What does this have to do with Business Development? Well, the rules of Musical Chairs change in BD, but the game is similar. Chairs come and go, sometimes in blocks, at an alarming rate, and it is hard to hear the music. Mergers change the layout and comfort of chairs, and market evolution serves to add or removes chairs over time. The goal, nonetheless, is to sit in the most comfy chair in the room at the right time. The "Chairs" in our version of the game are potential acquirers, the "Players" are typically venture-backed companies evolving from incubation through revenue, to some level of market recognition, trying to guess what the right time is, and who their eventual buyer might be. Sitting in a chair means you have reached your exit, and the comfort of the chair is a reflection of the "best price" for your circumstances. With the state of today's public stock markets, an acquisition is the most likely "liquidity event" for most of today's startups, so this should be important stuff to today's entrepreneurs and investors.
But, why does this really matter? In Three Dimensional Business Development, 3DBD, we need to consider our alliance strategy from now until the music stops as a game of Musical Chairs, and plan alliances that take us ever closer to our favorite chair. And, as most of us are probably a bit picky, our choice of favorite chair can change over time, which adds another dimension to the game.
Let's look at an example: Argon Tech has the opportunity to do an OEM deal with Immense Business Networks, IBN. They consider IBN one of about 4 potential acquirers they see today, but don't yet have the revenue to justify the required exit price. So, as they are working on a deal, a 3DBD approach would suggest taking some steps including:
- make sure that the terms of the deal are not so good that IBN doesn't need to acquire Argon,
- this deal doesn't "repel" Argon's other chairs - potential acquirers, and
- that this is the right time and sequence for this deal with IBN.
So, having a naturally evolving strategy for who your potential acquirers are as well as an optimum path to reach them is critical to forming strategic alliances, even in the early years. An evolving strategy deliberately includes key company stakeholders in an ongoing discussion of the chairs in the room, and which seem most comfy in your chosen exit time frame.
So, next time you grab your kids or grand kids and that old LP and record player (OK, OK, CD and remote control) to play some Musical Chairs, think about what names you would put on the chairs today - or in 6 months.
Next time I will dig a little deeper into the alliance life cycle...
Peace,
Michael
CMT Consulting, Inc. - Business Development Consulting Services
Michael - Welcome to the world of blogging! Looking forward to reading some great stuff and will try to put some salient comments when I think I can add something.
ReplyDeletealan
Michael, glad to see you sharing your deep BD and M&A experience in blog form. As someone who's worked with and around you for years, I look forward to hearing your insights.
ReplyDeleteMichael, I look forward to you sharing your wisdom gained over the years. After a few years of working with you I look forward to a many more. Thanks for doing this.
ReplyDeleteI am advised by a friend and colleague that I should update my example even further - so, OK then here goes: "grab your kids or grand kids and that old LP and record player " should be "grab your kids or grand kids and your iPhone pause button"!
ReplyDeleteInteresting stuff.
ReplyDeleteI'm curious about what tools you use to develop and maintain the strategy. If a strategy is always evolving, how do you cost-effectively articulate it and keep it updated regularly while maintaining a way to articulate not only the current state, but also the path you took from a previous state? Is there a standard or simple set of metrics/formulas you employ to run cba, such as you would do for project earned value?
Jack, thanks for your question - a good one! My experience is that the strategy is developed & maintained with the executive team - all stakeholders in the Chair pursuit. I have found quarterly update discussions to be effective as priorities and the world and market changes.
ReplyDeleteIt is usually a "structured brainstorm", for which I have a few techniques I use to encourage the right discussion - I will plan to share some of those techniques in a later Blog. Communication outside the executive group is usually to the board, and of course that discussion is memorialized accordingly.
Outside of the board, I have to say that I've not been asked to replay the path taken. That said, the institutional memory of the eTeam can usually reproduce the essential elements, even years later. The key market and strategy shifts are somehow always memorable for a small team.
My experience of measuring "project earned value" is that it is done based on metrics like revenue, strategic marketing outcome, exit multiples. Goals and measurements for BD will be a subject for a later Blog: defining and measuring success properly isn't easy, but it is crucial!