The Business of Diligence in Business

Due diligence: an investigation of a business or person prior to signing a contract, or an act with a certain standard of care.

There are a number of difficult but crucial aspects of being in business. I've always regarded recruitment and contracts as two of these - fundamental to running a successful company - but I also see them as being the most difficult for many business owners. It comes down to the approach and the discipline of each business owner to be as diligent as they can be to protect themselves and their company.

This post deals in brief with these two challenges.

Contracts

Unless your a lawyer contracts are always a challenge. Most business owners are time-poor and often spend less time than they should understanding what the terms and conditions mean inside of a legal agreement. It often leaves them with a vague understanding of the implications of any agreement they have entered into. Any agreement should be subject to review by a lawyer but there are a couple of things that a diligent business owner should do as a pre-cursor to entering into a new agreement:

[a] Don't take the other party at their word. Check that the company legally exists and that the directors are actually directors. There are plenty of sites now that allow a basic check on what legal status a company has and who owns and controls it.
[b] Ask for references. Its not offensive to ask a company for details of existing/previous clients that you can speak with to confirm that the company behaves in a reputable way, pays its bills and delivers a quality product or service.
[c] Talk in person and don't just work through email. Contracts are really for when relationships have failed, you just wont develop a working relationship with someone through email. Its important to work with people that you like - on any day when there are issues it's easier if you get on.
[d] Take your time. Wait for your lawyer to critique the agreement and don't be afraid to push back and ask for changes or revisions if its not exactly correct. Make sure you understand the nuances of the contract, especially if there are penalties or financial implications for your business.

The above points do not replace a lawyers input onto the problems created by contracts but they will give you a sense of the company your dealing with and the people involved - who have the potential to do tremendous harm as well as good to your company. Being attached to a client or supplier who does not deliver when required or pay when they should we can all do without.

People

Understanding who someone is really, what their skills and capabilities are, whether they are a good cultural fit for your company and customers and what they see as long-term motivation and goals is simply the most difficult thing for a business owner, especially a small business where hiring has a bigger impact. 

We're all familiar with the moment when we read a CV and mentally we say "This person sounds great!" but the question is what else can we do to understand if this person is the real deal?

[a] Talk to the person on the phone before you offer an interview or agree to meet. The interview instantly makes the interaction formal whereas a phone call often provides a different insight. Listen to the person, how they sound, their choice of words etc. Would you like your customers to have the same experience as the one you're having?

[b] Re-read the CV a few times and look between the lines. No one is ever as good as they are on their CV. Does the person's work history make sense? Does it follow a logical progression? Does it take them to the level you need? Do they seem motivated and dedicated to their careers?

[c] In terms of skills don't take their proficiency at their word. If you require a certain level of ability then test them to establish that their capabilities reach that level. Portfolio work is not a true indication on their ability as it is often create over long periods and through multiple iterations, not so good if you often work to tight client deadlines.

[d] Always take and check references. Not only does it give you the opportunity to qualify the person's CV, its also a chance to get an indication on the persons integrity and reliability. This is particularly important if the person is a representative of the company, sales person or someone in a position to enter the company into agreements with suppliers or clients.

Summary

Hiring someone is essentially bringing the company into an agreement to pay someone for their time and skills and shouldn't be treated with any less seriousness than a commercial arrangement with a client or supplier. Its common for small businesses to focus on the salary rather than the employment contract terms - as money is often an issue, but setting out a proper probation period, performance targets, reviews and delivery standards is as important. Ultimately its about getting the right person at the right price - its just about not obsessing over the price.

The overwhelming piece of advice I have is take your time, have a check-list and stick to it. If you think you're too busy for this and pay it little or no attention it will bite you on the ass. Its a false economy to deem these issues as minimal, successful people often cite contracts and recruitment as the bedrock of their success.