How To Start A Business
It is dangerous to fall in love with the idea of starting your own business without understanding the realities.
Customers First
A business plan is not the most important single requirement for starting a business. Many other things are more important. For example:
• Customers: The first thing you need to start a business, maybe even the only thing you really need, is customers. It all starts with at least one customer.
• Customer needs: Your business must fulfill some type of customer need in order to be successful. Sometimes customer needs can be intangible, like security or prestige. Some customer needs seem frivolous, but they still matter. Make sure there is a market for your service or product. Your business will fail if it doesn’t address a customer need.
Myths on Starting a Business
There are several myths about owning and operating a business that should be avoided at all costs. These common myths cause a lot of problems:
• The myth of “being your own boss”: You are not your own boss when you own a business. Your customers are your boss. Your bank is your boss. Your fixed costs are your boss.
• The myth of “independence”: Owning a business doesn’t make you independent—not needing money makes you independent. As long as you need money, you can’t be independent.
The folklore of business start-ups generally underestimates the risks. Imagine yourself missing mortgage payments when you can’t cover your business costs and facing employees when you can’t make payroll. Those negative images are also part of business ownership.
A Simpler Plan for Start-ups
Business advisors, experienced entrepreneurs, bankers, and investors generally agree that you should develop a business plan before you start a business. However, not all business plans are the same. You might develop a fairly simple plan first as you start a small business, and that might be enough for you. You can also start simple and then elaborate as you prepare to approach bankers or investors.
Don't let me, this book, business plan software, or any other source force you into doing more of a business plan than what you need. A plan can help you move forward, make decisions, and make your business successful. Not every plan is the same, not every business needs the same level of detail.
For a simple example, imagine a woman making jewelry at home and selling it at a local flea market on the weekend. A business plan could give her a chance to step back from the normal flow and look at ways to develop and improve the business. The planning process should help her understand her business. It should help her define what she wants from the business, understand what her customers want, and decide how to optimize her business on her own terms. She might benefit from developing a simple sales and expense forecast, maybe even a profit and loss, so she can plan how to use and develop her resources. She might not need to create detailed cash flow, balance sheet, and business ratios. A simple plan may be just what she needs to get going.
For an example of the very early stages of a plan, review the elements of starting a business plan in the section
The MiniPlan. This first stage of a plan focuses only on a few starter elements. The Mission Statement, Keys to Success, Market Analysis, and Break-even Analysis give you a critical head start toward understanding your business.
However, not all start-ups are that simple. Many of them need product development, packaging, retail fittings and signage, office equipment, websites, and sometimes months or even years of payroll before the sales start. Unless you're wealthy enough to finance these expenditures on your own, then you'll need to deal with bank loans or investors or both; and for that you'll need a more extensive business plan. Start-up company or not, the plan has to meet expectations.
One suggestion for getting started is to develop your plan in stages that meet your real business needs. A few key text sections might be enough to discuss the plan with potential partners and team members, as a first phase. You may well want to add a basic sales and expense forecast, leading to profit and loss, as next phase. Adding business numbers helps you predict business flow and match spending to income.
This might be an intermediate plan, incorporating a more extensive outline and business analysis as shown on the following page.
Ultimately, the choice of plan isn't based as much on the stage of business as it is on the type of business, financing requirements, and business objective. Here are some important indicators of the level of plan you'll need, even as a start-up:
• Some of the simpler businesses keep a plan in the head of the owner, but every business has a plan. Even a one-person business can benefit from creating a plan document with ideas written down, because the process is valuable. The exercise of producing a plan is a useful process.
• As soon as a second person is involved, the need for planning multiplies. The plan is critical for communicating values, goals, strategies, and detailed implementation.
• As soon as anybody outside the company is involved, then you have to provide more information. When a plan is for internal use only, you may not need to describe company history and product features, for example. Stick to the topics that add value, that make you think, that help support decisions. When you involve people outside the company, then you need to provide more background information as part of the plan.
Simplified Business Plan Outline
• For discussion purposes, text is enough to get a plan started. Try describing your mission, objective, keys to success, target market, competitive advantage, and basic strategies. How well does this cover your business idea?
• Can you live without a sales and expense forecast? Sometimes the one-person business keeps numbers in its (the owner's) head. However, it's much easier to use tools that can put the numbers in front of you, and add and subtract them automatically. That's where a plan helps.
• Do you really know your market? A good market analysis can help you see opportunities that might not otherwise be obvious. Understand why people buy from you. What are the needs being served? How many people are out there, as potential customers?
• Do you manage significant amounts of inventory? That makes your cash management more complicated, and usually requires a more sophisticated plan. You need to buy inventory before you sell it.
• Do you sell on credit? If you are a business selling to businesses, then you probably do have to sell on credit, and that normally means you have to manage money owed to you by your customers, called accounts receivable. Making the sale is no longer the same thing as getting the money. That usually requires a more sophisticated plan.
• Do you do your taxes on a cash basis, or accrual basis? If you don't know, and you are a very small (one person, maybe 2-3 people) business, then you're likely to be on a cash basis. That makes your planning easier. However, most businesses big enough to work with a CPA and have separate tax statements use accrual accounting because they want to deduct expenses as they are incurred, even if they aren't fully paid for. By the time you are using accrual accounting, you'll probably need more sophisticated cash flow tools, and a more extensive business plan.
• As you approach banks and other lending institutions, expect to provide more detail on personal net worth, collateral, and your business' financial position. Some banks will accept a very superficial business plan as long as the collateral looks good. Others will demand to see detailed monthly projections. No bank can lend money on a business plan alone; that would be against banking law. But a good bank wants to see a good plan.
• If you're looking for venture investment, take a good look at your plan. Professional investors will expect your plan to provide proof, not just promises. They'll want to see market data, competitive advantage, and management track records. They'll want to see robust and comprehensive financial projections. True, you'll hear stories about investors backing new companies without a plan, but those are the exceptions, not the rule.
So, however you cut it, your business plan is very important, even at the early start-up stage, and even if you can keep it in your head. Before you purchase business stationery, telephones, or rent a location, you should do a business plan.
Realistic Start-up Costs
Businesses spend money before they ever open their doors. Start-up expenses are those expenses incurred before the business is running. Many people underestimate start-up costs and start their business in a haphazard, unplanned way. This can work, but is usually a harder way to do it. Customers are wary of brand new businesses with makeshift logistics.
Use a start-up worksheet to plan your initial financing. You’ll need this information to set up initial business balances and to estimate start-up expenses, such as legal fees, stationery design, brochures, and others. Don’t underestimate costs.
Illustration 4-1 reproduces a typical Start-up table for a home office, service business—in this case a resume writing service. The assumptions used in this illustration show how even simple, service-based businesses need startup money.
