Business development is a crucial yet often misunderstood aspect of launching and scaling a startup.
Because it’s one of the most efficient tractions channels available, startup founders must grasp the meaning and apply the techniques of business development intelligently.
In this article I’ll explain business development from both conceptual and practical standpoints, offering various strategies you can use to exploit this approach to the fullest.
What is “Business Development” (BD)?
One of the key facts of which we’re constantly reminding our startups here at DGG is that rapid startup growth cannot be achieved in the absence of efficient customer acquisition costs (CACs).
In other words, it’s impossible to scale a company if you’re spending too much money trying to acquire new paying customers.
As I recently explained:
“When it comes to startups, a high CAC is often deadly.
The average online company, such as an e-commerce store, might have to pay upwards of $200 or even $300 to acquire one new customer via traditional marketing and advertising.
To put that into perspective, try and imagine Dropbox and Instagram each paying anywhere from $40 billion to $60 billion to accumulate their user bases of 200 million people.
The reality is that many of the fastest growing technology, web, and mobile startups spend very little money on direct marketing and advertising efforts aimed at acquiring new customers.”
Indeed, Airbnb, Facebook, Google, Instagram, Linkedin, Twitter, and Uber all spent very little (if any) money on traditional ads, and yet they still managed to become extremely large and prosperous companies.
Rather, these businesses achieved massive growth by utilizing low-cost and highly scalable traction channels, including viral loops, public relations (PR) campaigns, effective user retention strategies, and new-age marketing tactics.
These methods and a variety of others can be seen as belonging to the umbrella term “business development” (BD).
There’s no single, universal definition of BD; it often means different things to different people.
Keeping this in mind, Investopedia provides a helpful description that’s worth quoting:
“Business development can be summarized as the ideas, initiatives, and activities aimed towards making a business better. This includes increasing revenues, growth in terms of business expansion, increasing profitability by building strategic partnerships and making strategic business decisions.
Business development activities extend across different departments, including sales, marketing, project management, product management, and vendor management.
Networking, negotiations, partnerships, and cost-savings efforts are also involved.”
Clearly, then, BD is a rather all-encompassing process, capturing a wide range of marketing, sales, and other growth-related activities.
As long as we keep in mind the essence of BD — i.e., the creation of long-term value via the maximization of earnings involving customers, markets, and relationships with other businesses — then we can usefully discuss and apply this approach to building startups.
Traditional Business Development
Traditional BD is primarily concerned with establishing strategic partnerships with other companies to secure advantages in the form of mutually beneficial arrangements.
A “strategic partner” can be defined as:
“A party with whom a long-term agreement is reached for sharing of physical and/or intellectual resources in the achievement of defined common objectives” (source); or, more simply as
“Another business with whom you enter into an agreement that aims to help both of you achieve more success” (source).
Why do businesses seek out strategic partnerships with other ventures?
Because such alliances can potentially bring access to new customers and shared resources, increased exposure and brand recognition, and expanded geographic reach.
For example, early-stage Google signed a deal with Netscape (i.e., one of the world’s first widely available web-browsers) to have the latter include Google’s search function in its navigation bar.
Google was, therefore, able to tap into Netscape’s user base whilst Netscape improved its users’ online experience, thus gaining some competitive advantage over Microsoft’s Internet Explorer.
Here are several different forms that strategic partnerships can take:
1. Joint Ventures:
Definition: a time-limited and project-focused business enterprise undertaken by two or more companies to share the expense and profit of a specific business undertaking (source).
Objective: create an entirely new product offering and/or collaboratively enter (or expand into) a new market.
Example: the 2014 deal between Facebook’s Oculus Rift and Samsung to develop the Samsung Gear. Facebook agreed to be responsible for the software side of things, with Samsung building the hardware. This allowed Samsung to enter a new market (i.e., VR), whilst Oculus got exclusive access to a new distribution channel.
2. Distribution Partnerships:
Definition: a business arrangement in which company A provides its product or service to company B in return for access to company B’s customers/user base.
Value: especially useful if you find yourself in a situation where you’re trying to achieve growth but you’ve exhausted your market reach. A well-placed distribution partner could help you to tap into new customer segments.
