Doing the right deal

Throughout the history of deal-making, folks have conceived of successful negotiations as being the ones where they “won.” Now, of course there is a place for adversarial negotiations, and of course there are times when it’s critical that you look out solely for your own company, but the types of deal that typically constitute the foundations for an early stage tech company, will usually function best when they function as a win-win long into the future.

 

For any early stage technology company, establishing the right structure and commercial basis for collaboration with key partners is critical. Attempting to use an imbalance of leverage, power, or information in closing a deal that favours you and cements a long-term partnership, is akin to building shaky foundations under a high-rise in the pacific ring of fire. It might look beautiful on the warm sunny day when it’s finished, but it’s unlikely to weather the storms. This is as true for a corporate as it is for a start-up, although both parties can be equally guilty of not always seeing this.

 

A long-term win-win is not always easy to structure, and there’s no simple solution for how to achieve it, but openness, honesty, and frank communication are a good place to start (I remember that from my wedding). If both parties genuinely understand the other’s hierarchy of intended outcomes, structuring is made considerably more simple, as is running a conceptual stress-test to see how it will handle any future tectonic shifts.

How early is too early: knowing when to engage your customer

“But we need to develop 3 phases of prototypes, go through accelerated life testing, and get 10 patents granted”. Or so go the usual protestations against early market engagement. The value of bringing partners and customers into the conversation at an early stage is often trumped by fear. “They’ll steal my technology”. “It isn’t advanced enough”. “They won’t understand it”.

There is only one thing that you need in order to commercially engage with companies; a proposition. Something to spark their interest. Let’s say you live in a very rainy country and I’ve invented the umbrella (which for some reason, no one else has figured out). If I approach you and tell you that I’ve got a solution to the downpours that blight your every day, do you think you’d be interested in talking to me? You bet you would.

What happens next? I find out what size umbrella you would like, what colour, and how much you are willing to pay. Because there’s no point in me spending 6 months and spending all my savings on an umbrella that is pink, made of wood, and costs £100 when what you wanted was red, plastic, and costs £50. No, the smartest thing I can do is make sure that I am developing the desired solution to a real problem, before I invest a significant amount of resource in doing so. Moreover, customers may be more open about the value of a solution when they’re encouraging you to create one (as opposed to negotiating over price).

Now, I don’t mean to downplay the importance of solid IP protection or reliable performance data. My point is that these are not prerequisites for starting a conversation with the company which will eventually use or distribute your technology.

These early conversations can significantly reduce market risk for emerging companies and their investors. They validate that a valuable problem is being solved. They help to shape the technology development path so that solutions are compatible with supply chains. They demonstrate demand for what you will ultimately be selling or licensing. All of this helps to avoid uncommercial development, something critical for young companies with short runways looking to maintain a competitive advantage.

Pick your champion

As an early stage technology company, the early deals done with big companies can set the course for the business for some time into the future. Getting them done is rarely simple, but the first step is to make sure you have the right champion.

It is a common misconception that because you are engaged in discussion with someone at a company, that you’re engaged with the company as a whole. It is rare that a large multinational invests all of its expertise, budgets and problems in a single individual or team, and frequently teams are empowered to solve their own problems in an economic way and encouraged to share their solutions with the group. This means that generally speaking there are multiple potential entry points into a company, and it’s wise to take advantage of this.

A second common misconception is that because an individual at a big company fully understands a specific problem or opportunity, that they truly care about solving it or grasping it. In actual fact, the vast majority of big companies have a real mix of cultures and sub-cultures meaning that even in the most board-mandated innovation-orientated environments, individuals can on occasion still get decapitated for taking undue risk or diverting themselves excessively from their day jobs to chase the prospect of a new technological Nirvana. Added to this, some people just don’t care as much as they ought to.

Large multinationals are generally constituted of complex and flowing networks of interests, perceptions and political capital. A good champion will help you to understand and navigate these very human elements, as well as support forward mapping the process to close. If they’re serious about wanting to get the deal done, then it’s in their interests to be open.

And so, at the risk of sounding like a Sunday supplement, a quick round-number checklist to help you to spot whether you have a good one. They:

 

  1. Understand what it does
  2. Understand the value of what it does
  3. Know to whom internally it has value and the nature of the problem it solves
  4. Can explain it to others
  5. Have real personal credibility
  6. Have a track record of on-boarding external technology
  7. Want to get a deal done
  8. Will empathise with your needs and work with you towards a shared goal
  9. Are frank about timing and will support sticking to an agreed timeframe
  10. Will help you to understand the process to getting a deal done, and all of the gates you need to pass through and the boxes to tick

If your primary engagement is with an individual with all of the above characteristics, great – you stand a chance of getting it done. If not, that doesn’t necessarily mean you want to jump off that horse, but it’s well worth considering getting new blood into the stable. Early technology deals should be done as much as possible from the same side of the table, focussed on benefits and structures for win-wins. A good champion works with you towards common objectives.

