Startup Business Development Strategies – How To Avoid Unproductive Deals

Business development can be a creative and highly effective way for technology startups to boost sales and operate at a higher level. Indeed, a successful business development deal-- such as a joint marketing program with a complementary firm, or a distribution deal with a major channel partner-- can potentially drive thousands of customers to your door in one shot. This is very appealing to small firms who have been slowly acquiring customers organically.
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!

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