4 Common Mistakes In Choosing a Deal Flow Management System

deal-flow-management-system
There are many steps you can take as you select and roll out a deal flow management system to maximize your chances of adoption.  We’ve put together this guide to help you avoid 4 common mistakes we see people make in this process.

After months (or years) of confusing spreadsheets or frustration with trying to jam your processes into a general CRM system – you’ve finally gotten buy in to find a deal flow management system!  The route to a more streamlined process, time savings, and better analysis is clear.  Let the good times roll, right?

But the unfortunate fact is that a lot of software implementations fail.   This is especially true of CRM systems. Most estimates suggest 30-60% of CRM implementations do not achieve their goals.  At best, these failures lead to months of wasted effort and likely tens (or hundreds) of thousands of dollars down the drain.  At worst, they hurt your advancement prospects and damage your internal credibility.

The good news: there are many steps you can take as you select and roll out a deal flow management system to maximize your chances of adoption.  We’ve put together this guide to help you avoid 4 common mistakes we see people make in this process.

Some help from behavior science

Moving to any new system requires some behavior change – which is one of the common failure points.  Luckily, many psychologists and authors have recently published work on the science of habit formation.  

One of the most popular frameworks comes from “Switch”, written by Chip and Dan Heath.  Switch provides us with a roadmap for successful behavior change – ‘Motivating the Elephant’ and ‘Directing the Rider’.

Motivating the Elephant: appealing to people viscerally to show how this change creates value for the company and them personally (mistake #1).

Directing the Rider: limiting the amount of effort required, and eliminating ambiguity about what they need to do in order to achieve the goal (mistakes #2-4).

With that as a backdrop, let’s dive in!

Deal Flow Management mistakes:

Mistake #1 – Not working backward from your goal

If you don’t know where you’re going, any path will get you there.  To ‘motivate the elephant’, begin with what you’re trying to accomplish with a new system.  You should consider this both in terms of what this helps the company accomplish, and also what this helps the firm accomplish.

At the firm level:  

  • What goals does bringing in a deal flow management or relationship intelligence solution help you achieve?  
  • What positive outcomes are you trying to create? 
  • How is your firm different as a result?

While your team members want the company to succeed, you should identify how the change is personally meaningful to each team member.  

  • Does this allow them to spend less time doing work they hate (e.g., data entry), and more time doing work that they enjoy (e.g., talking to founders and teams)?  
  • Does this allow them to source deals more effectively?
  • Does this allow them to be a hero for the companies they work with?
  • Does this change allow them to make more money (e.g., through bonuses)?

While you should have your own perspective on each of these questions, you aren’t rolling out this deal flow management system in a vacuum.  So take the time to get your teammates perspectives on these questions as well – what does success look like for them in each of their roles?

Working backward has an extra benefit: you can streamline your process by being precise about the information you need to capture.  Which leads to…

Mistake #2 – Not eliminating friction

The primary reason for failed software adoption is requiring significant behavior change.  

While people can change when motivated, limiting the amount of change required makes that change more likely to occur. And the best deal flow management software in the world does you no good if your team won’t actually use it.

One of the most direct ways to improve your adoption rates is to take as much of the data entry work out of the hands of your team as you can.  Besides team happiness, each keystroke of manual data entry directly costs you money, in two ways:

  • The opportunity cost of the time spent entering the information (given these are highly compensated professionals)
  • The lost productivity from errors that are inevitable with human entered data.

Looking at the direct time spent doing data entry understates the true amount of productivity lost from these activities.  The cognitive load of navigating outside of your workflow to do these tasks is also meaningful. A large body of evidence suggests that workflow interruptions have meaningful productivity impacts. 

So how might you go about identifying and eliminating friction in your process?  

