What is business development? This is a frequently asked question
with as many answers as there are people calling themselves business
development professionals. What unifies the discipline of business
development is not so much the activities that comprise it, as these are
immensely diverse ranging across a myriad of subfields. It is rather
the goal or the objective: In one way or another, business development
is about implementing business growth opportunities.
Business
development involves all tasks and processes concerning both the
analytical preparation, monitoring and support of growth opportunities.
Of course, growth can be achieved in many ways. There are a plethora of
activities, conceptualizations, methodologies, tools, frameworks,
models, subfields, and buzzwords employed across industries and
geographies when implementing growth opportunities for firms. Thus, it
is often difficult to make out what is what with respect to business
development.
This paper will discuss and distinguish key concepts
of contemporary business development for a more comprehensive and
translucent picture of this important yet ambiguous field. A particular
interest will be taken into how business development activities differ
across company sizes and growth stages, from early-stage startups to
fully-grown companies, and the various institutions that can support
companies on their paths to growth. Lastly, the value of business
development services is discussed from the perspective of small and
medium sized enterprises (SMEs).
1. The people of business development
"I
do biz dev", you hear people say frequently. But yes, business
development is indeed something that one can do, and the actors of
business development are called Business Developers. Business developers
can be internal employees hired to identify and expand a company´s
business, and their strength lies in their deep insight into the
organization they work for. On the other hand, there are external
professional service providers, such as management consultants, who
leverage their experience from helping other companies develop,
identify, and execute growth opportunities. Whether internal or
external, individuals of this professional breed are usually generalists
by nature with the skills and know-how to collaborate and integrate
knowledge and feedback from a company´s functional units such as sales,
marketing, R&D, operations, and finance, and in turn synthetize that
information into actionable roadmaps, also called business plans. The
business plan can be thought of as a formal statement of a set of
organizational goals, including the motivations and criteria for why
they are attainable, and a plan for reaching the goals. The tools and
methods utilized by business developers are countless, yet the objective
remains to answer one fundamental question: "How do we make money?"
While
business developers work to address how firms can sell more of their
products or services and make more money both today and tomorrow,
business development activities are typically skewed towards forthcoming
business opportunities and strategy. Many sales representatives claim
to be business development professionals, but this does not fully
capture what business development is. One of the principal activities a
business developer does is identify new opportunities. To do so, the
business developer must have insight into a range of business related
fields, and have access to key information that can allow new parallels
to be drawn. First of all, he/she must hold a fundamental understanding
of the company in question, stay abreast of industry trends, and monitor
the competition. Secondly, but perhaps more importantly, the business
developer must be able to take a holistic perspective, use his/her
intuition when analyzing results, and show proof of creativity and
ingenuity when synthetizing information in order to conclude which next
steps the business should take.
Working in business development is
an excellent way to develop skills in strategy, negotiations, and
managing partner and client relationships. Moreover, the job of a
business developer is highly cross functional, as it requires
collaboration with various internal and partner-company teams such as
sales, engineering, and marketing to ensure that a deal is consummated.
Last but not least, if done well, business development can have an
incredible impact on the success of a business.
2. The institutions of business development
A
common problem facing many firms, regardless of where they are in the
company lifecycle, is that they get stuck in the trenches of daily
operations, at the cost of conducting business development activities.
When strategy and competitive advantage are no longer on top of the
agenda, focus is lost and to the detriment of sustainable growth. The
balance between running day-to-day operations and continuously
developing the business further to hone the competitive advantage a firm
holds is indeed difficult to manage. For that reason, there are a
multitude of professional service providers in the field of business
development. From the birth of ideas to early startups, to small and
medium enterprises (SMEs) who seek second stage growth, and all they way
to strategy implementation for corporate giants, many institutions
exist to support firms in their business development efforts.
There
are both niche specialists targeting specific business needs and
generalists taking a 360° view of the firm and its strategy and
objectives. They come in the form of governmental institutions providing
funding and support to entrepreneurs, and private institutions in the
form of business angels and venture capitalists, business incubators and
seed accelerators, second stage business accelerators, boutique
consultancy firms, and large management consulting houses. One way or
another, these institutions interact with companies on their growth
journey and provide all kinds of resources to support them, including
funding and physical work spaces (offices), professional support, advice
and mentoring, tools and frameworks, strategy development and
operations efficiency, and access to important networks in the business
ecosystem.
In the table below a classification of business
development institutions are plotted out, based on the various stages in
the company life cycle. While there of course exist much overlap
between of these fields, it gives an idea of who, how, when and for whom
various actors interact with firms on their path to growth.