Understand the Risks
I’ve spent many years as an entrepreneur and working with entrepreneurs. I understand and sympathize with the urge to create something, to build your own and make it work. However, I’ve also seen the disaster of the business start-up that absorbs more money than it should, and optimistic owners who keep dumping more money into a lost cause, digging themselves deeper into a hole instead of getting out of it.
The following illustrations outline the start-up costs for three different companies. The first, Illustration 4-2, shows actual numbers for a successful service company. Illustration 4-3 shows a successful product company, and Illustration 4-4 shows a failed product company.
Illustration 4-5 is a chart of all of these start-up companies. The lines indicate the cumulative balance for each business. This balance stands for how much money is spent or received, and how much money is at risk.
Both the successful and the failed product company launches look the same in the beginning. The successful launch turns upward and generates money, but the unsuccessful launch never does. The service company, in contrast, generates less money but also risks less money.
The chart in Illustration 4-5 makes two important points about money at risk in different kinds of businesses:
• Product businesses usually require more investment than service businesses.
•“Bootstrapping” (starting the business without start-up capital) is much harder for product businesses than service businesses.
Friends and Family Funding
If I could make only one point with budding entrepreneurs, it would be that you should know what money you need, and understand that it is at risk. Don’t bet money you can’t afford to lose. Know how much you are betting.
I’ll always remember a talk I had with a man who had spent 15 years trying to make his sailboat manufacturing business work, achieving not much more than aging and more debt. “If I can tell you only one thing,” he said, “it is that you should never take money from friends and family. If you do, then you can never get out. Businesses sometimes fail, and you need to be able to close it down and walk away. I wasn’t able to do that.”
The story points out why the U.S. government securities laws discourage getting business investments from people who aren't wealthy, sophisticated investors. They don't fully understand how much risk there is. If your parents, siblings, good friends, cousins, and in-laws will invest in your business, they have paid you an enormous compliment. Please, in that case, make sure that you understand how easily this money can be lost, and that you make them understand as well.
Although you don't want to rule out starting your company with investments from friends and family, don't ignore some of the disadvantages. Go into this relationship with your eyes wide open.
Licenses, Permits, and Legal Entities
See an Attorney Make sure you know which legal steps you must take to be in business. I'm not an attorney, and I don't give legal advice. I do strongly recommend working with an attorney to go through the details of your company's legal establishment, licenses, and other items covered here. By including this information in this book, I don't mean to imply you should do it yourself.
The trade-offs involved in incorporation vs. partnership vs. other forms of business are significant. Small problems developed at the early stages of a new business can become horrendous problems later on. The cost of simple legal advice in this regard is almost always worth it. Starting a company should not involve a major legal bill except in special cases. Don't skimp on legal costs.
Licenses and Permits are Usually Local Issues
It's hard to generalize on licenses and permits, because some of these depend on where you are, and some depend on what you do. When in doubt, you should check with local sources. If you don't want to go straight to the local government and ask your questions directly, then ask at a Chamber of Commerce, or Small Business Development Center (SBDC).
For example, many cities have zoning laws that define where you can put retail stores, office space, and industries. Few of these affect the small home-based business, but it's not unusual to have zoning laws prohibit signs on lawns or houses.
Some types of businesses require local or state licenses. This depends on where you are, but businesses including daycare, hair care, food service, and of course bars and nighclubs often require special licenses.
Resale Licenses and Sales Taxes
In states that have sales tax, state authorities manage a system that sets reseller businesses into a special category, so they don't have to pay sales taxes on items they buy for resale. The required paperwork and the state offices that manage it are different in many states, so you'll have to ask state offices for your state as you establish your business.
Taxpayer ID and Employer Numbers
Employer ID numbers (EIN) are assigned by the IRS and state tax authorities. If you don't have employees and you haven't established a corporation, then your Social Security number is your federal taxpayer ID. If you've established a corporation or you have employees, then you must have a federal EIN, which is assigned by the federal IRS. In most states, the state assigns a separate state number.
The Business Entity
The pros and cons of different business formations are worth understanding. They vary by state -this is not a good area for guesswork, and not a good place to save money, so please go through this with a local attorney you can trust. The following is for background information.
Although the details vary, it starts with the choice between sole proprietorship, partnership, corporation, or the more trendy Limited Liability Company, LLC. Within the corporation classification you have additional choices, between the standard corporation or the small business S corporation.
The Simplest Form is the Sole Proprietorship
The simplest form is the sole proprietorship. Simply put, your business is a sole proprietorship if you don't create a separate legal entity for it. This is true whether you operate it in your own name, or under a trade name. If it isn't your own name, then you register a company name as a "Fictitious Business Name," also called a DBA ("Doing Business As"). Depending on your state, you can usually obtain this through the county government, and the cost is no more than a small registration fee plus a required newspaper ad, for a total of less than $100 in most states.
The main disadvantage of the sole proprietorship is the lack of a separate entity, which means you have personal responsibility for it. If the business fails then its creditors can go after your personal assets.
Tax treatment is quite simple, your profit and loss goes straight through to your personal taxes. Your business income is normally on Schedule C of your tax return. This can be good or bad for your tax situation, depending on where you stand with other income.
Partnerships
Partnerships are harder to describe because they change so much. They are governed by state laws, but a Uniform Partnership Act has become the law in most states. That act, however, mostly sets the specific partnership agreement as the real legal core of the partnership, so the legal details can vary widely. Usually the income or loss from partnerships pass through to the partners, without any partnership tax. The agreements can define different levels of risk, which is why you'll read about some partnerships that have general partners and limited partners, with different levels of risk for each. The agreement should also define what happens if a partner withdraws, buy and sell arrangements for partners, and liquidation arrangements if that becomes necessary.
If you think a partnership might work for your business, make sure you do this right. Find an attorney with experience in partnerships, and check for references of present and past clients. This is a complicated area and a mistake in the agreement will cause a lot of problems.
Corporations
Corporations are either the standard C corporation or the small business S corporation. The C corporation is the classic legal entity of the vast majority of successful companies in the United States. Most lawyers would agree that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owners. This is a separate legal entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree that for a company that has ambitions of raising major investment capital and eventually going public, the C corporation is the standard form of legal entity.
The S corporation is used for family companies and smaller ownership groups. The clearest distinction from C is that the S corporation's profits or losses go straight through to the S corporation's owners, without being taxed separately first. In practical terms, this means that the owners of the corporation can take their profits home without first paying the corporation's separate tax on profits, so those profits are taxed once for the S owner, and twice for the C owner. In practical terms the C corporation doesn't send its profits home to its owners as much as the S corporation does, because it usually has different goals and objectives. It often wants to grow and go public, or it already is public. In most states an S corporation is owned by a limited number (25 is a common maximum) of private owners, and corporations can't hold stock in S corporations, just individuals.
Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You'll almost always want to have your CPA, and in some cases your attorney, guide you through the legal requirements for switching.
LLC (Limited Liability Company)
Be careful with this one, because the LLC form is different for different states, with advantages in some states that aren't relevant in others. An LLC is usually a lot like an S corporation, a combination of some limitation on legal liability and some favorable tax treatment for profits and transfer of assets. This is a newer form of legal entity, and often harder to establish than a corporation.
Why would you establish an LLC instead of a corporation? That's a tough legal question, not one we can answer here. In general, the LLC has to be missing two of the four characteristics of a corporation (limited liability, centralized management, continuity of life, and free transferability of ownership interest). Still, with the advisability and advantages varying from state to state, here again, this is a question to take to a good local attorney with small business experience.
Business Names, Trademarks, Copyrights, etc.
The two concerns for start-up business names are the legal requirements, and the commercial use. We are talking about the name of your business, in this section, not your trademarks, or service marks, logos, or slogans. We are not attorneys, we do not give legal advice, so be sure to check with an attorney early on as you build your business. Trademark law protects product names, logos, trade names, even some slogans as trademarks or service marks. Copyright law protects works or art, fiction, movies, art, sculpture, and other creative works. Business law, however, does not fully guarantee you the exclusive use of your business name. To get close to exclusivity, you have to be first, you have to be national, and you have to be alert.
Owning and Establishing a Business Name
The most common misunderstanding about business names is about registering, protecting, and reserving business names. You can't reserve a business name completely, you can't have exclusive use. Think of a business name as a lot like a personal name, in that the first or oldest John Smith cannot claim exclusive use of that name. He can't make all the other John Smiths change their names. So too, the first Smith's Restaurant can't stop all other Smith Restaurants from using that same name. McDonald's Hamburgers can't make McDonald's Hardware Store change its name, and McDonald's Hardware Store in Manhattan can't sue McDonald's Hardware Store in San Francisco.
However, just as you have rights to your own identity, so does your company. One John Smith can sue another John Smith for using his identity, having bills sent to the wrong address, or purposely confusing people. McDonald's Hamburgers can sue just about anybody trying to use McDonald's for a business selling fast foods.
The confusion starts because business names are registered by different authorities in different places, and on different levels.
• The first and simplest business name is your own name, which might be enough for John Smith using Smith Consulting or hosting Smith's Restaurant. This kind of business name normally requires no additional paperwork, although most business owners end up registering a name anyhow to establish their legal claim to it.
• The second normal common level of business names is called DBA (for "Doing Business As") or Fictitious Business Name, which gives an individual the right to operate under a business name with signs, bank accounts, checks, and so on. These are generally registered and legalized by county governments within states. There might be a McDonald's Hardware Store as a DBA in many counties within a given state, and across many different states. To register a business with a fictitious business name, call your county government for details. You can expect that you'll have to visit an office in the county government, pay a fee of less than $100, and do some legal advertising, also less than $100, probably using forms you can fill out in the same office. Somebody will probably look up the registry to make sure that yours is the first business in the county with that name. Details will actually vary depending on which county you're in.
• The third level is the corporation, regardless of its various corporate entities. Whether they are S Corporations, C Corporations, LLCs, or whatever, a corporation is registered at the state level and no two can have the exact same name in each state. However, there is no guarantee that there won't be many businesses registered as McDonald's Hardware Store in several counties in a state, and a corporation registered as McDonald's Hardware Corporation. This kind of duplication happens. To establish a corporation,
Even though duplicate business names are very possible, and quite common, you do still have the right to protect and defend you own business name, once you've built the business around it. The key to this is confusion and confusing identity. As we said above, one John Smith can sue another John Smith for purposely confusing their identities. So too, McDonald's Hamburgers can and should sue anybody who starts a new restaurant named McDonald's serving fast foods.
On this point, when one business is confused with another, being first matters. When somebody tries to establish a second McDonald's Hardware where it would confuse people with the first, then the first McDonald's has a legal right to prevent it. If the second store puts up a sign, then the first store should take quick legal action to stop it. The longer the first store ignores the second, the better the case of the second store. When the whole mess goes to court, the first one to use the name is likely to win, but if the first one sat quietly while the other one built the name, then there is more doubt. An existing business should always watch out for people using the same or confusingly similar names, because the sooner it complains, the better for its legal arguments.
Researching Whether a Name is Available
So you see you can't absolutely guarantee that nobody has the name you want, but you can at least try. The fastest and simplest way to start researching a name is to do an Internet search. Search about half a dozen of your favorite searchers and see whether or not the name you’re considering is already taken. You don't want to name a business with a name that can cause problems later, because it confuses you with other businesses. That's obvious, but how do you research a name to make sure there won't be a conflict? There is no single sure way, but here are some suggestions: • Search the Web. Start with your favorite searches and see whether anything turns up on the company name you're considering. You can also go to the U.S.
• Search the Internet domain names. There are several searchers that offer access to the "whois" database of Internet sites. The most traditional site for this is the one at Network Solutions.
• See an attorney. Since you probably want to talk to an attorney about the correct business entities and other startup matters, you may also ask your attorney about checking on business names. Generally you want to do your own check first to catch any obvious conflicts.
Ultimately, you really protect your business name only by using it. Corporations are registered by states, and factitious business names are registered in counties. Registering a name doesn't really protect it though, because the same name could legally exist in many other states, many other counties. You could be Acme Corporation in Illinois and legally own that corporation in that state, but there could be another Acme Corporation in every other state, and every one of them is legal until you win a lawsuit proving that they are trading on the commercial interests you own. When you really get protection is when you use that name, and therefore when you find somebody else using it you can prove that you had it first, so they are trading on your name. There are lots of McDonald's restaurants around, and McDonald's can't stop them from using that name if they had it early enough, and especially if they aren't pretending to be a fast food hamburger joint. The attempt to confuse is very important.
Choosing a Business Name
The choice of a business name is very important, worth taking time to develop. Don't end up with a name that you can't live with. Look for something that describes your business, is easy to explain, fits on the signs, and works.
Social Responsibility of Business
Discuss and provide several examples of each of the two main responsibilities of a business communicator.
Whenever you speak or write in a business environment, you have certain responsibilities to your audience, your employer, and your profession. Your audience comes to you with an inherent set of expectations that you will fulfill these responsibilities. The specific expectations may change given the context or environment, but two central ideas will remain: be prepared, and be ethical.
Communicator Is Prepared
As the business communicator’s first responsibility, preparation includes several facets which we will examine: organization, clarity, and being concise and punctual. Being prepared means that you have selected a topic appropriate to your audience, gathered enough information to cover the topic well, put your information into a logical sequence, and considered how best to present it. If your communication is a written one, you have written an outline and at least one rough draft, read it over to improve your writing and correct errors, and sought feedback where appropriate. If your communication is oral, you have practiced several times before your actual performance.
