According to Brian de Haaff, in an article that recently appeared on this site, business development has no place in an early-stage startup. In fact, he calls any investment in business development idiotic. Talk about broad-sweeping. It seems crazy to address this advice to any “startup” whether it’s bootstrapped, B-round, or making $5 million in revenue; whether it’s two people in a garage or a 50+ person team.
Deciding whether or not investing in business development is worthwhile depends on a multitude of factors. At OpenView, we certainly take issue with de Haaff’s generalizations and have seen results to the contrary with many of our own portfolio companies.
My point is this: While I agree that not every early-stage company should be investing in partnerships, most should, at least to some degree. Because when they do it well, it creates tremendous value for all parties involved. At OpenView we invest in software startups at the expansion stage, where they are successfully solving a problem and customers are buying their product in a repeatable way.
We look at dozens of companies each week and have a portfolio of more than 20 today. Most of these businesses can or already do benefit from the right partnerships and investment in biz dev resources, often with remarkable results. Take, for example, Expensify’s partnership with Uber, Lessonly’s with Namely, Socrata’s with Yelp, or Signpost’s with Staples. In each case, an earlier stage company is hitching its wagon to a bigger, better known player in a way that benefits mutual customers and generates non-linear revenue growth opportunities. And by the way, each of these companies employs a full-time biz dev person.
To claim that no startup should make any investment in biz dev is off the mark. But exactly when they should invest is admittedly a tricky question. Here are some things we’ve learned:
SaaS partnerships for startups make sense for a number of reasons: Filling product gaps with complementary features; gaining access to broader markets by selling through a bigger company with greater reach; improving customer acquisition efficiency by leveraging channels; gaining brand exposure; and generating strategic M&A interest.
Most companies at the expansion stage can benefit from investing in biz dev. But before allocating resources or hiring someone, they should be asking themselves:
- Have we achieved reasonable product-market fit?
- Are customers buying the product in a repeatable way, to the tune of at least a few million in annual recurring revenue?
- Is our direct sales engine well-tuned? Not only meaning execution, but also onboarding of resources. Partners won’t be easy to train if you can’t train your own reps quickly.
If everyone is doing biz dev, then no one is really doing it. Companies are well-served to select one person to manage this effort. In very early startups (less than $2-3 million in annual recurring revenue), it’s likely the CEO or another executive is heading up your biz dev efforts. However, this won’t scale, and a dedicated hire may start to make sense.
If you do hire a head of business development, fit is very important. If someone has an “empty calendar” and is sending around aggravating messages (as Haaff describes), they’re probably not a fit. It really depends on the company, product, and types of partnerships you’re after, but the folks you’re looking for possess great relationships and relationship-building skills (both internally and externally), deep understanding of the product and market, negotiation skills, project management skills, and a general sense of urgency along with solid deal execution skills.
There are great companies that never invested in BD – there’s no denying it. But this is more an exception than a rule.
We talk to global software companies all of the time who are actively searching the startup ecosystem for great partners and acquisition targets. They do, in fact, believe many startups have something to offer, contrary to de Haaff’s belief.
At OpenView, we recently hosted a Strategic Business Development Workshop. Nearly half of our portfolio sent representatives, and we received enormously positive feedback. Most importantly, I heard a lot of great ideas and success stories from folks handling biz dev at startups. Whether or not it’s the right time to invest in biz dev is largely dependent on the stage of your company and a variety of other product- and market-related factors, but completely ruling it out as de Haaff suggests is not only short-sighted, it’s a hindrance to your company’s future success.
John McCullough is VP of Corporate Development at OpenView. Prior to joining OpenView, John was Director of Corporate Development at Rocket Software. While there he drove business development initiatives and successfully executed 10 acquisitions, including public company carve-outs, stock purchases and cross-border transactions. Before Rocket, John was an investment banker at Barclays Capital.