Andrew Greta's Business Development Blog

Imagine taking a fine summer walk in the rolling countryside and coming across a landscaper digging trenches with a hammer while a nearby carpenter drives nails into two-by-fours with a shovel. Sweaty brows reveal each worker’s struggle to produce results and monetize their core talent while severely handicapped by the tools each has at their disposal. Output is low in our little micro-economy as houses are built and trees are planted at a snail’s pace.

As a thoughtful observer, you casually ponder how to do a better job of aligning the talents and tools of our hapless laborers. But how? One solution to is to retrain the workers. Teach the ditch digger to frame houses and school the carpenter in tree mulching and you’ve gone a long way toward unleashing each worker’s true productive potential. However, reeducation is costly and time consuming. And even if successful, it’s a fair bet that a retrained landscaper is probably going to be a far less productive nail driver than a lifelong carpenter.

But now imagine you step in to broker a simple tool swap. Exchange the hammer for the shovel at equal value and voila! Suddenly productivity skyrockets with no cost or delay. More houses are produced each month, hourly wages are higher, and the workers’ families enjoy a higher living standard filled with gadgets and vacation time. And this isn’t some kind of zero-sum game where one player’s loss of chips at the poker table is another’s gain. Both the carpenter and the landscaper are better off as a result of the deal and true value is created by a simple alignment of assets with those who can make the most productive use out of them.

Good business deals follow a similar model of value creation. Substitute the term “asset” for “hammer”, “operating cash-flow” for “worker productivity”, and use “dollars” instead of “shovel” for your medium of exchange and you start to see the picture.

But not all deals are good ones. In fact, a recent study by the Boston Consulting Group titled “The Brave New World of M&A” concluded that “less than half of deals create shareholder value”.

To see why, you first have to realize that a typical business deal requires a buyer to pay upfront cash today for a stream of future value riddled with risk and uncertainty doled out over a long period of time. Tangible, value-creating “synergies” like cost savings, higher productivity, new innovations, and broader distribution do exist but are hard to value in absolute terms on paper and even harder to realize in the concrete world.

In a competitive market, others bidders are likely to see the same obvious value that you do driving the price of a deal up to a breakeven level. Without any unique plan to realize value above and beyond the cattle herd of market estimates -- coupled with underestimating the risks and efforts required to extract those synergies -- it’s easy to see why companies get caught up in the hype of empire building, bid furiously against more viable suitors and simply over pay.

So should we hang up our hats, stick to our knitting, and shutter the business development function? Not so fast. Good deals DO exist, but it often takes some inner soul-searching to first figure out how we can uniquely profit by our own position in a way the market doesn’t see or can’t attack.

For example, if a guy in town has a bicycle for sale and every would-be paperboy in the neighborhood has bid up the price to $80, it’s pretty clear that I’m not going to realize any additional value on the deal by paying more and slinging the same newsprint on the same doorsteps. On the other hand, if I’m the only person in town with an ice cream cooler and could make double the rate per hour hocking Jumbo Bomb Pops, I could potentially pay $100 for the cycle and STILL make a good profit from the transaction.

Which just goes to illustrate the real value of business development – searching past the obvious answers, ignoring the crowd mentality, and seeking unique sources of value. Some call this approach assessing the “strategic fit” and it isn’t the kind of skill set you can teach by recipe in a textbook. But if more than half of deals go bad, that still means almost half are good. Someone is doing it right and there are fundamental skills and concepts we can learn from the winners to be as successful as they are.

Labels: Business Development Basics

posted by Andrew Greta  # 1:01 PM 0 Comments Links to this post

The term business development (or “BD”) means different things to different organizations. For human resource departments reluctant to saddle their highly compensated rainmakers with the same moniker employed by encyclopedia peddlers and car lot attendants, BD means “sales” – landing new business from new customers. For others, BD is synonymous with “account management” – generating new and continued business from existing customers. For still others, BD is an amorphous umbrella under which organizational misfits carry out a variety of fuzzy activities from cultivating internal bureaucracies to paying lip service to “strategy” and spending lavish expense accounts under the guise of “relationship building”.

For me and many others in the field, it’s a profession and a discipline charged with driving corporate growth through acquisitions, divestitures, strategic partnerships, and licensing arrangements.

A well-tuned business development function is a powerful engine to drive corporate growth by feeding the sales channel with new business lines, products, services, and distribution channels. BD can also contribute newly acquired or licensed intellectual property to the research and new product development teams.

What BD is NOT about is recklessly "buying growth" and racking up a credenza full Lucite deal trophies that end up ultimately destroying company value. The true BD professional is an advocate for true value creation. A trusted adviser committed to finding solutions to complex problems but also a healthy skeptic of faulty reasoning and value-draining propositions.

In upcoming posts, we’ll dissect the business development process from strategy through target identification, deal origination, valuation, structuring, and negotiations from a practitioner (as opposed to academic) perspective. We’ll explode some of the myths surrounding M&A work using real-world examples in the news today. And we’ll provide a forum for discussion and resource sharing in this exciting field.

Labels: Business Development Basics

posted by Andrew Greta  # 11:31 AM 0 Comments Links to this post