Category Archives: Uncategorized

General IT, Technical Debt, Uncategorized

7 Areas of Hidden Technical Debt That Increase M&A Costs

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This article first published at the Axial Forum here: 7 Areas of Hidden Technical Debt That Increase M&A Costs and is reposted here with permission.

Effective buy-side deal teams are well-versed at issues during due diligence that might impact a deal. But even the most astute deal teams can miss te­­chnical and IT aspects of the target company that can significantly impact the cost of the integration and the return on the investment.

Here are seven often overlooked areas of potential hidden technical debt that acquirers should investigate prior to close.

Employee Devices

Desktops, laptops, mobile phones, and tablets are the tools of the modern office worker. In most businesses each employee has at least one of these and in many cases 2 or 3.

The acquiring business will assume responsibility for the condition and upgrade/replacement policies for these devices. Even in a small company acquisition, there can be hundreds of devices to track, maintain, update, replace, or discontinue. A well-run business should have an inventory of employee devices.

During due diligence use this inventory to determine if excessive technical debt exists in the device fleet. If the business does not have a device inventory, further due diligence investigation will be needed to determine hidden costs.

Backend Server Hardware

Most businesses still use physical servers. These could exist in a rented data center or be stacked up in the closet down the hall.

As an acquirer, you need an accurate list of these assets and the purpose they serve. The actual server hardware needs to be checked for age, serviceability life, warranty, general condition and need. A server upgrade can be a non-trivial task, especially on a mission critical application. Factor in the costs of migration, updates, and maintenance of these physical assets in due diligence planning.

Server Operating System Patches and updates

In addition to physical hardware inventory, the operating systems of the servers need to be checked. Operating system vendors like Microsoft, Apple, or Linux issue updates to correct software defects and security vulnerabilities. It is up to the system administrators to keep up with the installation of patches and updates. Systems that have not been patched are more vulnerable to penetration and disruption.

Spend time during due diligence inventorying the operating systems’ patch level and the security vulnerabilities of the servers. Then plan for additional time and effort post-integration to mitigate.

Unsupported/Obsolete Software Applications

Some businesses rely on older software applications, sometimes custom-built. Old or obsolete software is a significant cost factor when planning mergers of technical assets.

During due diligence, inventory all software in use by the business. Licenses, support contracts, warranties, and necessary upgrades also should be documented. Software applications that are no longer supported by the vendor or creator need to be factored into the cost of the merger. Knowing the landscape of the business software and planning for changes during due diligence can save significant amounts of time and money during the execution phase.

Paper Dependent Processes

Many businesses still use paper. Make sure you understand which processes are dependent on paper, how its stored, whether it needs to be converted to electronic format and the like.

Paper can generate storage, security, and accessibility issues for the acquiring business.

Integrating paper processes with electronic processes of the acquiring business can add time, expense, and potential errors, as well as require additional equipment. Investigate this liability up front to appropriately plan for it during integration.

Duplication of Data

Almost all businesses have databases to hold corporate, product, or customer data. Careful examination of the database architecture yields important facts regarding duplicate data that will impact future integrations.  Duplicate data leads to misreporting, inefficiencies, and security risks. It’s not a deal-killer but does need to be examined and understood to determine its ongoing need, security risk, and cost impact to the merger.

Custom Software

Custom software can be a competitive advantage, and help make a target attractive. However, custom software can also hide all kinds of scary things. On the outside things may look shiny and new, but on the inside there may be loads of technical debt.

During due diligence, consider the software’s architecture, dependencies, and implementation. Look at the quality of the code and what tools and languages were used. All these factors impact the cost of the business and its ability to grow and integrate in the future.

Uncategorized

What is Good Friday and why is it good?

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We were sitting in a conference room. The meeting hadn’t started. it was the Thursday before Good Friday. One of my colleagues asked me about doing a task the next day. I stated I was going to be out of the office in observance of Good Friday and would do it on Monday when I returned. That prompted the question “What is Good Friday anyway?”.  My colleague, who happened to be Muslim, was asking something that many probably wonder as well, what is Good Friday and why is it good?

Good Friday is the day, in the Christian tradition, that we remember the betrayal, trails, punishment, crucifixion and burial of Christ. It occurs three days before Easter (the celebration of the resurrection of Christ). The Desiring God blog has a good article that overviews the events of that day as told to us in the New Testament Gospels.

Recalling the tremendous suffering and death of Christ brings feelings of sadness and sorrow. In fact in some countries (Germany for example) the word used for Good Friday means ‘mourning’ or ‘sorrowful’. Not a reason to call the day good.

While the remembrance of those elements can bring sadness, they also foster feelings of thanksgiving. Because of what the death means and what believers receive as a result. In that respect, because of the redemption we gain through Christ’s death, it is good.  A seeming bad thing, His death, resulted in something good for us, redemption.

Various Christian denominations have special services or observances they do on Good Friday as part of the celebration of Holy Week. I encourage you to attend and learn more about why this Friday (and the corresponding Sunday) is so special. I know I will be attending services at my church to celebrate and observe this wonderful event.

