Selecting partners

One challenge faced by Business Development professionals and executive management is deciding which partners are the best to approach at a given time in the company's life.

Clearly, one can play roulette by betting on every number and, while it feels good to have so many small wins, as roulette players know the pile of chips gradually gets smaller. Further, the opportunity cost is huge and approaching the right vendor at the wrong time can be damaging to a future opportunity. So, we need techniques to target better.

Now, there are some 1D approaches to this that can work, such as: which partners might optimize near-term revenue; which are the most likely companies to acquire; which are the most interested in forming alliances with us? While those can certainly bear fruit, and I am never one to scoff at revenue, these approaches are, in my experience, less likely to lead to the desired strategic outcome.

More interesting ways to find strategic partners are available, and use 3D techniques:

• Try building a heat map with tactical and strategic X/Y axes, showing your company at the center. Plot potential partners on the tactical (revenue, near-term outcome) and strategic (ability to drive significant revenue, potential acquisition, etc).


• Plot more interesting vendors closer to the center


• Plot vendors that offer indirect paths to strategic outcomes as themselves strategic

It is also worth looking at your competitors and exploring what strategic alliances they might form, or grow substantially, that could damage your chances of success - those could be some of your top targets!

Repeat this at least quarterly for maximum effectiveness.

This is an art, not a science, but this approach should help maximize the outcome.

Until next time.

Michael

Value Creation - Developing a Joint Value Proposition

First, I would like to wish a Happy and Prosperous New Year to all of my readers! I have to say that 2009, while a year of hope and change, was also one of challenges for many friends as everyone figured out how to live in a recession. Although the news from Haiti makes us all realize the importance of basic life, health, family and friends, 2010 promises to be an exciting year!

I have circled around the subject of Value Creation in previous blogs, so I thought I would spend some time discussing development of a successful Joint Value Proposition (JVP). As discussed in my October 1 blog "Moving Northeast", developing a Joint Value Proposition involves considering the potential of value created by the alliance. Sounds simple enough, right? Well, there are challenges to getting it right.

First, you are probably trying to figure out the JVP at the same time as you are forming the alliance and, hopefully, even quite early in the alliance (see August 1 blog, "While using a chainsaw..."). So, the target is moving. And, it will continue to move as the alliance evolves, so there will be ongoing opportunities for Value Creation that should be exploited.

Second, you don't know what you don't know - about your potential partners strategies, goals, potential market-changing moves, acquisitions, development plans, constraints and so forth, so you will need to listen well along the way.

Lastly, it is important you are not representing your company's offerings as they exist today, but the entire company's capabilities, including subsets of products and services that might be pieced together with those from your partner to create value. That takes a special skill.

So, how do you get to a JVP?

In my experience, one key to success is building a trusting relationship early in the alliance development phase, so that you can explore opportunities for value creation with your counterpart. Another is having the right people in the room - so that you can seize opportunities to explore value creation when presented.

Personally, I favor the 2-hour brainstorm, where one or two business and technical people from each partner can jump to the white board and test out concepts for value creation and explore the other party's interest. It is always best to walk in with a few ideas of your own, of course - your "agenda", I suppose - so that you can steer the discussion in a direction that is based on your knowledge of markets, products, services and customers. I have been amazed at the results we've obtained when the right people are in the room, with the right attitude. Setting the scene for this is part of the critical skill set of BD professionals, in my view.

Let's contrast this with the typical selling proposition or reseller recruitment effort. In that case, I have a set of products and services in my sales bag, and my goal is to consult with and sell those to my prospective customer or channel partner. Developing a JVP is closer to consultative, solution selling than to traditional sales, but solution selling still lacks the flexibility. The sales exec is, by design, constrained to offering what is in the bag.

With Business Development, the whole company's capabilities are in the bag, and we need to be able to represent all of them to a prospective partner, without going so far out on a limb as to suggest something that cannot be done.

Identifying opportunities for Value Creation definitely uses skills from the artistic side of the Business Development tool set, but following some basic steps can increase the likelihood of success. A marketable Joint Value Proposition is the basis for all truly successful relationships.

See you next time.

Michael

Coopetition ?

My friend and colleague, John Soper, and I spent some time last year thinking about collaboration amongst competitors: Coopetition. Having worked at Novell during their heyday as an alliance magnet, I practiced strategies every day but hadn't tried to explain what we did; what we discovered.

Every alliance is potentially Coopetitative. Successful BD executives need to be skilled in recognizing and managing in that context, or risk being outmaneuvered.

