3 Keys for Preparing for Distribution

Guest Post by Maxine Manafy

Maxine Manafy is an entrepreneur, start-up founder and business development leader. Over her career, Maxine has served in leadership roles in the areas of business development, sales and operations. Most recently she was VP of Business Development at Quixey, a startup focused on mobile search. She was also VP of Search Global Partnerships at Yahoo, where she was responsible for growing Yahoo’s worldwide distribution, search market share and acquiring content. Maxine was the founder and CEO of Bunndle, an ad network for apps, where she built and launched a platform aimed at helping developers acquire new users. Prior to Bunndle, Maxine has also held business development and operations roles at Mochi Media, Viximo and Xobni driving distribution, user acquisition and growing revenue for these startups. In her former life, she was a manufacturing engineer at Intel and KLA-Tencor. Maxine has an MBA from the Stanford Graduate School of Business and a bachelor’s degree in Industrial and Systems Engineering from San Jose State University.

Distribution is typically described as the path or route by which customers get access to your products. It describes the movement of goods into the marketplace. We are familiar with products that are commonly distributed including software (i.e., games, business software, mobile applications, etc.), digital content (movies, music, electronic books, photos, etc.), and tangible goods such as toothpaste or clothing found in retail stores. Distribution often includes multiple steps or intermediaries in order to get the product to the customer. For example, perhaps there is a manufacturer, wholesaler and retailer that participates in the full flow of getting light bulbs to customers. Sometimes, there are fewer participants and the product is distributed directly to the customer say through a website or retail store. Apple, Microsoft, and Starbucks are examples of companies that do this well.

If you are looking to partner with other companies to help provide a bigger market for sales, business development can help. When getting ready to do distribution partnerships for your product, here are 3 key things to think about before inking the deal.

1. Look for companies that have an existing relationship with your customers. You may have to get creative about who the right partners are, typically their goals and your goals are aligned in the value of what you are trying to provide to the customer. For example, if you are trying to get users to download your new mobile app focused on fitness and exercise, you might want to find a way to partner with popular gyms, online fitness sites or content sources like an e-magazine focused on health. Beyond the value that you are providing to the customer, make sure that your partners find value in the relationship as well. Otherwise, there is no incentive for them to work with you. That might be in the form of co-promotion, financial incentives, a positive brand association or a number of other reasons they might choose to work with you. By setting up the right partnership model including business and financial terms, you ensure your success and a long-term relationship.

2. Make sure your product is ready to be distributed. All too frequently new companies want to go out and start signing up partnerships right away even though their product in its current form isn’t ready for distribution. This can easily tank your business. The product might be easily accessible from your site or your store, but if it can’t be shipped through a new channel without a lot of work involved, you are not ready to scale your business through distribution. You might need to consider building a new or unique version of the product specifically for the distribution channel. Or maybe putting a system in place to be able to handle the new capacity and volume needs to be set up in advance so that you don’t overwhelm your existing systems. Tracking and packaging are also important for both online and offline sales. If these things aren’t in place, it will be difficult to know if the channel is working well for you. It is important to do a full audit of your product and distribution systems to make sure that you are ready to go big with a new partner. Otherwise, all of your hard work in putting a deal together could go to waste.

3. Not all distribution channels are created equally. You will find that some drive a ton of new growth and others are duds. If you suspect there is a path to reach new customers that offers big growth for your business, try to test it, especially before getting into a long-term business arrangement. If there is no way to test it before working with a partner, perhaps you can structure a test agreement for a short period of time before making a long term commitment or gather data that can help you make an informed decision on whether or not to do the deal. If that’s not possible, be sure to minimize the costs and risks before getting into a long-term agreement. You will save yourself a headache and also build in the ability to do robust testing and optimization through the partnership. 

Whatever the path, whether direct or through multiple channels, distribution can serve as a powerful way to reach users and drive new growth for your business.

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Post Deal Management is Crucial

Early in my career, my manager at that time would say, “channels fulfill demand, they do not create it.” Wise words and if not headed, can lead to problems and missed opportunities. Much like shipping a product is the first step in a journey that requires marketing, support, bug fixes and new releases, many deals begin when the contract is executed.

All successful deals are a result of accountability and proactive management by both sides. If you are not ready to allocate the resources to support a deal, think twice before signing it.

