strategic BD theory & concepts
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This series of posts starts off with a short quiz for the startup CEO: Q: Who’s responsible for developing your product? A: That’s easy—Engineering! Q: Who in your company is responsible for selling your product? A: That’s easy, too—Sales! Q: Who in your company has primary responsibility for: Mapping and networking your ecosystem ?
In part I , I talked about how up-front investment in a high-caliber strategic business development function helped to save Loudcloud when an existential crisis hit in 2002. But the value of strategic business development didn’t end there. In fact, it was only beginning. Opsware V1: Single product, single customer The EDS transaction closed in mid-August, and we started into the fourth quarter of 2002 in much better shape than we’d entered the first quarter.
SUNNYVALE, Calif., June 2, 2003 HP and Opsware Inc. Join Forces to Deliver Enhanced Automation for HP’s Utility Data Center SUNNYVALE, Calif., Feb. 13, 2006 Opsware Announces Worldwide Distribution Agreement with Cisco These two headlines sound pretty similar—“Small company partners with giant company to reach a bigger market”—but they led to two very different outcomes. Our 2003 deal with HP didn’t generate a single dollar in revenue, whereas our 2006 agreement with Cisco drove tens of millions of dollars in sales and helped to make Opsware the uncatchable leader in data center software. Why did one succeed spectacularly while the other never took off?
Holger Luedorf has been doing business development in the web/tech/mobile sectors for almost 15 years . He currently leads Business Development (BD) for our portfolio company foursquare . Holger has contributed a guest post with a bunch of great advice for startups that are just getting around to BD and what they should do and what they should not do. His views and opinions are his own and not those of foursquare
People on the business side of internet software, constantly bemoan their inability to code. I’ve been guilty at times of the frequent refrain, “My kingdom for the ability to code.” However, I’ve found over the past year that the emergence of APIs coupled with eLance (or oDesk or one of the other contractor platforms) have made this expression of exasperation largely hot air. For $500 and four weeks of late night emails to eLance developers, you can basically spec and build simple, rough apps that knit or build upon open APIs to create things that are interesting and potentially valuable.
The rise of the Growth Hacker The new job title of “ Growth Hacker ” is integrating itself into Silicon Valley’s culture, emphasizing that coding and technical chops are now an essential part of being a great marketer. Growth hackers are a hybrid of marketer and coder, one who looks at the traditional question of “How do I get customers for my product?” and answers with A/B tests, landing pages, viral factor, email deliverability, and Open Graph. On top of this, they layer the discipline of direct marketing, with its emphasis on quantitative measurement, scenario modeling via spreadsheets, and a lot of database queries. If a startup is pre-product/market fit, growth hackers can make sure virality is embedded at the core of a product. After product/market fit, they can help run up the score on what’s already working.
The second major thing I've learned from interviewing people on getting traction is that initial traction can happen in a lot of different ways, often unpredictably. (The first thing was that entrepreneurs usually have movement ideas even though they often think they have powder keg or empire ideas.) Given that the first inflection point is unpredictable, it makes sense to consider all traction "verticals" in the pursuit of product/market fit . Here's a list I hope to make exhaustive over time (by updating this post). Note: this list is no particular order.
I worked with two companies in the past month that needed a way to model viral adoption as part of their effort to understand the impact of a strategic decision to deliver part or all of their technology under an opensource license. Having such model enables them to understand the critical variables and success-factors, set targets for them and then measure as they embark on their strategies. I set out to make a generic model that can at once be used at both companies. Hoping it may be of use to others as well, I will publish it here.
… And why you’ve likely mis-casted the role, missed an interesting product integration or wasted valuable time for you and a potential partner. Typically, in any evaluation between two companies, there are two sides. The side that is “selling” a concept and the side that is “buying” the concept. The Business Development function can serve an important role, but the structure and process depends on which side of this discussion you are on. Business Development at a start-up is inherently a “sell-side” function. “Sell-Side” BD is typically looking to federate your business, attempting to generate distribution, market awareness and new revenue channels.
If you’re a non-technical founder, while your team is building and refining your product, you’ve got to figure out what to do with your time. I find that first time CEOs often find themselves doing two things, neither of which is productive. First, they spend time throwing product ideas over to your tech team like grenades—blowing up carefully laid and simple product roadmaps, scattering them with feature creep shrapnel. They also enjoy multiple rounds of biz dev wack-a-mole—taking every inbound meeting that comes through their inbox and pinging people in their network and one circle away based on the biz dev idea of the day, flailing around the graph aimlessly like a wounded duck.
The great fad of the last several years is self-serve and the ability to scale the distribution and access to your technology, product, service or data. The Twitter API, Facebook Connect, Yelp API for reviews, Youtube Embed codes, Google Maps API, you name it. And everyone knows the APIs out of the media darling’s Foursquare, Zoho and Dropbox. But, how about little known web services that may have great functionality that you have likely never heard of like Mombo’s Social Movie Review API, Email Yak’s web-based email API, Guitar Cord’s music utility service API, YoLink’s semantic search API and literally thousands of others that have great products, but are rather unknown. Business Development 2.0 isn’t a new concept.
I send approximately 20 to 50 cold emails a week. I’ve been doing this as a core part of my job function for roughly the past ten years. I’ve always been responsible for generating partnerships or revenue as all or part of my job responsibilities, and I’ve found nothing converts as consistently and powerfully as cold emails. In a bygone era, cold emailing was called cold calling. No one answers the phone any more and no one wants or has tolerance for cold phone calls, but there is power in directed cold emails.
When your product extends a platform’s functionality, one of the main risks you face is that the platform could embed your product’s key features within the platform – what is sometimes called subsumption risk . This happened to a lot of startups in the 90s that built products for the Windows platform. When you depend on a platform for distribution (acquiring and retaining users), you take on different risks. Specifically:
Background: At Hunch, we switched our focus (“ pivoted “) about 14 months ago from B2C to B2B. Over that time, we pitched over 500 potential partners, trying to get them to use and eventually pay for our recommendation services. This process had its ups and downs, but eventually ended well when – after 8 months of grueling diligence – eBay decided to acquire Hunch in what I expect will be a successful outcome for both companies.
In addition to the Freemium + upsell model that SpiderNet has implemented, you have also decided to pursue a strategic partnering/OEM model. You’ve brought on a world-class Business Development executive with the objective of getting major ecosystem players to adopt your free, base software into their distribution and enable them to upsell above that base. The model will enable additional deployments of your free software, providing additional opportunity to monetize the user base. The new BD executive has been active for several months, targeting large players with massive distribution capabilities and $100+ billion market caps. A deal with any one of the “elephants” would be a game changer for SpiderNet. Recently, one of the “elephants” finishes their evaluation of the SpiderNet product and wants to do a deal.