What are the subtle differences in what this article describes for a merger and how this might apply to performing due diligence on a start up companies IT infrastructure (assuming that the start up is not an IT venture itself)?
And, what is the start up is an IT venture" then how does this advice change?
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There are actually quite a few significant differences. Our firm provides both types of consulting, so I can provide some insight into each for you.
In the case of the IT Due Diligence effort you are assessing Capacity (current and growth potential), Capability (standard processes and procedures, best practices, unique software, staffing), and Reliability (backups, source code control, disaster recovery) of an EXISTING operation. This description is over simplified, but it gives a general idea of what is done.
Startup consulting does address infrastructure from a perspective of developing it (based on requirements and budget), as well as best practices for the new IT operation. But, it also generally involves assistance with numerous business related issues as well (accounting, insurance, HR, payroll, contracts, business plans, banking, etc). Making the wrong decisions up-front, or not having the proper structure in place can prove to be very costly to correct.
While using good startup consultants can be invaluable, it is often too expensive for many new businesses. It is definitely worth considering for anyone starting a new business.
The goal of startup consulting is to provide a jump start for a new business, helping them avoid costly pitfalls and increase their chance of success. Startup consulting is especially helpful for people who have never started and run a small business before (it is much different that managing a department at a large company),or for those looking to grow quickly.
Knowing what you need and why will greatly increase your odds of being successful with either of these types of efforts.
In the case of the IT Due Diligence effort you are assessing Capacity (current and growth potential), Capability (standard processes and procedures, best practices, unique software, staffing), and Reliability (backups, source code control, disaster recovery) of an EXISTING operation. This description is over simplified, but it gives a general idea of what is done.
Startup consulting does address infrastructure from a perspective of developing it (based on requirements and budget), as well as best practices for the new IT operation. But, it also generally involves assistance with numerous business related issues as well (accounting, insurance, HR, payroll, contracts, business plans, banking, etc). Making the wrong decisions up-front, or not having the proper structure in place can prove to be very costly to correct.
While using good startup consultants can be invaluable, it is often too expensive for many new businesses. It is definitely worth considering for anyone starting a new business.
The goal of startup consulting is to provide a jump start for a new business, helping them avoid costly pitfalls and increase their chance of success. Startup consulting is especially helpful for people who have never started and run a small business before (it is much different that managing a department at a large company),or for those looking to grow quickly.
Knowing what you need and why will greatly increase your odds of being successful with either of these types of efforts.
Many startups do not address the IT arena in a way that would make an IT professional comfortable. When acquiring teams IT staff perform a checklist walkthru, the target companies typically fail. At this point it is more important to recognize theincremental and new costs of absorbing the target into the existing infrastructure. The Cap-X impact and implementation costs are critical elements to be communicated to the "deal" team. Appropriately recognizing/compensating for these costs in the negotiated price is a paramount role of the IT Due Diligence team. For "tech" startups the host company DD team must be proficient/knowledgeable in the technology being applied by the startup. The risk of miscalculations/omissions is high. The evolutionary differences between the two companies can lead to outright friction during the process (the target thinking they've got a valuable, hot company and the host thinking there isn't much value in a poorly executed model). For both tech and non-tech startups, however, the value of intellectual property (IP) is critical (and holds hidden value). Too many technology DD efforts are run by internal staff. These teams generally fail to even collect and analyze IP data. Even many legal teams will not fully inspect or appreciate the value of IP that may be tech centered or related. Likewise, it is really critical to ensure that the target is not infringing upon any existing IP. In tech startups, the risk that they don't own (or have properly licensed) critical components is real. I believe the key to really successful DD in startups (tech and otherwise) is really tight integration between the legal, financial, technology, and negotiation teams... and the recognition that the evolutionary gap between the target and host introduces many different/new areas of risk and cost.
After a long wait TR has begun to provide some direction that will enable technicians to influence the business equation. In the same way financial executives have had accounting standards and audits the technical and technology forces have realized the entry of tools to influence the vision of the company and maybe even an industry.
Those who are asking how should be asking where and why (= what). Due diligence is not a panacea but it is the executive?s and leader's tool to equate the vision of the company relative to IT and IS resources.
Finally, I would like to make the point that one must be careful to understand that any temptation to make technology by itself the goal let alone the objective is to miss the point of using technology to satisfy the needs of the customer.
Can you give me some more information of what kinds of financial information can be verified throughout an IT due diligence?
I couldn't agree with you more. I just referenced your blog posting in mine: http://artofbuildingsoftware.blogspot.com/2010_09_01_archive.html.
Here is a really good template I've used from the Vumero marketplace
http://www.vumero.com/bucket/models/mergers--acquisitions-due-diligence-request-list-15
http://www.vumero.com/bucket/models/mergers--acquisitions-due-diligence-request-list-15
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