We defined two types of Coopetition:

First Order, where an alliance is formed between two competitors (A and B). That competitive overlap ranges from small to very large. Such alliances are usually driven by customer demand or competitive threat: the enemy of my enemy is my friend. Industry standards often play a role in these alliances.

Examples about in the market today? On the large scale, Oracle and IBM work together to optimize Oracle databases and applications on IBM hardware, and Oracle applications running with IBM infrastructure software. Clearly, major market forces are at play here. These two companies compete fiercely across Database and Infrastructure software and services, and are about to compete in hardware as well! Coopetition is typical for small companies forming alliances with major players, but examples between small companies are less prevalent, probably because most have simpler product portfolios, so the competitive overlap is large.

The Second Order of Coopetition involves at least three parties (A, B, and C). A forms alliances with B and C, where B and C are significant competitors.

Look at any major vendor (BMC, IBM, Oracle, McAfee, Microsoft) partner program to see examples. The IBM hardware team has close alliances with both SAP and Oracle.

We deemed the imagined 3rd - Nth order cases to be mostly noise unless they reach Second Order status.

So, why do you care? A company trying to approach an alliance partner with First or Second Order Coopetitiion must consider the impact of the overlap on potential marketing and business outcomes, adjust the proposed joint value proposition, and handle the potential competition on both sides. To do otherwise risks a strategic misstep.

If there are complex interrelationships, it can be helpful to plot competing and collaborative products on a “core-context” dimension – the degree of Coopetition then becomes apparent.

In these days of industry consolidation, even if your partner is not a Competitor yet, they may become so soon. So, it is always worth spending time understanding the competitive posture of your potential partners and adjusting strategies and the joint value proposition accordingly.

A value proposition that grows the pie and achieves business goals for both parties will usually trump a critical or peripheral competitive threat!

Back to my coffee.

Michael

Northeast, you say?

In my opinion, the Lax-Sebenius book 3D Negotiation offers the most innovative perspective on negotiation strategy and tactics. One of the important concepts maps to 3D Business Development (3DBD): moving "Northeast" in negotiating share of value formed by an alliance. I call it creating a joint value proposition.

Chapter eight highlights the importance of realizing that negotiations are not just about claiming value already on the table, but about unlocking value created by the alliance itself and sharing that between the parties as well.

I have spent a good part of my career developing joint value propositions around each alliance. It is surely easy to see that negotiating a royalty between 0 and 100% of your own product revenue is a much tougher task than negotiating a share of the total value formed by the alliance, including what you bring, what your partner brings and the value you create by working together.

Whether that is a channel, a new approach to a problem, a market opportunity, reduced waste, a new product or global reach, the result is the same - the combined value makes everyone far better off than they would have been if they'd focused solely on claiming the value already present. So, dividing up that value becomes easier as well.

So, how does that work in our world of Business Development? Some examples might help trigger the imagination:

• The combination of your product with that of your partner forms a strategic edge over all competitors - a whole product - that increases the forecast for both products substantially.
• A licensing alliance that drives volume for your hardware product, resulting in a reduction in per-unit COGS for all sales, increasing margins for your entire business unit.
• As part of a deal, your partner's service personnel call on customers and can provide on site services for you while they are on site, reducing overhead and increasing value with almost no increase in cost.

Of course, each is specific to the negotiation at hand. But, it is easy to see how negotiating shares of a pie that is, say, 50% larger than the basic value on the table is much easier to do.

So, next time you negotiate a product or service licensing alliance, take time to consider both the value you bring to the table and the value created by the alliance and the work you'll be doing together, and make sure you highlight both to your partner.

Life will be much easier, and everyone will be happier if you can use your skills as a Business Development executive to help create value for both companies. A true win-win.

A bientôt.

Michael

PS Thanks to my friends at Lax-Sebenius for their insights

A Balancing Act: business focus versus exit planning...

I trust everyone is having a fine summer, and more rain than we have in Central Texas!

Boards of Directors will make it clear to a CEO that building and running the business is central to success, and suggest strongly not to focus too early on who might acquire the company and when. Good advice. It is a world-class team, a solid value proposition, and a strong revenue growth curve that create value in the business - and that eventually affects price and interest from potential acquirers.

But hold on - forming strategic alliances is often critical to both the marketing and revenue picture as well. And, if my competitors are out talking to their friends at potential acquirers, am I not missing the boat by focusing on the business?

Most startups that reach the go-to-market phase where customers are buying their products are balancing business execution with Corporate and Business Development. It is a balance. The executive staff needs to be involved in development of alliance strategy, but generally line organizations should not. Details about progress with strategic alliances should be compartmentalized.

