What commercial diligence should really be testing

Commercial diligence is one of those phrases that sounds precise yet rarely is. The label covers everything from a brief market scan to a deep study of customer behavior and competitive response.

If you are commissioning work under that banner, the first step is to name the decision more clearly. Are you trying to see whether a deal should proceed at all? Are you trying to understand the range of outcomes that could still be acceptable? Or are you trying to build enough comfort to move a reluctant committee toward a conclusion?

In our experience at Kulas Financial, a lot of commercial work ends up wide but not sharp. It covers market size, growth rates, competitor lists, and customer anecdotes. The content looks respectable. The impact is thin.

A better starting point is to list the few things that could genuinely change the outcome.

• For a software business, that might be whether customers see the product as embedded or replaceable.
• For a services business, it might be whether margin has been maintained through discipline or through under investment.
• For an infrastructure asset, it might be whether the regulatory environment has settled or still has real structural change ahead.

Once those pivot points are chosen, everything else should serve them. Market data becomes useful when it shows whether the environment supports the economics implied in the case. Customer interviews matter when they reveal behaviors that could strengthen or weaken the projected path. At Kulas Financial, we find that competitor analysis is most worthwhile when it highlights moves that would force the company to respond in ways that were not built into the plan.

Another important question is timing. Commercial work that arrives too early can be so high level that it feels theoretical. Conversely, work that arrives too late can do little more than decorate a decision that has, for all practical purposes, already been made. The sweet spot is just before institutional momentum takes over. At that point, the right piece of analysis can still change minds. The wrong piece becomes a footnote. Our conclusion is that commercial diligence should be judged by whether it made a hard decision meaningfully clearer.