Startup Business Development: When to Go All In
The Misconception About Business Development in Startups
A common misconception exists regarding startups: that all growth challenges and scaling issues can be resolved through business development. This is, in reality, a flawed assumption.
Effective business development is seldom the primary solution for achieving success in a competitive market, establishing a unique value proposition, or providing outstanding customer service. However, a well-structured BD operation can be crucial for a startup’s survival and its ability to confirm product-market fit by generating sustainable revenue.
Experiences Across Different Growth Stages
I have held leadership positions in business development at three distinct companies, each at a different stage of development: Yelp, Stitcher, and TrialPay.
Yelp: Scaling an Established Business
During my seven years at Yelp as Vice President of Business Development and Corporate Development, the BD team functioned as a core business unit, directly accountable to the COO, CEO, and board of directors.
I oversaw the negotiation of approximately 200 partnerships with major corporations, including Apple, Amazon, Microsoft, and Samsung, alongside numerous collaborations with both emerging startups and established industry leaders.
Yelp was already gaining recognition as a valuable resource for information and customer insights prior to my arrival. However, strategic partnerships, such as the one established with Apple, propelled Yelp to a position of global market leadership.
Stitcher: BD as a Survival Strategy
At Stitcher, I integrated business development as a central component of my role as a company founder. Investing in BD early on might seem unconventional, but the partnerships I forged with music and media companies were vital to the company’s initial viability.
Stitcher demonstrates a scenario where early investment in business development was justified due to the need for both brand validation of the core concept and differentiation within a rapidly expanding podcast market.
TrialPay: Accelerating Growth Through Partnerships
When I joined TrialPay, an e-commerce platform later acquired by Visa in 2015, a solid founding team and business model were already in place, focusing on customer engagement in marketing and payment processes.
I was specifically recruited to lead business development as the company approached a critical juncture. Pressure from investors and customer demand necessitated a faster expansion of TrialPay’s merchant network to broaden its commercial offerings.
This requirement for business development was a direct response to consumer needs and the company’s position as it navigated between funding rounds.
Strategic Timing for Business Development Investments
Determining the optimal moment to prioritize business development (BD) is crucial for companies aiming for growth. Certain market conditions favor significant BD investment, while others suggest allocating resources elsewhere.
Early-stage startups should prioritize BD when initial success is contingent upon it. For instance, Stitcher required early endorsement from prominent media organizations that produced the podcast content it would showcase. This proactive approach aimed to circumvent the legal challenges faced by earlier music platforms, such as Napster.
Furthermore, these media companies were anticipated to assist in promoting the new podcast application and desired an on-demand streaming option, contrasting with Apple Podcasts’ download-only model at the time. This early BD investment yielded substantial strategic benefits for Stitcher at the Series A stage, securing partnerships with 12 media outlets, including The Wall Street Journal and TechCrunch. However, for the majority of startups, BD isn’t typically essential at this stage and is often more effectively implemented later.
Investing in BD becomes advantageous when a substantial new revenue stream emerges. This could involve expanding into a new target market with your current revenue model, or introducing an entirely new revenue source.
During the early stages of social gaming at TrialPay, significant revenue potential, user engagement, and investment from major social media platforms like Facebook were evident. Although securing an exclusive monetization partnership with Facebook for social gaming offers seemed improbable – founders estimated a 1% chance – dedicating 99% of my time to this pursuit proved successful.
The outcome was the creation of a new business unit for TrialPay, effectively doubling the company’s revenue and establishing a commercially viable path for social gaming that continues to thrive.
A key indicator for BD investment is the potential to establish a repeatable and scalable model. The capacity to develop a process, refine it, and then delegate it to sales or other BD personnel is vital, particularly during the resource-constrained, demanding phases of a startup. While the specifics of this repeatable framework will vary based on market dynamics and team capacity, a flexible BD approach enables organizations to respond quickly to changing conditions.
In today’s business landscape, there’s considerable pressure to innovate and reinvent. However, leveraging existing strategies is often the most efficient and profitable BD approach – a tactic successfully employed at Yelp, Stitcher, and TrialPay.
