24 January 2010

Startup Business Development Strategies: 7 Tips For Putting Together Stellar Deals


Business development is fun.  Putting together partnership deals requires a special combination of hustle, strategic thinking, technical chops, project management, and sales and negotiation skills.  It’s a bit like a triathlon, in that it stretches your abilities in multiple arenas.

Business development is both creative and analytical—left brain and right brain—and done well, business development deals can be the purest representation of the equation “1+1=3” to drive growth.

A few tips for startups doing deals:

1.   Focus on the right targets. 
Any meaningful partnership deal will require a significant amount of time and attention from your management team.  This places a real constraint on the number of potential partnerships you can chase down at any given time, especially if you’re trying to simultaneously keep the business afloat, hire staff, raise money, and manage all the other critical-path activities that startup founders are responsible for.

As such, the “shotgun strategy” does not work well for startups; you’ll waste time fielding exploratory tire-kicker meetings that lead nowhere, or worse, you’ll find yourself paying attention to the firms who respond to inquiries quickly only because of some underlying flaw in their business (for example, they are struggling and desperate for something to move the needle—an ‘adverse selection’ problem).

Since a founder’s time is his or her greatest constraint, it becomes critical to instead take a “sniper’s approach,” and carefully select a short list of partners who will deliver the most bang per bullet.  Strategic targeting—instead of being reactive to those chasing you—front-ends the bulk and burden of your work, but ultimately delivers a better investment return on your time and effort.  Selective hunting keeps you focused on the game that really matters.

2.   Come to the table from a position of strength.
Startups are often at a disadvantage when forming partnerships with larger companies, due to the simple fact that they are startups.  There is a natural bias against working with firms that are unproven, underfunded, and still developing and/or evolving.  The best way to compensate for the ‘startup stigma’ is to bring something special to the table—an asset that cannot be easily replicated by another firm.

An “asset” can take many forms, both tangible and intangible: it could be an innovative technology that plugs a critical gap in your partner’s product line; it could be access to a market segment or demographic that you have been able to crack, but others haven’t; it could be the brand and “buzz” that you are generating with your business; or it could be a combination of all three.

It is remarkable how much attention a startup can garner when it has something noteworthy, and how frustratingly little a startup can get when it is another minnow in a school of similar-looking fish.  The two situations contrast starkly with one another:  the challenge of the first is not being able to handle the avalanche of in-bound inquiries; the challenge of the second is that your emails are never returned and your phone calls never answered.  There is rarely a middle ground here. Thus, if you don’t currently have something noteworthy as your ace card, go back and continue developing or marketing until you do, so as to avoid a slow, painful drain on your time and resources, and motivation.

3.   Get creative. 
One of the best things about being a startup founder is that you (generally) have the leeway and latitude to write your own script.  Contrast this to a partnership deal between two well-established companies, where there are already formalized processes and procedures—in short, “rules”—for doing deals.  As a startup, especially if you’re in a new or emerging space like social media or online radio or video, you have the ability to make it up as you see fit.

Indeed, the best business development deals are often those that break new ground and introduce new models for doing business.  Follow the rules of brainstorming, where no idea is a dumb one, and explore all sorts of possibilities; as long as the contemplated deal structure benefits both parties, it’s worthy of consideration. Set aside your predilections and constraints and get creative.

4.   ”Ask not what your partner can do for you--ask what you can do for your partner.”
Before pursuing any deal, it is useful to get inside the mind of your target partners, and view a potential deal from their perspective.  What is it they are lacking?  Where are they falling behind?  What keeps them up at night?  This takes research and an ability to connect the dots of an often-complicated mosaic of market trends, products, competitors, company culture, and other factors.

Once you’ve established a pain point—for example, a competitor is eating their lunch in a new market segment—craft your pitch and business case from the perspective of how you can solve their problems for them.  Bonus points if you can do so in a way that connects directly to increased revenue, profit, market and mindshare.  In this way, you will find that the gap between your companies is small, and the deal will go exponentially smoother and faster.