Earlier posts talk about sales vs BD that focus on delivering new revenue and new partnerships. In most cases, account management will own the ongoing relationship and is a different person than the BD person that did the deal. In early stage companies, the BD person may need to play a dual role of doing new deals and managing current partnerships however, this does not scale for a few reasons:

  1. Priority conflicts: this ties back to goals and compensation for BD and managing priorities. If you set goals and compensation around new deals, once the deal is done, a motivated BD person is going to look for your next deal. Even the most well intended people fall back to what excites them and pays the bills.
  2. No ownership: product, engineering and other parts of the company may take part in the deal process. It is a team effort and often helps build strong ties across teams to work together and close a deal. Deal is done and people go back to their jobs and no clear owner has been established and everyone tries to execute on their piece of the deal with no centralized coordination/ownership.
  3. Wrong owner: why did you do the deal in the first place and is the owner the best person to achieve that goal? If the goal is to drive revenue, is a product person the right owner? Is the BD person already on a plane or call chasing the next deal?

In most cases, identifying the owner in advance of signing the deal and establishing goals will set you up for success and this is where account management or partner management can make all the difference. The account manager should have variable compensation or incentives tied to meeting the goals established by both parties.

This is a business person that may possess many of the same skills as BD or sales people with a few important differences. Some like to use the “hunter vs farmer” to describe the difference and I think that makes sense and like to get a bit more specific.

A good account manager should excel in establishing process, putting systems in place for tracking, reporting and follow through. The idea of bringing structure to some chaos is appealing. The ability to manage multiple priorities across multiple groups with a diplomatic style is incredibly helpful. Whereas sales and BD may enjoy the thrill of the hunt, an account manager thrives in expanding the relationship, solving problems and exceeding the initial expectations of the deal.

In short, think about who owns the partnership before you sign the deal. If you feel confident you have a plan in place to execute the deal – go for it.

Learn more http://www.ericgrafstrom.com/

 

 

 

Beware of the White Label Deal

I have talked about the cycle for moving from early exploration of business models to testing to scaling. Each stage a critical step in building your startup. There are a variety of models to explore and see what works best with your product but it is important to ensure that resources are aligned around one model as you scale the company and this is where a white label deal can become a problem as you grow the business.

White label deals are tempting in the early stage when money is tight and a big partner with a strong brand shows interest. Check out my other post regarding revenue vs money – a white label deal can often be a textbook example of the main point of this post.

A typical white label deal puts the customers brand on your product and gives them influence or control of the feature set. These deals are a temptress for a company starved for cash and can become a viable business model but it is important to understand the longer term implications of a white label deal before you sign the agreement and start work.

Beware

1) White label deals put your company in the service business. The partner is lending their valuable brand name and distribution channel, they may like the innovation your team brings to the table but ultimately they decide what goes in front of the customer. The “other golden rule” goes like this, “the one with the gold makes the rules” so once you deposit that check, the rules change. That feature they love and you know is silly? It may very well be part of the next release.

2) Scaling two businesses is a tightrope few can walk. You have a vision for your product and limited time and resources to execute. Balancing those resources against the partner demands stretches the team and leads to stretching resources too far, falling behind on the product vision or failing to meet partner expectations. In most cases, resources and momentum follow the money, for better or worse.

3) Unwinding white label deals is difficult. This is where BD needs to be trough and negotiate terms around the wind down as part of the deal. Neither party goes into the relationship thinking it will fail but legal agreements are not written for all that goes right in a deal. How long you support a product, what happens to source code if the deal ends, who owns the custom data, what gets communicated to end customers etc. are all key terms that should be in your agreement.

White label deals are not bad deals if this is the model that works for your business. You can absolutely build a business around white labeling products and may be worth exploring.

The danger is signing a white label deal thinking it brings in temporary revenue while you sort out your “ real business model”

Learn more http://www.ericgrafstrom.com/

5 Tips for Getting A First Meeting

Product to market fit or go to market strategy involves getting in front of prospective customers or partners. In an earlier post I talk about the three stages, scouting, testing and scaling.

So if you are in the scouting or testing stage, at some point you need to go outside the network of warm leads and introductions and engage people you have never met nor heard of your company. Generating a list of names and email addresses using a contractor (eLance and oDesk are great places to find people to do this cost effectively) is a good first step. Now you need to email these strangers so here are a few simply tips to keep in mind when crafting your email.

  1. The goal is to get a meeting, not make a sale. Get. The. Meeting.
  2. Assume no one reads past the first parapraph – use bullets and links they can pick out quickly and skip the rest.
  3. Be specific and focus on why versus what. Telling prospects what you did for a client is not as important as why you did it.  For example, “we helped Samsung meet their objective of having a great app in a limited time period that showcased their interactive TV platform.”
  4. Always propose a date for a call or meeting. It is easier for the reader to respond to a proposed date and time than having to propose dates and times.
  5. Think about the time and day you are sending emails to hard to reach prospects and how it may impact getting a response. Hard to reach executives check email over the weekend – you may even get a few exchanges between early Saturday morning and Sunday afternoon.

