One of the most difficult skills to teach is to think critically, honestly and without bias.

To frame an issue in the correct context, with the most important facts, and to arrive at the best answer is the desire of investors, business owners and managers. The process of arriving at a wise management or investment decision through this process is often referred to as due diligence.

The term "due diligence" originated in the public markets and relates to the offering of public securities. Federal law requires companies offering securities to disclose in a prospectus all information that would be necessary to make an informed decision. The prospectus may not contain any material misstatements or omissions.

Over the years, due diligence has become a common term in the investment process for new and emerging businesses. In making a funding decision, a potential investor will investigate and analyze a company to determine if it meets investment criteria. This due diligence process may include a review of the management team, product (including intellectual property), market, competition, industry, economic environment, financials and business practices.

For a manager to prepare for these outside audits of the business, it is important that the same due diligence process be utilized to address correct decisionmaking on a daily basis within the firm. In business, it is often too easy to reach the conclusion that we really want rather than the correct decision. We fool ourselves into believing that we have been logical in arriving at the conclusion, that our due diligence process was complete, only to find out later that we ignored the warning signs along the way. This critical thinking flaw finds its way into the hiring of the wrong people, a miscalculated entry into a market where we cannot succeed or an oversight on what was needed to make our product right for the customer.

For example, a young entrepreneur I know tried to save some investor money by trying to develop complicated software himself rather than hiring an experienced technician at market salary.

During a year of development trial and error he burned through his investment capital and was forced to abandon the development effort and start over with an additional round of outside investment, diluting his overall ownership.

In another case, a CEO with an engineering background was convinced that the market required ever-increasing sophistication in his product even though his board continually advised him against this course of action. After two years of disappointing sales and following extensive market research, he finally redeployed his strategy to become a marketing organization with a simplified product offering.

In both of these cases, the due diligence and critical decisionmaking were pushed aside as the respective entrepreneurs followed their biases and "wanted" their answer more than they wanted the best decision.

Outside investors and potential acquiring parties are interested in how the entrepreneur reaches decisions and how logical the due diligence process is conducted within a company. They, in turn, will conduct their due diligence to determine how well the company is run and if problems exist above and below the surface.

In "Venture Capital Due Diligence," Justin Camp suggests several areas in which investors should concentrate their due diligence efforts when they review a company: the management (the quality and potential of the team); the business opportunity (products, business models, markets and competition); financial issues (business statements, valuation); legal issues; and intangibles (quality of the company and gut feelings).

As an entrepreneur, it seems logical that attention should be given to the quality of decisionmaking in these five areas. The integrity of day-to-day management decisions will have a cumulative and lasting effect on the value of the company.