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.

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.

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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.

3 Stages of Commercialization

I have been asked by many founders and CEOs “we need to hire a BD person, do you know anyone?”  Few roles have a more varied job description than business development. It’s no wonder why it is hard to figure out who to hire, what they should do and how to measure success.

Hiring the right person based on the stage of your company may be the single greatest factor in success (or failure) in driving your business.

A person with deep industry knowledge and strong network ready to “do deals” can turn into a disaster if it is too early in a company’s product life-cycle. A product and the team building it go through cycles to establish the product’s identity and a BD person that understands this can be invaluable in shaping an product’s value proposition.

I believe there are three stages in the commercialization process and not everyone is suited for each and every stage.

1) Scouting – the earliest stage of a company, at this point business development is about identifying various routes to market, points of leverage and providing the internal team early market feedback. The ability to work closely with product and engineering teams is key skill. The BD person will spend 60% or more of their time working internally with the team to understand the product, assess the market and begin formulating the first external pitch deck. Closing deals is not a priority, getting market feedback is the primary goal.

2) Testing – once a few paths to market have been identified, it is time to try closing a few deals to test assumptions and provide measurable input before you scale the business. Analytical skills to set up a framework for what to measure and examining the data will determine if and where to scale based on the company’s strengths and vision. Refer to my other post re a framework for assessing opportunities if you need some tips. The time spent internally decreases to 40% to 50% – the feedback loop to product and engineering is critical though so it needs to be a priority.

3) Scaling – after gathering data from early deals and validating a path to achieve your goals, BD is ready to start replicating deals and putting support structure in place.  At this point it may make sense to add to the team and finding people who can take a template and scale. The time spent internally has shifted from the Scouting stage and is primarily and now an external facing role. The time internally facing will drop to 20% – 30% and should remain a priority to communicate changes in the market and partner needs.

As a leader in an early stage company, hiring for the right stage is critical so ask questions during the interview process that relate to experience relevant to the stage of your product.

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Types of Business Development

Job titles can be misleading, a product management role at one company is “program management” at another and “product marketing” at yet another. Business development is no different and maybe more confusing. I believe there are three common types of business development and in an early stage company these roles typically are combined and larger companies will have roles that focus on one particular area.

Sales – for whatever reason, some people seem to feel better about themselves with the title “business development” instead of sales. This is ridiculous. Sales is one of the most crucial roles in any business and the profession is filled with incredibly dynamic, intelligent people that play a key role in shaping the success of a company. If you sell a product or a service and carry a quota and more than 50% of your income is based on commission and you are successful, you are able to do something that only a fraction of the working population can do well. It is sales and that is something to take pride in doing and doing well.

Commercial – focuses on a specific deal type like distribution that in turns creates leverage for a company. A classic example are the toolbar deals that Google and Yahoo did years ago (these have since become less common given market saturation) where the economics and deal terms can be complex and require protracted negotiation. Another example is Coinstar’s gift card partners that create an incentive for consumers to dump jars of coins into machines in exchange for a gift card with Amazon, AMC Theaters and Starbucks.  These deals help an organization scale product distribution, generate direct or indirect revenue, increase market penetration and other business drivers that do not come from a direct sales team. While not all deals are the same, they will have the same goals and success metrics.

Product – this can range from basic technology licensing to integration or joint development deals and require a solid grasp of the technology on both sides. The ability to work well with engineers and product teams is a must, to be successful one must possess the ability to translate technology into commercial language in an agreement and effectively manage cross functional issues (legal, engineering, marketing etc.). Definitely not a procurement role, this involves things that make the product work, reduce time to market and provide scale. Think of the integration Apple, Google and Samsung have with banks and payment platforms to enable consumers to use their mobile device to pay for things at the checkout. This is an incredibly complex deal to structure that involves engineering efforts, security, intellectual property, marketing and dozens of other factors that need to be carefully thought through and negotiated. I have often suggested to individuals seeking to learn more about BD to read through a few different API agreements from different companies to get an understanding of how to successful companies approach their developer/integration programs.

New /Strategic – this combines many skills and requires diverse experience to work closely with company leadership to assess the overall business and identify new areas of growth and/or ways to transform existing business. Executives, product and engineering teams often have to focus on meeting tight deadlines, customer expectations and struggle to get the necessary external market exposure and synthesize trends and data relevant to the future of the business. The ability to both identify and assess opportunity and help a company take action that leads to something meaningful is a rare, and incredibly valuable skill. I stress execution here too, without it, even brilliant ideas are worthless. As Thomas Edison was famous for saying, “vision without execution is hallucination” and telling people about brilliant ideas without a plan to help get there and a willingness to go above and beyond to help get there probably makes you an asshole.

Hopefully this helps clarify some of what various business development people do – or don’t do in some cases.

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