Whatcha Gonna Do With That Duck?: And Other Provocations, 2006-2012 (29 page)

Examples:

• Starbucks licenses their name to a maker of ice cream and generates millions in royalties.
  
• A rack jobber like Handleman does a deal with a mass marketer like Kmart. Kmart gives them room in the store to sell records and gets a cut; Handleman does all the work.
  
• AOL buys AIM instant messaging software and integrates it into their service.
  
• Years ago, I licensed the rights to Isaac Asimov’s
  Robot
  novels from a business development person at his publisher and turned the books into a VCR murder mystery game, which I licensed to a business development person at Kodak, a company that was experimenting with becoming a publisher. (Isaac made more from this project than he did from many of his books.)
  
• Best Buy offers extended warranties on appliances you buy. They don’t provide the warranty, of course; a business development
  person did a deal with an insurance/service company to do it, and they share the profits.
  
• The Princeton Review built a huge test-prep business, but only by licensing their brand to a series of books that did the lion’s share of their marketing for them.
  

You don’t see business development, particularly all the potential deals that fail along the way, from the outside. Many companies, though, spend millions of dollars a year looking for deals and then discovering that they pay off many times over. Others, especially smaller competitors, are so focused on their core business that it never occurs to them to consider partnerships, licensing, publishing, acquisition, and other arrangements that might change everything. Harley-Davidson probably makes more money on business development than it makes on motorcycles.

The thing that makes business development fascinating is that
the best deals have never been done before.
There’s no template, no cookie-cutter, grind-it-out approach to making it work. This is why most organizations are so astonishingly bad at it. They don’t have the confidence to make decisions or believe they have the ability to make mistakes.

Think about the Apple Nike partnership created to make a device that integrates your iPod with your sneakers. This took years and cost millions of dollars to develop. Most companies would just flee, giving up long before a deal was done and a product was shipped.

Here are some tactical tips on how to do business development better:

1. Process first, ideas second.
   If you’re going to be bringing new partners and new ideas into your organization, you need a process to do it. Professionals don’t “know it when I see it.” Instead, professionals think about the abilities of their company and about the strategies necessary to bring ideas in, refine them, and launch them. Great business development people don’t waste time in endless meetings with random vendors or hassle about tiny details up front. Instead, they have an agenda and a project manager’s understanding of what
   it means to get things done. They don’t keep the process a secret, either. They share it with anyone who wants to know. Someone needs to say, “here’s how we do things around here,” and then they have to tell the truth.
   
2. Who decides?
   Because every great business development project is different, it’s incredibly easy to get stuck on who can say
   yes
   (of course, everyone can say
   no
   ). Professional business development people intentionally limit the number of people who are allowed to weigh in, and they are clear to themselves and their potential partners about exactly who can (and must) give the go-ahead. Don’t bother starting a business development deal unless you know in advance who must say yes.
   
3. Courtship, negotiation, and marriage.
   Every deal has three parts, and keeping them straight is essential. During the courtship phase, you win when you are respectful, diligent, enthusiastic, engaging, outgoing, and relentless in your search to make a connection. Do your homework, research people’s backgrounds, learn about their kids, visit them—don’t make them visit you. Look people in the eye, ask hard but engaging questions—you know the drill. Basically, treat people as you’d like to be treated, because the people you most want to work with have a choice, and they may just not pick you. Hint: If you skip the courtship part, the other two stages probably won’t come up.
   
4. Partners, not just buyer and seller.
   If you’ve ever pitched a product or service to a business, you know how soul-deadening it can be. The buyer works hard to make it clear that she’s doing you a favor, and you need every dog and every pony available at all times (and you better be the cheapest). But business development doesn’t have this dichotomy. Both sides are buying, both sides are selling, right? So talented business development people never act like jaded buyers, arms folded, demanding this and that. Instead, from the start, they seek out partners.
   
5. Enthusiasm is underrated.
   Business development people are exploring the unknown. That means that there’s more than cash on the table; there’s bravery and initiative and excitement. The best business development people I’ve ever worked with are able to capture
   the energy in the room and amplify it. They’ll build on the ideas being presented, not make them smaller.
   
6. Close the open door.
   I regularly hear from readers who are frustrated because a big company wasn’t willing to hear a great idea they mailed in. Here’s the thing: there isn’t a shortage of ideas. There’s a shortage of execution. That means that successful business development teams look for proven partners and organizations with momentum. A key part of that is the decision to say no early and quickly and respectfully to people who don’t meet that threshold.
   
7. Call the lawyers later.
   A business development deal that never happens is one that’s sure to cause no problems. While the legal clarity you need is important, there are plenty of data showing that ten-page NDAs and onerous contracts early in the process don’t protect you; they merely waste your time and energy.
   
8. Cast a wider net.
   The Allen & Co. annual gathering is a dumb place to choose a merger partner. Limiting the number of potential partners to people you’ve met at a trade show is also silly. Business development (when it works) creates huge value for both sides, so better to be proactive in searching out and soliciting the organizations that can make a difference. Here’s a simple way to widen your net: start a blog and go to conferences to speak. Describe your successful business development projects to date and let the world know you’re looking for more of them. How many amazing partnerships could the Apple Store launch? How many great books could Starbucks highlight? Not only don’t they do this, but they hide. Don’t hide.
   
