How Not to Let BD Tank Your Startup

How Not to LetBD Tank YourStartup Charles Hudson Venture Partner, SoftTech VC CEO and Co-Founder, Bionic Panda Games

Biz Dev is Really Simple  Business Development is a very specific function with (only) two core activities:   License someone else’s technology or content for use in your product or service   Distribute your product or service through someone else’s network  Difference between business development, Chief Revenue Officer, VP Sales, and “business guy / gal” roles is key to understand

Before We Move On…  Stop! Does your startup even need BD?   What are you trying to license or distribute?  Startups that benefitted from BD   Mint (deal with Yodlee)   Google (distribution deal with Yahoo)   AdMob (global BD relationships with top carriers)  You might need a “business hire” who is not a BD person   Build and maintain relationships with key partners   Collect valuable info about your market / space   Position your company for acquisition / exit

BD is a Costly Function to Staff   It can easily cost the company $200K+ for a Director-level BD person:   Salary and benefits = $120K-$140K / year   Conferences and travel = $15K / year   Networking and client entertainment = $5K / year   Legal fees for deals = $25K+ / year   Fully-loaded BD people can easily cost you more than a talented engineer or designer

BD Deals Mean Real Work for Engineering and Product  If you’re not willing to put engineering and product cycles against BD, then don’t send your BD people out there   It’s embarrassing to sign or negotiate a deal that the company will not support with real resources   Supporting BD deals often means internal projects will get deferred  It’s very rare that a BD deal can make / save your startup – stick to your strategy   Evaluating deals consumes a lot of management cycles

Healthy Relationships Between BD and Product  Trust   Engineering cannot give overly padded estimates of delivery timelines   BD cannot give overly inflated likelihood of closing for key deals  Respect   BD people cannot treat pre-deal engineering cycles as “free”   Spec work and mockups have a cost   Having your VPE or CTO in meetings is very expensive   Engineering cannot treat BD people like knuckleheads

Hire the Appropriate Person  The big key deal person   Licensing or distribution deal(s) with a few major partners  The deal template person   Figure out the mechanics of a deal that can be deployed to a select number of partners with a similar structure  The volume deal person   The deal is in place, go get partners

Evaluating Candidates  Rolodex / network of relevant contacts   Ask around – it’s a small pool of people  Experience doing the kinds of deals you need done   Licensing and distribution are not the same   Appropriate level of seniority / past experience   Revenue vs non-revenue deals   Small company vs big company experience  Style match for your corporate culture

Distribution Deals  Why is the other company interested in or willing to distribute your product?  Under what circumstances would they cut you out, do it themselves, or bring in a competitor?  How critical is what you’re doing to their overall objectives?  Are you making them money, saving them money, or costing them money?

Licensing Deals  Can you afford to pay the minimum guarantees?  Do you have the terms locked in long enough to make the economics work?   Music licensing deals for streaming   Video licensing for companies like Netflix  Do you need to be the exclusive licensee of the content?

Where Many Startup BD Deals Break Down  Economic Terms   Revenue splits, minimums, guarantees   When an 80 / 20 rev split isn’t really 80 / 20…  Term and termination   Convenience vs Cause   Notification period   Duty to perform  Exclusivity and other restrictions   Geographic domains   Products  Indemnification and Limitation of Liability   Who’s financially on the hook for how much when things go wrong?

BD Deals and Corporate Politics  Are you dealing with the right person?   Generally speaking, manager / director level people at big companies can only say no   To whom does my deal matter and why?   Am I displacing or threatening an internal project?  What product / corporate objective is fulfilled by my deal and is it meaningful?  Does my partner ultimately want to put me out of business?

More Tips for Startups  Get performance commitments in writing   People and priorities can change   If they won’t put it in, there’s usually a reason  Get performance comps from past deals   Make sure you have rational performance expectations from any BD deal you do  Doing BD deals with other startups is risky  Understand who your champions and enemies are within the organization  You probably can’t afford legal action – try to avoid it

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How Not to Let BD Tank Your Startup

by Charles Hudson on Feb 18, 2011

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How Not to Let BD Tank Your Startup — Presentation Transcript