Business development can be defined several ways. To some people, it is a sales function. Others might see it as a marketing function, and yet others think it involves work with mergers and acquisitions. These are most definitely important components, since business development is about increasing business—but what it’s really about is successfully applied knowledge. A clear definition and clear communication of any business initiative is a key first step.

I recommend that you define business development in the same fashion as your organization is going to use the term. Be clear and succinct. For example, business development determines what products and technologies marry well with current offerings to better serve current customers. Or, business development determines new markets in which existing products can be sold—and what will be needed to succeed in these new markets. You may want to pursue both paths initially; however, you should only follow both of them far enough to make a choice. Going back to the second choice later is always an option.

Creating Goals

With business development defined and a path chosen, what are your goals? Most people have a quick answer for this. After all, we are regularly putting together sales plans, growth plans, facility plans, etc. Answers are typically along the lines of 15% compounded annual growth, or $20 million in sales, or 30% of sales from new markets, etc.

While driving growth and exploring new markets are good things, these answers may actually lead to the wrong results. By themselves they are not wrong answers, but they need context. Are you only interested in growth that uses your existing channels to market? If you have a refined process that gives you a competitive advantage, that could very well be a prime component. If your answer leans toward new products, how does that dovetail with your product development timeline and R&D budget? Does the organization embrace change and new opportunities, and to what degree?

Know your own company strengths and weaknesses before exploring new opportunities. This is true of any growth initiative, but especially relevant if your plan might involve acquisition. The ability—or inability—to embrace change is a key component of culture. Any theoretical synergy or value will quickly dissipate when the organization’s energy is directed toward trench digging and silo construction triggered by perceived threats.

Knowledge is Critical

Knowledge of your own organization will become the primary filter for evaluation of business development opportunities. The team that built a business around the widget crusher is not likely to embrace the idea of selling widgets just because “It’s a $1 billion market!” For example, one company built its business selling pallet loads of caulkers and drums of sealants. The company’s acquisition of two specialty epoxy formulators was painful from the beginning. While the epoxy business was much higher in margin, the customer support and technical support teams were not prepared for the increased hand holding needed for the new customer base. By the second year, sales of the acquired businesses were down 50%. The business was divested at a loss in year four.

The more traits your path of pursuit shares with your current business, the higher the likelihood of success. Knowledge is critical. Those similarities translate to increased organizational knowledge; thus, focus can be applied to acquiring the incremental knowledge needed to succeed. Usually companies receive early signs about which path would best suit their efforts. Technical departments may be receiving support requests for uses not targeted or current customers might be asking salespeople to quote products or services not currently provided. As a firm moves down a business development path, this kind of information will become increasingly important because it is highlighting some similarities. Use the knowledge of your business, along with acquired knowledge of target markets, products and services, to establish realistic and profitable goals.

KEYS TO SUCCESS

There are several keys to success to keep in mind. First, the same or similar products or services might be a fit for a different customer base. In addition, a slight modifications or customizations can be made to meet the needs of a new market. Any new customer base should have similar traits to your current customers, which means they accept your value proposition.

When adding a new product or service for your existing customer base, you should avoid dilution to existing product(s) or service(s) unless replacement is inevitable and you want the power of incumbency. In addition, look not only at the same customer companies but the same customer personnel. If core products are sold to engineering but new products are sold to maintenance, it might be like selling to a whole new company.

 Odds of failure are increased when a new product or service is introduced to a new customer base; in these cases, almost none of your organizational knowledge applies. This would be similar to being a startup company without a risk-taking culture.   

Any views or opinions expressed in this column are those of the author and do not represent those of ASI, its staff, Editorial Advisory Board or BNP Media.