While the term "business development" (aka BD) gets used loosely to describe a number of revenue efforts, we define it as simply "building pipeline with the help of a third party, typically a partner or investor." In this post, we'll explore our approach to business development when helping our portfolio companies, as well as advice to other early-stage founders on how to get the most out of your BD efforts.
Why Business Development Is Important
When you think about your broad go-to-market strategy, there are three primary motions: inbound, outbound, and BD. The key question is: how can we get more revenue, faster? Inbound is great, but usually works best once you've built up a recognizable brand in your space. Outbound is often a must for B2B SaaS offerings, but typically requires the longest sales cycle length because the prospect is starting from square one. Business development, on the other hand, is a different story. Through a warm introduction, you can establish immediate trust and credibility. When done correctly, you can leverage a warm introduction to anchor high at a prospect's organization (i.e. with a C-level executive), which can further speed up the sales process if there's a good fit as they have the budget and authority to get the deal done. Sales velocity is the key here, and sales cycle length is your most important lever to grow revenue more quickly. Tons of data supports that referred deals (i.e. warm intros) have the highest probability of closing and have the shortest sales cycles, both of which help you optimize sales velocity and bring on early customers quickly.
What Type of BD Partnerships to Prioritize
Next, let's discuss how we think about building and executing a BD strategy. While there are many different types of BD partner and channel sales relationships, we focus primarily on helping startups leverage referral relationships with investors and partners. The reason we prefer referral partnerships instead of reseller or more in-depth partnerships is because you want to stay as close as possible to the customer feedback loop, especially in the early days. If someone else is running your sales process, you are missing critical prospect and customer feedback on the product, pricing, pitch and positioning, etc.
Create a Target List
No matter who you are leveraging for warm introductions, your first step is to take your Ideal Customer Profile (ICP) and create a target account list. While you may have 10,000 target customers, it's hard to make a meaningful dent. Instead of trying to boil the ocean, start with 100. This will force you to focus and be very intentional with who you target. If you can, include specific people at the target companies that you are trying to reach as well. This can be low-tech - Google Sheets work great.
Your investors are naturally incentivized to help you, so leverage them! At Bowery, the entire team is all-hands-on deck when it comes to prospect introductions for portfolio companies. Each time we invest in a new portfolio company, we comb through their target account lists for any companies or people in our network and make as many introductions as possible. In fact, we even track successful BD introductions (i.e. warm introductions that turned into portfolio company customers) as one of our annual firm-wide OKRs.
A quick tip for other founders, the most effective entrepreneurs at BD are the ones who are extremely specific with their asks. An example of a bad ask: "Can you introduce us to C-level executives at enterprise companies with 5,000+ employees?" Too broad. Even if people want to help you, you are making it too hard. An example of a good ask: "I noticed you were connected with Mike Brown from Bowery Capital on LinkedIn, can you introduce us?" It's specific, easy to action, and you are much more likely to get a warm intro as a result.
Your potential partners don't have the same natural incentives as investors, and so you must create the incentive for them. Part of the value-add our Acceleration Team provides to our founders is helping them structure referral partnership deals so that they save time and money while protecting gross margins. A few quick tips:
1. Keep it simple. Your initial partnership referral agreements can be very lightweight. A two-page agreement mapping out the economics (typically a revenue share) and payment terms, rules of engagement (referral process, promotion guidelines, etc.), NDA, general commitment of each party (co-marketing, etc.), plus some standard legalese should be the basics you need to get started.
2. Identify your value-add. Be realistic about how you will add value for your partner. Revenue shares are great, but if you're an early-stage startup without much revenue, the rev share alone likely won't move the needle for their business. Are there other ways you are helping them through this partnership? Some potential ideas for how you might be helping them: plugging gaps in their product offering, improving their brand by helping them look more innovative, improving their customer retention by improving customer ROI, making them "look good" by helping their customers succeed, helping them expand in new geographies or customer segments, etc. Use your complete value-add to stack-rank your list of potential partners, prioritizing the potential partners that have a) the biggest overlap between their customer base and your ICP/target buyer persona and b) the most to gain from a partnership with you.
3. Create an engagement plan. Getting a referral partnership agreement signed is the beginning, not the end. Now comes the hard part, actually making the partnership fruitful. Similar to when you sign a SaaS customer, define success, align on expectations, and map out a mutual success plan for the partnership. You'll likely need to build awareness and training around your product and how it's additive for the partner's customers. You'll need to create a strategy and plan to continue to stay in front of your partner so they keep you top of mind and continue referring you business. Do as much of the heavy lifting here as possible and start small. Create a target list of five or ten of their customers that you'd like to get in front of. Collaborate with the partner to get in front of each of them, and then move onto the next five or ten. This can be done at the partner company level or if you are working with individual account managers at the partner company, you can also create individual target lists with each person.
4. Align incentives with the partners' front-line reps. All too often the revenue share you generously pay your partner doesn't trickle down to benefit the front-line sales rep or account manager who actually referred you the deal. This can cause significant misalignment and can ultimately kill your BD pipeline if you aren't careful. Proactively get ahead of the issue by asking your primary point of contact how the individual partner rep is incentivized or rewarded for referring deals. If there is no incentive for them, ask if you can create one. Ideally the partner company funds it, but be prepared to set aside additional budget in case they are unwilling.
Business development is a critical component of a GTM plan, especially for early-stage startups. By creating thoughtful target lists, leveraging investors and partners, and making very specific asks while doing the heavy lifting, startups can accelerate sales velocity and grow revenue more quickly than solely relying on inbound and outbound channels alone.
If you liked “Bowery's Approach to Business Development” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.