It’s not rocket science so don’t over think things and never start with the best prospects. Get some experience first, build your confidence and improve your introductory email and then go after the most valuable targets.

Learn more http://www.ericgrafstrom.com/

Compensation for Business Development

The stage of your company should determine what type of BD you hire. Early stage companies need to find a business person that can drive feedback to the product and engineering team, identify paths to market and outline assumptions to test with the first few deals. My earlier posts walk through the three stages for go to market.

So, how do you to compensate a BD person? Start with establishing what is the desired outcome. What do you want from the conversations, deals the BD person will drive?

Customer feedback / market validation

What features are most valuable

Testing pricing models

Identifying verticals

Path to market

Going to a heavy variable component too early creates tension because it incentivizes the wrong behavior. The BD person wants (or needs) to hit certain targets to achieve their target and get paid. If feedback and data are more important than revenue (often the case in the early stage) you want to align the incentives accordingly.

In the early stages, I recommend a high base or straight salary. If you are still working on product to market fit, testing revenue models and other business model basics, pay a straight salary. If you are set on having a variable component, I recommend it is less than 20% of total compensation.

Once you have product to market fit and a clear pricing model you can bring on a sales team and have a split closer to 50% base 50% variable or 60% base and 40% variable because driving revenue is the primary focus. Sell more, make more.

Last tip, this is something to discuss with the BD person before they join your company.

Learn more http://www.ericgrafstrom.com/

There are no “legal issues”

While I like to think I can “lawyer my way” through a contract, the reality is that I never went to law school. However, I have learned a lot from several talented, and patient, attorneys who took the time to explain things to me and answer countless questions.

If I were to single out one thing that I have learned from some of these talented people it is this.

The number one lesson is this. There are no legal issues, there are only business issues.

The best attorneys I have worked with approach everything as a business decision that requires opportunity vs risk assessment. A great lawyer understands the risk reward equation and provides guidance accordingly.

Let me point to some examples that make my point. Keep in mind, I am not a lawyer, these are a few terms you may think are “legal issues” – they are not.

Indemnification – comes up all the time in technology agreement and is designed to have one side protect the other if something goes wrong. Big companies often want the start up to indemnify them for a number of things, trademark infringement, intellectual property violations, software bugs and so on. This really hinges on control. How much control do you, as the start up, have over things that could go wrong. You never expect your API or app to cause damage or violate IP in New Zealand. Should you give the other party protection for any and every case? Think about how much control you have over distribution, marketing, other software that is not yours but, could cause problems.

Limitation of Liability – You may hear the term “capped” or “uncapped” and if you remember one thing, never agree to uncapped. The risk should be tied to the commercial opportunity. So, if you as the start up have a guarantee of $10M in revenue then you can agree to take on more risk, maybe as much as $10M or more. But if you do not have any sort of guarantee you can measure, you want to limit your liability. Why take on substantial risk when there is no assurance of the upside?

Jurisdiction – “who cares where hold arbitration?” You will if you end up in having to arbitrate or worse yet go to court. In addition to the cost of hiring local counsel and traveling to a location hundreds or thousands of miles from your office, local courts may have a reputation for favoring one type of claim or party.

Contract

There are a number of other examples such as intellectual property, reps and warrants and defined terms that tie directly into your business. If you are not sure how, a good attorney will provide the advice so never hesitate to ask how something can impact your business.

Learn more http://www.ericgrafstrom.com/

Networking Tips for Non-BD People

Building a strong network is a practiced art and something that all successful business people do. Leaders are connectors, they help broker relationships and make time to help others, even when their is no personal benefit.

While the value is obvious, getting started is often the hardest part, especially if schmoozing and networking do not come naturally. There is a saying that it takes 30 days to develop a new habit so here are some practical things you can do to develop a habit of growing your network. Anyone can do these and it takes some effort and the payoff is substantial.

  • Make a list of twenty people you can meet in person. It has to be twenty. More than that is too many and less than that is not going to create momentum. If helpful, scroll through your inbox, calendar or LinkedIn for people you have lost touch with.

  • Email five of these people per week, let them know you were thinking about them and wanted to catch up and offer to meet them at a location convenient for them (their office, coffee shop near their house etc.).

  • Over 30 days you want to meet at least 6 – 8 people and have another 2 – 4 meetings in the works. Set a goal to have 10 meetings, or more.

  • Identify 10 people in your network outside the area. People you cannot meet in person because of location. Email them to say hello, see how they are doing and tell them, briefly, what you are up to now. A great way to reconnect is to forward an article or blog post they may find interesting or useful. Find an excuse to reconnect.