The Prepared Communicator Is Organized
Part of being prepared is being organized. Aristotle called this logos, or logic, and it involves the steps or points that lead your communication to a conclusion. Once you’ve invested time in researching your topic, you will want to narrow your focus to a few key points and consider how you’ll present them. On any given topic there is a wealth of information; your job is to narrow that content down to a manageable level, serving the role of gatekeeper by selecting some information and “de-selecting,” or choosing to not include other points or ideas.
You also need to consider how to link your main points together for your audience. Use transitions to provide signposts or cues for your audience to follow along. “Now that we’ve examined X, let’s consider Y” is a transitional statement that provides a cue that you are moving from topic to topic. Your listeners or readers will appreciate your being well organized so that they can follow your message from point to point.
The Prepared Communicator Is Clear
You have probably had the unhappy experience of reading or listening to a communication that was vague and wandering. Part of being prepared is being clear. If your message is unclear, the audience will lose interest and tune you out, bringing an end to effective communication.
Interestingly, clarity begins with intrapersonal communication: you need to have a clear idea in your mind of what you want to say before you can say it clearly to someone else. At the interpersonal level, clarity involves considering your audience, as you will want to choose words and phrases they understand and avoid jargon or slang that may be unfamiliar to them.
Clarity also involves presentation. A brilliant message scrawled in illegible handwriting, or in pale gray type on gray paper, will not be clear. When it comes to oral communication, if you mumble your words, speak too quickly or use a monotonous tone of voice, or stumble over certain words or phrases, the clarity of your presentation will suffer.
Technology also plays a part; if you are using a microphone or conducting a teleconference, clarity will depend on this equipment functioning properly—which brings us back to the importance of preparation. In this case, in addition to preparing your speech, you need to prepare by testing the equipment ahead of time.
The Prepared Communicator Is Concise and Punctual
Concise means brief and to the point. In most business communications you are expected to “get down to business” right away. Being prepared includes being able to state your points clearly and support them with clear evidence in a relatively straightforward, linear way. It may be tempting to show how much you know by incorporating additional information into your document or speech, but in so doing you run the risk of boring, confusing, or overloading your audience. Talking in circles or indulging in tangents, where you get off topic or go too deep, can hinder an audience’s ability to grasp your message. Be to the point and concise in your choice of words, organization, and even visual aids.
Being concise also involves being sensitive to time constraints. How many times have you listened to a speaker say “in conclusion” only to continue speaking for what seems like forever? How many meetings and conference calls have you attended that got started late or ran beyond the planned ending time? The solution, of course, is to be prepared to be punctual. If you are asked to give a five-minute presentation at a meeting, your coworkers will not appreciate your taking fifteen minutes, any more than your supervisor would appreciate your submitting a fifteen-page report when you were asked to write five pages. For oral presentations, time yourself when you rehearse and make sure you can deliver your message within the allotted number of minutes.
There is one possible exception to this principle. Many non-Western cultures prefer a less direct approach, where business communication often begins with social or general comments that a U.S. audience might consider unnecessary. Some cultures also have a less strict interpretation of time schedules and punctuality. While it is important to recognize that different cultures have different expectations, the general rule holds true that good business communication does not waste words or time.
Communicator Is Ethical
The business communicator’s second fundamental responsibility is to be ethical. Ethics refers to a set of principles or rules for correct conduct. It echoes what Aristotle called ethos, the communicator’s good character and reputation for doing what is right. Communicating ethically involves being egalitarian, respectful, and trustworthy—overall, practicing the “golden rule” of treating your audience the way you would want to be treated.
Communication can move communities, influence cultures, and change history. It can motivate people to take stand, consider an argument, or purchase a product. The degree to which you consider both the common good and fundamental principles you hold to be true when crafting your message directly relates to how your message will affect others.
The Ethical Communicator Is Egalitarian
The word “egalitarian” comes from the root “equal.” To be egalitarian is to believe in basic equality: that all people should share equally in the benefits and burdens of a society. It means that everyone is entitled to the same respect, expectations, access to information, and rewards of participation in a group.
To communicate in an egalitarian manner, speak and write in a way that is comprehensible and relevant to all your listeners or readers, not just those who are “like you” in terms of age, gender, race or ethnicity, or other characteristics.
In business, you will often communicate to people with certain professional qualifications. For example, you may draft a memo addressed to all the nurses in a certain hospital, or give a speech to all the adjusters in a certain branch of an insurance company. Being egalitarian does not mean you have to avoid professional terminology that is understood by nurses or insurance adjusters. But it does mean that your hospital letter should be worded for all the hospital’s nurses—not just female nurses, not just nurses working directly with patients, not just nurses under age fifty-five. An egalitarian communicator seeks to unify the audience by using ideas and language that are appropriate for all the message’s readers or listeners.
The Ethical Communicator Is Respectful
People are influenced by emotions as well as logic. Aristotle named pathos, or passion, enthusiasm and energy, as the third of his three important parts of communicating afterlogos and ethos.
Most of us have probably seen an audience manipulated by a “cult of personality,” believing whatever the speaker said simply because of how dramatically he or she delivered a speech; by being manipulative, the speaker fails to respect the audience. We may have also seen people hurt by sarcasm, insults, and other disrespectful forms of communication.
This does not mean that passion and enthusiasm are out of place in business communication. Indeed, they are very important. You can hardly expect your audience to care about your message if you don’t show that you care about it yourself. If your topic is worth writing or speaking about, make an effort to show your audience why it is worthwhile by speaking enthusiastically or using a dynamic writing style. Doing so, in fact, shows respect for their time and their intelligence.
However, the ethical communicator will be passionate and enthusiastic without being disrespectful. Losing one’s temper and being abusive are generally regarded as showing a lack of professionalism (and could even involve legal consequences for you or your employer). When you disagree strongly with a coworker, feel deeply annoyed with a difficult customer, or find serious fault with a competitor’s product, it is important to express such sentiments respectfully. For example, instead of telling a customer, “I’ve had it with your complaints!” a respectful business communicator might say, “I’m having trouble seeing how I can fix this situation. Would you explain to me what you want to see happen?”
The Ethical Communicator Is Trustworthy
Trust is a key component in communication, and this is especially true in business. As a consumer, would you choose to buy merchandise from a company you did not trust? If you were an employer, would you hire someone you did not trust?
Your goal as a communicator is to build a healthy relationship with your audience, and to do that you must show them why they can trust you and why the information you are about to give them is believable. One way to do this is to begin your message by providing some information about your qualifications and background, your interest in the topic, or your reasons for communicating at this particular time.