Business Incubator
The
idea of the business incubator is to provide support for the successful
development of companies by means of an array of support resources and
services, offering a nurturing environment where entrepreneurs can bring
their ideas to life. Incubator services often include one or several of
the following:
- Shared office space
- Marketing assistance
- Accounting/financial management
- Access to bank loans, loan funds and guarantee programs
- Help with presentation skills
- Business networks and links to strategic partners
- Access to angel investors, venture capital and debt financing
- Comprehensive business training programs
- Advisory boards and mentors
- Management team identification
- Technology commercialization assistance
- Help with regulatory compliance
- Intellectual property management
The idea is to
allow entrepreneurs and start-up teams to focus on their core value
proposition and leverage key resources that a growing start-up needs.
Incubators often employ a selective screening process assessing the
feasibility and workability of the business plan of incubatee prospects
before letting hem join the program. While many incubator programs are
industry agnostic, 39% of incubators in the United States work only with
the high-tech sector. A company spends varying amounts of time in an
incubation program depending the type of business and the entrepreneur's
level of business expertise. For example, life science and other firms
with R&D cycles require more time in an incubation program service
companies. On average, incubator clients spend 33 months in a program.1
Oftentimes, graduation requirements are set by development benchmarks
rather than time, such as revenues or number of employees. The
successful graduation from a business incubation program typically
increases the likelihood that a startup company will stay in business
for the long term.
Seed Accelerators / Startup Accelerator Programs
The
Seed Accelerator derives much of its characteristics from the business
incubator; their services often include pre-seed investments (usually in
exchange for equity) and the focus is on business model innovation. In
contrast to an incubator, the seed accelerator views the startup period
as short, and startups are often supported in cohort batches or
'classes' during a seed acceleration program. But accelerators are not
considered "protected" nurturing environments, like the business
incubator. They bring together entrepreneurs, mentors, and advisors and
leave it to the entrepreneurs to figure out how to best take advantage
of the opportunity that emerges. Being selected by a seed accelerator
often brings notoriety to a firm, and it is a way to quickly create
momentum in a startup, as long as the participants have the experience
and drive necessary. Often, participants in seed accelerator programs
are experienced startup professionals who are accustomed to the
process.The assets provided by the seed accelerator come in the form of
mentoring, funding and a strong network effect, but there are few or no
internal resources, such as back office support functions, internal
marketing or legal advisory experts or legal. It is a sink or swim environment.
Second Stage Business Accelerator
Second stage business accelerator services are very different from those of both incubators and seed accelerators. A
second stage business accelerator
can be thought of a management consulting firm targeting established
SMEs looking to boost performance and ensure a continuous and
sustainable growth path. Whether young or old, many companies sooner or
later plateau in terms of revenue, and the growth bottlenecks vary
greatly between organizations. One classic hold-up is the entrepreneur /
founder who insists on having a finger in the pie across all decision
and actions taken by the company - a sign that the company since long
has outgrown the governance structure still in place.
A second
stage business acceleration program typically lasts between 3-6 months
and it is aimed to assess and improve the entire "business machinery"
that a growing organization needs to have in place to succeed. Strategic
focus, institutional strengthening, human resource training and
financial strategy, are some of the dimensions that a second stage
business accelerator may offer. The business accelerator's emphasis is
on accelerated and sustainable growth, and to eliminate organizational,
operational, and strategic bottlenecks that prevent the client firm from
growing. In essence, a second stage accelerator bears a strong
resemblance to traditional management consulting firms, but adjusted to
fulfill the needs of SME's.
Boutique Consulting Firms
Boutique
consulting firms offer organizations highly specialized advice that
addresses specific problems or aspects of a business. The overall
objective is to improve efficiency and increase profits, and the term
"boutique" has more to do with the firm's focus than with its actual
size. One firm may consist of a single advisor, while another may have
200+ consultants employed. More specifically, "boutique" most often
refers to the niches in which it offers its services. Examples of niches
in which boutique consulting firms operate include human resources and
staffing, IT, healthcare, business process outsourcing, and accounting.
These firms tend to work with private sector companies but also with
governmental institutions and nonprofits.
Overall, boutique
consulting firms focus on a limited scope of industries, and resolve
business issues quicker than large management consulting firms that
require more time for a specific project. The solutions that boutique
consultants offer also have more immediate impact.
Large Management Consulting Firms
Large
management consulting firms offer a more diverse set of services
compared to boutique consulting firms and are often international in
scope. They target publicly held or large private companies,
international conglomerates, international nonprofits, and governmental
bodies. Large management consulting firms are able to draw from massive
reservoirs of overlapping knowledge and expertise in contrast to the
more narrowly focused boutique consulting firms, and can offer a single
client support on IT, strategy, operational, human capital, and
financial issues. Moreover, they create industry "best practices" by
working across a wide range of industries and firms (though it is
debatable to what extent such practices are transferable from one
organization to another). Yet, management consulting has long been a
booming market with numerous players, both large and small, offering
their advice to firms.
