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HOW TO: Develop Business Deals (PART 2)

Tue, 05 Jul 2011 13:38:43 -0800

CC: globalhighered.wordpress.com

(This is the second part of our comparison of two SeedStart BD speakers. See Part One here.)

What is business development?

That depends on who you talk to.

Meet Ben Luban, Director of BD at AOL and Florent Peyre, VP of Strategy and BD at GiltCity. They have similar titles, but Ben works at a big company, Florent at a fast growing startup. They definitely have similarities and differences in attitude. As an entrepreneur, you should know both perspectives of the deal.

WHO DO YOU TALK TO?

Big Company says: Go to the BD guy.
Startup says: Go to the top.

BEN: Start with the big company’s BD person instead of the CEO (the decision-making process will trickle down to BD person anyway). A lot of BD people have MBA/JD/Finance backgrounds, so they can do a lot of the negotiation and paperwork with you.

FLORENT: Think really big! Never feel like you should only talk to the BD guy – go straight to the top, because if you have a mandate from the top, it’s best. Once you finally get to the BD guy, he might not be that happy because it’s a forced relationship, so make him feel smart and loved; be super flexible. Remember, if you pitch the CEO, make sure you are pitching something substantial (don't pitch becoming a link on their site).

HOW DO YOU REACH OUT?

Everyone agrees: A warm introduction is best.

If you can’t do it au natural, then see if you can get a warm intro through someone you know on LinkedIn (entrprnr says: every single person you meet should be connected to you via LinkedIn).

Make the intro seamless so the liason can just cut and paste your request in email.
Make sure it’s a succinct, concrete pitch, not just “I think we should do business together."
Once the intro is made, follow-up immediately (don’t wait - you are the one who needs this).
Thank your contact and bcc him so he doesn’t get flooded with e-mails.
If you get the other guy on the phone, go into the pitch, but don’t immediately ask for a meeting. Some people just want to take a half-hour call and get a feel for their interest in your request.

HOW TO NEGOTIATE THE DEAL

Everyone agrees: Get as much as you can, but more importantly, close the deal.

Negotiating is fun but signing is better. Put yourself in their shoes. If your partner is bigger than you, this will help you understand what you can ask. At the end of the day, if it doesn’t work for the partner (even if you’re bound for six months) they will find a way to stop the partnership or make it harder (stop answering calls, withholding payment).

Best practices:

Prepare fallback terms. You know what you want to get out of it so you know the big terms, but you will need fallback positions for each of those terms.
Get leverage anyway you can. If the opposing sides pushes back on stuff you don’t care about, don’t let them know. Make them feel that giving up that stupid stuff is a big concession for you, and use it to leverage getting the key stuff you want.
Make negotiations as frictionless as possible. This is key. You can do this by: a) putting a 30-day period on terms (v. six months), and b) avoiding too much back and forth in contracts; move it forward as quickly as possible and get to execution

A BIG COMPANY DEAL

First meeting will be with the CEO or BD person (or a product person depending on how complex the tech is that you want to showcase). Walk through a demo of your product: a couple of slides on what we are, vision, team. Most importantly, showcase what’s awesome about what you have put together. You need to get them excited.
After the first meeting you should give them a one or two day cool-off period for them to think about it. Then write a follow-up that says something like Thanks for the great meeting. What would you suggest for next steps? OR suggest some concrete next steps yourself.
Come back in for a second meeting and be patient. You might have to come in three or four times to tell your same story (might even be to the same people).
After your follow-up meeting, ask the big company if they have a general terms of service (TOS) or do they want to use yours.

   Big Company says: Big companies are going to have a general TOS , which will the partner product
   comply by the big company’s rules (without much negotiation). In the rare instance that you have your
   own TOS, when they give it to the big company, they will typically red-line it (i.e. red Xs all over the place,
   and sent back to you looking a lot like the big company’s original TOS). This process could take 8 weeks,
   so you might just want to go with what they have.

     Startup says: Although the big companies will red-line it, you can try to give them your own document.
   Even if it gets changed its better to work off your own document. There is some psychology at play here
   where the opposing side may feel bad about marking it up too much.