Your audience will expect that what you say is the truth as you understand it. This means that you have not intentionally omitted, deleted, or taken information out of context simply to prove your points. They will listen to what you say and how you say it, but also to what you don’t say or do. You may consider more than one perspective on your topic, and then select the perspective you perceive to be correct, giving concrete reasons why you came to this conclusion. People in the audience may have considered or believe in some of the perspectives you consider, and your attention to them will indicate you have done your homework.
Being worthy of trust is something you earn with an audience. Many wise people have observed that trust is hard to build but easy to lose. A communicator may not know something and still be trustworthy, but it’s a violation of trust to pretend you know something when you don’t. Communicate what you know, and if you don’t know something, research it before you speak or write. If you are asked a question to which you don’t know the answer, say “I don’t know the answer but I will research it and get back to you” (and then make sure you follow through later). This will go over much better with the audience than trying to cover by stumbling through an answer or portraying yourself as knowledgeable on an issue that you are not.
The “Golden Rule”
When in doubt, remember the “golden rule,” which says to treat others the way you would like to be treated. In all its many forms, the golden rule incorporates human kindness, cooperation, and reciprocity across cultures, languages, backgrounds and interests. Regardless of where you travel, who you communicate with, or what your audience is like, remember how you would feel if you were on the receiving end of your communication, and act accordingly.
Business Organisation
The second element of managing business development successfully relates to the organising logic through which business development is delivered.
During the course of our work, we have experienced many different kinds of organising logics for business development functions. We have seen
o Diversified conglomerates with both corporate and divisional business development functions as well as large- scale in-house project and programme offices
o Large global corporations with only one business developer acting as the analytical mind of the CEO and organised as a board secretariat
o Medium-sized Scandinavian companies with large teams of business developers with a skill base ranging from business management, corporate finance to legal profiles
o Small start-ups with 4-5 assigned senior industry specialists or subject matter experts organised with direct report to the top management.
1. Organising business developers
Organising a business development unit requires attention to many factors. Not only the hierarchical position in the organisation must be considered when figuring out how to organise or reorganise a business development unit. We have found that the following organising levers are necessary to attend to
o The modus operandi of the unit: a fixed vs. a mobile unit that moves around and changes in form from project to project
o The relation to the organisation: a centralised vs. a decentralised unit that is aligned with a division or SBU
o The interplay with the rest of the organisation: a stand-alone vs. integrated unit that collaborates closely with the rest of the organisation
o The role in the strategy management process: a direct involvement in the strategy management process vs. an indirect participation.
The following examples illustrate how these levers are used in practice to organise for business development.
Examples from current organising practices
Company A – a supplier of aircraft spare parts
Previously, business development resources were anchored locally market by market and driven by a strong desire to ensure organic sales growth market by market. But it was later recognised that business development would deliver more value if organised to work across business units and engage in the strategic planning process. Today, it is a 20-20-60 work load split. 20% of the time spent on managing the annual strategic planning process, 20% of the time spent evaluating investments and acquisition targets and 60% of the time spent executing projects.
Company B – a pharmaceutical company
Top management recognised that future growth was highly dependent on the ability to in-license, acquire or obtain preferential rights to new biopharmaceutical innovations due to patents becoming obsolete and R&D pipeline drying out. A business development unit of 55 FTEs was defined with the purpose of analysing and integrating new biopharmaceutical products, and a corporate business development unit managing the M&A activities in the core business was also defined.
After two years of operation, top management recognised a clear disconnect between the corporate strategy process, the in-licensing activities being pursued and the execution of defined strategic initiatives in the core business. They decided to re-organise business development and make clearer distinctions between Strategic Business Development (SBD), Licensing & Patents (L&P) and Strategy Implementation & Execution (SIE).
Today, an effective organising logic has been defined, assigning distinct roles and responsibilities linked to the corporate strategy. In effect, three different organisational units drive business development activities – SBD is responsible for corporate level strategy design and orchestration; L&P is responsible for pursuing defined licensing and acquisition activities, and SIE is responsible for acting as a focal point for executing strategic projects in close co-operation with corporate IT, HR and other support functions.
Company C – a multi-line financial institution
Having pursued a range of domestic and foreign acquisitions, top management recognised that the bank needed to roll out a consistent IT platform and retail concept across its many branches.
The issue was defined as the number one strategic priority for the next five years in order to successfully integrate the acquisitions and realise the economies of scale and scope defined in the acquisition business cases. To accelerate the corporate-wide integration process and define the strategic baseline for future customer service and selling, a multi-skilled team of in-house consultants was organised into a corporate business development unit with direct report to top management.
The new corporate business development unit's purpose was to co-ordinate the making of the strategy that would enable the bank to realise its full potential by effectively migrating both existing and new brands to a "one system, one concept" model and provide the necessary implementation power and expertise to make this happen.
2. Organising logics in a BDM-context
Studying the different cases closely has led us to conclude that there are certain logics for organising business development that determine the nature of business development practices today. These are depicted in the figure below.
The following characteristics are typical for the four types of organising logics
o In the corporate support function model, we typically see a need for a broad representation of competences – from M&A capabilities to business consulting skills and legal expertise. We often find that these types of business development units are comprised by teams of 2-10 "in-house consultants" with a license to operate on both the corporate (strategic) and the organisational (execution) level acting as both specialists and generalists
o In the division support function model (SBU support model), we find small units of 1-3 people acting in effect as subject or industry matter experts. Their prime responsibility is to fuel the SBU strategy agenda and assist the organisation in executing strategic initiatives and analysing new business opportunities. The dominant skill set required is a combination of industry insight and strong business acumen
o In the permanent project organisation model ,we witness the organic mode of operation for managing business development. In this organising model, a team of dedicated project resources is charged with assisting the organisation in delivering defined organisational change programmes. The business development unit operates as a virtual unit with the potential to act as both a generalist and a specialist on various tasks. We label it the permanent project organisation because of its adaptive (as in projects) and permanent (as in structure) nature
o Finally, in the outsourced business development model, we find a mode of operation that does not necessarily favour a strong link between strategy and execution, but a model that is highly favourable to large organisations lacking the necessary power to execute. In this model, business development is synonymous with execution. Teams of capable project resources are organised into distinctly defined teams delivering e.g. IT implementation, process improvements and the like
In either way of organising, business development is representative for a conscious choice of best modus operandi, given the strategic agenda and organisational context. Through our experience, we have seen how one type of organisation works in one company but is less successful in another.
These four logics are all prevalent among business development practices today. However, what we have experienced as the most efficient one in ensuring that business development is "managed and integrative" is the logic of the corporate support function, allowing business development to act as the connecting link between top management and the line organisation. Similarly, business development can become the centre of gravity for capturing and qualifying new ideas for the organisation.
"In either way of organising, business development is representative for a conscious choice of best modus operandi, given the strategic agenda and organisational context"
The corporate support function explicitly emphasises the close relation to top management while allowing for the mobility needed to move across the organisation. It is implied in the logic that the business development unit may have closer relation to some units than others – and that these relations may change over time.