Getting the right champion is just the beginning, and from there on out its essential to be building your own political capital, and understanding first-hand the inner machinations of the business, but you’ll never understand it nearly as well as when you have a talented insider with aligned interests.

Garbage in, garbage out! It’s all about the process.

Have you ever been asked (or been the one asking): Why are our conversion rates so poor? If so you have probably also been asked (or asked): What can we do to improve them?

How many times has the answer been a mixture of confusion, self-defence and exasperation as to what else can be done? The team’s activity levels are high but the outcomes are poor and no one can understand why sales are not forthcoming.   Frequently this is what occurs in many start-up firms  and it is often due to the lack of a clearly defined process with distinct steps and actions that can be measured and which individually and collectively work in tandem to deliver high probability attractive leads?

Client acquisition is one of the key activities that any company regardless of size will undertake (it’s not an understatement to say that for start-ups it is the lifeblood of the firm) yet many fail to implement an efficient process for this activity and consequently end up with weak sales pipelines resulting in disappointing outcomes.  Equally important, the associated inefficient and ineffective allocation of limited resources on activities or presumed leads that result from having no process or a poor process can also lead to frustration and disillusionment amongst team members.

We recently ran a client acquisition programme in a geographic market that had previously been serviced opportunistically but which was now been given greater attention.  We employed a systematic approach to this activity and had

 

Set an objective

This may be a number of new recruits. Or it may be a new revenue amount.  Either way our experience is that without an end objective you have nothing to measure your process against and consequently will not be able to assess your performance at each stage or activity in the process vis-à-vis achieving your goal.

 

Define your Ideal Customer Profile

How can you find what you don’t know you are looking for?

The first step in developing your process is to define the characteristics and attributes of your ideal customer.  These may be both quantitative and qualitative in nature.  They may describe the size of the organisation, its structure, its culture, its buying processes and/or the markets it serves.  It should also include evidence that identifies its potential need for your products or services.  There is clearly a balance in developing this profile as you do not want the data requirements to be so burdensome that you spend excessive time researching very difficult to find information on each and every potential lead.  But it should be sufficient to allow you to discriminate between various would be targets in your universe.

 

Build your target list

Now that you know who you are looking for, how do you find them?

There are a multitude of channels and sources that you can use to source your initial targets.  Depending on your sector the volume of potential targets may be in the tens, hundreds, thousands or millions.  So what is more important that the channel that you use is the rigorous application of our ICP in determining whether a given company qualifies to enter your database of targets or not.  We are looking for quality here above quantity as any dilution of the quality factor here will mean that we waste time later on activities targeting unattractive prospects.  This is probably the most important step in the process as if it is not done well you will end up with irrelevant leads (i.e. those not conforming to the ICP) and this will result in wasted energy and reduced conversions and poorer outcomes.

In our case we used very traditional sources such as trade media, trade associations, trade shows and channel partners to build our initial list.

 

Prioritise amongst your initial list

Once you have built this initial list you will need to prioritise the various leads as it is unlikely that you will have the resources to target each and every one of them or to service all of them if you were to win business across a significant number of them.  We also want to learn from each wave of activity that we undertake and working in batches allows this.  In doing so we can see how one message works over another or how receptive one group of targets in a given segment are over those in another.  We also want to drive each batch to a conclusion before commencing with a subsequent batch as that ensures that we put emphasis on driving our activities to a conclusion rather than starting many activities and bringing none to an end.

We used our ICP to prioritise amongst all of the initial firms that we had identified as being of potential interest and decided to initially target the top 15%.   Once we had targeted these we then went back and targeted an additional 15% of our original list in a second wave based on our learnings and outcomes of our first wave at which stage we had met our objectives.