Conversely, avoid investing in BD solely for increased visibility or enhanced credibility. Partnerships pursued simply for the sake of association are often unproductive. While engaging with well-known brands like Netflix or Nike may be appealing, it doesn’t typically lead to scalable results.
Moreover, securing a partnership with a popular brand doesn’t necessarily validate long-term business viability or demonstrate effective BD strategy. A significant drawback of premature BD efforts is the substantial distraction and time commitment it demands from a startup’s founders and core team. Remember that large corporate partners possess extensive resources that can consume your time during “partnership” discussions, while your startup operates with limited resources.
Best Practices in Business Development for Startups
The path to scaling, hiring, and achieving maturity varies for each startup. However, three core business development (BD) practices can significantly aid founders in understanding their markets, discovering new opportunities, and securing the appropriate talent at the optimal time.
Ecosystem Mapping and Continuous Understanding
From the outset, startup founders must meticulously map their ecosystem and maintain a continuous effort to comprehend its dynamics. Awareness of competitors and a deep understanding of market shifts are crucial for growth and success.
It’s important to avoid fixating on direct competition with individual companies or completely overhauling BD strategies with each new entrant. Founders should instead concentrate on solidifying their startup’s unique selling points and drawing confidence from them, particularly when facing seemingly identical competitors.
Strategic Deals for Unlocking and Amplifying Value
When Stitcher was co-founded, there was little to no established practice of content sharing or cross-promotion between startups and established media or music organizations. A key aspect of my role in BD involved initially persuading these larger companies to engage with us, both in formal meetings and in principle.
Subsequent discussions focused on defining mutually beneficial content partnerships and cross-promotional strategies. Overcoming initial resistance, I successfully demonstrated to executives at twelve respected media companies that collaboration with a startup did not represent cannibalization.
This led to the launch of a novel model that rapidly proved its value. Early adopters in the podcasting space, such as The Wall Street Journal, TechCrunch, and NPR, began to view Stitcher as both a market validator and a valuable promotional outlet.
This counterintuitive approach to cross-promotion facilitated sustainable revenue generation, client acquisition, and market share growth during a period when podcasting was largely unproven.
Founder-Led BD vs. External Hiring
The decision of whether to maintain founder-led BD efforts or to bring in an external hire hinges primarily on the founder’s available bandwidth. If a founder dedicates more than 10%-20% of their time to pursuing a limited number of high-potential leads, it may be time to consider a dedicated hire.
Conversely, if a founder’s BD activities consume only 1%-5% of their time, it might be more prudent to allocate the potential $100,000+ in hiring costs elsewhere and continue the current approach. However, once the decision to hire a BD lead is made, the founder or founding team should dedicate their full recruitment efforts to identifying candidates who demonstrate intelligence, experience, technical skills, product understanding, and strong interpersonal presence.
Strategic Business Development for Startups
For startups navigating intensely competitive landscapes, effective business development (BD) can be a crucial differentiator and a key to achieving success.
However, premature or ill-conceived BD efforts can inadvertently contribute to a startup's failure. A significant misstep in strategy, whether early or later in the company’s lifecycle, can prove detrimental.
Approaches to Business Development
BD initiatives can be spearheaded by the founders themselves from the outset. Alternatively, responsibility for BD can be delegated to executive hires brought on board months or even years after the company's founding.
While certain BD models may be repeatable, a universally applicable strategy does not exist. The optimal approach is highly context-dependent.
Timing is Critical
There are specific junctures in a startup’s evolution where focusing on BD becomes particularly advantageous.
In some instances, a startup’s very survival may hinge on making astute decisions regarding when and how to pursue business development opportunities.
Key Considerations
- Founder Involvement: Determine if founders should initially lead BD efforts.
- Executive Hires: Evaluate the timing of bringing in dedicated BD professionals.
- Strategic Alignment: Ensure BD activities are aligned with the overall company strategy.
- Market Conditions: Adapt BD approaches based on the competitive environment.
Successfully navigating these considerations can significantly increase a startup’s chances of thriving.
