wasting the company’s time, you are getting their hopes up and potentially altering their behavior toward REAL investors.

Real investors, i.e. ones that you have heard of, rarely conduct undue diligence or if they do they have someone else do it for them.  You are more likely to fall victim to the services of a competitive intelligence expert like Dan Sklaire from Systems Research Corporation in New York City.  Experts like Dan are hired guns engaged by your competitors to learn about your a) business model, b) pricing model, c) service offerings, d) your competitive advantages and e) anything else he can uncover.

The most common way a competitive intelligence professional like Dan Sklaire begins to understand your business is through the creation of an RFP (request for proposal).  Of course if you respond to RFPs and you are not in a commodity business you deserve a little undue diligence.  One of our companies recently responded to one of Dan’s RFPs with detailed responses and specific pricing.  I saw the deal in a weekly funnel report and asked about it.  The salesperson indicated that he had NEVER met Dan, but that he ran a marketing company that was relocating to Dallas and would need a new IT solution.  I couldn’t believe we responded to his RFP, but the salesperson insisted that we were looking good.  He had a meeting with Dan in a couple of weeks and hoped to close the deal at that time.  Needless to say we didn’t get the deal.  In fact, our salesperson allowed Dan to record their conversation where we went into great detail answering questions Dan and his client had about our proposal.  When the salesperson got back to the office I asked for the name of the client and his contact and I did a little research.  It took me five minutes to figure out that we were being played.

If you are in a service business when was the last time you won a deal where you responded to an RFP that you didn’t help write?  If you won I suspect you are selling yourself short (i.e. you are not generating adequate profit margins).  If you are selling services, the WAY you deliver your services should be AS important as what you are delivering.  Successful service companies often offer a client advantages unrelated to price, such as reduced costs.  How can your response to an RFP drafted, in most casesby your competitor, showcase your advantages over your competitors?  In most cases it can’t.  You need to reframe the questions and answer the ones your competitors don’t want you to answer.  You need to SELL.  An RFP is the opposite of selling and in some cases it is worse.  In the cases of our company it wasted the resources of three people over the course of two days.  Six man days are gone and for what?  To help our competitor better understand why we are winning.  Had it been a real deal we would have most likely lost; so the moral of the story?  Don’t respond to RFPs unless you are in a commodity business.  And NEVER give any information to Dan Sklaire (do I sound too bitter)?

Written by Alexander Muse · Filed Under Blog, Startups 

Comments