  • Lay out the information and process you need to capture to execute against the ideal end state you envision.  For instance, if your goal is to be able to make investment decisions within 2 weeks of first contact, you’ll at least need to consistently capture the date you’ve received the opportunity to deliver against that promise. 
  • For each piece of information, identify if there are ways to automatically enrich it (and thereby eliminate the need for manual data entry).  For instance, if knowing how much money a company has raised in its history is important to your process, see if there are data enrichment services (either embedded in that software product or available via API) that you can use to fill that out for you.
  • For each task that needs to be executed – identify if there are ways of pushing alerts and notifications into your team’s workflow.  For example, if your team spends most of their day in their email inbox, are there ways of getting those notifications via email?  Or via mobile?
  • Eliminate all non-essential data points that can’t be automatically entered.  While data that comes from automated enrichment may be effectively free, that no longer holds for manually entered data points.  Each piece of information you require increases friction and incurs the costs associated with data entry described above. So go through the remaining set with a fine-toothed comb and be sure you need it.
  • Embed data entry into the workflow.  For the data that you need to enter manually – is there a way of entering that information from your workflow? Does the product offer a Chrome extension and / or Outlook Add-in?   Can you send in information via sending an email to a specific inbox? 
  • Make the process explicit.  Revisiting the ‘direct the rider’ element from the behavior change framework above, once you’ve created this process, you’ll want to make each person’s role and expectations clear.  Share the information you need, who is responsible for ensuring the pieces that are manual are completed, and by when.
  • Create team habits.  Even the best-laid plans to make change can go astray without embedding those changes in pre-existing behaviors. One common strategy is to create time in a regularly scheduled meeting related to the change you’re trying to enact.  For instance, if you’re trying to ensure your team touches base with key referral sources often, carving out 10 mins in your Monday meeting to review progress against this can be a forcing function until this behavior becomes ingrained. 

With the above, you have a strong foundation to get started, but the work isn’t done.  You should revisit this process on a regular basis (we suggest quarterly) to identify bottlenecks that may be emerging and try to drive additional friction out of the system.

Mistake #3 – Lacking a single source of truth or context

Another common hidden form of friction is having information and relevant context spread out amongst many different digital homes. 

Let’s see if this scenario sounds familiar: you store internal memos in one place, the information you’ve received from the company in another place,  diligence conversation notes in third place, relevant communications and emails in a fourth,  the data you’d like to track about that opportunity in a fifth-place and search your relationship network for relevant connections in a sixth place.  

While that sounds like it has a semblance of organization – it introduces many moments of mental load in determining where to store, find, and process the information you need to make a single decision on a deal.  

In the best-case scenario, the end result of this is wasted time and some internal frustration.  In the worst-case scenario, it leads to the loss of critical documents for compliance purposes, lower quality investment decisions, or missed opportunities because the team lacked the relevant context to get to conviction.

However, pushing your team to shift from their current habits for notetaking and document storage is also behavior change – and a potential recipe for increased friction and frustration.  

To avoid this trap, you’ll want a deal flow management system that can store all of this information in one place.  What that requires in practice is:

  • The ability to sync with email and calendar data.  Depending on your team’s norms and security policies, you may need to select specific contacts, emails, or interactions to include – but a system that automatically does the sync for you will reduce friction (and reduce manual data entry).
  • Document storage.  Enabling easy access to documents you need for decision making, and also have any internal memos available. Ideally, this would be both available in the application, and also via synchronization with document storage repositories (e.g., Drive, Dropbox, Box, or virtual data rooms).
  • Note-taking.  Being able to store your notes from conversations with the management team, diligence experts, and team updates.  Being able to store notes is standard in most systems, but being able to connect to pure-play note-taking applications (e.g., Evernote, OneNote), is another point of friction reduction worth examining

Mistake #4 – Getting locked into an inflexible system

We operate in a dynamic world.  An incomplete list of some impactful changes in the private markets since 2015:

  • The rise of platform and talent functions in investment firms
  • Increased software adoption to drive deal sourcing and organize relationship-building efforts
  • Hiring data science professionals to mine public signals and identify potential investments to pursue
  • Many additional pools of capital moving into the private markets, and the compression of investment decision making cycles.

Dynamic worlds require dynamic and flexible processes.  Even the firms that have generally resisted adding headcount have found themselves bending to these pressures in other ways – more publicly marketing themselves, for example.

In addition to the world-changing, your team will likely also evolve over time.  New people in new roles mean new use cases for the product, new data to collect, or new ways of visualizing that information.

A good deal flow management system should enable your team to make changes on the fly – without needing to spend tens or hundreds of thousands of dollars, or require an implementation arm to do a bunch of custom work for you. 

What are the signs of an inflexible deal flow management system?

  • You can’t add new fields to track without technical support
  • You can’t restructure data already in the system (e.g., change the names of fields, change the order, change the set of options)
  • They don’t work with you to ingest the data you need from different sources

Conclusion

Every new system comes in the door with most excitement and fanfare – but the actions you take during system selection and implementation are a huge driver of success or failure.  With these four steps, you’ll avoid a lot of pain in making your new deal flow management and relationship intelligence systems work for you.

Stay tuned for part 2 – we’ll dive deeper into a set of tactical mistakes we often see people make as they set up their systems for the first time.

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