3. Guidelines for organising a business development unit
An important conclusion about the organising logic of business development activities is that there is no "one size, fits all" solution to organising business development. Instead, business development activities should be organised to best serve a specific purpose defined by the strategic priorities of the company. Due to the specific needs of a managed and integrated business development unit, the following precautions must be considered when organising for business development.
1. Place the unit close to the management of the company or the SBU
‒ act as a focal point for bridging the gap between strategy and execution
2. Charge the unit with the necessary resources and capabilities
‒ act as a catalyst, a facilitator and a driver for change
3. Allow the unit to transform over time
‒ respond effectively to the strategic agenda
Business Development Manager
While still touching virgin ground, a recurrent problem for many business developers is to define and delimitate their roles and responsibilities. We have heard many business developers complain about the fact that they are drowning in non-strategic fire fighting or have become problem solvers for the CEO – in effect operating as an advanced corporate secretariat.
This happens because many businesses fail to properly define an organisational context for the business development function. Even the most talented, experienced and self-motivated employees have a need for well-defined tasks, roles and responsibilities as well as a suitable organising logic and governance structure to be able to deliver what is expected.
In essence, what is happening in many companies investing in business development is that they have not asked themselves: "if business development is the answer, what is the question?" Or alternatively: "is there a need for a business development function in our company?" And if yes; "what type of tasks would we like to perform?"
When business developers are organised within a non-existing logic with no clear mandate or license to operate and with little guiding purpose from top management, both small and large scale business development units fail. They do not fail to deliver on promise, because no promise has been made. They do not fail to deliver impact in the organisation, because the organisation may not be aware of their existence. And they do not fail to engage in coordinating the strategy planning process, because top management never saw it as one of the real values of investing in business development.
They fail because they wear out and become disoriented. They fail because they deteriorate and lose their meaning. They fail because they are not managed.
In this chapter, we will look at what it takes to manage business development in different organisations. Specifically, we will look at
A. The roles and responsibilities of business development – because business development means different things to different organisations
B. The organising logic of business development – because business development functions are designed to purpose
C. The professional competences and people skills needed – because no single person possesses all qualifications needed to succeed
D. The performance measurement of business development – because business development is under pressure to document results
The first and most important element in managing business development is to define what the unit is to be responsible for and the role it should play within the organisation. Clarifying responsibilities and roles will help adjust and align expectations while making it possible to hold the unit accountable and measure its performance.
In many companies, business development units are not held accountable for anything. Far too often, business development units operate according to a loosely defined list of ad hoc tasks such as trend spotting, competitor surveillance, market analyses and business case work, which other people in the organisation are accountable for delivering.
Through our research, we have found that business development typically fulfil either one or a combination of the areas of responsibility outlined in the figure on the right, depending on the strategic priorities of the company.
Some business development functions are strongly biased towards identifying new business in new territories (quadrant 1) and have a high degree of orientation towards the market. The role they play is to pick up on new business ideas either in the market place or from within the organisation. They analyse these and incorporate them into the strategy management process.
Other business development functions are more biased towards working with evaluating investments or divestments to improve the overall portfolio of business activities (quadrant 2). Their work typically focuses on improving existing market positions and improving the company's competitiveness and market share within already-defined businesses.
Another grouping of business development functions is predominantly biased towards improving existing business performance from within (quadrants 3 and 4). They are typically engaged with evaluating the potentials of new business models or analysing and delivering the needed process improvements and organisational changes to lift performance and margins in existing business activities.
"Business developers must think, not act, like the CEO." This short but precise statement was the key message from Niels B. Christiansen, CEO of Danfoss, at a lecture on business development management. The message is important. Not because it is stated by a highly successful former business development manager that has now turned CEO, but because it entails the essence of the role that business development should play in modern organisations.
A CEO acts on behalf of the organisation and is able to effectively define new strategic objectives, formulate supporting strategies, translate these into their operational consequences and oversee their execution.
A good business development unit does the exact same thing: applies analytical rigour, speed of mind and powerful execution and brings about the evidence and missing links that effectively bridge the gap between strategy and execution. Similarly, the business development unit acts as a catalyst for surfacing new strategic options for the company and presents these facts and opportunities with a short reporting route to top management.
As such, the business development unit will in effect act as an idea centre for new business initiatives that percolate up through the organisation. Just as the CEO often does but rarely has the time and resources to further investigate, qualify and respond to.
The roles that business development units play in an organisation in relation to the tasks they carry out typically fall within one or more of the following types
o Role 1: The "strategist" – acting as the Office of Business Analysis.
o Role 2: The "executor" – acting as the Office of Strategy Implementation.
o Role 3: The "facilitator" – acting as the Office of Strategy Management.
Having depicted the possible areas of responsibility and roles within the organisation that a business development unit may play, an important recognition must be noted: business development means different things to different organisations.
Below are just a few examples of the differences in today's business development practices which underline the important point that business development is and should be designed to meet its purpose.
At FIH Erhvervsbank, the department labelled Strategic Business Development has been tasked with managing the transformation from a mono-line to a multi-service B2B bank, starting with strategy formulation, business model design and delivering defined strategic initiatives.
At Arla Foods, Business Development plays the role of in-house consultants participating alongside external consultants as analytical and facilitation resources defining and leading strategic transformation projects.
At Novo Nordisk, Strategic Business Development is concerned purely with M&A activities on the corporate level, whereas a separate entity called Business Development & Patents is engaged with in-licensing activities and smallscale biopharma acquisitions in the Novo Nordisk Biotech Fund.
At Danske Bank, Corporate Business Development – a grouping of more that 50 business developers – is predominantly engaged with concept definition and implementation as well as post-merger integration work and migration of IT platforms which tend to drive innovation in banking.
Finally, at DONG Energy, Business Development works in effect as the CEO's chief of staff taking lead on all activities related to M&A, Corporate Finance and Strategy – their results are very visible in public: the making of DONG Energy.
Evidently, these examples show great diversity of the role that business development plays in different companies and the different kinds of roles that business development units can play.
Having conducted a variety of market analyses focused on understanding future customer requirements, the dynamics of the competitive landscape and defined evidence to support the market growth pockets, business development formulated a comprehensive five-year growth programme including significant strategic investments in new product innovations, acquisitions and a complete rethinking of the global supply chain operation. The programme was defined in close collaboration with executive management and presented to the board by the CEO and hence approved.
