BDDD... Assessing BD and marketing in professional services investments

As PE increases its footprint across professional services businesses, a critical, and occasionally overlooked, element of due diligence is an assessment of marketing and BD performance, a BDDD if you will…. 

Across the frequent sources of underperforming M&A – be that overpaying, lack of strategy or overestimating synergies – a closer look at the target’s sales and marketing function can reveal hidden risks or value.

In a previous article I explored the increasingly complex DD landscape:

Here, we take a closer look at BDDD for professional services targets which, despite significant advances in digital marketing and AI, are still somewhat reliant on interpersonal relationships and effort to build the pipeline and progress opportunities.

Lets focus on the four areas that combine to drive the pipeline: strategy, BD, marketing and enablers.

Strategy

A strategic review is central to a commercial DD but doesn’t always assess how the business development and marketing efforts feed the broader strategy. We suggest assessing:

• Is there a strategy? There normally is, but not always and they are occasionally cobbled together for the specific purposes of an exit or investment.

• Is it SMART? The SMART approach has some critics today but still works well for this exercise.  In particular, challenge the Realistic and Achievable as on occasion they can really mean “easy”.  We’ve also seen examples where the business has impressive plans, but the how is unclear or underestimated. Using your existing expertise to target new industry sectors, geographies, or company size is shrewd but often trickier to execute than anticipated.

• How flexible is it? Ability to execute is key, but I can’t remember a plan that didn’t benefit from adjusting once it was clear that Campaign A was working better than forecast and Campaign B wasn’t delivering and needed a tweak. Agile methodologies are increasingly used and refreshingly direct, but watch for process for process’ sake.

• What’s the track record?  How have the previous strategy plans performed and are there patterns to be drawn?

• How is the strategy built? Here you want to understand authors, other stakeholders and levels of buy in and accountability - is the strategy central or peripheral?

Business Development

Next, one might assess if:

1. the BD effort matches the strategic goals; and

2. if the effort is creating the desired results.

It’s rare but feasible to have adequate BD effort without a tight strategy and in such cases the future focus is on tightening strategy to better direct the impressive efforts.

More commonly we identify that efforts could be increased or leveraged, or that the focus of activity is too narrow, or misdirected.  In both cases improved targeting can improve results for relatively modest efforts. We assess:

• Are the returns as expected across the pipeline and if not, where might they improve?

• Is the addressable universe correct? Might it be too broad or, more frequently, too narrow?

• What is the lead generation process? How frequently and proactively are approaches made? What is the mix, for example, of content vs hospitality vs conferences and what’s the impact of change? I made a mistake years ago of cutting conference spend because I couldn’t measure the return, and clients thought we were tightening our belts - an implication I'd not anticipated. Who is resonsible, and incentivised, to sell?

• How does client management work? Is it formal or informal and either way what are the triggers to drive activity or adjust approach? What listening or feedback is undertaken?

• What’s working well? Just asking this question can tease out how on top of efforts the team are and highlight any gaps in effort, comms or processes.  When the team has an impressive answer, follow up with “and what’s next?”

• What is the makeup of clients and targets? Fantastic insight can be gained here around new vs repeat business, conversion and cross selling. One unfortunate trigger for a sale can be a recent or looming loss of a couple of clients or rainmakers upon which the business was over-reliant.

• When time and appetite permit we’d also look to better understand: fees & pricing, cross selling, sectors and pitching in conjunction with the financial and commercial DDs.

Marketing

The range of marketing effort falls mainly into three categories.

1. Room to do more:  the business relies on existing contacts and that might also mean that the branding and positioning might need an update,  differentiators are less clear and activity across all levers (events, content, digital etc) is lower than ideal. 

2. Output driven - Delivering great content and events with some gaps in leverage and/or measurement:  This is the most frequent category with some quick wins achievable with a tweak in approach or resource

3. Outcome driven - Fully measurable and integrated with strategy and KPIs: impressive branding reinforcing positioning, following up great content and events, driving contacts through the funnel to deliver leads, creating actionable insight, conducting user research and driving awareness.  Perhaps unsurprisingly, this category is pretty rare.

The areas we assess are:

• How is the branding doing? While strategy and BD can be assessed with internal sources, branding requires an external review. Benchmark branding with a focus on positioning and differentiators – both can be tricky to rectify if the external and internal perspectives don’t match, or profile is lower than ideal. Per the DD landscape hexagons above, a reputational review is also important. Controversial clients, failed projects, staff vocally off-brand and perceived DEI shortfalls can all cause significant damage.

• How effective is the digital effort? It’s straightforward to assess metrics across the website and social media. We would also check the level of journey research and mapping, balance of free content vs forms, and how online engagement transfers to leads – is it manual, automatic, or missing?

• What is the content strategy – to drive leads, shift perception, create conversations, all of the above?  Assess a content campaign from origin, to production, to distribution, to engagement, to follow up. Where can improvements be made and does each campaign have clear objectives?

• How are events and hospitality used? Across all channels, understand how RoE is measured and follow up encouraged. We still see occasions where a room full of clients and targets is considered a success when the real BD effort has barely started.

• Don’t forget the media, if the firm had relationships with the top tier business press, that is still a significant benefit.

Enablers

Enablers isn’t the perfect term but it’s critical to stress test the means by which stuff gets done: Is the resource appropriate, are the systems adequate and do the processes drive results? As with everything here, a less sophisticated approach isn’t necessarily a concern but it is important to have transparency so you can make changes or improvements if need be. The key areas include:

• Resourcing/culture: are there skills or resource gaps in the team? How is the team positioned internally, from strategic partner, to critical reactive support. What is their time most often spent on - selling, managing, or delivering and is it clear who is responsible/accountable? Who is doing the selling? Are they succesful and what happens if they leave?

• Systems: how sophisticated, accountable and integrated are they and what’s the cost to plug any gaps? Are they fit for purpose and properly used? For a small consultancy with 1,000 contacts excel might still work, though even they can get a great free CRM. If the target has MA or a CDP, where is it best working for them?

• Processes: How do things get done and measured? Whether it’s a monthly catch up or fully agile – where is there accountability around execution? OKRs, KPIs, goals and objectives only work when they are enforced and even that approach isn’t a fix all. For example we’ve seen impressive execution of a poor plan, so the results are still poor.

• Data: It’s vital to check the target data – specifically: how accurate and current is it, how large are the mailing lists, how engaged/segmented are they it, how is data inputted/cleansed and how frequently are they contacted.

I hope I've provided a useful checklist of areas to consider and highlighted that a BDDD can provide greater transparency around the target's ability to plan and execute. As ever, feel free to get in touch with any thoughts or questions