Business Development for Entrepreneurs

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From a presentation given to the Entrepreneur and Small Business Forum on 3/15/2012

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Business Development for Entrepreneurs

  1. 1. The Business Development Mindset for Entrepreneurs Scott Pollack scott@slpollack.com @slpollack http://www.startofthedeal.com
  2. 2. The Biz Dev Mindset Understanding what business development is, and applying a Biz DevMindset, will help you prioritize and focus on building a sustainable business
  3. 3. What is Biz Dev?
  4. 4. The Grand Unified Theory of Business DevelopmentHere’s how I define it: business development: biz ● ness duh ● vehl ● up ● mehnt noun or verb Creating long-term value for an organization from customers, markets, and relationships.
  5. 5. Sources of Long-Term ValueCreating long-term value for an organization fromcustomers, markets, and relationships.Customers: people who giveyou money for your products andservices Markets: where current and prospective customers reside. Relationships: the foundation and heart of long-term value.
  6. 6. Sources of Long-Term ValueCustomers:Find new ones and extract more value from existingones.Markets:Figure out where new customers “live” and find a way toreach them.Relationships:Build and leverage relationships founded on trust andintegrity to facilitate opportunities.
  7. 7. The Biz Dev Mindset in ActionIntroducing: The Widgetco Corporation • Widgetco is a mid-sized manufacturer of widgets, a core part of the inner-workings of grandfather clocks. • During a recent all-hands meeting, an engineer made an off-hand comment about how she fixed her wristwatch using a Widgetco Model A34 Widget. • Widgetco’s CEO now thinks there’s an opportunity to sell widgets to the watch industry. We are Widgetco’s Business Development division and this is your first day on the job. What do you do?
  8. 8. Biz Dev Mindset in Action: Step 1Step 1: Identify the Opportunity • Where are there opportunities for us to create value from customers, markets, and relationships? • Usually that means finding a way to reach new customers or improve relationships with existing customers. • Ask questions about your own business • Are there gaps in your offering vs. competitors? Are customers clamoring for something new? Are there opportunities to sell a product to new customers? • Good (and bad) ideas can come from anywhere • Biz dev teams, CEOs, tech people, competitors, janitors, and your mother can all can inspire ideas. • It’s up to the Biz Dev team to evaluate the opportunities. Widgetco – Identifying the Opportunity • An employee inadvertently identified a possible opportunity for the company to sell its existing products to new customers. • Since Widgetco focuses on grandfather clock parts, and does not currently sell to the Watch industry, this means entering a new market.
  9. 9. Biz Dev Mindset in Action: Step 2Step 2: Assess the Opportunity • Size the opportunity • How can you measure the revenue potential of the opportunity? How big is the market? • Can start with “back-of-the-envelope” calculations and rough approximations • Assess your resources • Product: do you have the assets and expertise to produce the product, or do you lack anything critical? • Distribution: do you have a way to sell your product? • Other Strengths/Weaknesses: what else should we consider? What are other resources to assess when evaluating an opportunity? Widgetco – Assessing the Opportunity • Market sizing = 150M watches sold in U.S. per year * 2 widgets per watch * $.43 per widget * 7% penetration rate = $9MM/year revenue opportunity • There are no changes to the product, so there are sufficient resources to produce the product. • Widgetcos sales team only knows grandfather clock manufacturers. They have no existing relationships with wristwatch manufacturers, who are notoriously difficult to sell into.
  10. 10. Biz Dev Mindset in Action: Step 3Step 3: Formulate the Options • Evaluate the paths that can be taken to pursue the opportunity • “Build vs. Buy vs. Partner” is a useful framework • Option 1: Build • What would it take to pursue this opportunity in-house? If resources are lacking, what would it take to create them? • Option 2: Buy • Are there “off-the-shelf” solutions that can enable us to pursue this opportunity more quickly or easily? • Option 3: Partner • Can we work with one or more companies to pursue this opportunity together? Widgetco – Formulate the Options • Option 1 – Build: train our sales team to sell to watch makers. Will take 18 months and $1MM in tradeshow & conference attendance fees (for customer travel, industry networking) • Option 2 – Buy: Hire a new sales team from the watch industry. Will take 3 months and $5MM • Option 3 – Partner: Strapco is a nearby company that makes leather wrist straps for watches, and has relationships with every major watch maker. A cross-selling distribution partnership could drive sales in 6 months with no upfront costs but an estimated 30% rev share (effective cost $2.7 MM)
  11. 11. Biz Dev Mindset in Action: Step 4Step 4: Make the Decision • Depending on the decision-maker, this can be a straightforward financial modeling exercise or a decision based more on intuition and gut. • Build strategies are often the slowest way to enter a market, but provide the most control over the result. • Buy strategies can be the riskiest and most expensive approach, but also the fastest. • Partner strategies require giving up a degree of control and stake in the final result, but offloads some of the risk onto the partner (“Shared risk, shared reward”). Widgetco – Make the decision • Option 1 – Build: train existing sales team = 18 months and $1MM  slow speed of entry to market but leaves $8MM opportunity ($9MM/year revenue - $1MM upfront cost). • Option 2 – Buy: hire an experienced sales team = 3 months and $5MM  fastest entry but largest upfront cost resulting in $4MM opportunity ($9MM/year revenue - $5MM upfront cost) • Option 3 – Partner: work with a distribution partner = 6 months and $2.7MM  compromise on time and money but shared risk resulting in $6.3MM opportunity ($9MM - $2.7MM rev. share) What should Widgetco do?
  12. 12. In Conclusion Always Be Contemplating:How are you creating long-term value for your business?
  13. 13. Contact Info scott@slpollack.com @slpollack http://www.startofthedeal.comhttp://blogs.forbes.com/scottpollack

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