The Business Development Cycle (1/4)

Step 1: Create a hypothesis

The business-development flywheel is a single step of the business flywheel, and a cyclical process that must always be done based on customer feedback. Its usefulness scales from products, which are whole companies, to single product features in a suite of offerings.
  • First things first: Make sure you have a support network around you;
  • Answer the fundamentals for lean canvas:
    • 1.Who are the customers?
    • 2.What are their problems, needs or desires?
    • 3.How do you solve them?
    • 4.What is the value that you create for the customer?
    • 5.How do you reach the customer?
    • 6.Who do you compete with (think beyond just direct competitors – what are the current solutions that you will need to displace)?
    • 7.What are your advantages over the existing solutions?
  • Which idea to choose? Optimal stopping problem – 37% rule (You cannot be always right, but this way you will be less wrong.)

Understand what to build: Product versus services versus solution

  • Product is a tangible item that can be consumed in some way by the customer. Costs are deterministic, thus the pricing can be pre-determined and is based on usage or features. Costs scale at a lower rate than revenue. Usually requires investment upfront to then derive value later. Should always be reused with new or different customers with no or minimal changes. Usually based on engineering output.
  • Services is an intangible item that is performed to or for the customer. It can have a standard process/approach, but it does require tailoring for each individual case. Costs cannot be determined ahead of time, only work-unit rates and, at best, an estimated effort. Costs scale linearly with the revenue. Usually has low upfront setup costs. Can rarely be re-used with new or different customers. Usually based on human capital.
  • Solution is an outcome of applying a product or services to solve a customer problem. Focus is on benefits, rather than features. Pricing is based on the value created, delivered or captured, rather than costs.

Lean Canvas model

  • Two most important risks for an early business:
    • Market risk – is there a market for your product?
    • Product risk – can you actually build the product?
  • Lean Canvas is not box-ticking exercise – Only once your thoughts have been organised into a structure, can you understand what you are testing your hypothesis against
  • If you are unable to concisely define each field by distilling it into two or three bullet points, chances are that you have not yet fully understood the area and need further insight
  • The dirty business secret: most of the time, reports are initiated and paid for by the company that is praised the most in it.
  • ‘good artists copy, great artists steal’. It took a lot of energy for your competitors to be in the position they are in today – use their work as a shortcut to learning market needs, industry keywords and product metrics.
  • Identify exactly what metrics really matter to your growth and the success of the product. Then, learn how to measure them with as little noise as you can. Finally, be obsessed about constantly improving them.

Know the right incentives for sales

Jason Lemkin: A Basic Structure for a VP, Sales Comp Plan: 50/50/25+ (saastr.com link)

Cover art by: http://www.thestaffingstream.com/2019/09/13/creating-a-comp-plan-that-works/


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Flexible sales compensation structure

Sales Hacker: How to Build Effective Sales Compensation Plans for Any Customer Facing Role (saleshacker.com link)

Cover art by: https://www.lucidchart.com/blog/sales-compensation-plan


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Know what type of sales you need for your stage

Jason Lemkin: The 48 Types of VP Sales. Make Deadly Sure You Hire the Right One (saastr.com link)

Cover art by: https://www.saastr.com/the-48-types-of-vp-sales-make-deadly-sure-you-hire-the-right-one/


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How to find a cofounder

One of many ways to meet a cofounder in a more structured environment is through a company building programmes. For example, Entrepreneur First, who are “Talent Investors” – willing to invest in individuals before they have a company, or even an idea, often facilitating team building process. (medium.com link) “Entrepreneur First is the best place in the world to meet a co-founder and build a startup from scratch. If you’re talented, ambitious, and looking to found a company – EF is for you.” (joinef.com link)

First Round Review: The Founder Dating Playbook – Here’s the Process I Used to Find My Co-Founder (firstround.com link)

Appbot: The Perfect Co-founder Checklist (appbot.co link)

Cover art by: https://www.cloudways.com/blog/how-to-find-a-co-founder-for-startup/


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Structure of VC investing

Jason Lemkin: Here’s How Much Your VCs Make (saastr.com link)

Cover art by: https://www.salesforce.com/ca/blog/2016/07/steps-to-raise-venture-capital-funds.html


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Why low burn rate is important

Burn rate is the amount of money you spend in your startup at a given period (usually, a month). It includes total expenses: the cost of goods sold, R&D, sales and marketing, and general and administrative (saasholic.com link)

Investopedia: How Burn Rate Is a Key Factor in a Company’s Sustainability (investopedia.com link)

Cover art by: https://www.toptal.com/finance/financial-forecasting/startup-burn-rate


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Startup fundraising napkin

Point Nine Capital: What does it take to raise capital, in SaaS, in 2020? (medium.com link)

Point Nine Capital: What does it take to raise capital, in SaaS, in 2019? (medium.com link)

Point Nine Capital: The AI-first SaaS Funding Napkin (medium.com link)

Point Nine Capital: The Marketplace Funding Napkin 2018 (medium.com link)

Cover art by: https://medium.com/point-nine-news/what-does-it-take-to-raise-capital-in-saas-in-2019-26829debef29


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Customer profitability

Customer profitability is the profit the firm makes from serving a customer or customer group over a specified period of time, specifically the difference between the revenues earned from and the costs associated with the customer relationship in a specified period. According to Philip Kotler,”a profitable customer is a person, household or a company that overtime, yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling and servicing the customer”. The purpose of the metric is to identify the profitability of individual customers (as opposed to total company revenue or average profit per customer) as some customers can indeed be unprofitable to maintain (wikipedia.org link)

Cover art by: https://www.productplan.com/glossary/customer-acquisition-cost/


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Race to a category leader

Geoffrey Moore, Technology Speaker, The Chasm Has Evolved on why early category leadership is important (hint: majority of the market copies their peers)

David Sacks: The One Who Defines the Category Wins the Category (medium.com link)

Harvard Business Review: The Difference Between a First Mover and a Category Creator (hbr.org link)

Cover art by: https://medium.com/craft-ventures/the-one-who-defines-the-category-wins-the-category-245fee85bfbb


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