 

Send your initial email 

Without repeating the multitude of commentary that already exists regarding emailing, it still remains a very important introductory tool in our opinion, as even if it is not responded to directly itself it gives you permission to follow-up via telephone soon afterwards.  In our experience, if an email follows the following rules and is targeting appropriate people then it will have success

  • Have a very compelling title which encourages the reader to open the mail. The importance of this is often overlooked by many writers and yet it is the first thing that the recipient will read along with your name and is the primary factor which they will use to determine whether to read further or not
  • Have a strong opening sentence which introduces who you are, where you sourced their details from and why you feel you are of relevance to the recipient. This will determine if they read any further having opened your mail.
  • Use headers in the body of your email. Your recipient is being inundated with emails, is probably reading your mail on the go or during a meeting and is more than likely using a mobile device, so make it easy for them to speed read and navigate through your email.  This will help them digest your message and make a decision as to whether they are interested in meeting you or not.
  • Finish strongly with a request to meet. Ideally, suggest some specific times or dates rather than making an open ended request to meet as the former will encourage them to accept if they are interested or to suggest alternative dates if those suggested do not work.
  • Also make a note that you will be following up in the next few days if you do not hear back. This will encourage recipients to reply yay or nay quickly and part of our objective is to drive out the uninterested targets early so that we do not waste time chasing them.
  • A final important factor is when to send your emails. We have found that sending emails on a Tuesday or Wednesday morning or Thursday afternoon works better than sending on a Monday morning or on a Friday.  This makes sense when you think about it.  How many of us look forward to reading through a bunch of emails on a Monday morning while on a Friday we are looking to wrap-up any outstanding tasks before the week’s end as opposed to initiating new dialogues.

 

Conducting a quick follow-up

After 3-4 days follow-up with those non respondents with a short but polite follow-up email.  Request that if they are not interested that you would be very grateful if they could indicate so.  This is a great way to avoid wasted energy chasing hard to reach contacts who will ultimately prove to be uninterested in our offering.

We have found that it is this second email that resulted in many of our most interesting meetings as those who replied positively to this email were usually in need of support and had been delayed in initially replying because of their workload but once they were re-prompted we moved up in priority in their to-do list.

In our example this approach resulted in securing a first meeting with 65% of those companies that we targeted in our two waves.

 

 Securing the first meeting is only the beginning

Once you have secured that first meeting there are two things that you want to understand so that you can progress the lead to the next stage in the sales process.  The first is to identify their needs prior to the first meeting or to have them laid out by the target during that first meeting so that you can demonstrate how you can meet them.  The second is to understand their buying process and to see how that aligns with your sales process.  This will allow you to prioritise amongst live opportunities and to progress those that align best with your process and offer the quickest route to achieving your stated objective(s).

Now it’s time to demonstrate the substance behind your communications.

 

Key stakeholders in a partnership process

In Strategic Selling, Rob Miller and Stephen Heiman define a 'complex sale' as one in which "several people must give their approval before the sale can take place."

These people play roles in the buying process such as guiding the seller and providing information ('Coach/Influencer'), screen possible suppliers and make recommendations ('Technical Buyer'), make judgments about the impact of your product or service on their job performance ('User Buyer'), and give final approval to buy ('Economic Buyer').

In some of my recent work with startups trying to sell through partnerships it struck me that there are roles in the partnership process that are comparable but different in important ways. By selling through partnerships, I mean convincing another organisation to use its resources to sell your product or service to its customers, and sharing the revenue in some way.

For instance, if your product is an email marketing tool for small businesses you may want to sign up a network of resellers to distribute it to their existing network of customers rather than trying to sell to each small business individually.

Signing off a partnership typically does not involve any money changing hands, so there's no 'Economic Buyer' whose budget you need to access. Similarly, there's no 'User Buyer', because the partner is not the one who will use your product.

However, there will be 'Technical Buyers', who will assess whether your product or service actually works, whether it fits in with the rest of the portfolio, and whether your company fits the right profile for their company to work with. There will also be a 'Coach/Influencer' role, to guide you through your potential partner's organisation and politics. It is typically the Coach/Influencer role that you initially have to convince that the partnership opportunity is worth exploring.

In place of the 'User Buyer' I suggest that an important role in any partnership discussion is Sales. It will be the sales team that is responsible for answering questions such as:

  • Which customers will we target first?
  • How will we engage them?
  • How will the sales team be incentivised for selling your product or service?
  • What support will they need from marketing and who will provide it?

In place of the 'Economic Buyer' I suggest the key equivalent is the 'Project Lead', who will typically be an executive in your potential partner's organisation, responsible for answering questions such as:

  • What is the commercial model for the partnership?
  • Who will be involved in overseeing the ongoing success of the partnership?
  • What are the key metrics for the success of the partnership?
  • At what point will the partnership be re-evaluated?

