Social Media & Corporate Due Diligence

Is there any real value to social media when it comes to corporate due diligence? There is indeed. In the due diligence process, sometimes vital information may be uncovered that could impact an investment transaction; good or bad. The key is to know what you’re looking for, how to ask the question and where to go looking. A Google search will tell you a lot. Perhaps. An online reputation management tool will tell you about the same, perhaps with some nicely designed graphs that, well, mean nothing.

Case Study Example
A client came to us that we had done market intelligence work for. This time, they were looking to invest in a software company in their sector. It was a strategic investment that would give them the software they needed and revenues from selling it to others. They were in the final stages of the due diligence process. So far, everything had checked out; the software was where is was supposed to be and the financials were as they should be. Since the investment included the key management of the company, they wanted to gain a better understanding of these people. That’s when it got interesting. The result of the research we did showed one of the co-founders was deeply engaged with a competitor and there was evidence of a side deal taking place – all of this from publicly available sources. But unless you know where to look and unless you have the ability to connect relationships in social media, this information may not have come to light until it was too late.

Social Media Research in Due Diligence
Just as social media can have an impact on board governance, so can it play a role in due diligence best practices. Arguably, a deep look into social media before the deep due diligence begins, may save an investor or buyer of a company a lot of up front time; and may give clear direction for due diligence. So what can social media potentially tell a VC, investor or buyer? Here’s a partial list;

- Reputation and standing of the founder(s) of the acquisition target

- Business and industry standing (to avoid potential damages)

- Other potential issues with Intellectual Property

- Prior business dealings that could send up red flags or indicate a good outcome

- Validate founder(s) claims of work and past experience

- Provide insight into what customers are saying in case there is cause for concern

Just as an individual can be vetted to ensure accuracy and reliability of claims, so can the company. And lets face it, people like to talk, always have, always will. This is a key underpinning of social technologies – that humans like to communicate. Often times, employees, customers or partners may say something in a blog post, on a public Facebook page, Twitter or other public spot. In and of itself, what is said is seemingly innocent at the time. Within that context, it is. Later on however or combined with additional information – that innocuous comment or blog post suddenly becomes very relevant and very important. Dots can be connected and a picture comes together. Competitors may use this information or investors. Either way, this is incredibly valuable information in the public domain.

Social Media Monitoring for Public Companies

It is important, but not just for brand monitoring. It’s important for a number of reasons beyond basic marketing purposes, perhaps more so for a publicly traded company. For smallcap companies it may be easier and less costly, but is still important. Here’s why;

1. Investor Relations: For those companies on the pink sheets or venture exchanges most chatter takes place in stock bulletin boards – but not all. Your stocks may well be discussed in other forums, on social networks (e.g. LinkedIn or eCademy for business social networks) or via microblogs such as Twitter or Identi.ca. You can gain key insights into investor moods and how they are discussing your business or even competitors.

2. Board Governance: Some insights can serve to keep the board informed of general market trends and assist in governance matters. Including warnings that there may be an emerging issue to address in rough times such as large lay-offs.

3. Liability & IP Protection: You can use these tools to monitor for possible infractions on intellectual property protections such as patents. If unions are involved, monitoring public forums may give warnings of strikes. You may face leaked information that can affect stock prices (such as United Airlines suffered when a blogger posted they were bankrupt; several years after the fact and the stock price tanked.)

4. Adults Too: Chatter across social media channels is not just for kids; thinking that way can be a costly mistake for a public company today. The average age of a Facebook user is 43 and for Twitter it’s 38. There are a number of social media channels that are of no interest to kids, such as for golf or sailing.

5. Management Monitoring: Senior executives of public companies often come under scrutiny not just by news media, but by shareholders and sometimes the general public. Monitoring and researching social media channels can help keep an eye on the reputation of senior executives and help avert any potential crises.

These are perhaps the primary reasons to research social media channels to begin and then monitor those channels on an ongoing basis. There’s so much information moving onto the Web every day that no industry sector is isolated. Before you monitor however, it’s best to retain your PR firm or a research house to conduct the initial scan of your ecosystem to help understand what to monitor, how frequently and to what degree.

Keep The Sales Manager Away From Social Media

Sales is, for the most part, is a “near-term results” effort. On a daily, weekly, monthly and quarterly basis a CEO is always looking at the sales numbers. Because the purpose of a business is to make a profit and sales helps drive profitability. Otherwise you’re a charitable organization. I’ve seen a lot of expectation that because Social Media seems to be so “instant” with services like Twitter or Plurk and Facebook, it should be able to bring instant sales results. But it isn’t.

Social Media is a managed investment – like marketing and communications. It’s been argued and I agree, that through Social Media there is a true model for Integrated Marketing Communications (IMC). Properly researched, planned and implemented, marketing has an ROI. Marketing essentially paves the path for the sales team to close the deals…to ensure they have deals to close in the future.

Social Media enables marketing (and sometimes sales) to foster deeper relationships in the marketplace in order to aid the organization across all aspects of the company. Product feedback for the product management team, company feedback from shareholders, indicators for increased market uptake and feedback to human resources for hiring issues.

Simply looking to engage in Social Media for immediate sales opportunities will only lead to disappointment. Engaging in Social Media means you must be prepared to make an investment with resources; your company’s most precious resources – people. A senior manager wouldn’t execute a marketing campaign without research and planning just as a sales manager wouldn’t let a sales team loose without a good plan – ideally sales and marketing work together.

So it is with Social Media; you need research, then a plan, then you execute. Over the longer term. Look for metrics to measure progress as you would in marketing. Expecting instant results is setting up for failure. We’re not saying don’t let the sales manager near your Social Media efforts, but they shouldn’t expect to instantly expand the sales funnel or salivate over huge sales gains in the next sales period. Social Media takes time to garner results – that means months.

And if you’re calling your agency to create a video that will go “viral” to get those instant results – hang up now. Certainly you can make a cool video – but it’s the public, not your marketing team, that decides if anything will go viral as Shai Agassi so truly stated among others.

Social Media Marketing Is A Managed Investment

If you’re looking to engage your company or organization in Social Media and you think Facebook is the place to start, you could be wrong. If you also think a some advertising on Facebook or MySpace and maybe a cool application in Facebook is the way to go, you may end up wondering why it didn’t work.

Engaging in Social Media often requires a holistic, multi-channel approach. This means you might well need to consider engaging through Social Network services like Facebook, microblogs like Twitter or Plurk and leveraging YouTube and a blog or two. Additionally, you’ll also need to look at how you actively participate across those channels.

In our experience, most failures with Social Media marketing come from the assumption that an organization can leverage Social Media in the same way as the Web or traditional marketing. You might have some small degree of success in this regard, but it will also be shortlived. We’ve seen a number of cases where an ad agency will execute a clever video style campaign in Facebook and some push on YouTube with great creative. The message takes off, gets good viral uptake and some click-throughs that result in sales. This is good for the short term. But what happens afterwards? The campaign has ended, but the creative lingers. You might think that’s good in terms of ongoing brand awareness, and it is, but it’s also damaging.

With no later follow-up, your brand is simply seen as marketing. This may very well make the next campaigns significantly weaker in uptake over time, since you aren’t engaging your stakeholders over the longer term and they will simply see you as “pushing” rather than “participating” and Social Media is all about participating.

As you plan to enter Social Media it’s important to think about your ongoing engagement and participation, so that the next time you launch a campaign, you have an engaged base audience to help you spread the message. Over time you build a good solid audience with which you gain permission to engage. Campaigns will be more successful and the results will mean better overall sales. That’s a managed investment in Social Media.