The Black Art of Voodoo Diligence

Not long ago, the biggest technical decision an Internet business had to make was choosing the right HTML editor. Suddenly, the status quo required every web site to have a flaming logo of their own (a must-have feature nearly all HTML editors lacked). As web sites became more sophisticated, many businesses grappled with the more difficult challenge of choosing a web development consultant.

No longer able to rely on $2 reviews of shrink-wrapped products in the computer trades, Internet businesses were forced to evaluate web consultants on their business and technical competence, costs, and suitability as a partner.

The evaluation process was largely a crapshoot. Standards didn’t exist, track records were measured in months, and any upright-walking primate with computer access was capable of making an equally credible case.

Even direct cost comparisons were unreliable. A single Request for Proposal (RFP) would receive budget estimates from different consultants that ranged between the price of a new B-2 stealth bomber and a Denny’s Grand Slam breakfast.

Avoiding Due Negligence

Today’s competitive web landscape — with its growing emphasis on networked business relationships — has only increased the need for (and scope of) strategic partner evaluations. Even if you aren’t planning a multi-billion-dollar portal merger, you may be among the many web sites forging strategic partnerships for content, features such as search engines, services such as free email and web calendaring, and business functions such as affiliate programs and transaction processing.

The process of evaluating potential strategic partners is often called due diligence. Do it right and you can advance your web presence to the forefront of your industry and your consumers. Do it wrong and you can waste more time, effort, and money than Microsoft at a Department of Justice hearing.

Think of due diligence as a job interview, except the candidate is an entire company. Deciding that you’re interested in a company’s product or service is the initial risumi screening. Questioning company executives on their business and technology is the in-person interview.

Giving You the Business

Start by asking questions about their business. Several areas to evaluate their business include the following:

  • Business operations

How many are employed by their organization, and in what areas?
Who reports to whom?
What’s the background of the management team?
What is their track record in their field?
  • Market space

What is their target market, and how does it match up with yours?
Do they have clients with similar needs to your own?
Do you have common goals?
  • Business model

Will they be around in six months?
Are they a potential acquisition target for one of your competitors?

  • Competition

Who do they see as their competitors?
What differentiates them from the “crowd”?

  • Funding

Are they funded through private investors, venture capital, public stocks, or the change found between sofa cushions?

  • Level of partnership

Are they looking to provide a branded service, an exclusive partnership, or even the mother lode of due diligence — a possible merger or acquisition?

  • Business relations

Will you be a key part of their company strategy, or will you just be one among many clients?
How will that impact the service level you receive?
How will those dynamics change if they forged a new, big partnership?

Before you interview a company about their business, it’s imperative that you first research their competition and the current conditions of their market. One area where America Online has improved considerably over the years has been in the quality of its research for potential mergers and acquisitions.

In 1995, AOL recognized the growing value of Internet searching and purchased WAIS, Inc. for rights to a once-heralded search technology. However, AOL failed to notice the rise of web search engines like Lycos and Excite that made the technology irrelevant.

By 1996, AOL sold off its WAIS technology for scrap. Contrast this with AOL’s recent acquisitions of ICQ and Netscape, which have boosted both its online strategy and stock price.

Technical Difficulties — Please Stand By

While the Internet game has always been about business, the web is still largely a technology-driven medium. The integrity of a strategic partner’s technical staff could expose your web site to serious service outages and system failures, which — according a recent Jupiter research report — could cost you both short-term and long-term business.

Several areas to evaluate a potential partner’s technical competence include the following:

  • Service architecture

What computer hardware and software do they use to run the site?
How have they designed for high availability and fault tolerance?
Are their servers co-located in a data center with redundant power supplies and backup hardware?

  • Networking

What kind of routers and switches are they using?
Who are their ISPs, and how much bandwidth do they have from each?
Do they use multiple ISPs in case one fails?

  • Operations

How do they monitor their service uptime?
Who gets paged during outages, and how are they paged?
What are their escalation procedures if something goes down — particularly if you’re the first to notice?
How large is their support staff?

  • Processes

What is their process for prioritizing and developing projects?
Do they have dedicated project management?
Do they document their work so that key technologies won’t fall victim when an employee leaves?
How do they manage product revisions?
How are they deployed without screwing up what’s already live?

  • Quality

How do they build quality in the product?
Do they have dedicated quality assurance (QA) staff?
Do they have separate development, testing, and live environments to better manage software releases?

If you are looking for a partner with dependable service, ask them what they think their weaknesses are. You may not get a completely truthful answer, but they should demonstrate a detailed working knowledge and awareness of their service and its limitations.

Ask how they might scale their service for double or even ten times their current level of traffic. The rookie answer is to simply keep throwing hardware at the problem — as if they still think of the web as a desktop application with a bunch of servers added to the mix. Where’s the intellectual property in that?

Contracts with partners should also include some baseline level of measurable quality-of-service guarantees. If the guarantees aren’t met, most contracts are simply voidable. However, some contracts for mission-critical services may include financial penalties in exchange for higher service fees.

Kicking the Tires

Lastly, nothing beats testing out a partner’s service. Using free web-based services like Web Site Garage (to test performance) or WebPartner (to test service uptime) can often reveal any significant red flags. Let the service know that you’ll be testing them in advance, because you wouldn’t believe how many will claim they were performing scheduled maintenance when you discovered a problem.

After all that, you might still be down to a coin toss between competing services. But hopefully you will have developed reasonable expectations for a potential strategic partner.

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