Welcome to Spencer Trask Perspectives, a monthly interview series with our CEO Bill Clifford and writer John Essick. Mr. Clifford has generously agreed to share his unique insights and expert opinions on topics such as business development, deal flow, C-suite management, startup culture, entrepreneurialism, and more.
We welcome your feedback, and encourage you to submit questions to askST@spencertraskco.com for Mr. Clifford to answer in future articles.
It seems that finding a clear and concise definition of business development is a little like that old parable about the blind men and the elephant, with the meaning of the term depending upon the perspective of the person being asked. It can imply something completely different to a V.P. of Marketing than it does to a V.P. of Sales, and still something entirely different to a V.P. of Product Management. Yet business development is a vital component of a company’s growth and long-term success, which makes it something everyone should agree on and buy into.
In this installment of Spencer Trask Perspectives, I discuss the concept of business development with Spencer Trask CEO Bill Clifford to determine how an organization can create a business development plan that everyone in the business can understand, and in turn, relate to their own department’s goals and KPIs, as well as the organization’s success at large.
John Essick: As I mentioned in my introduction, the term business development seems to be quite misunderstood. Are there certain criteria you believe every business development plan should meet?
Bill Clifford: Since this is your first question, it is an appropriate place for me to clear up any confusion. The reason that the term “business development” is so often misunderstood stems from it being an overused, catch-all term, which happens to be one of my personal pet peeves. Companies apply it to cover an enterprise’s operation from strategy to finance to sales to service, all while being imprecise about what it exactly means to any of them. Actual business development transcends all organizations and job titles and must be an integral part of everything that everyone should focus on every minute of every working day. From the CEO to the entry-level clerk, each interaction with every customer or supplier should advance the development of the organization’s business.
In my view, everyone in the company has the implied responsibility to help further or create new business in everything that they do, no matter how small a role they may play. It is silly to me that one person can be designated the Director of Business Development when the entire organization is founded on that very principle. I’ve seen the title used to refer to salespeople, to marketing people, and even to people in financial planning and reporting. In fact, I’ve also seen it used many times as a job title given to people whose primary role was in mergers and acquisitions.
If I had my way, I would abolish it as a functional category and eliminate it as an operational title completely. Anyone whose job title includes any reference to business development should immediately go to their superior and demand a change in job title to something that is understandable and transferable across other companies and industries. I can assure you that the first question a person with that job title will be asked if ever looking for a new position is: “What is business development?”
For the purpose of this article, I suggest that for the remainder of our discussion today we use the traditional definition of business development, which is oriented more toward the purely sales and marketing side of the business.
JE: The term business development conjures up thoughts of growth. Is there an element of cutting and/or controlling costs that can actually be considered business development?
BC: Business development projects and activities usually focus the organization and its people on things that unify the company around customer-satisfaction oriented objectives and away from less productive activities. However, yes, I can perceive that many of the activities that one might normally consider being cost-cutting or certainly cost-effectiveness oriented in nature be deemed business development in a sense. More efficiently allocating funds from wasteful endeavors or trimming redundant expenses can help an organization’s bottom line. However, in most cases, monies spent on things that improve customer satisfaction and customer retention are more typically considered business development in nature and categorized as such.
Think of these business development initiatives as internal, priority setting projects, which help the organization allocate precious resources, such as human resources, and budget toward growth and business expansion and away from less productive projects. In a way, this is a form of natural selection; business development initiatives get resources and starve less productive or less profitable activities throughout the organization.
JE: Is the term business development synonymous with business expansion?
BC: Again, back to my original point about the imprecise definition of business development, I suppose that business expansion is implicit in the term in the most active sense of its meaning. After all, one would hope that business expansion would be an expected outcome of business development, if activities performed under that umbrella term did, in fact, increase revenue and attract more clients.
However, if you were part of one of those organizations that had a Business Development department with a “Head of Business Development,” lots of little Business Development minions running around doing all sorts of Business Developments things, and spending lots of Business Development budget money, and your business did not expand, that would be a case where business development, in fact, is not synonymous with business expansion!
JE: Generally speaking, should a small company first look to develop through expanding its products and services, or expanding the markets in which it sells?