Example: back in 2014, Spotify inked a deal with Uber to connect the two apps so that Uber riders could listen to custom Spotify playlists whilst riding in Uber vehicles.
3. Licensing Opportunities:
Definition: a “written contract under which the owner of a copyright, know-how, patent, service mark, trademark, or other intellectual property, allows a specified party to use, make, or sell copies of the original” (source).
When should it be used? When your company owns a) technologies that could be vertically integrated into products sold by other startups and/or b) a reputable, attractive brand from which another company might benefit were it to use (i.e., pay for) your brand.
Google signed a licensing agreement with Novartis, a pharmaceutical company, in 2014: the two companies agreed to have Novartis use Google’s “smart lens” technology to try and develop new categories of eye-care products.
4. Standard Partnerships:
Definition: “a written agreement that defines the relationships between the partners in a business and outlines the partners’ shares of profits and losses” (source).
Objective: combine the unique capabilities of two or more companies’ existing products to achieve mutually beneficial results (e.g., more customers, higher profits, greater exposure, and PR, etc.).
Example: In 2014 Twitter began developing an e-commerce “Buy Now” feature in partnership with payment processing app Stripe.
Business Development 2.0
Traditional BD is a “high-touch” process in the sense that it requires a lot of personal, real-time interactions to be successful.
For instance, closing a partnership deal typically demands many phone calls, meetings, referrals, and strenuous negotiations before a final agreement can be struck.
As I recently pointed out, however, 21stcentury startups are becoming increasingly reliant on “low-touch” BD:
“Because many early-stage startups lack the contacts, credibility, and resources to strike massive deals with big companies, ever-more startups are taking advantage of novel business development techniques by utilizing tools such as application programming interfaces (APIs), feeds, crawling technologies, embed codes, and even reverse engineering to reach new distribution channels.”
Let’s consider a number of these BD 2.0 approaches in more detail to gain a better understanding of their value to contemporary startups.
1. APIs
Successfully integrating with other companies used to require a lot of time, money, and negotiation sessions.
Today, however, it merely requires an API key — i.e., a unique piece of code that allows one app to communicate with another (or with developers) (source) — and a bit of creativity.
Dropbox’s API allows companies to integrate Dropbox for Business into their IT processes.
With 200,000 companies using Dropbox for Business alongside (at least) 300,000 connected apps, Dropbox’s API helped to take the company to an entirely new level, allowing it to disrupt various enterprise markets along the way.
2. Embedding
Providing your users with the chance to effortlessly share their own and/or other’s content across their personal websites, social media pages, etc. makes it easy for them to act as emissaries for your startup as they organically share your platform’s content with friends, family, and colleagues.
YouTube and Soundcloud are two well-known examples of businesses that radically increased their user bases by allowing the content on their websites to be easily embedded elsewhere on the Internet.
Indeed, this is one of the main factors behind YouTube’s early growth.
The embedded feature helped to spread the word about YouTube whilst shares of videos simultaneously generated important backlinks to the website
Screenshots of YouTube and Soundcloud embed links:
3. Reverse Engineering
Techopedia defines “reverse engineering” as:
“A computer programming technique used to analyze software to identify and understand the parts of which it is composed. The usual reasons for reverse engineering a piece of software are to recreate the program, to build something similar to it, to exploit its weaknesses or strengthen its defenses.”
One of the most famous cases of reverse engineering is Airbnb’s “hacking” of Craigslist.
Back in Airbnb’s early days, Airbnb users had the ability to post their apartment listings not only to Airbnb but to Craigslist as well.
Why was this a problem? Because Craigslist did not authorize allow any such integrations.
Airbnb, thus, had reverse-engineered bits of Craigslist’s programming to make its own site compatible with Craiglist’s posting forums — and it did this without having access to Craigslist’s main codebase.
Craigslist eventually banned Airbnb from doing this but the move occurred far after Airbnb had successfully achieved massive growth by piggybacking on Craiglist’s user base.
Reverse engineering is a very complex matter in terms of both legality and ethicality so be sure to perform your due diligence before trying to replicate Airbnb’s actions.
A screenshot of Airbnb’s now-defunct post to Craigslist option:
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