5.   Decision-making process: typically, it’s the Business Unit owner (on whose site your product will be
   deployed) who makes the decision – so you’re trying to make the BD person your advocate so they can push
   the Business Unit Owner to accept the partnership. Remember: original buy-in from the CEO is the best
   blessing.
6.   Once negotiation is signed – bet on that momentum and push as fast as you can. Since the BD guy in the big
   company will move on to the next deal, forget about you, and push it off to the implementers, you should get
   into direct contact with actual people at your partner’s company who will help you implement the deal as early
   as possible (i.e. webmaster, the tech/product guy). Go as low as possible to find the implementers (most likely
   not the managers).

HOW TO: Develop Business Deals (PART 1)

Tue, 05 Jul 2011 11:35:04 -0800

CC: dovetailsolutions.com

What is business development?

That depends on who you talk to.

Meet Ben Luban, Director of BD at AOL and Florent Peyre, VP of Strategy and BD at GiltCity. They have similar titles, but Ben works at a big company, Florent at a fast growing startup. They definitely have similarities and differences in attitude. As an entrepreneur, you should know both perspectives of the deal.

WHY DO DEALS?

Startup says: To grow fast (maybe, get bought).
Big Company says: To grow via calculated choices on whether to build, buy, or partner with a company.

FLORENT: As the BD guy in a startup, it’s easy to get into a mode of running from meeting to meeting. But movement is not necessarily progress. Don’t do deals just for deal’s sake, since every deal will take a lot of time (imagine all the effort it takes to get from pitch to first meeting to second meeting, etc. and multiply those tasks by X potential partners), so make sure the deal is right for you. Do deals:

     1. To scale. If you’re building a consumer-facing product, you won’t have scale when you start, but you can
   buy scale. A big strategic deal can give you instant distribution!

   2. To fill a hole in your product capability. Gilt offers local, but high end deals so it has to solve the
   problem of redemption to it fit the situation/venue.

   e.g., Consider a coupon for a fancy restaurant. Customers aren't going to want to claim their
   coupon at the dinner table. And you can’t build a mobile solution because there is no point-of-sale
   (POS) tool on the merchant side. So, Gilt partnered with credit cards. All the experiences you buy on
   Gilt are recorded on your credit card statement. When the dinner check comes, you give your credit
   card to the merchant: no one sees that you get a discount and the merchant does not have to do
   anything for this to work. Clearly, this solution was something Gilt couldn’t do on their own, so they
   needed a build/buy a partnership to implement it.

   3. For Strategic Relation. Someone you have identified in the space who is strategic

   4. Get Acquired. Make sure your potential buyer is actually serious (ideally experienced), because the only
   thing more distracting than deal talk is acquisition talk. if you feel there is a real interest:

   a. Involve your board/advisors (they should be familiar with M&A).
   b. Start involving other competitors of that buyer for leverage (do this with all deals). But remember:
   you can’t fake it. They all know each other, so make sure it’s really happening. Get term sheets
   from different companies and use them to compare against each other.

BEN: When we are deciding whether to acquire a company, buy it or partner with it, we will ask is this a space we want to delve into? Given the resources we have, is this something we can build ourselves or do we have to hire from outside? If we aren’t going to build, do we want to license to use? The most common types of BD deals for

1. Distribution Deals. When you take your stuff and you get it on
   someone else’s site. You might do this to scale or get positive.

2. Licensing Deals (flip side of distribution). You take someone
   else’s stuff and put it on your site. You might do this because
   you are trying to enhance user experience on your property. For
   example, go to MSN.com, click on sports tab and find “MSN
   sports brought to you by Fox sports.” What happened here? Fox
   was looking for distribution. Microsoft knew it was going to be
   expensive to produce good sports news themselves. So the two
   got together to leverage each other's strengths and share
   revenue.

WHO DO YOU WANT TO PARTNER WITH?
WHAT IS THE SELECTION PROCESS?

Startup says: It’s all about OUTBOUND prospecting.
Big Company says: It’s all about INBOUND prospecting.

FLORENT: Make sure the people you speak with are the right people. Who would be suitable partners in this space that would benefit us? What value exchange can we create? Here, we see the value of having a good advisory board, where the right advisors will know the space and can help you determine who is a good/bad partner.

You don’t necessarily want to always partner with the biggest guys. You want to partner with people who are seen as innovators in their space. Try to pitch them something really big and get them excited (instead of a bunch of small pitches to non-innovative different clients).

   e.g., For customer acquisition, Gilt approached American Airlines, but it wasn't the right fit. Gilt
   customers are young and high-end and were better matched to Virgin America, a more innovative
   airline. Partnership with Virgin has been very successful for bringing in new members and converting
   them into new customers.

