I’m at a global technology conference with hundreds of small and large companies. I connected with many of my business development peers from banks, technology companies and consulting firms to chat about how to run business development better.
BUSINESS DEVELOPMENT’S JOB IS TO PILOT NEW BUSINESS MODELS
Many companies are unclear about the role or the right measurement of business development and miss the opportunities for effectively launching new channels or new types of products. Business development should be the engine of business model development especially in fast moving businesses. No new or transformational strategy can be immediately unleashed on the core business and risk major disruptions in the customer or supplier base. Business development tries out the new channels, invents new sales and delivery processes and scales them until they prove to produce similar or superior results compared to the core business. As the great book, The Other Side of Innovation reminds us, core sales and operations do not develop new types of business and do not innovate. That is not their role. In companies where business development and innovation is well defined, funded and measured, there is a clear swim lane between market development for new solutions and for existing ones. The best innovators can maintain a high performing core business while encouraging an effective product and sales innovation culture. Great examples are Google X and IBM and several other tech companies. In technology the product lifecycles are measured in months vs years in consumer or pharma businesses and even longer in traditional manufacturing. Tech has no choice but innovate business models while shipping products.
BD TEAMS MUST UNDERSTAND THE CURRENT PHYSICS OF THE BUSINESS
Some executives refer to the basic sales conversions ratios, delivery metrics, customer retention rates as the “physics of the business“. Every great executive in any business should know their industry specific metrics like how many customer meetings typically lead to a qualified opportunity, what % of those will convert to revenues, what % of the customers will cancel contracts (attrition) and what percentage of customers have delivery problems. These are the scores to beat to outperform the competition or disrupt an industry. The primary role of new business models and therefore BD teams is to long term improve on the metrics that make up the physics of the business by introducing new products and new customer segments. If you are a startup, your base metrics may be that of your industry, or the industry you are trying to disrupt. If industry metrics do not exist, make some assumptions so you have a baseline.
DIFFERENT METRICS ARE NEEDED FOR THE PILOT AND SCALE STAGES OF BD
Sometimes business development teams gets funded and released without clear goals and metrics. That is a recipe for failure. Superior business development should be measured with the same rigor as the core business but with different KPIs. The Pilot stage is early development of the business model where a lot of experimentation is encouraged. Metrics are purely feedback on the various assumptions the team is making. Scale stage is when the business model is ready to go and the focus is increasing the throughput.
Measuring the Pilot stage: ACTIVITIES
Initially BD will be experimenting in the new channels or solutions and should not be measured against the core business metrics. The scope of experiments will be limited either by customer segment, geography, type of contact, etc to minimize disruption in the core business. Pilot stage metrics should be activity oriented. You need to contact a certain number of target groups, expose them to your new message, prompt them to take a certain action, evaluate how those actions match expected results in the strategy, and many more. The metrics should align with expected steps in the future workflow (physics) of the business and should not be a random list. BD teams should have clear targets for each of these metrics that should be reviewed monthly or quarterly. These are not “performance reviews”. The goal of the review primarily is to pivot to a new set of assumptions and adjust the expectations. The BD team should have an agreement how long these iterations can happen. It typically takes 12-18 months to test a new business model across markets and solutions.
The BD team should stay in pilot stage until the metrics become predictable. For example, the % of leads converting to opportunities or revenues become more predictable. Similarly with other metrics like cost of lead conversions. Once metrics are predictable the team should move into SCALE stage.
Measuring the Scale stage: REVENUES
Once the BD team leaves the PILOT stage, it should expand the scope of the new business model to more customers / geographies. It should introduce metrics from the core business. It is expected that the new BD model will outperform certain metrics compared to the core, typically lead conversion and sales growth while underperform in other areas like cost of sales and customer retention. It needs to be understood that the business model is evolving and will not be as efficient as the core business for a while. However if BD does not outperform in some areas (like growth) it is questionable whether the model is sustainable. There should always be an edge in new business models compared to the core business, otherwise it is not worth the effort to change.