Defining Business Development

This article is inspired by questions & answers with our own advisory boards, interviews with more than 60 business leaders as part of our international professional development workshops, projects with dozens of technology companies, and conversations with hundreds of business development executives over the past ten years. We especially thank Jerome Chevallier for sharing his insights and serving as our final sounding board for this article.

How do you define business development? What does a business development executive do?

The business development executive’s key responsibility is to feed the company’s top executive team and board with screened opportunities that make sense strategically and help the company grow into new market segments. Business development is a first step towards acquisitions, licensing deals, strategic partnerships or other major initiatives. Many companies put a “business development” title on sales positions, especially for strategic sales such as Key Account managers. But business development is the strategic growth of a business by expanding its offering, providing either new technologies and products or access to new market segments, not by selling more of its current offering in the current outlets. Business development managers are on the lookout for new products, activities and markets to expand their product portfolio or corporate scope. They focus on the medium to long range growth. Of course both sales and business development are key to a company’s growth and indeed complementary.

What are the skills of a successful business development executive?

First, you need similar talent as an entrepreneur’s. You need to be able to look at a target (ie an opportunity or project) as if it was a startup, find how you can create value. Second, you need to have a COO’s skills to see how the combination of the target’s assets with your company’s can increase the target’s potential and fulfill the extrinsic growth need of your own business:. Ask yourself, how can we develop this product better than the third-party company would be able to alone? The question is not whether you can do the target’s job better, but whether you can help the target do their job better and how it can benefit you: in most cases it will come from mobilizing your sales force and sales channels, and-or by developing economies of scale and synergy with your existing portfolio.

What other skills are needed? What does a professionalized business development executive do, that “amateurs” don’t?

Professional business developers have a formal process. They don’t just run after any potential deal. Larger companies hold quarterly review sessions of all projects identified during the quarter. They have what is referred as a “BD funnel”: they make sure they are always looking at new opportunities, starting new projects, screening, advancing a few to the review step and finally moving even fewer to the M&A, licensing or deal building stage. That enables their team to better screen opportunities. So for example 40 projects would end up in 2 selected projects. This is harder for smaller companies because they see fewer projects, which leads them to focus too quickly on what’s on their table at any point in time; those smaller companies feel that whatever is on the table is “the” opportunity. The key to business development is patience. You need 10 projects to have 1 viable, so it is best to make sure you look at all 10 rather than focus on the first that you come across.

What are the risks of not having a formal business development process?

The main risk is to focus on the wrong opportunities (the “shiny object in the sky”), to go in the wrong direction, to choose projects too quickly and to be driven by excitement rather than reasoning. I have seen recently a company with a useful technology but they were selling it to the wrong people because they didn’t really understand where its core market was. They retained sales people to sell to a market segment directly, whereas they could have rolled out sales much faster and more easily by targeting the true added value of their product and focusing their efforts on partnering with the makers of another product category that would much better market the products to the final users. They were all excited about how their features could be useful to some clients, but missed the bigger opportunity.

Can you elaborate on this emotional factor?

If a senior manager has emotional attachment towards one project, s/he and their teams won’t be as neutral and objective as they should towards the project and towards alternatives. For example, one of our interviewees has seen a situation where a company was acquired at an unreasonable multiple, because a high ranking executive was excited and built momentum. In a reasonable process, several targets would have been identified and negotiations with more than one company would have helped to benchmark the deal. However, the trick is that you need to be “in the project” enough to be able to understand it from the inside and champion it, but at the same time stay “outside the project” to remain objective.

Business development often requires pitching other companies to make deals with yours; what would you advise them to do to maximize their chances of making a deal?

They should be objective, honest, and reasonable about what they present and what they ask in exchange. Don’t misrepresent the product or technology. Be reasonable on the valuation; don’t just think about how much money you want and what you think your product is worth: find the value of the product for the buyer; for example, how much money can your technology save them? How much money can they make with your technology? Buyers as well as third-parties are usually better able to assess the value of your technology on their market. This isn’t a used car salesman strategy. The value has to be established objectively.

What errors companies make when trying to make a deal?

Our interviewees have seen a number of innovators who have a good technology but are unable to sell it. For example we have seen an engineering firm with a very interesting innovation where they replaced an expensive high-tech component with a much cheaper one without reducing performance; but the founder was unable to present the product from a commercial standpoint to go through the filter of other companies’ business development people. The opposite is true too: some companies are very good at preparing nicely-packaged presentations and business plans but with little substance behind them; some financiers are especially good at selling anything and making a deal; they know how to package their project in the right way. Professional business development teams learn to see through this with proper screening and due diligence.

Is business development only for companies seeking to license or to acquire companies, products, or technologies?

No, first of all, you should have a formal business development process even when you aren’t looking to acquire anything specific yet. That enables you to monitor your market and find new opportunities you may not have thought about, so a company should always consider that it is looking for something and constantly screen opportunities. Moreover, when you will actually need to move forward with extrinsic growth, this will give you better benchmarks on opportunities and projects. In addition, the more you assess opportunities and perform due diligence, the better you get at it. Finally, as mentioned earlier, the stronger your deal-flow, the better; so your business development team should constantly identify opportunities because that gives you more perspective, choice, and negotiation power when the time comes to make a move.

What goes on during the formal process of opportunity screening and due diligence?

The most organized companies have a disciplined review process of all opportunities according to clearly formalized standards. You should develop a checklist and apply it systematically to any opportunity that is presented to you, whether from an internal or external source. Never reduce your standards, always look at many options and many technologies. If no opportunity on the table meets the standards, don’t make a deal. For example:

  • Is the opportunity valid and credible?
  • Is it coherent with your company’s strategy?
  • Even if it is coherent with your company’s strategy, can it fit within your business processes? Sometimes a product or technology seems a fit but isn’t because it doesn’t match your teams’ skills, sales channels, etc.
  • What are the financials? Margins, ratios, Net Present Value, multiples, cash flow projections, and etc.
  • What assumptions are you making? Are you sure they are true or do they need to be verified?
  • Perform a risk analysis, make sure to uncover all red flags, always think “and what if…”
  • Each project needs to have a business plan, and needs to have a clear integration path into your company’s business
  • Due diligence: A due diligence is like “kicking the tires on a car”; never assume that what is disclosed is correct. Perform a comprehensive due diligence on all items, including revenue projections. Don’t move to the due diligence stage until you are sure the project is the best fit and you have looked at alternatives. Remember that once you get into a due diligence, it’s not time to check that the opportunity is an actual fit for you. If anything appears to be unclear, biased, inconsistent, or not well represented, you have to raise warning signs. You have to consider any problem as a red flag and assume that it is just the tip of the iceberg.
  • Use your checklist to control external pressure; often, someone outside or an internal champion tries to put pressure to make a deal: curb unwarranted enthusiasm. Go through your checklist and make sure all items are checked for all projects. Avoid any deal where someone is putting pressure to sign, either internally or externally. Never engage in a deal where there is bias pressure (pressure is normal, but interested or irrational pressure is not)
  • Sometimes, all these items aren’t sufficient to be right; a project may look viable and correct, and everything is on green-light mode. But if politically, internally the project is not sold then it won’t get support. Make sure that the project has support from all stakeholders otherwise it is very difficult to make it happen.