3. The value of business development services for SMEs
It
might be hard to decide if and when to use various business development
services. What is the actual value that these services provide? Is it
worth the investment in time and money? Given the growth stage in which
your company finds itself it can indeed be worthwhile considering
employing business development services in one way or another.
Early Stage
If
your company is an early startup, the decision for joining an incubator
or seed accelerator comes down to your personal confidence in your
business model, the strength of your team, your capacity to execute, and
not the least your fundraising skills. If you have a credible story, a
business that is nicely progressing on its own and access to both
finance and the right talent, you are probably just as well off on your
own. In fact, entering any of these programs might just become a
distraction. These environments can act to divert your attention by lots
of related meetings and events with mentors and investors, getting in
the way of focusing on your projects. Moreover they can be confusing,
having ten mentors provide their own piece of advice; filtering advice
can be a daunting task. But if you need help refining your business
model or if you are a first-time CEO seeking guidance from proven peers
and entrepreneurs, these types of services can be perfect. The
likelihood of raising capital is vastly improved through the tight
screening process many of these programs employ and the access to a
strong investor network that these programs provide access to.
Second Stage
Similarly,
if you run a small or medium sized company the determining factor for
seeking external help lies more in the assessment of particular needs
and issues facing the business and the overall growth ambition of
decision makers / the owner. As is often the case, companies reach a
certain size and then plateau for months or years, not sure how boost
growth and reach the next level. Other companies achieve growth, but
then face challenges to manage it as they run into the hurdles of
balancing daily operations with business development. Be it a young
company recently graduated from an incubator, or an established firm who
seek to renew itself, the transformation of an organization into a
solid business organization that can make way for sustained growth,
involves many challenges:
1. Ensure relevance in the market place
2. Implement a sound governance structure
3. Identify, operate and deliver according to a core competitive advantage,
4. Build the right institutional capabilities and business processes
5. Continuous innovation
These
are some of the most common challenges facing small and medium sized
companies who seek to the reach to the next level. At this stage in the
company life cycle business risk is beginning to decrease and the
opportunity for true value creation presents its self, yet the path to
that second level can be a long and tricky walk. Using the help from a
second stage business accelerator can be one way to overcome these
challenges; to (re)establish the entire "business machinery" required to
allow growth to take place.
Later Stage
Firms
of all sizes will sometimes find that they lack a particular skill or
area of expertise, and seek the advice of a specialist. In such
instances boutique consultancy firms come in handy to for example
support a particular project or give advice on matters related to a
specific topic such as law, finance or HR. Larger corporations often
make use of larger management consultancy firms to identify existing
organizational problems and development of plans for improvement.
Management consultants often bring proprietary methodologies or
frameworks to guide the identification of problems, and to serve as the
basis for recommendations for more effective or efficient ways of
performing work tasks. While most large organizations have their own
business development staff in-house, external advice is thought to bring
a more objective perspective to the table. Moreover, no company can
house all expertise internally, thus the advice from external business
professionals may at times come in handy.
Concluding Remarks
Just
as when buying any service, when contracting for professional business
development services it is important to have clear deliverables. A
common mistake made by many business developers is to guarantee X%
increase in sales or revenue. But we all know that growing a business
involves a lot of risk, for which one cannot control. The deliverables
should instead be based on activity: actions, engagement, meetings,
introductions, opportunities, networks, events etc. Make sure to always
discuss details of the engagement process and the scope of the services
to be delivered. It is equally important that the paying party commits
to the engagement and set out deliverables it needs to comply with. One
should bear in mind that outsourced business developers put their
relationships on the line to help grow your business and their future is
dependent on the success of every client interaction. For that reason
it is important for you as a contractor to do your part: come prepared,
deliver on your end and be service-minded towards any business
developer. Moreover, make sure to match your expectations with the price
you pay. If not, the results of the service you are buying will most
likely be disappointing.
As we can see, business development comes
in many forms and is practiced by a broad set of actors. From the birth
of firms through incubators and seed accelerators, to boosting growth
for small and medium firms by means of second stage business
accelerators, to advising corporate giants through management consulting
firms, business development constitute an important element any phase
of the company life cycle. Undeniably, business development is a crucial
component of a firm's success - the opportunities forged today will define what the company is doing on tomorrow.
[1, 2] 2006 State of the Business Incubation Industry - National Business Incubation Association (NBIA)