The roles may overlap and some individuals may play several roles during your negotation.

To summarise, there are four key roles that you need to involve before you can feel comfortable signing up a new partner for your business:

  • Project Lead – for commercials, metrics, and management
  • Sales – for targets, sales strategy, incentive plans, and marketing support
  • Technical – for product assessment, compatibility, and legals
  • Coach/Influencer – for validating market size and value proposition, and helping you navigate the rest of the organisation

Good entrepreneurs are risk-averse

Ask a man on the street what he thinks about entrepreneurs and risks. He’ll likely say that entrepreneurs thrive off risks. In reality, the best CEOs of start-up companies are very risk averse; their skill lies in their ability to mitigate risk.

We are currently helping a client raise funding and design a go-to-market strategy for a technology it is building. A focus on risk mitigation has been central to this strategy.

Historically, a company at this stage would have faced two key risks:

  1. Technical – can a solution be built to specification? Will it work?
  2. Market – will the market adopt the technology? Will it do so within acceptable timeframes and costs? Is there a product / market fit?

In today’s environment, investors are much less concerned about technical risk. They assume the system can be built to requirements. Their key questions are all around market adoption, and this was the area our strategy looked to address.

Step one – market selection

The solution, once built, will be applicable across a wide range of markets. We began by selecting a niche one for initial deployment. This way the solution can be built precisely for this market, from the ground up, and therefore compete by being better able to meet precise user-requirements than the generic solutions of its competitors.

The market was selected because it will face new legislation in the next 18 months: no driver is stronger than a legislative one, where the result of non-compliance could be a criminal conviction. Our strategy is for the solution to enable companies to gain assurance of and demonstrate compliance to the legislation in the most cost-effective and straight-forward manner. Currently there is no effective solution on the market to enable them to do this.

Step two – partner selection

Our second step was to form a partnership with a major ($2bn turnover) services company, operating across a wide range of markets, and currently number two in our chosen market. We will build them a solution ‘free of charge’ (i.e. fully funded), they will input user-requirements and market it to their customer base. This partnership will mitigate market risk in the following ways:

  1. The resulting solution will have the endorsement of a leading market brand
  2. The system will be ‘best-of-breed’ in terms of precisely meeting user requirements, thanks to the partner’s input of expertise during the build process
  3. Most crucially, there will be a ready-made large customer base (i.e. that of the partner’s) to enable a smooth path to revenue upon product completion 
  4. There will be a significant reduction in terms of marketing spend due to the partner’s ability to promote to its customer base. The partner’s current number two position in a strategically important market means it is strongly motivated to leverage the incoming legislation to gain a leading position – our client’s solution will be a chief enabler for this
  5. Market development – subsequent target markets are also served by the partner

Choose your customers

One of the topics I like to discuss with prospective RIG-ers at interview is what the first steps are that they would undertake to plan the demand generation (i.e. marketing) strategy for one of our typical earlier stage clients. I describe this ‘typical’ client as having the following characteristics:

  • A market ready B2B SaaS offering
  • One paying customer
  • A recent angel investment with the objective of driving sales and marketing

There are numerous mechanisms, processes, and strategies in planning the initial stages of an effective marketing effort for such a company. However, I try and guide the discussion to the central tenet of any successful plan – the fact that you need to begin by choosing your customer. This becomes remarkably obvious to the candidate when I tell them, but it is non-the-less a vital step in any marketing strategy.

The key of course, is how to invest limited resources to maximise chances of market traction. In order to do this, you want to sell your solution to an organisation which has:

  • A problem / opportunity which your product solves / enables them to exploit better or cheaper than alternatives
  • An awareness that this problem / opportunity exists
  • Available budget

Now you have chosen your customer, in which markets do you find them? What is the best way to reach them? How are you able to articulate your proposition in such a way that it is most compelling? How do you make it more compelling than going with a competitor, doing nothing at all or doing something in house? How should you price the solution and what is the anticipated return on investment? How do you navigate the complex sale?

Once you have found a way to do it, how you codify this process to drive both repeatability and visibility for the purposes of revenue predictability? What are the key hires and what can be done to ensure the optimal candidate is recruited and able to perform? When is more investment required? Would growth objectives be better met if partnerships were formed in certain areas? How are the best partners found and what management processes are needed to reduce the risks of failure?

These are all the challenges we not only advise our clients on, but actively execute for them, and they are all areas that I will cover in future posts.

At this stage in the interview, the candidates are always suitably fired up about our business!