Move guide
Test the growth and the customers
Your report suggested a move on at least one of these two questions:
- whether the target outgrows its market, like for like;
- whether its customers are happy, and come back.
This move guide splits the target's growth into its parts and sets it against the market. It maps how the target reaches new customers. Then it hears from customers the seller did not choose, and pulls the retention numbers.
1. When it applies
Use this move guide if your report placed either question at "Red flag" or "Doubtful".
| Question | Where it may sit today | Where this move guide aims |
|---|---|---|
| Does the target outgrow its market (organically and on a like-for-like basis)? | Red flag: "Like-for-like share is drifting to competitors, and it reaches customers only through channels that can delist or disintermediate it." Doubtful: "Reported growth matches the market, organic and acquired growth aren't separated, and the route to new customers is whatever it has always been." |
Supported: "Organic, like-for-like share gains evidenced over several years, through a route to market that reaches the right customers." |
| Are the target's customers demonstrably happy, and do they come back? | Red flag: "Recent, reliable feedback from the largest customers favours competitors, and customers are leaving: lost listings, lapsed renewals, falling repeat purchase." Doubtful: "No recent, reliable feedback exists and retention is unmeasured; “customers love us” rests on anecdote and the sales team." |
Supported: "Recent, independent feedback covering the largest customers rates the target ahead on their key purchase criteria, and retention, renewal or repeat-purchase rates are measured and healthy vs peers." |
If both already sit at "Supported" or higher, skip this move guide.
2. What to do
Four steps. They take three to four weeks.
- Split three years of growth into organic, acquired, price and volume. Check like-for-like share against each segment's growth.
- Map how the target reaches new customers, and who controls that route.
- Speak to the ten largest customers and ten the seller did not introduce. Score the target against named rivals on what those customers buy on.
- Pull retention, renewal or repeat-purchase data by cohort, and set it beside peers.
Table A below holds the split and the evidence.
3. What to produce
One table.
Table A. Growth and customers
| Item | What we found | Source |
|---|---|---|
| Growth, split: organic, acquired, price, volume | Management accounts | |
| Like-for-like share against each segment | Market model | |
| Who controls the route to new customers | Interviews | |
| What the largest customers buy on, and how they rate the target | Ten interviews | |
| What customers the seller did not choose said | Ten interviews | |
| Retention by cohort, against peers | Customer data |
Feedback from customers the seller chose is a reference, and only that.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A logistics group is looking at a freight-forwarding business. Revenue has grown a fifth in three years, and the seller calls it market-beating growth.
The split.
- Half the growth came from two acquisitions and a third from price. Organic volume grew more slowly than the market.
The route to market.
- Most new customers came through one freight platform. The platform could start selling its own service.
The customers.
- Ten of the largest customers rated the business ahead on reliability. Ten others, found independently, rated it behind on price and level on everything else. Customers who joined three years ago renew as often as peers' customers do.
Four weeks on.
- 4 parts growth split into organic, acquired, price and volume
- 20 customer interviews, half found independently
- 1 route to market a third party controls
On a retake, both questions could be answered at "Supported".
What it looked like in our work
From our own work. Redrawn.
For a buyer of a building-products manufacturer, our due diligence asked trade customers what they buy on. Then it asked how the target compared with its main rivals. Customers rated it well. They also said the main suppliers were hard to tell apart.
| How much it matters | How the target compared | |
|---|---|---|
| Delivery, quick and in full | High for every kind of buyer | Strong, like the other main suppliers |
| Price and rebates | High for every kind of buyer | Broadly at the market price, with some signs it charges more |
| Service | High for distributors, lower for direct buyers | Good, with one rival seen as better |
| Stock on hand | Medium for distributors, low for direct buyers | Weaker far from its single plant |
Customers rated the target well on what mattered most, but saw little difference between the main suppliers.
One customer called the product a commodity. Good ratings were the entry ticket, and no reason to pay more.
5. Effort and dependencies
- Deal leadOwns the growth split and the evidence.
- Commercial due diligence teamBuilds the split and pulls the cohort data.
- Independent interviewerRuns the customer calls, including the ten the seller did not choose.
What you need
- The segment model from testing the market.
- Three years of sales by customer, and access to customers.
How long
- Three to four weeks.
What gets in the way. We have seen these in our own work:
- Growth that was share loss. An outsourced services business grew every year, yet lost share each year because its market grew faster.
- Outperformance in one place. A branded food manufacturer's growth above the market came from one premium brand in one channel. The rest grew with the market or less.
6. How will you know it worked?
The test is whether the growth and the customer story hold without the seller's help. Retake the check when Table A is full. Each of these should be true when you answer:
| Question | You can answer Supported when | A document alone does not count if |
|---|---|---|
| Does the target outgrow its market (organically and on a like-for-like basis)? | Organic, like-for-like share gains show over several years, through a route that reaches the right customers. | Acquired and organic growth are still one number. |
| Are the target's customers demonstrably happy, and do they come back? | Independent feedback rates the target ahead on what customers buy on, and retention is measured against peers. | Every customer interviewed was chosen by the seller. |
The worked example is illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.