Business development comprises a number of tasks and processes generally aiming at developing and implementing growth opportunities within and between organizations. It is a subset of the fields of business, commerce and organizational theory. Business development is the creation of long-term value for an organization from customers, markets, and relationships. Traction states, “Business Development is like sales with one key distinction: it is primarily focused on exchanging value through partnerships, whereas sales primarily focuses on exchanging dollars for a product. With sales, you’re selling directly to a customer. With business development, you’re partnering to reach customers in a way that benefits both parties.” Value of Business Development for Startups Many companies like Delicious got traction through business development. Even Google, a company whose early success is often attributed to only a superior product, got most of their initial traction from two key partnerships. In 1999, they partnered with Netscape to be their default search engine for the popular Netscape Navigator web browser. Google also reached an agreement with Yahoo!, then (and still) one of the largest web properties in existence, to power their online searches. These two deals were critical to Google’s eventual success as the world’s largest search engine. Types of Partnerships (Summary from chapter 17 of Traction by Weinberg and Mares) Chris Fralic, former senior business development executive at AOL, Half.com, eBay, and Delicious, and current partner at First Round Capital, describes how he used business development successfully at each of his startups (all of which were acquired).
- Standard Partnerships-two companies work together to make one or both of their products better by leveraging the unique capabilities of the other. Example: Apple/ Nike partnership that resulted in the Nike + shoe that communicates with your iPod or iPhone to track your runs and play music.
- Joint Ventures-two companies work together to create an entirely new product offering . These types of deals are complex and often require large investments, long periods of time, and (sometimes) equity exchanges. Example: Starbucks Frappuccino or Doubleshot Espresso, you’ve purchased a product that’s the result of the decade-long joint venture between Starbucks and Pepsi.
- Licensing-works well when one company has a strong brand that an upstart wants to use in a new product or service. Example: Starbucks lent their brand to an ice cream manufacturer that wanted to create Starbucks-flavored ice cream.
- Distribution Deals-one party provides a product or service to the other in return for access to potential customers. Example: Groupon’s core business is structured like this: they work with a restaurant or store to offer a discount to Groupon’s mailing list. Paul English, founder of Kayak, told us how an early distribution deal with AOL was responsible for Kayak’s early traction . Through this partnership, Kayak used their search technology to power an AOL-owned travel search engine, which drove a lot of traffic right out of the gate.
- Supply Partners-types of partnerships that help you secure key inputs which are essential for certain products. Example: Half.com formed several to ensure they had enough books to sell when they launched their online bookstore.
- Clear understanding of your company objectives.
- Asking-What metrics do you need to hit in order to maximize your chances of success ?
- Asking-How can partnerships help you get there?
- Understanding a partner’s goals is key to creating a mutually beneficial relationship. Startups are often focused on themselves and their needs without considering why a potential partner should make the deal: “It’s research and learning and understanding your partner’s business before you start picking up the phone or sending emails. You need to understand what’s on their side of the table – what are their issues?” is Chris Falic’s input.
- Example: Chris Fralic Half.com wanted to find books that were half off and find big quantities of inventory. So he started doing research to find big piles of used inventory and literally started calling people, asking people questions to understand how their business worked. They found out how products moved from book publishers out to the Borders of the world, where it came back to and where it accumulated when it didn’t sell. Once he found out where, he ended up getting partnerships with those people. Chris even flew to Atlanta and literally worked in a used bookstore for a day.” You need to understand why a potential partner should want to work with you. What are their incentives
- Seek out forward-thinking partners. Often that means finding an advocate inside a large company or working with a company that has done deals with startups in the past. At First Round Capital, where Chris Fralic now works with entrepreneurs to determine how they can use business development at their companies. He asks specifically: “What do you want your fundraising deck to look like in 12 months?” Answering this question helps founders think through key milestones they need to reach, and then work backwards to think about partnerships or distribution arrangements that could help them get there.
- Maintaining a large list of potential partners: “Create an exhaustive list of all of your possible [partners]. Don’t ever list Condé Nast without listing every single other publisher you can think of.
- Make a very simple spreadsheet : Company, Partner Type (Publisher, Carrier, Reseller, etc.), Contact person/email, Size, Relevance, Ease of Use, and then a subjective priority score. That list should be *exhaustive*.There’s no reason why any company shouldn’t have 50 potential business development partners in their pipeline, maybe 100, and be actively working the phones, inboxes, and pounding the pavement to get the deals you need – be it for distribution, revenue, PR, or just to outflank a competitor. The latter is totally underutilized.
- If you go in and impress the top 50 folks in your space, it makes it that much harder for a competitor to get a deal done – because you’re seen as the category leader.”
- Then categorize based on attributes such as: revenue numbers, distribution reach, or inventory capabilities.
- At the end of this process, choose 10– 20 partners to focus your business development efforts on. Chris stressed that you can be assured that not every deal will close; in fact, most deals won’t.
- Start approaching potential partners with a value-focused proposition that outlines why they should work with you. Often these are larger companies. Brenda Spoonemore, former Senior VP of Interactive Services at the NBA, put it like this: “What do you have that they (big companies) need? You’re more focused than they are. You have an idea and you’re solving a problem. You’ve developed content or technology and you have a focus. That is very difficult to do at a big corporation.”
- Identify the right contact at your target company. Some companies will have a business development department that handles partnerships, but – depending on the deal – it could be someone like a product director or C-level executive you want to engage with.
- Try to get a warm introduction to that person. With each introduction, you should provide the mutual contact with an overview of your proposal that can easily be forwarded.
- Follow up and set timelines for next steps. Chris Fralic mentioned that it was key for him to get a meeting or phone call set up as quickly as possible.
- After the proposal stage comes a negotiation of a terms sheet. The key terms will usually be the lifetime of the deal, exclusivity, how payments work (if any), the level of commitment between partners, any guarantees in the deal, and revenue sharing agreements. Make the negotiation and term sheet as simple as possible – often just one page.
- Once a deal is completed, obviously you want to maintain a positive relationship with the new partner. It’s also important to understand the driving factors that got the deal accomplished. Chris Fralic suggests making a “how the deal was done” memo documenting how long it took to get to milestones, key contacts, sticking points, what interested the prospect enough to become a partner and other factors that influenced the completion of the deal.
- High Touch Process-Business development has historically been a high-touch process that includes a lot of personal interactions. Reaching out to partners, understanding their needs, and negotiating terms are all part of a traditional business deal.
- Low Touch Process However, businesses recently have been moving to more low-touch business development. Low-touch BD utilizes tools like APIs, feeds, crawling technology and embed codes to reach new distribution channels and grow your influence. These methods allow you to standardize your value proposition and get more deals done.
- Examples of low touch business process companies
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- Traction’s Business Development Resource by Weinberg and Mares
- Understanding Business Development by Seth Godin
- Business Development for Early Stage Startup Founders by Jonathan Chizick
- How Business Development Differs Between Startups and Big Companies
- Business Development for Early Stage Startups
- Business Development 2.0