9. Talk to the receptionist.
   This is huge, and so important. When a great partner shows up at your doorstep, do you know? Here’s a test: call your organization (pretending to be from some respected organization), describe a business development opportunity, and ask who can help. If you’re not immediately transferred to your office, you’ve failed, right? Make it easy for the right people to know that you’re the right guy.
   
10. Hire better.
    How do you decide who to put in this job? I’d argue that glibness and charisma aren’t as important as strategic thinking, project management, and humility.
    
11. Structure deals with the expectation of success.
    The only real reason to do business development deals is because when they work, they’re so powerful. Andrew Tobias put his name on a piece of software that ended up earning him millions of dollars. It’s easy to get hung up on all the bad things that could happen, but keep your focus on how the world looks when you get it right.
    
12. End well.
    Most of the time, even good business development deals fall down before the end of the negotiation process. If a deal doesn’t come together, say so. Acknowledge what went wrong, thank the other party, and end well. If it does come together, track the integration and stay involved enough to learn from what works and what doesn’t. I’m still waiting to hear from people who said they’d get back to me “tomorrow” fifteen years ago, but I’m losing hope. Ending well not only teaches you how to do better next time, but it keeps doors open for when you need to come back to someone whom you should have done a deal with in the first place.
    

A few people are afraid of good ideas, ideas that make a difference or contribute in some way. Good ideas bring change; that’s frightening.

But many people are petrified of bad ideas. Ideas that make us look stupid or waste time or money or create some sort of backlash.

The problem is that you can’t have good ideas unless you’re willing to generate a lot of bad ones.

Painters, musicians, entrepreneurs, writers, chiropractors, accountants—we all fail far more than we succeed. We fail at closing a sale or playing a note. We fail at an idea for a series of paintings or the theme for a trade-show booth.

But we succeed far more often than people who have no ideas at all.

Someone asked me where I get all my good ideas, explaining that it takes him a month or two to come up with one and I seem to have more than that. I asked him how many bad ideas he has every month. He paused and said, “none.”

And there, you see, is the problem.

There are three ways to deal with a problem, I think.

• Lean into it.
  
• Lean away from it.
  
• Run away.
  

You lean
into
a problem, especially a long-term or difficult one, by sitting with it, reveling in it, embracing it, and breathing it in. The problem becomes part of you, at least until you solve it. You try one approach and then another, and when nothing works, you stick with it and work around it as you build your organization and your life. [I don’t mean that you just bully the problem, or attack it. I mean that you accept it, live with it, breathe it, and whittle it until you’ve achieved your goal. Once you start looking forward to your interactions with the problem, you’re leaning into it.]

Some people choose to lean
away
from the problems that nag them at home or at work. They avoid them, minimize them, or criticize the cause. Put as little into it as possible and maybe it will go away.

And sometimes, a problem is so nasty or overwhelming that you just run away.

I’m a big fan of the first approach. And sometimes, quitting isn’t such a bad idea. The second approach, alas, is the one that many of us end up with by default, and the one that’s least likely to pay off.

My definition of art contains three elements:

1. Art is made by a human being.
   
2. Art is created to have an impact, to change someone else.
   
3. Art is a gift. You can sell the souvenir, the canvas, the recording … but the idea itself is free, and the generosity is a critical part of making art.
   

By my definition, most art has nothing to do with oil paint or marble. Art is what we’re doing when we do our best work.

The math is magical: you can pile up lots of failures and still keep rolling, but you need only one juicy success to build a career.

The killer is the category called “neither.” If you spend your days avoiding failure by doing not much worth criticizing, you’ll never have a shot at success. Avoiding the thing that’s easy to survive keeps you from encountering the very thing you’re after.

And yet we market and work and connect and create as if just one failure might be the end of us.

Gross margin is an often confusing concept but a powerful tool in figuring out how to market your business (and decide what to make, whom to hire, and how to fund it). Few people understand it, while others use a definition I don’t find very useful.

I like to think of margin as the money left over after you’ve paid the direct costs for making an item, the last one of the day.

If you run a pizza place and a large pie costs $10, your gross margin is $10 minus the cost of flour, water, yeast, tomatoes, and cheese. And maybe salt. That’s it.

If you’re not operating at capacity, the key word here is margin. The marginal profit of one more pizza is high. You’ve already paid for the rent, the oven, the sign, the ad in the Yellow Pages, the hourly wage, the uniforms, all of it. Whether you sell that last pizza of the day or not, all those costs are fixed. So if your ingredients cost $2, your gross margin is $8.

This concept is vital to understand because it tells you how flexible you can be with a promotional strategy. Some people (like me) prefer businesses with high gross margins, even if we’re less busy. Others make billions on companies that run on the tiniest of margins.

If someone offers to run a coupon in the Welcome Wagon envelope that goes to new residents, and the rules are “one per customer, new
customers only,” and the coupon offers a large pizza for $2, is it worth it for you to run it? That’s 80% off! Surely this is too expensive. You can’t afford 80% off.

On the margin, of course you can. You got a new customer for free. Unless your store is at capacity, with people waiting in line, one more pizza sold at cost is a great way to build your business (unless there are too many coupons and unless it changes your positioning as a high-end place, but that’s a story for a different day).

You probably already guessed this part: for digital goods, the gross margin is 100%. Cell phone calls? The same.

One more customer costs you nothing. That doesn’t mean you should price accordingly, but it surely means you should understand how high your margins are.