5.   Introduce competition into every deal.
This is a key point, and perhaps the most powerful technique of them all.  In every situation, getting some competitive heat on the deal will give you negotiating leverage, increase the tempo of discussions, and greatly raise the odds of a successful outcome.  Even if you’ve followed the advice from point #1 and zeroed in on your dream partner, opening up a dialogue with their competitors is well worth the effort. In addition, you should skillfully and subtly let your target partner know you are having talks with other firms.   This is the “art of the reveal,” and weaving in the knowledge that their rival may sweep the deal out from under them greatly helps level the playing field.

For example, I once worked with a mobile startup that needed to source both a carrier partner and a wireless chip vendor. We brought to the table dual assets of innovative technology and a ton of press buzz.  We initiated parallel discussion paths with two carriers and three chip manufacturers, even though we knew exactly who we wanted to work with from the outset.  The benefits of this strategy were clearly evident in the tempo of every meeting and in the tone of every term sheet. The deal was still a challenge—we were fighting the startup bias, after all—and there were a few heart-stopping moments where it looked like it would all fall apart.  But in the end, we got favorable pricing from our preferred partners, and did the deals in an accelerated timeframe.

6.   Be operationally ready to do a deal.
Startups are notoriously under-funded, under-staffed, and over-stressed.  Before going too far down the path with a partner, ask yourself whether you really can support the deal from both a business and technical perspective.  Can you spend weeks hammering out technical details and timelines?  Do you have the bandwidth and attention span to turn around multiple drafts of an MOU or LOI?  And of course, do you have the engineering bandwidth to actually implement the JV technology and nurture it through the launch and post-marketing support phases?

To note, this is a classic balancing act; being “operationally ready” at a startup is almost an oxymoron.  Many startups have struck game-changing deals before they were really prepared to handle them, and then hustled like hell to successfully pull things off.  Indeed, startups need a healthy level of outsized bravado in their DNA.  But if your answers to the several of the above questions are clearly “no” it may make sense to get a little further down the path before sinking time into partnership endeavors.

7.   Know when to cut bait and run.
This is a tough one to do well, but it’s a critical skill nonetheless.  Sometimes your company’s goals will shift, taking a proposed deal off the critical path.  Other times, you’ll be two-thirds of a way through the partnership negotiations when you realize it is not a strategic fit. The initial enthusiasm fades as you get into the details, and you realize that the technology integration hurdles are massive, or that your partner’s marketing channels are not as strong as they appeared.  Sometimes it’s simply cultural or personal—the thought of spending years with a partner who doesn’t “play well in the sandbox” gives you night sweats.

The challenge here is twofold.  First, it can be difficult to discern between deals where there is truly not a fit, and the normal struggles, politics, highs and lows that accompany any deal.  Second, in many cases you’ve already sunk a ton of time and money into the process, and it is emotionally draining to accept that it was all wasted effort.  However, time is the enemy for startups; the clock ticks faster when your funding is running out and markets are evolving rapidly.  Do the analysis, but trust your gut—if it’s clearly not going to work out, consider your efforts as sunk costs, extricate your firm as smoothly as quickly as possible, and move on to the next deal.  

In sum, business development is fun—happy hunting!


7 comments:

  1. Developing your business is not easy things to do.Because of this article is i can say it easy now.

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  2. Eexcellent post! I just stumbled upon your blog page and gathered some good ideas for what I am working on. Cheers!
    SEO Melbourne

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  3. Love the No. 7
    Its definitely true. You need to know when to cut bait and run.
    Unfortunately I had experienced the ugly side of this.

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  4. I think managing a business is really a difficult work because you have to face so many problems. These tips are very beneficial to maintain a business in a good way and to gain more profit as well.

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  5. Thanx for the input.. I gain more knowledge and reality of a business is not easily as it look.. especially nowadays... :)

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  6. Thanks for such as nice post. It is really effective for start-ups who are looking for a long run.

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