 

 

Personal Growth, Small Business Growth, Small Business Purchase, Uncategorized

10 signs a company may be heading for a dead end

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As an investor, you want the companies you buy to be vibrant and heading toward a shared better future.

As an employee, you want to know that the company aspires to something more and has plans to get there.

In either case there are signs you can observe in the corporate environment to help discern whether things are looking up and there is hope or whether things are in a spiral and it may be a dead end.

If the company has these signs it could spell trouble:

  1. Stopped investing in personal development and growth

Learning, adapting and growing is the only antidote to a rapidly changing workplace landscape. It is a crucial way to retain the ability to be competitive in the future. Corporate training, personal development and the encouragement to pursue growth are signs a company is looking to the future and has hope.  Without training and development your skills will slowly become irrelevant. Without a corporate growth culture, the company will stagnate, and be ripe for disruption  from more forward-thinking and engaged competitors.

2. Stopped vision casting, strategic planning and setting goals

Vision and strategy to get there are also forward looking. A clear and well communicated vision of the future is a unifying force in a company, getting everyone on the same page. Strategy and goals allow you to focus the energy of hope in the areas that best achieve the vision. Goals and strategies allow you to say “no” to the other, potentially good activities, that don’t most fully help the company realize the vision. If the company has no vision casting, or strategy discussion, it is a tacit admission that the future looks dim. For no company can continue to exist by simply repeating what they have done in the past. Jim Collins covers this and other corporate killing behaviors in “How the mighty fall“.

3. Stopped analyzing failures and learning from them

Every failure is an opportunity to learn. If your company is not taking the time to ask the why questions surrounding any company ‘failure’ it is neglecting one of the most direct sources of learning and growth available. As the folks over at isixsigma.com state:

“By repeatedly asking the question “Why” (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. “

By understanding root causes, we can make changes to correct, improve and grow. When this process stops, improvement, and growth stop as well.

4. Stopped experimenting

Experimenting, and the the learning that takes place from it, are paths to future products, services and improved customer experiences. Experimentation is the path to discovery. Experimenting is planting seeds for future ideas. Without experimentation you eliminate a key source of corporate learning. Without corporate learning is will be impossible for your company to keep up and competitive in a fast changing market. The market you serve will evolve and change leaving you behind with your antiquated products and services and no one wants to buy.

5. Stopped listening to customers

With today’s search capability, social sharing and ubiquitous smart phone presence consumers can instantly access real time information about your product or service. This can include reviews, comments, social shares and other information. It is easy for a consumer to find out more about your product than you know. The users of products and services are willing to share feedback as well. This feedback is extremely valuable in product development and service adaptation. Customers will reveal what they need and will pay for if you ask the right questions. Companies that stop this process (or ignore it) are refusing to set themselves up for future success with their customer base. Opening the door wide for competitors who will.

6. Stopped working at employee retention

The real asset most companies have, that doesn’t show up on the balance sheet, is the employee base that shows up and do their job in a competent, efficient manner. The consistent commitment to show up and do their job is what moves a company forward. If all the employees stopped doing that, any business would fold like a garage sale lawn chair. Recognition of this fact, and the commensurate application of retention programs for key positions is important to the future continuity and growth of any company. Companies who don’t value the employee base are not valuing their own future prospects.

7. Stopped focusing on workplace culture

As Peter Druker is famously remembered as saying “Culture eats strategy for breakfast”. A great workplace culture is the lubricant of employee commitment and engagement. If the culture is poisonous or corrosive, or just simply ignored, it will impact engagement, commitment, and implicitly, business results. Culture has to be nurtured and maintained. Stopping the care-taking of the culture is akin to not cleaning the fish tank. Pretty soon it gets unbearable (and kills the fish).

8. Stopped showing thanks and appreciation to employees

Sincere thanks and appreciation from company leadership can be more motivating than monetary reward. We all want to be appreciated and recognized for the contributions we make. In companies where this is not the practice it makes the grass look a lot greener elsewhere.

9. Stopped watching for disruption

Disruption can happen at astounding scale and speed. I talked about my take-aways from Big Bang Disruption where whole industries can be disrupted with breath-taking speed. A company must be always on the lookout for up and coming technologies and companies that would potentially pose a threat. This examination must be part of their planning cycle and strategy discussions.  If you stop the vigilant examination of your industry and its periphery you invite the surprise of your industry changing underneath you and your company having no response.

10. Stopped communicating and serving

If your company leadership is not engaging in communication and re-iterating the vision and culture and discussing openly the challenges and opportunities of the business, that is a clear sign that something is amiss. Either it means they have nothing to communicate, or what they have to communicate is bad and they can’t bring themselves to deliver the message. Both are huge red flag indicators.

 

Most of these are easy to spot and all of them are correctable with diligent, committed and wise leadership. Without that, you may be on the way to another dead end.