• Conduct market analysis
• Verify potentials and define windows of opportunity
• Complete high-level due diligence on acquisition targets
• Develop detailed plans with relevant parties in the organisation
• Engage in dialogue with management and board
• Market size, growth and channel definition
• Qualified list of acquisition candidates
• Go-to-market model for each priority country
• Revised organisation set-up
• New supply chain model
• Financial and investment cases
• Detailed phased plan of action
Having approved the five-year growth programme, senior management and business development agreed on which of the specific execution projects business development should lead and which projects and targets that should be anchored with the line organisation. It was agreed that business development should take charge of all M&A activities in the plan including taking lead on mission critical projects that needed an outside perspective on best practices and rethinking. The list ended up like this.
• Lead the acquisitions of five defined companies (in close liaison with the Finance Department)
• Build and implement a new divisionalised organisation (in close liaison with line organisation)
• Redesign and implement a new supply chain model (with external consultants)
• Execute the cost-of-sales reduction programme (with external consultants)
• Orchestrate the overall execution of the programme
• New ERP implementation (IT)
• Centralisation of R&D (R&D)
• Production to China (Production)
• Relocation of physical warehouses (Supply Chain)
In the period from 2003 to 2006, the company grew its sales by a compound annual growth rate of 125%, acquired four companies and increased its earnings significantly.
The case above is a great story about the role and responsibilities of successful business development at work. It also tells an important story about the necessity of defining a purpose, a role and a clear set of responsibilities for business development. In this case, the business development unit clearly liaised on an ongoing basis with senior management, the board and various organisational units to ensure effective execution. Notice also the distinction of tasks between business development and the line organisation, and notice how business development started as the analysers and architects of a growth programme and once approved went into execution mode by acting as leaders of specific change projects with overall responsibility for overseeing the totality of the programme.
As it is evident from the above, business development is not a static discipline – its role is shifting as strategic priorities shift from analysis to architects to execution and back to analysis again. And obviously, a more mature business will have other and more disperse business development needs than a start-up company. Just as the diversified conglomerate with multiple business lines will have other and more complex business development needs than the less complex, mono-line SME.
But leaving aside the complexity and dynamics, we have built a model of four archetypical types of business development at work and linked these to the areas of responsibility typically fulfilled by business development
o The "Entrepreneur" – typically found in young (2-5 years) start-up companies
o The "Commercialiser" – typically found in high-growth-driven companies
o The "All-round strategist" – typically found in large, mature corporations
o The "Turnaround manager" – typically found in companies or SBUs where turnaround is needed
As such, a business development unit may take on different roles at the same time, and it may change role from time to time.
When defining, or redefining, the areas of responsibility and role within the organisation, the following checkpoints are useful to keep in mind
• Is the role of the unit clear and communicated to its stakeholders?
• Is the area of responsibility clearly defined and delimitated?
• Are roles and responsibilities aligned with the overall strategy of the organisation?
To truly become a managed and integrated business development unit, management and business developers must spend the adequate time and resources on defining the overriding purpose, role and areas of responsibility of business development. In other words, an answer to the question: "what should be the contribution from business development in one year, three years and five years time?' is a good place to start.
All evidence supports that this is a vital starting point for any business development unit struggling to find its foothold in the organisation, and it is an excellent way for management to make the most of their investment in business development.
Read More
This happens because many businesses fail to properly define an organisational context for the business development function. Even the most talented, experienced and self-motivated employees have a need for well-defined tasks, roles and responsibilities as well as a suitable organising logic and governance structure to be able to deliver what is expected.
"Even the most talented, experienced and selfmotivated employees have a need for welldefined tasks, roles and responsibilities as well as a suitable organising logic and governance structure to be able to deliver what is expected"
When business developers are organised within a non-existing logic with no clear mandate or license to operate and with little guiding purpose from top management, both small and large scale business development units fail. They do not fail to deliver on promise, because no promise has been made. They do not fail to deliver impact in the organisation, because the organisation may not be aware of their existence. And they do not fail to engage in coordinating the strategy planning process, because top management never saw it as one of the real values of investing in business development.
They fail because they wear out and become disoriented. They fail because they deteriorate and lose their meaning. They fail because they are not managed.
In this chapter, we will look at what it takes to manage business development in different organisations. Specifically, we will look at
A. The roles and responsibilities of business development – because business development means different things to different organisations
B. The organising logic of business development – because business development functions are designed to purpose
C. The professional competences and people skills needed – because no single person possesses all qualifications needed to succeed
D. The performance measurement of business development – because business development is under pressure to document results
The role and responsibility of business development
The first and most important element in managing business development is to define what the unit is to be responsible for and the role it should play within the organisation. Clarifying responsibilities and roles will help adjust and align expectations while making it possible to hold the unit accountable and measure its performance.
The responsibility of business development
In many companies, business development units are not held accountable for anything. Far too often, business development units operate according to a loosely defined list of ad hoc tasks such as trend spotting, competitor surveillance, market analyses and business case work, which other people in the organisation are accountable for delivering.
Through our research, we have found that business development typically fulfil either one or a combination of the areas of responsibility outlined in the figure on the right, depending on the strategic priorities of the company.Some business development functions are strongly biased towards identifying new business in new territories (quadrant 1) and have a high degree of orientation towards the market. The role they play is to pick up on new business ideas either in the market place or from within the organisation. They analyse these and incorporate them into the strategy management process.
Other business development functions are more biased towards working with evaluating investments or divestments to improve the overall portfolio of business activities (quadrant 2). Their work typically focuses on improving existing market positions and improving the company's competitiveness and market share within already-defined businesses.
"Business developers must think, not act, like the CEO"
Another grouping of business development functions is predominantly biased towards improving existing business performance from within (quadrants 3 and 4). They are typically engaged with evaluating the potentials of new business models or analysing and delivering the needed process improvements and organisational changes to lift performance and margins in existing business activities.
For any company seeking to reap the full benefits of investing in business development, it is pivotal that the area of responsibility is clearly articulated and defined.
The role of business development
"Business developers must think, not act, like the CEO." This short but precise statement was the key message from Niels B. Christiansen, CEO of Danfoss, at a lecture on business development management. The message is important. Not because it is stated by a highly successful former business development manager that has now turned CEO, but because it entails the essence of the role that business development should play in modern organisations.
A CEO acts on behalf of the organisation and is able to effectively define new strategic objectives, formulate supporting strategies, translate these into their operational consequences and oversee their execution.
A good business development unit does the exact same thing: applies analytical rigour, speed of mind and powerful execution and brings about the evidence and missing links that effectively bridge the gap between strategy and execution. Similarly, the business development unit acts as a catalyst for surfacing new strategic options for the company and presents these facts and opportunities with a short reporting route to top management.
As such, the business development unit will in effect act as an idea centre for new business initiatives that percolate up through the organisation. Just as the CEO often does but rarely has the time and resources to further investigate, qualify and respond to.
The roles that business development units play in an organisation in relation to the tasks they carry out typically fall within one or more of the following types
o Role 1: The "strategist" – acting as the Office of Business Analysis.
o Role 2: The "executor" – acting as the Office of Strategy Implementation.
o Role 3: The "facilitator" – acting as the Office of Strategy Management.
