skills/due-diligence/references/commercial-operational.md

# Commercial and operational diligence

## Market and revenue quality

Define the served market, growth drivers, relevant competitors, and route to customers. Reconcile market estimates against the target's segment and period. Test whether customer behavior supports the claimed differentiation using contracts, win/loss evidence, pricing, renewals, and appropriately sampled interviews.

Distinguish contracted recurring revenue, repeat purchases, one-time projects, and pipeline. Check recognition policies and contract obligations rather than assuming recurring revenue is inherently high quality. Define churn and retention by cohort, period, currency, and treatment of expansion, contraction, and acquired customers. Net revenue retention can mask logo loss through expansion or repricing.

For concentration, measure the relevant legal customer and economically connected group, the denominator, and period. Inspect renewal dates, termination rights, margin contribution, switching costs, relationship dependence, and replacement capacity. If two files report different percentages, preserve both until reconciled. Revenue loss is not equal to profit loss; model customer contribution, avoidable costs, stranded costs, and timing where available.

A concentration finding may justify deeper testing, a price change, a renewal condition, or declining. There is no universal percentage that mandates an earn-out. A draft assessment can describe exposure without fabricating missing customer economics.

## Operating feasibility

Test process capacity, bottlenecks, quality, service levels, labor availability, supplier dependence, and operational resilience against the proposed plan. Assess whether claimed improvement is achievable without damaging customer service or adding hidden costs. Separate maintenance of current performance from growth capacity.

For management and people, assess decision rights, succession, capability depth, retention, incentives, and transition responsibilities from evidence. Do not infer character or capability from unsupported impressions. Record interview statements as statements and test them against observable outcomes where possible.

For technology, inspect architecture, scalability against the actual growth plan, integration boundaries, data quality and portability, technical debt, operational support, incident evidence, and delivery practices. Estimate remediation using identified work and uncertainty. Certifications and audit reports are evidence with a scope and date, not blanket proof of security.

For IP and dependencies, identify ownership, assignments, licenses, and restrictions that may affect the transaction or intended use. Route legal interpretation and specialist technical assurance to the appropriate expertise when needed; do not equate the presence of open-source software with a violation.

## Partnerships and vendors

Evaluate service criticality, performance commitments, concentration, subcontracting, pricing changes, data access, recovery, portability, termination, and replacement lead time. Match diligence depth to the exposure and contractual decision. A vendor does not need an acquisition valuation merely because the same skill handles M&A.

Track requested, received, tested, and unresolved evidence separately. Specify the access or test needed to clear each material gap without assuming that unavailable material is adverse evidence.