Is Your Start-up Company Truly Ready for Business Development?

Business development can be a great way for your startup to gain sales leverage and grow faster-if your company is, in fact, ready to execute deals.

What determines readiness? First, let's define what we mean by business development. Business development-or "BD" for short-encompasses activities that are outside core bread-and-butter sales activities. BD generally refers to various forms of deal-making, such as:

  • forming marketing partnerships with other firms
  • establishing reseller channels or distribution relationships
  • licensing your technology to other firms for use in their products
  • exchanging data, content, traffic, or customer information with other companies.
When done right, business development deals can be immensely profitable and give a huge sales boost to startups and other small businesses.

But for BD to be effective, and for a deal to be a success, startups must be both organizationally ready and operationally ready for business development. Quite frequently, companies are neither. Let's examine each issue more closely.

Organizationally Ready

To be 'organizationally ready' means to be cognizant of what ‘doing a deal' really involves. To use an analogy, a BD deal such as a product development joint venture or a marketing partnership is a bit like going from bachelorhood to marriage after a relatively brief courtship. You now have an external relationship to deal with, devote attention to, and worry about on a day-to-day basis if the partnership is to work.

For example, let's say you've structured a deal with a firm who will include your product in its catalog and resell it for a 6% cut of revenue. Previously, you've always sold your product direct, through your own sales force and website. Now, with this new channel partner arrangement, no longer are you directly talking to customers-- you are talking to them through your partner.

In this scenario, while you gain the extra leverage of your partner's sales force and their marketing efforts, you inevitably lose some autonomy and control over the delivery of your marketing message (although you can and indeed should work closely with your partner to help manage product positioning).

The key point is to fully understand the changes that a partnership will bring, enter into it with eyes wide open, and willingly accept the tradeoffs in exchange for the benefits. You've now got someone else in bed with you, and it may not be so easy to disentangle the relationship should things turn sour. Understanding the tradeoffs also means you won't get cold feet midway through negotiations, and you won't waste anyone's time-including your own.

Operationally Ready

Whereas being organizationally ready implies a certain attitude and mindset, being 'operationally ready' necessitates possession of a certain skill-set. Very rarely are BD deals clean and crisp; there is almost always a significant level of customization and integration work needed for two disparate companies to work together.

For example, let's say you've built a web-based software tool that helps real estate brokers manage their customer pipeline. You've identified an outside company that provides predictive trend data on home prices. It would be an excellent complement to your tool, and you've been able to negotiate a license fee that is reasonable. However, their data is in a completely different format than what you're used to, and will require many man-months of engineering to be able to import it into your application. Does your team have the technical skills (and human bandwidth) to handle this type of development deal? Many small startups do not, and the deal stagnates halfway through the integration.

Or, as another hypothetical example, you run a web site selling ‘green' cleaning products, and you've found a network of bloggers who write about such things. You want them to include a small widget on their sites that scrolls your "Featured Product of the Day" images to their readers, and you've structured a cost-per-acquisition (CPA) arrangement to reward them for their leads. However, some of these bloggers are using Wordpress, others are using Blogger, and some have built their blogs on their own. Are you able to support various platforms, and make sure your widget (and payment system) works well on all of them?

Sum

In sum, it is good practice to temper your initial enthusiasm for "doing a deal" with a dose of pragmatic realism, and ask yourself if you are up to the challenges-both operationally and technically-of a partnership. If you pass these screening tests, your deals, when they happen, will go a lot more smoothly and be more profitable for all parties involved.

Author:. Nathan Beckord, MBA/CFA is a startup junkie. He has been helping startups launch, raise capital, and execute on business development deals for over ten years. He has worked on numerous deals, ranging from small seed and venture capital rounds on up to initial public offerings and complex transactions with Fortune 500 companies.

Nathan is Principal of VentureArchetypes, LLC (www.VentureArchetypes.com), a consult...

Go Deeper | Website

Want More?

 
New Graphic
Subscriber Counter