What is “Business Development”?
In my prior post – Introducing the Guide to Business Development and Partnerships – I provide a curated list of articles written by “experts” on the topic of “Business Development”. The first four sections of the guide are focused on the “What, Why, When and How” with regards to Biz Dev. In this post – the first of several follow-up posts – I tackle the “What”.
Confusion around the term “Business Development”
The term “Business Development” (aka “BD” or “Biz Dev”) is not well defined or well understood. People agree on what other business functions – like Sales, Marketing, Finance, Product, and Engineering – mean. If you ask ten people to define one of these functions, you will get ten responses that are similar. Not so much with “Biz Dev”, where you are likely to get ten different responses. In this post, I attempt to answer the question: “What is Business Development”? (And yes – I wrote this in part because I don’t want to keep having to explain to my parents (Hi Mom!) and my girlfriend’s parents (Hi Ken!) what it is that I do for work.)
Let’s start by discussing what Biz Dev is NOT.
Business Development is not (pure) Sales
I define “Sales” as the function at the company that is responsible for selling the company’s products to end customers in exchange for money. Salespeople are in direct contact with potential customers (new sales) and/or current customers (renewals, upgrades, and cross-sells).
In the past few years, many Sales people stopped referring to themselves as “Sales” and started to refer to themselves as “Business Development” instead. I assume they made this change because they think that the term “Sales” has some negative connotations, while the term “Business Development” is more neutral and therefore preferable. Whatever the reason, this has created lots of confusion around the term “Business Development”. For example, most job specs for what are clearly Sales roles use the term Business Development in their title.
As I will explain, Business Development is not Sales, as the BD function is not responsible for selling the company’s products to end customers. (Just to be clear, I am not saying that BD does not overlap with Sales. In many instances, BD works closely with Sales. And in one instance – specifically when the company sells via the channel – Business Development can be part of Sales.)
Business Development is not Corporate Development
I define “Corporate Development” as the function at the company that is responsible for M&A (i.e., acquiring smaller companies) and investments (i.e., investing money off the company’s balance sheet into smaller companies). This is a transactional function that requires finance skills, and as a result, it is typically staffed by former investment bankers.
In many companies, the Business Development team will be part of the Corporate Development team and vice versa (meaning Corp Dev will be part of Biz Dev). For example, when I was VP of Corp Dev at Gerson Lehrman Group, my responsibilities included Biz Dev (meaning partnerships). And this happens for a reason – both Biz Dev and Corp Dev are responsible for engaging with organizations outside of the company, and the DNA of a good Biz Dev and a good Corp Dev professional can be similar. But as I will explain, Corporate Development is not Business Development, as the BD function is not responsible for M&A and investment activities at the company.
Now that we have identified what Biz Dev is not, let’s discuss what Biz Dev IS.
What Business Development Is
In the first section of The Guide to Business Development and Partnerships, I highlight several experts who attempt to define Biz Dev. I think Andrew Dumont gets it best when he writes: “In it’s simplest form, Biz Dev can be described as connecting similar businesses to similar goals.” I like his definition in part because it is so broad. But I don’t think it is specific enough.
“Business Development is the function at the company responsible for identifying, securing, and/or managing relationships with organizations outside of the company (excluding customers and suppliers) that helps other key functions at the company achieve their respective goals.” Let's address some of the key ideas in this statement:
- I use the word “relationship” to describe the myriad structures – formal and informal – that a company can have with another organization. Note that I have deliberately excluded relationships with Customers, which are managed by Sales, and relationships with Suppliers, which are managed by Procurement / Finance.
- I use the terms “identify, secure, and/or manage” because BD can take both a “hunter” (i.e., identify, secure) and “farmer” (i.e., manage) role.
- I state that BD helps other key functions at the company achieve their respective goals. Specifically, BD helps, 1) Sales, 2) Marketing, 3) Product, and/or 4) the CEO. In an ideal world, none of these functions would need to rely on an organization outside of the company. For example, Marketing would hit their lead quota every month without any outside help. A Product would release every feature on their roadmap on time without any outside help. But the reality is that each of these functions is constrained, so each function could potentially benefit from a partnership with a 3rd party. And Biz Dev is the function at the company responsible for managing the company’s efforts in this area. Now that I have defined “Business Development”, let me provide some concrete examples of the various forms that BD can take.
Examples of Biz Dev in the wild
Per my definition, Biz Dev works alongside four functions inside the company: 1) Sales, 2) Marketing, 3) Product, 4) the CEO. In the framework below, I group the various models that BD can take based on which function it works with. And I try to include some specific examples, most of which involve B2B SaaS companies in Boston (a market that I know relatively well).