I wish there was an easy answer to this question but there isn’t; this dilemma is one faced by all small businesses as their growth begins to slow and they have reaped the easy pickings in their initial target market. Do I look for new customers for my existing products and services in new marketplaces that I have not yet addressed: markets that may cost me more money to establish a foothold in, markets that may be served by competitors today, markets where I do not have any distribution channels, markets where my distribution costs will be higher than today, markets where my cost of service will be higher than today, markets where I may well lose money for a while until I can break even against these new costs? Or, should I invest in new products and services in hopes that my current loyal customer base will buy additional product from me using my current distribution channels and salesforce, knowing that I will have to spend money upfront in R&D to develop these new products and services in the hope that they will resonate positively with my customers? Is there some middle ground business development strategy that I can use to put my toe in the water of a new market without committing too much money, or can I add one small enhancement to my product to test the waters with my existing customers? These are all the combinations and permutations that every small business leader considers along the path of business expansion, the classic trade-offs between product expansion and market expansion.
The only answer lies in the doing the financial analysis and making the hard decisions. If you can slide into new or adjacent markets with minimal costs using existing products and services, and leveraging existing distribution channels, then that would appear to be the quickest way to more revenues. Conversely, if a few tweaks to a product to make an old dog turn new tricks justifies an increase in price, then going back to a loyal customer base with a fresh face on updated product has saved many small to mid-sized companies on their way up the growth ladder.
JE: Are marketing and sales one cohesive unit in terms of business development, or does one drive the actions of the other?
Although they are often thought of as one cohesive unit, and they must work very closely together to understand customer needs, buying criteria, and preferences, sales and marketing are two distinct entities. They each have different marching orders, different success criteria, and different data metrics. Think of Marketing as the department that identifies and conditions the battlefield, and Sales the troops that attack and conquer the enemy using the tools provided by the marketers.
The Marketing department tells the Sales department where to go to find the best chance of exploiting an opportunity. Marketing should inform Sales which product or service has the best chance of winning the day at the best price point with the best features versus the competition. Sales then takes the field and presents the products and services in the best light possible with the broadest coverage available, and in turn brings back the best information to the marketers so that they can refine the marketing message for the next battle.
To the same extent, Sales must also give feedback to the Product Development department about what competitive features and facilities in the product line are causing the most difficulties in competitive situations. This feedback allows Product Development to adjust its plans to add features and facilities to the product to make it more competitive in future releases of the product. This is the natural cycle of product development and the typical interactions that occur between these departments in most organizations. This natural dependency and, often, tension is a healthy and normal interaction that keeps all three facets of the business focused on customer needs and customer satisfaction for the good of the overall organization.
If one were to add a Customer User Group Representative to this Round Table, you would have a perfect set of representatives to help guide the organization’s product development priority schedule for upcoming product releases.
JE: Would a Business Development team focused on creating strategic partnerships have different skillsets than one focused on increasing revenue, or is it a matter of the same principles applied regardless of the means of business development?
An organization that has determined that creating strategic partnerships with third-party companies is an important way for it to expand its reach into the marketplace must do so by carefully considering the pros and cons of making such an important business development decision. Assuming that this strategic partnership would delegate some portion of the sales and marketing responsibility to the strategic partner, the Business Development team would first have to consider the potential impact on the brand image and reputation. It should take into account what is at stake should the strategic partner fail to represent the products and services to the customer at the levels that the company would have if it were a direct one-to-one relationship.
Sometimes in the quest to ramp up revenues through third-party partnerships, it is easy to overlook the rigorous sets of checks and balances that must be built into the contractual agreements that govern the strategic partnerships between these parties. Business Development teams tasked with creating and managing multiple strategic partnerships need to have members skilled in creating these types of contractual relationships and managing them tightly to protect the brand reputation of the parent company.
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About Bill Clifford
Bill Clifford is Chief Executive Officer of Spencer Trask & Co., a privately owned advanced technology incubation firm. Prior to joining Spencer Trask & Co., Mr. Clifford served as Chairman of the Board and Chief Executive Officer at Aperture Technologies Inc., General Partner of The Fields Group, and General Partner of New Vista Capital. He is also the former President and Chief Executive Officer of Gartner Group, the world’s leading authority on the information technology industry, user and vendor technology strategies and market research. During his tenure at Gartner, annual revenues increased from $175 million in fiscal 1993 to $780 million in fiscal 1999.
Mr. Clifford currently serves on the board of directors of Cybersettle Inc. and SWK Holdings (SWKH.OB). He has been featured in CEO Magazine, Leaders Magazine and Forbes, and is a keynote speaker and panelist at numerous Technology Industry conferences.