First, conduct a traditional 80/20 analysis to see which 20% are generating 80% of the revenue. While this should be straight forward, it can tell you a great deal about how the business is being run. Once you have this list, it’s important to break them down to see which ones are similar. Check to see if they are scattered around a variety of “Personas” (the second step below) or if they are all in one specific Persona.

Once you understand where the revenue is coming from, then you can do more due diligence around those customers to see if they are the “right” customers or not to grow the business. This will tell you a great deal about the business. Gaining in-depth knowledge of who is paying you to keep the doors open is mission critical for anyone looking to buy a business. And if you are selling your business, this is the first place you might want to look at before presenting it to future buyers.

Third, determine what commitment level current customers have with the business? Are their customers satisfied, loyal, or advocates of the business? This is critically important to determining the current level of “customer risk” the organization may have. This takes some analysis and developing certain criteria to evaluate this accurately. You can start by looking at buying behaviors, Customer Lifetime Value, and some other factors to help determine their status.

Knowing the mix of customers that make up 80% of the revenue should be a vital exercise prior to moving forward with any other due diligence. For example, let’s say that 75% of their top 20 customers are merely “satisfied.” These customers by definition are at high risk of defection or leaving if something changes in the organization. This could be devastating and literally collapse an organization in a short period of time. Figure this one out before moving on with any other evaluations so you know the level of risk you are assuming with the current customer base.

Fourth, ignore the data from survey’s…go get your own. When I hear that a company has surveyed their customers and that these customers are pretty happy, I’m naturally skeptical. Mostly because I have seen so much “false data” over the years that I usually don’t take it at face value. To start, it’s vital to know which customers are responding to the surveys. Generally, it isn’t the company’s mainstream customers. It is usually those who are very happy (for whatever reason, such as price) or really upset (could be for a variety of reasons such as their experience). While this information might be helpful, it doesn’t really matter unless you know their Persona and how much revenue they are contributing.

Finally, the fifth area is to look at the processes inside the company to see if they are primarily designed to support the internal operations or their customers. It is very insightful to know what comes first in the mind of the owners. Once you understand what comes first, you know that if something has to give, what it’s going to be. Unless the company is customer focused at their core (their culture is all about the customer first), their processes usually favor “internal efficiency” rather than doing whatever they need to do to make the customer happy. This is very important if you want to develop more loyal customers or even advocates.

If you ask them to show you their “process maps” and they don’t have any, this is a huge red flag. If they do have them, how are they drawn out and documented? Are they easy to follow for each area of the company or just a high-level view of how everything works? The more detailed the process maps, the more organized the company is regarding how they consistently deliver products and services to their customers. The “devil’s in the details” as they say, and it can’t be any more important to understand the details of how they are going to deliver their services, products, or their customer experience.