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OK, maybe I do have a few things to say about startups and technology...

Posted at 8:31 am

2009 Sep 21

Understanding Business Development by Seth Godin 1

I wrote a post recently on the topic giving some of my thoughts, but this piece is definitely among the best I've ever seen.   

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Understanding business development

Business Development is
a mysterious title for a little discussed function or department in
most larger companies. It's also a great way for an entrepreneur or
small business to have fun, create value and make money.

Good
business development allows businesses to profit by doing something
that is tangential to their core mission. Sometimes the profit is so
good, it becomes part of their core mission, other times it supports
the brand and sometimes it just makes money. And often it's a little
guy who can be flexible enough to make things happen.

Examples:

  • Starbucks licenses their name to a maker of ice cream and generates millions in royalties.
  • A rack jobber like Handleman
    does a deal with a mass marketer like K Mart. K Mart gives them room in
    the store to sell records and gets a cut, Handleman does all the work.
  • AOL buys AIM instant messaging software and integrates it into their service.
  • Years ago, I licensed the rights to Isaac Asimov's Robot
    novels from a business development person at his publisher and turned
    the books into a VCR murder mystery game which I licensed to a business
    development person at Kodak, a company that was experimenting with
    becoming a publisher. (Isaac made more from this project than he did
    from many of his books).
  • Best Buy offers extended warranties on appliances you buy. They
    don't provide the warranty, of course, a business development person
    did a deal with an insurance/service company to do it and they share
    the profit.
  • The Princeton Review built a huge test prep business, but only by
    licensing their brand to a series of books which did the lion's share
    of their marketing for them.

You don't see business development from the outside, particularly
all the potential deals that fail along the way. Many companies,
though, spend millions of dollars a year looking for deals and then
discovering that they pay off many times over. Others, particularly
smaller competitors, are so focused on their core business that it
never occurs to them to consider partnerships, licensing, publishing,
acquisition and other arrangements that might change everything. Harley
Davidson probably makes more money on business development than they
make on motorcycles.

The thing that makes business development fascinating is that the best deals have never been done before. There's
no template, no cookie cutter grind it out approach to making it work.
This is why most organizations are so astonishingly bad at it. They
don't have the confidence to make decisions or believe they have the
ability to make mistakes.

Think about the Apple Nike
partnership on making a device that integrates your iPod with your
sneakers. This took years and cost millions of dollars to develop. Most
companies would just flee, giving up long before a deal was done and a
product was shipped.

Here are some tactical tips on how to do business development better:

  1. Process first, ideas second. If you're going to be
    bringing new partners and new ideas into your organization, you need a
    process to do it. Professionals don't, "know it when I see it."
    Instead, professionals think about the abilities of their company and
    strategies necessary to bring ideas in, refine them and launch them.
    Great business development people don't waste time in endless meetings
    with random vendors or hassle about tiny details up front. Instead,
    they have an agenda and a project manager's understanding of what it
    means to get things done. They don't keep the process a secret, either.
    They share it with anyone who wants to know. Someone needs to say,
    "here's how we do things around here," and then they have to tell the
    truth.
  2. Who decides? Because every great business development project is different, it's incredibly easy to get stuck on who can say yes (of course, everyone can say no).
    Professional business development people intentionally limit the number
    of people who are allowed to weigh in and are clear to themselves and
    their potential partners about exactly who can (and must) give the go
    ahead. Don't bother starting a business development deal unless you
    know in advance who must say yes.
  3. Courtship, negotiation and marriage. Every deal
    has three parts, and keeping them straight is essential. During the
    courtship phase, you win when you are respectful, diligent,
    enthusiastic, engaging, outgoing, and relentless in your search to make
    a connection. Do your homework, research people's backgrounds, learn
    about their kids, visit them–don't make them visit you. Look people in
    the eye, ask hard but engaging questions, you know the drill.
    Basically, treat people as you'd like to be treated, because the people
    you most want to work with have a choice, and they may just not pick
    you. Hint: if you skip the courtship part, the other two stages
    probably won't come up.
  4. Buyer and seller. If you've ever pitched a product
    or service to a business, you know how soul-deadening it can be. The
    buyer works hard to make it clear that she's doing you a favor, and you
    need every dog and every pony available at all times (and you better be
    the cheapest). But business development doesn't have this dichotomy.
    Both sides are buying, both sides are selling, right? So talented
    business development people never act like jaded buyers, arms folded,
    demanding this and that. Instead, from the start, they seek out
    partners.
  5. Enthusiasm is underrated. Business development
    people are exploring the unknown. That means that there's more than
    cash on the table, there's bravery and initiative and excitement. The
    best business development people I've ever worked with are able to
    capture the energy in the room and amplify it. They'll build on the
    ideas being presented, not make them smaller.
  6. Close the open door. I regularly hear from readers
    who are frustrated because a big company wasn't willing to hear a great
    idea they mailed in. Here's the thing: there isn't a shortage of ideas.
    There's a shortage of execution. That means that successful business
    development teams look for proven partners and organizations with
    momentum. A key part of that is the decision to say no early and
    quickly and respectfully to people who don't meet that threshold.
  7. Call the lawyers later. A business development
    deal that never happens is one that's sure to cause no problems. While
    the legal clarity you need is important, there's plenty of data that
    shows that ten page NDA agreements and onerous contracts early in the
    process don't protect you, they merely waste your time and energy.
  8. Cast a wider net. The Allen and Co.
    annual gathering is a dumb place to choose a merger partner. Limiting
    the number of potential partners to people you've met at a trade show
    is also silly. Business development (when it works) creates huge value
    for both sides, so better to be proactive in searching out and
    soliciting the organizations that can make a difference. Here's a
    simple way to widen your net: start a blog and go to conferences to
    speak. Describe your successful business development projects to date
    and let the world know you're looking for more of them. How many
    amazing partnerships could the Apple store launch? How many great books
    could Starbucks highlight? Not only don't they do this, they hide.
    Don't hide.
  9. Talk to the receptionist. This is huge, and so
    important. When a great partner shows up at your doorstep, do you know?
    Here's a test: call your organization (pretending to be from some
    respected organization), describe a business development opportunity
    and ask who can help. If you're not immediately transferred to your
    office, you've failed, right? Make it easy for the right people to know
    that you're the right guy.
  10. Hire better. How do you decide who to put in this
    job? I'd argue that glibness and charisma aren't as important as
    strategic thinking, project management and humility.
  11. Structure deals with the expectation of success.
    The only real reason to do business development deals is because when
    they work they're so powerful. Andrew Tobias put his name on a piece of
    software that ended up earning him millions of dollars. It's easy to
    get hung up on all the bad things that could happen, but keep your
    focus on how the world looks when you get it right.
  12. End well. Most of the time, even good business
    development deals fall down before the end of the negotiation process.
    If a deal doesn't come together, say so. Acknowledge what went wrong,
    thank the other party and end well. If it does come together, track the
    integration and stay involved enough to learn from what works and what
    doesn't. I'm still waiting to hear from people who said they'd get back
    to me "tomorrow" fifteen years ago, but I'm losing hope… Ending well
    not only teaches you how to do better next time, but it keeps doors
    open for when you need to come back to someone who should have done a
    deal with in the first place.

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