Having depicted the possible areas of responsibility and roles within the organisation that a business development unit may play, an important recognition must be noted: business development means different things to different organisations.
Below are just a few examples of the differences in today's business development practices which underline the important point that business development is and should be designed to meet its purpose.
At FIH Erhvervsbank, the department labelled Strategic Business Development has been tasked with managing the transformation from a mono-line to a multi-service B2B bank, starting with strategy formulation, business model design and delivering defined strategic initiatives.
At Arla Foods, Business Development plays the role of in-house consultants participating alongside external consultants as analytical and facilitation resources defining and leading strategic transformation projects.
At Novo Nordisk, Strategic Business Development is concerned purely with M&A activities on the corporate level, whereas a separate entity called Business Development & Patents is engaged with in-licensing activities and smallscale biopharma acquisitions in the Novo Nordisk Biotech Fund.
At Danske Bank, Corporate Business Development – a grouping of more that 50 business developers – is predominantly engaged with concept definition and implementation as well as post-merger integration work and migration of IT platforms which tend to drive innovation in banking.
Finally, at DONG Energy, Business Development works in effect as the CEO's chief of staff taking lead on all activities related to M&A, Corporate Finance and Strategy – their results are very visible in public: the making of DONG Energy.
Evidently, these examples show great diversity of the role that business development plays in different companies and the different kinds of roles that business development units can play.
CASE How a global high-tech company managed through their strategic transformation using strategic business development as a key leverWhen a global high-tech player wanted to accelerate growth and earnings in one of their three business divisions showing promising global market conditions, business development was tasked with analysing options, defining strategies and engaging senior management and key subsidiary stakeholders to buy into the plans.
Having conducted a variety of market analyses focused on understanding future customer requirements, the dynamics of the competitive landscape and defined evidence to support the market growth pockets, business development formulated a comprehensive five-year growth programme including significant strategic investments in new product innovations, acquisitions and a complete rethinking of the global supply chain operation. The programme was defined in close collaboration with executive management and presented to the board by the CEO and hence approved.
The role of business development in the initial phases of constructing the plan was to
• Verify potentials and define windows of opportunity
• Complete high-level due diligence on acquisition targets
• Develop detailed plans with relevant parties in the organisation
• Engage in dialogue with management and board
The output from business development was
• Market size, growth and channel definition
• Qualified list of acquisition candidates
• Go-to-market model for each priority country
• Revised organisation set-up
• New supply chain model
• Financial and investment cases
• Detailed phased plan of action
Having approved the five-year growth programme, senior management and business development agreed on which of the specific execution projects business development should lead and which projects and targets that should be anchored with the line organisation. It was agreed that business development should take charge of all M&A activities in the plan including taking lead on mission critical projects that needed an outside perspective on best practices and rethinking. The list ended up like this.
Business development should
• Lead the acquisitions of five defined companies (in close liaison with the Finance Department)
• Build and implement a new divisionalised organisation (in close liaison with line organisation)
• Redesign and implement a new supply chain model (with external consultants)
• Execute the cost-of-sales reduction programme (with external consultants)
• Orchestrate the overall execution of the programme
Other projects anchored with the different corporate and line organisation units
• New ERP implementation (IT)
• Centralisation of R&D (R&D)
• Production to China (Production)
• Relocation of physical warehouses (Supply Chain)
In the period from 2003 to 2006, the company grew its sales by a compound annual growth rate of 125%, acquired four companies and increased its earnings significantly.
The case above is a great story about the role and responsibilities of successful business development at work. It also tells an important story about the necessity of defining a purpose, a role and a clear set of responsibilities for business development. In this case, the business development unit clearly liaised on an ongoing basis with senior management, the board and various organisational units to ensure effective execution. Notice also the distinction of tasks between business development and the line organisation, and notice how business development started as the analysers and architects of a growth programme and once approved went into execution mode by acting as leaders of specific change projects with overall responsibility for overseeing the totality of the programme.
Responsibilities and roles in a BDM context
As it is evident from the above, business development is not a static discipline – its role is shifting as strategic priorities shift from analysis to architects to execution and back to analysis again. And obviously, a more mature business will have other and more disperse business development needs than a start-up company. Just as the diversified conglomerate with multiple business lines will have other and more complex business development needs than the less complex, mono-line SME.
But leaving aside the complexity and dynamics, we have built a model of four archetypical types of business development at work and linked these to the areas of responsibility typically fulfilled by business development
o The "Entrepreneur" – typically found in young (2-5 years) start-up companies
o The "Commercialiser" – typically found in high-growth-driven companies
o The "All-round strategist" – typically found in large, mature corporations
o The "Turnaround manager" – typically found in companies or SBUs where turnaround is needed
Guidelines for defining the role and areas of responsibility
As the figure illustrates, defining the role and responsibilities of the business development functions entails an understanding of the purpose that the unit should meet in the organisation. Fx a start-up company's business development activities should focus on defining and understanding the market place, positioning the company, its products and services optimally and defining and implementing the business model that will yield the greatest returns to its shareholders.
The need for formalised organisational processes and strong integration between business development and the strategy management process is low, and the business developers will typically play the role as analytical capacities and strong executers.
Similarly, the larger and more mature company will need business development to be more biased towards the role of "All-round strategist" with enough capacity within the unit to fulfil all four areas of responsibility simultaneously.
"Similarly, the larger and more mature company will need business development to be more biased towards the role of "Allround strategist" with enough capacity within the unit to fulfil all four areas of responsibility simultaneously"At the other end of the spectrum we find the "Turnaround manager" where either the company or individual business units are under commercial and financial pressure. Here, the business development effort needs to be biased towards analysing the severity of the crisis, re-establish a profitable portfolio and define new and smarter ways of working. Typically, business development will play the role as being supportive of the turnaround in the form of providing fresh strategic insight, analytical power and strong execution abilities to rethink the business model, design the financial restructuring (if needed), identify the opportunities for divestment, off-shore or improve existing business activities.
As such, a business development unit may take on different roles at the same time, and it may change role from time to time.
When defining, or redefining, the areas of responsibility and role within the organisation, the following checkpoints are useful to keep in mind
• Is the role of the unit clear and communicated to its stakeholders?
• Is the area of responsibility clearly defined and delimitated?
• Are roles and responsibilities aligned with the overall strategy of the organisation?
To truly become a managed and integrated business development unit, management and business developers must spend the adequate time and resources on defining the overriding purpose, role and areas of responsibility of business development. In other words, an answer to the question: "what should be the contribution from business development in one year, three years and five years time?' is a good place to start.
All evidence supports that this is a vital starting point for any business development unit struggling to find its foothold in the organisation, and it is an excellent way for management to make the most of their investment in business development.
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