An Alliance Strategy should be based on:

• A clear sense of the value of your product and service capabilities, including both what you sell to your customers and any unique capabilities and components that underly
• A well-considered view of adjacent markets that leads to partner selection - thinking as broadly as possible
• Articulation of a rational joint value proposition to approach each potential partner, and any desired outcomes
• Availability of someone skilled in approaching partners and driving a strategic exploratory process (refer to my June 17 post!)
• Availability of technical resource (e.g. CTO) to keep them honest, technically.
• A market view of your competition and what they might or might not do

I work with each of my clients at quarterly offsite or board meetings to fully develop this plan, and formulate an evolving list of targets. From there, the team can start to execute and then refine the process over ensuing quarters.

Business development becomes more complex as you look 1-2-3 years down the road, consider potential acquirers (or "Chairs" - see May 13 blog), and start to understand what will attract (or repel) you to those chairs. It is not always the right answer to approach or form an alliance with your comfiest chair early on.

There are good examples of companies who tried to get a deal done in the wrong sequence, without considering broad market factors, and drove their preferred chair to their stronger competitor. Consider this example: A company has a market-leading flagship product, but a competitor has both a poorer, but often sufficient, offering in the same area and an adjacent product offering that could provide additional value to partners. A strong alliance strategy may be to complete the offering by internal development or forming an alliance with someone who also has this adjacent capability, and then to approach the desired chair with the combined offering. Approaching the desired chair too early might simply educate them and send them to your competitor.

So, given the importance what are some techniques to manage the balance between business execution and corporate exit? If you have a designated executive running the BD process who manages their strategic work separate from any day-to-day responsibility, you already have some separation. Maintaining confidentiality of the process from the line organizations, particularly if the effort is bearing fruit, is important - but the pressure to pre-announce a revenue or go-to-market alliance to the sales team can be distracting. Choose carefully what you communicate. Sales teams are paid to find out information - including from your corporate team - so I recommend having a clear executive decision process for what and when BD information is provided to line organizations.

In the end, strategic BD should start at the go-to-market phase of the business. The challenge is to find good, focused resources to begin the Corp and BD process - aimed at supplementing revenue and market presence, but always playing the game with an eye to the exit.

Next time, we'll talk about when negotiating actually starts with a potential partner?

Peace,

Michael

Alliance Life Cycle

Unlike buying a house, forming and managing a strategic alliance involves a life cycle - embracing a relationship and negotiation that starts with the first conversation between potential partners.

Alliance strategy development evolves over time as we've discussed. From that strategy, identify target partners and the alliance development phase begins. The rolodex is king.

Finding a receptive partner starts the process of developing a joint value proposition. That it is joint is a distinguishing aspect of strategic alliances. Defining ways to grow the pie, so each share is larger makes for the highest probability of success for both parties. Ideally then, this discussion leads to negotiation of a business description of the deal, a term sheet, that when approved by both business negotiating teams can form the basis of the legal contract. It is during these early phases of discussion that the social contract forms, where the principal stakeholders and executives identify a shared vision, approach and the overall tone of their relationship.

With the signed contract and launch of the alliance, the real work begins to make the relationship successful, and to anticipate and solve problems. Enter sales, product development, support, training, marketing, etc, etc. A good BD leader will ensure that all stakeholders have a clear understanding of their roles in the alliance's success.

Important alliances undergo re-negotiation on a regular basis, sometimes in specific legal terms, but more often in the changes to the social and business context that occur. Regular executive review meetings during the life of the alliance can help keep things on track, change course when necessary, and measure mutual success.

At some stage before reaching the end of the term of the contract , the executive sponsors will decide if and how to adjust or extend the alliance to match corporate and market dynamics, and continue to drive success for another several years.

Move an alliance effectively through this process is critical to meeting your company's goals in forming, negotiating and managing alliances that meet your goals - whether revenue, marketing, competitive or any of the other important reasons for forming an alliance.

After a spot of R&R, I will be back next week to talk about setting goals for BD. It is no easy task for management or the BD professional that aims to meet those goals, as we shall see.

See ya,

Michael

Graphic in part courtesy of John Soper, New Paradigms Marketing, Los Gatos CA. Copyright (C) 2008-9.

Musical Chairs?

Many of us will remember that game of Musical Chairs we played as kids! It was a simple game, played with 33 1/3 LPs and a parent lifting up the stylus in my time! When the music stopped, everyone tried to sit in a chair, but there was always one less chair than kids, and someone had to step out of the game - a chair is removed and the game continues until there are two people and one chair. Then one winner!


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:

1. make sure that the terms of the deal are not so good that IBN doesn't need to acquire Argon,


2. this deal doesn't "repel" Argon's other chairs - potential acquirers, and


3. 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