BEN: We get a LOT of inbound requests. So you have to get me excited. Show me what value you can create. As a startup, what’s the value you can offer when you don’t have traction yet? If AOL is excited to partner, they might ask for equity in your business. A lot of big businesses today won’t promote startups without deriving some direct benefit. Examples of outbound deals big companies would do:

   e.g., FourSquare and Amex signed a partnership at SXSW so that every time you check in at vendor
   and use Amex to purchase something, you would get a rebate on your Amex bill

   e.g., Google wanted to create customized movie channels, so it bought Next New Networks

SEE PART 2 FOR HOW TO APPROACH AND NEGOTIATE WITH A POTENTIAL PARTNER >>

3 Things Investors Look For at the Seed Stage

Mon, 04 Jul 2011 15:29:27 -0800

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Charlie O'Donnell is a Principal at First Round Capital, working on very early stage investments in the New York City area. He founded nextNY and was Voted 100 Most Influential People in New York Tech. He was also co-founder & CEO of Path 101 which raised $500K and was a Business Insider Startup 2009 Finalist. Follow him on his blog or @ceonyc

HOW TO: Bring Your Idea to Product to Traction

Tue, 14 Jun 2011 17:47:30 -0800

OVERVIEW

Most startups spend way too much time perfecting a product. Vin Vacanti, CEO of Yipit, says: get your idea to product as soon as possible, test it for honest feedback (not chicken soup for the founder's ego) and become your own super user.

BRINGING YOUR IDEA TO PRODUCT, ASAP

"You can sit here and spend nine months pontificating about what your customers might like and not like; but the truth is, the first day you have someone sit down and play with your product, you'll learn more than the last nine months you spent thinking about it." Vinicius Vacanti, Co-Founder & CEO of Yipit.

Rent the Runway knew girls wanted high fashion looks for glamorous nights out, but didn't want to deal with the anxiety of investing in piece after piece. What they didn't know was whether those girls would go so far as to rent luxury dresses and feel comfortable enough to talk about it.

The co-founders of Rent the Runway bought 10 dresses, called their friends and told them they could rent any dress for $X plus free dry-cleaning. If their friends rented, they would building a product around it. If their friends didn't rent, they would know they had NOT proven out their #1 risk.

DIM (Do-It-Manually): Being in a tech startup doesn't mean you only use tech to test your tech.

Unless people love your product, it probably won’t take off. And you won’t know what people love until you get honest feedback. So hurry up and build the simplest version of your product. That first version is just a wedge into your overall vision. Temporarily ignore the larger vision to focus on building initial traction. People aren’t going to sign up for your product because you spent nine months perfecting a slew of features; they are looking for one killer feature that immediately benefits them. (see Single Player Experience)

The first version of your product is also a wedge into your vision of reach. Focusing on a specific geographical or niche market, will ensure a greater chance of gaining critical mass because it brings together people who matter to each other. Do NOT launch it to everyone.

Mark Zuckerberg probably didn't envision Facebook as just a college platform when he first launched. But his wedge strategy was to get every Harvard student to sign up - and they did, because everyone that mattered to them did. At the same time, many other social networks just like FB launched their betas to the world. And none of them succeeded. That's the power of the wedge.

GETTING HONEST FEEDBACK

After you release version one of your product, if your friends say “yeah, I’ll use it,” it will be a disaster. Because most people will give you positive feedback and end up never using your product.

(YIPIT): Tell your friend “Uh. I don’t know what we are going to do. No one likes our site. We can’t figure it out. Do you have any ideas why this is happening?" Now you've just set yourself up for authentic feedback. No one is going to tell you your product is awesome when you’ve just told them it sucks.
   Brutal honesty is better than an agnostic thumbs up.

   HACK TOOL: Net Promoter

Your startup's goal for the first six months should be to bring your idea to product to feedback to traction (adding users at an increasing rate). When you're trying to ramp from 0 to 1000 users, expect the cold start problem (not being able to create a large user base because you don’t know how to get the first few users). So how do you deal? Become your own user of course.

(YIPIT): Be your first user. Be a SUPER USER.

(YIPIT): EX-CUSTOMERS CAN BE YOUR MOST VALUABLE ASSET

WHY YOU WON’T LAUNCH A PRODUCT IMMEDIATELY AFTER READING THIS

YOU ARE AFRAID OF FAILING: You have to get over this. Your expectation should be that the first version of your product will fail. It’s impossible to predict everything your customer wants. You’re not going to learn by yourself; you need customer feedback. Assume failure. If it happens, your goal should be to figure out why it’s failing.

