Tweet

Startup Business Development Strategies – How To Avoid Unproductive Deals

Guest post by: Nathan Beckord

Article Overview: Startup business development includes strategic marketing partnerships, sales channel development, and distribution agreements, generally with larger firms in the space. It can be a highly effective way for startups to grow rapidly; indeed, a business development deal can become a "company maker" for a young start-up. However, building a successful deal takes a significant amount of time and effort. Further, the process is often fraught with risks, such as management distraction and intellectual property theft. To be effective, and to mitigate risks, startups should put each contemplated business development deal through a rigorous screening process before embarking on the negotiation path. We call this "finding the WIIFT-- what's in it for them" and in this article, we discuss how to go about it.

Startup Business Development Strategies – How To Avoid Unproductive Deals

Example of "big hit" deals include:

• Getting your spam fighting software pre-loaded onto the desktop of every new Dell or HP laptop
• Building a web application that is accepted to run on LinkedIn's home page and user profile pages
• Creating a co-branded technology licensing deal that embeds your navigation hardware device in every new Volkswagen.

Such deals can become "company makers" for young firms and enable them to grow much faster than they could on their own. So it makes sense for startups to want to go down the business development path.

But it is not an easy path to take. And a dream deal can quickly turn into a nightmare if not handled correctly. Let's review the risks.

Big Rewards, Big Risks

Looking from the outside in, we usually only see the PR splash when a deal is announced-- not the extensive, behind-the-scenes work that went into it. It can and often does take many months of courting a prospective partner-- months of cold calls, pitches, and working your way through multiple departments-- only to get a "no," or even more frustrating, no definitive answer at all.

Further, the biggest wins for startups are usually deals that give them access to the sales force or marketing reach of a larger player. Yet large companies move slowly to make decisions. Meanwhile, the startup is burning cash-- not a good situation to be in. It's common for startup founders to get excited by a potential partnership, and overlook the distractions that the negotiations are causing. When a deal does not pan out, the wasted effort is a huge strain on startups that are already running on fumes. Instead of being company-makers, such deals become company-killers, as they slowly constrict and suffocate the young firm.

Finally, the worst-case scenario is when startup founders realize after several weeks of meetings that they've been educating the larger firm about a new market or new technology on their own dime. Very few startups have adequate capital or management bandwidth to fight a prolonged infringement battle. It's almost always a no-win proposition.

Having stated the risks-- and assuming you're still interested-- how does a startup avoid these pitfalls and position itself for business development success?

WIIFT Filter

The short answer is to process any contemplated deal through a rigorous filter of "what's in it for them"-- prior to engaging in discussions.

The key here is to take a cold, hard, and dispassionate look at a potential deal from the perspective of the target partner. Put yourself in the shoes of the various stakeholders and decision makers on the other side of the table. When you strip away the hype and marketing spin, what does doing a deal with you truly bring them?

Assuming it passes this first test, and you've identified a crystal clear value proposition and laid out a solid business case, the next step is to project how well the pitch will move through your target partner's organization. In essence, the question becomes: will your BD colleagues at the target firm be able to "sell" the deal up the food chain?

Assume that as they present the deal to their bosses and to gatekeepers like the CTO or CFO, that it will be met with increasingly greater levels of skepticism and risk-averseness. What are the likely issues and objections that will be raised? Do you have solid counter-arguments or data to support your case? Does the deal still have legs, or does it begin to look a little shaky?

If you've put your deal through the proverbial wringer and it still comes out looking good, you've have a solid foundation to build on during negotiations. Pre-emptively validating a deal provides the justification to put your valuable time and resources toward execution. In other words, go for it.

Vitamins, Painkillers and Crack Cocaine

There is an additional, quick and dirty way to assess a contemplated deal. To use an old VC metaphor, is your proposed BD deal a painkiller or a vitamin? Or to use a slightly newer metaphor, are you pitching "crack"-- meaning, is your offering so addictive, only a little exposure will have them hooked and hot for more?

Here are a few examples of each, with the the corresponding demand for the deal driven by the value you bring:

• Crack: Does your product address a screaming desire or need on their side-e.g., it plugs a critical product gap or it solves a key performance issue that has been causing them to lose market share and fall behind the competition? If so, the deal is likely to move on the fast track, and will probably get done (assuming you don't get too greedy). Even better, you'll enjoy excellent negotiating leverage throughout the process.

• Painkiller: Would an alliance with you allow your target partner to reach new markets or a new demographic? Does your offering give them an incremental margin improvement on sales of their products? These can be strong bargaining positions, especially since having a tangible, positive ROI makes it easier for your colleagues on the other side of the bargaining table to sell the deal up the food chain. Every company is under shareholder or board pressure to make more money.

• Painkiller or Vitamin: Is the main value proposition of a deal the "brand boost" that comes from being associated with innovative technology or emerging markets? These are largely PR-driven deals; some translate to revenue and profits, some do not. These types of proposals can move either fast or slow, depending on the rapidity of innovation in the space, and on what stage of the "hype cycle" the market is in. (In other words, strike while the iron is hot; if journalists, bloggers and analysts move on to the next big thing, the deal could quickly stall).

• Vitamin: Is your offering-- interesting and exciting as it may be to you-- likely to be viewed by your partner as simply a new bell or whistle for their product line? If this is the case, you will still probably be able to garner a few meetings, but securing a contract will be a harder sell, and an actual deal has a low probability of getting done. Large companies are great tire kickers.

Sum

In sum, first seek to deeply understand your partner's needs, desires, and pain-points, and then view each contemplated deal through an objective, dispassionate lens. Look at your startup, critically, as would your partner, given the nuances of their product, brand, and culture.

With a good partnership, the ‘fit" of a deal should jump off the page. The mutual value it brings should be readily apparent, intuitive and ideally, quantifiable. If it starts to feels like it would be forced, it's probably best to move on to the next opportunity, and not waste time and resources pursuing the deal. Happy hunting!

Related Articles
  StartUp Costs
  Passive-Aggressive Behavior Is Useless In A Startup
  Finance Start-Up
  Business Plan Outline for Startups: A Simple, Time-Tested Format For Strategic Planning and Raising Capital
  Every Startup Needs an Advisory Board

Article Tags: BD deal, business development, business development strategies, marketing partnership, negotiation, partnering strategy, partnership deals, partnerships, sales channel, startups, strategic marketing, strategic partnership



Related Forum Posts
Re: what position to request? - Hi Michael, Great suggestion from David, or you could try something around a design consultancy, How about Website Design Consultant, Design and Development Manager, Website Support and Development Manager or maybe Internet Business Development Consultant. Ultimately whatever you are comfortable with and good luck for the future, Mal.
BDC - [quote="IWDCanada":jib6tqt9]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:jib6tqt9] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.
Re: BDC - [quote="Jones":255lkmrn][quote="IWDCanada":255lkmrn]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:255lkmrn] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.[/quote:255lkmrn] I'll be working with the BDC later this month on a few projects. From what i've been told they are really great when it comes to small business. Their loans have a little higher interest but their payment terms are a lot easier to swallow. I can give you a contact if you need.
Re: what position to request? - Business Development Manager - is more or less ok... thank you. but I want something fancier... an executive position..
Re: what position to request? - Hi Michael, How about Online Business Development Manager? Good luck with your start-up. David


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

The True Cost of Employee Turnover

Let's Skip the Offshore Horror Stories

What is Discretionary Cash Flow

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.