How Not to Let BD Tank Your Startup
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1) Business development deals involve licensing technology from others or distributing your product through another company's network. 2) Before hiring a business development person, determine if you actually need to pursue licensing or distribution deals. 3) Evaluating potential business development deals can consume significant management time and resources from engineering teams to implement.
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How Not to Let BD Tank Your Startup
- 1. How Not to Let BD Tank Your Startup Charles Hudson Venture Partner, SoftTech VC CEO and Co-Founder, Bionic Panda Games
- 2. 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
- 3. 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
- 4. 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
- 5. 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
- 6. 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
- 7. 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
- 8. 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
- 9. 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?
- 10. 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?
- 11. 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?
- 12. 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?
- 13. 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