"BUT MY VISION IS SO MUCH BIGGER! I CAN'T PUT SOMETHING OUT IN JUST A WEEK." Remember: your first version is just a wedge into your overall vision. Don’t get caught up thinking that it’s going to be all that you’re going to do. Read how Yipit did it.

BUT WHAT IF I DON’T HAVE A PRODUCT YET?

1. Create a six word sentence to describe your company.

2. Build a landing page that describes or shows screenshots of your future product. See if people will sign up for
your invite list. (LaunchRock is a good example of a landing page tool. However, they are currently in closed beta
as their inbox is stuffed full of beta-invite requests.)

3. Hurry up and build a simple (manual) prototype to get in front of potential users.

TOOLS:
Net Promoters
Delicious
LaunchRock

SUGGESTED READING:
How to Make it As a First-Time Entrepreneur (BLOG)
Written by Vinicius Vacanti
Practical advice and useful examples

The Four Steps to the Epiphany (BOOK)
Written by Steven Gary Blank
Eric Ries Review
Buy for $39.99 at Amazon
Eric Ries (@ericries @leanstartup) and Steve Blank (@sgblank) are lead proponents of the Lean Startup Movement

Yipit in 3 Days

Tue, 14 Jun 2011 00:00:00 -0800

CC: yipit

FACTS

Launched Feb 2010
Raised $1.3M in Series A (three months after launch)
Seven people currently on the team
Aggregates 500 daily deal services that can be customized according to preferred interests/locations
Co-Founder, CEO: Vinicius Vacanti
Co-Founder: Jim Moran

SIMPLE PRODUCT

Yipi's first version took one year to build. Their second version took three months. Their third version took three days.

PROVE OUT YOUR #1 RISK

Yipit’s biggest risk: “are we actually building something that will make people click and open their e-mail to see?"

Longer Read: The Shortcut We Took to Build Yipit in Three Days

Shorter Read: Yipit wanted to find out if their idea was good or bad by proving out their #1 risk - would people actually click and open their e-mails to get customized local daily deals The only people who could answer this question were potential users (not friends and family who praised their idea). In order to get potential users, they had to build a prototype that could take months to build. Yipit decided to take a shortcut by cutting their list of features to a bare minimum and creating a simple prototype as fast as possible. Realizing the crawler they needed to build to aggregate deals would take weeks to build poorly and months to build correctly, they decided to collect deals manually so they could immediately see if people liked the idea or not. Yipit ended up building their product in three days. Four days after that, they signed up 2,000 users. The idea was tested, put into market and received accurate feedback in just seven days.

CC: netted

After thoughts:

How long have you been thinking about your product? Months? Remember: people aren’t going to sign up for your service because you have spent nine months building it. They sign up because you have a killer feature, and you won’t figure out what that feature is until you test your product.
Don’t be afraid to take short cuts (manual) to just get product out there
Write down what you think your three key risks are (these are usually not tech risks, but customer risks - e.g. ultimately they don’t want X, or they won’t pay Y for it)
Remember that the media emphasizes the dramatic, so don't always use their "facts" as a comprehensive representation of your full market.

GET HONEST FEEDBACK

"The people who helped us the most were the ones who were brutally honest. And it sucks. It feels like a punch in the stomach. But it gets you moving," says Vin. Helpful responses Yipit got:

   - your site sucks; you should think about Groupon
   - your deals are stupid
   - your deals suck; why aren’t they like Groupon? Groupon actually saves you money
   - your business model is terrible; you’re never going to get bars to show you their deals; if you want to
   compete with Groupon, you’re literally going to have 100 more deals than Groupon

THE SEED STAGE BUSINESS MODEL IS IMPORTANT TOO
YOU'RE NOT JUST TRYING TO CHANGE THE WORLD

Yipit started out as a happy hour service. But the challenge with their business model was that it took a lot of work to just cover one city, and it would be really expensive to expand. Plus, all the money between customers and bars would never be exchanged through Yipit. When they finally switched to becoming a daily deal aggregator, the affiliate model they used allowed money to actually flow through their company, which in turn allowed them to launch five cities in three days.

HOW TO: Do Seed Research

Thu, 09 Jun 2011 00:00:00 -0800

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