  • Find two local industry events – get them on the calendar and go. If it helps, find someone to go with you. Meet at least 3 people. Three people. Each event. Three.

  • Go through your calendar for the next two months. If you have any plans to be in another city or some distance from your office, email someone you know in that city and arrange to meet them. Reach out to a former colleague or client, friend of a friend, someone a friend can introduce you to or even a prospect you want to meet even though they do not have any ner term work for you.

  • Orangize a coffee or happy hour to take place after the first 30 days and invite at least 15 people. Send an electronic invite to give it a more official but still casual feel.

At the end of the 30 days, you will develop some good habits and feel momentum. Making time to meet new people for coffee, emailing an old contact or hosting a small get together every few months are all useful and great ways to keep your network fresh and growing.

This is a practiced art and requires time but it pays to have it as a habit.

Learn more http://www.ericgrafstrom.com/

Revenue vs Money

When it comes to growing the business, there is a difference in money versus revenue. Before you thank me for crystalizing the obvious, let me explain what I mean in the context of a startup.

Revenue deals are tied to a company’s core assets and talents and become a repeatable and scalable transaction. This involves an understanding of the different pieces that need to come together and how it comes together in your operating plan (people, servers, commissions etc.).

A “money” deal does not play to the skills and vision of the company and does not leverage the core assets and talents. These deals typically happen someone approaches the company and offers money in exchange for what amounts to customized development or when a company is struggling and trying to reduce burn, find a business model or simply build momentum.  There are exceptions here – sometime the right deal can take the company out of its comfort zone and lead to bigger and better opportunity but, that is more of the exception.

I have found that teams can often agree on a plan when they have a good framework for a discussion. If there are serious differences of opinion you may want take a step back before moving ahead with any deal and make sure the team is aligned on where you are going.
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Obviously strategic deals and revenue deals can overlap, hopefully they do. However, there may be instances where the path to revenue is not immediate or as clear as you hope. This is a great time to get advice from your board, advisors and key management personnel.

Learn more http://www.ericgrafstrom.com/

Qualitative vs Quantitative Value

There are pitch decks for raising money, outlining the vision of the company, selling the product, recruiting partners for product integration etc.  In an early stage company pitch decks often focus on the product and company vision which makes sense. A business wrapped around the product is key so it is important to ensure the business opportunity is clear to your audience.

I have seen a number of companies try to build a business purely around a qualitative value prop which is hard and has a higher likelihood of failure. The market is less willing to pay for a better user experience or the promise of increased engagement, even if they like the product and find it useful.

A quantitative value (lowers cost, drives revenue, more customers etc.) dramatically increases the odds of success. As I pointed out in my post re Stages of Commercialization, the role of a good BD person at the early stage of a company should be to drive this process which includes talking to prospective customers and partners.

One way to remember this rule is the pacemaker versus the hearing aid, if you could only have one, which one would you choose?

pacemaker

You may have a value prop to users and another to customers (e.g. Facebook provides a qualitative value to consumers and quantitative value to advertisers).

The biggest challenge I see companies face is being candid about their value. The time and energy in building a product creates an emotional attachment that can make it difficult to step back and quantify the benefit a customer or partner will receive but it is worthwhile to do in the early stages of development.

Learn more http://www.ericgrafstrom.com/

Sales vs BD

I started my career in sales and have tremendous respect for sales professionals. It is a craft and I have been fortunate enough to work with some true pros. I have also spent years in business development and each role can play a vital role in your company. So what is the difference and which one is best suited for your company?

I hesitate to say BD is long term and sales is short term because it leads to confusion. Some BD deals are near term and some sales cycles are longer term and asking one team to hand off a deal all too often creates tension in an organization.

In general, business development will identify and create partnerships that create leverage for driving revenue, distribution or enhance the product and business development often is a company evangelist.

Sales is focused almost exclusively on driving revenue and the same thing applies when hiring a sales leader for an early stage company versus a more mature organization.

The sales team is in front of end customer (who is paying for the product) whereas the BD team often works with the partner who owns the direct customer.  Designing a compensation program for each is tricky – you want to avoid conflict for who gets credit on a deal and provide the right incentive for your long term business.

A variable compensation program will drive performance regardless of BD or sales. If you are not sure you are ready to incentivize a particular type of deal structure (e.g. proving or product offering) it is best to hold back and find a pay plan you and your BD or sales lead can live with for an agreed period of time.

Much of this aligns with the stage of company, if you believe your company is at the Scouting or Testing stage it is likely too early to put a commission or bonus plan in place. These types of plans do well in the scaling stage and a solid sales leader will provide good insight on designing a program and making necessary adjustments along the way.