How Not to Let BD Tank Your Startup

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