Category #1: BD aligned with Sales
A common arrangement has BD working closely with Sales to achieve Sales-related goals, which (not surprisingly) are focused on growing revenue ($’s) and/or customer count (# of logos). Possible structures include:
- Re-seller – in this model, the company sells its products to end customers via a 3rd party. The partner could take many forms, such as a professional services firm (like Hubspot with marketing agencies or Xero with accounting firms), a VAR or systems integrator, or a larger ISV.
- This is the one caveat to my prior statement that BD is not “pure” Sales (emphasis on word “pure”). In “pure” Sales, the Sales team is selling directly to end customers. In a Reseller model, Sales is working with partners who are selling to the end customer. In this scenario, the BD team focused on re-sellers looks and acts like Sales and may, in fact, be part of the Sales team. This is the set-up at Hubspot, which has a large Channel Sales team led by a VP of Sales.
- OEM – in this model, the company licenses its product to a 3rd-party, which then bundles it in with it’s own products (often the company’s product is white-labeled) for resale .
- “New” markets – in some companies, BD takes the lead on opening up new markets – like a new customer segment or a new geography. In this scenario, BD does the initial customer development work and researches the new market (identifies the competitors, identifies possible partners, etc.). Eventually, BD hands off the execution to Sales.
Category #2: BD aligned with Marketing
Another common arrangement has BD working closely with Marketing to achieve Marketing-related goals, which (not surprisingly) are focused on growing the # of leads and/or improving the quality of leads. Possible structures include:
- Referral – in this model, the company develops relatively close relationships (i.e., marketing collateral, sales training, etc.) with organizations that send them leads, which are typically of higher quality. In exchange, the company pays them a fee (the referral fee). When I was at InsightSquared, we did this with many companies, including Bullhorn.
- Affiliate – in this model, the company develops a program where if an organization (the affiliate partner) sends them a lead (typically of lesser quality), the company then pays them a fee (the affiliate fee). In this scenario, the company has an arms-length relationship with their affiliate partners, meaning the company does not provide much (if any) education or training on the company’s products to the partner. InfusionSoft does this.
- Informal – this category describes the variety of informal marketing initiatives that a company could pursue with another organization. For example, Company A and Company B could collaborate on a joint webinar, where both companies invite their respective audiences (customers, prospects), co-host the event, and share the RSVP and attendee lists with one another. Other examples include joint whitepapers, joint events, guest blog posts, etc. Typically, no money changes hands, although both companies invest their own time and resources to support these initiatives. When I was at Axial, we did some joint marketing with a variety of organizations, including Capital IQ. Referral deals are relatively difficult to implement, while the other 2 (Affiliate and Informal) are much easier to pull off.
Category #3: BD aligned with Product
A third arrangement has BD working closely with Product to achieve Product-related goals, which (not surprisingly) are about improving the product and/or accelerating the product development process. Possible structures include:
- Marketplace – in this model, the company’s BD team creates and manages a program that allows 3rd-party developers to build applications that integrate with the company’s core product / platform. While the company can benefit in a couple of ways from such a program, the Product team benefits by offloading some of their work to partners. For example, Salesforce (which has built the poster-child for a successful marketplace) has off-loaded the development work in several product areas to partners (like DocuSign and EchoSign for contract management). Athena health's BD team created (skip to 4:45) their apps marketplace because they wanted to reduce the burden on the company’s Product team.
- Integration – in this scenario, the company’s business model is predicated on having the company’s product integrate with 3rd-parties. The BD team works with Product to identify potential partners and then close and manage these relationships.
Category #4: BD aligned with the CEO
The fourth arrangement has BD working closely with the CEO on “strategic” activities:
- Strategic – two of the CEO’s primary jobs are: 1) to defend the balance sheet (i.e., ensure that the company does not run out of cash) and 2) to return cash to the investors (i.e., dividends, recap, M&A or IPO). In many cases, the most logical investors and/or acquirers for a business are companies that also represent potential business partners. And the first step in a securing an investment and/or an acquisition offer is often a partnership. In this scenario, the BD team works alongside the CEO to first identify logical investors / acquirers and then explore potential partnerships, with both tactical goals (drive revenue) and long-term goals (investment or acquisition) in mind. John O’Farrell writes a great post about this in the context of the sale of Opsware to HP. When I was at GLG, I secured a partnership with Bloomberg for both tactical and strategic reasons.
So there you have it – the “definitive” definition of “Business Development”, details on the various models BD can take, and specific examples of these models in the wild.
(1) I owe my thinking on this topic to a more experienced BD professional who once told me that “BD sits at the intersection of Sales, Marketing, and Product”.
(2) Note that in some companies, Biz Dev is a standalone function where the VP of BD is part of the management team and rolls into the CEO. In some companies, the BD team is part of another function – likely Sales, Marketing or Product. And in some companies, the BD function is actually distributed across Sales, Marketing, and/or Product – meaning each function has people performing BD activities on its behalf. I will dive into these ideas in detail in a follow-up post.