Startup Business Development
Each month at General Catalyst we organize a breakfast in NYC for functional leaders within our portfolio. Every session is led by a special guest with experience and wisdom from operating hyper-growth companies. The gatherings take place at portfolio company offices, providing the opportunity to experience the unique cultures and aesthetics of each of our companies.
Last week, we hosted leaders focused on business development, alongside our friend, Jorge Espinel, Global Head of BD at Spotify, at Cadre’s beautiful new offices in SoHo. What follows are some highlights from the group’s conversation.
Business development begins with relationship development. And, it’s hard to do deals with people that you do not trust.
Earning trust as a startup is hard. Most of the time, you’re trying to gain the attention of a much larger company — offering legitimacy, domain expertise, distribution, or operating leverage. Every deal requires a weighting of risk and reward.
As a startup, it feels like you have little to lose. Being a private company has many benefits, including being able to weather bumps in operational performance out of Wall Street’s spotlight. You are small, so fewer people (employees, customers, and shareholders) depend on you. You are focused, so are unencumbered by the cost of shifting resources away from other opportunities.
As a big company, it feels like you have everything to lose. In a startup, you might additionally see a technology stack that is immature and untested. You might see a small team that is under-resourced to execute and support your needs. You might see a limited customer or userbase, capping the near-term impact of collaboration. As such, you will be inherently skeptical.
To establish trust as a start-up, you must mitigate risk and magnify upside. Popular strategies employed by the morning’s group include:
- Start from the needs of the customer. The proposed deal should be less about the two companies individually, and more about their combined ability to deliver delight to their shared audience. Think about an Uber user in the back seat of a ride-share with friends on their way to a party. Now picture that same group, rocking out to their favorite songs through their own Spotify collection. Sounds like a happy car full of people, and a partnership worth doing.
- Pitch your market authority, not your company. Betting on a startup sounds risky, but not addressing the tectonic shifts in a market is even more so. Take the wacky world of animated GIFs. Long before consumers were making their coworkers giggle over Slack or significant others smile over Tinder by leveraging Giphy’s platform, the team at Giphy knew that GIFs would be a core piece of the way that people communicate. Instead of asking potential partners to integrate with their SDK out of the gates, Giphy’s Adam Leibsohn & David Rosenberg leveraged their unrivaled experience with the GIF media format to paint a picture of the future and offer its platform as a way to power it. Execs at platform partners see their time with the Giphy team not just as business development, but as a refreshing opportunity to learn and grow.
- Fake it until you make it. Before a formal partnership exists, it is just an idea. Busy people are protective of their attention. But without it, upside is hard to imagine. As a start-up, make it easy for them. The lowest fidelity solution is to share visual mockups. Better yet would be interactive prototypes. Better still — outside-in data, validating latent demand in the market for a partnership, before one exists. In the early days of ClassPass, some of NYC’s top fitness studios were not part of its marketplace. Before pitching them on formal deals as an unknown startup, ClassPass’s Payal Kadakia made it easy for consumers to book classes in these facilities independent of their formal participation. And in no time, spinners, yogis, and cross-fitters flocked. As the company became a meaningful marketing channel for studios, ClassPass was in a better position to build direct partnerships.
- Show up. Be human. Thanks to technology, it’s never been easier to do remote work. As a result, opportunity costs of traveling to a potential partner seem high. Business development executives at large companies know this. So show them that cultivating the relationship is at least worth the cost to you. Collaborations requiring meaningful product, engineering, or marketing resources should have the relevant people in the room on both ends to make sure that the requirements of a deal are well understood and specified. If extended team members on each side are complicit in the decision, there is less potential for fall-out should the initiative not bear fruit. Otherwise, the failed BD initiatives can breed resentment across an organization and create distraction.
- Back weight negotiations & don’t stress about exclusivity. The promise of opportunity can prematurely transition a conversation into discussion of deal terms, which quickly turns into legalese. Make sure you have shared product alignment and excitement, and the rest will follow. Exclusivity is one of the first words that comes to mind in partnerships. But exclusivity with a small and unproven startup is particularly risky for a big company. As a nimble technology company, have confidence that in a competitive market, your product will win. Spotify’s Daniel Ek pushes his team to make their product so good that they develop de facto exclusivity, believing that consumers will migrate to what is best for them. You can also develop de facto exclusivity by being the first of a kind to develop a partnership. Being first gives you the ability to train the customer. And an educated satisfied customer will need even more reason to try a competitive offering.
As always, we covered a lot of ground in this BD session including how to instrument internal/external communication on Slack; how best to integrate business development and product teams; how hard to push in negotiations; and more.
Thanks to everyone who contributed to the conversation — we look forward to the next one! And Jorge, a special thank you to you!
— Team GC