Alexander Stenfert Kroese shares a five area CDD framework and highlights points of focus.
CDD has one job: tell the deal team whether the revenue projections are believable, and on what conditions. Everything else is in service of that question.
Most teams commission it too late and scope it too broadly. Both mistakes are avoidable.
Structure every CDD around five areas
The Five-Area CDD Framework
Market: size and structure of the segment the target actually competes in, defined precisely, not by the broad industry label
Competition: how differentiated the position is and how durable that differentiation will be over the hold period
Revenue quality: recurring vs. transactional, true churn rate, and the gap between reported and economic performance
Customer relationships: who owns them, what the switching cost is, and what a new owner needs to do to retain them post-close
Commercial model: whether the sales motion, pricing structure, and growth plan are executable or aspirational
Revenue quality and customer relationships are where material issues most often surface. Both require primary research. Desk analysis alone will not find them.
Customer interviews are not optional
Any CDD that does not include direct conversations with current customers, former customers, and lost prospects is incomplete. Published data tells you what a market looks like. Customers tell you who actually wins and why. The two are not interchangeable, and substituting one for the other is where CDD most commonly understates risk.
Read the article, What Commercial Due Diligence Actually Covers, on StenfertKroeseConsulting.com.