Business development in a startup
This article is part of a series about how to manage a small software start-up, the first article & overview is found here.
Any for-profit business needs to make money, and this is done by selling your products and services.
In the beginning, the same people doing sales should also be doing business development, in my opinion. For this article’s purpose, I just talk about “business development” without getting into the specific nomenclature about job positions in this area. I would strongly encourage you not to employ “salespeople” that are not helping your market research and positioning strategy; you need to learn from every conversation with potential clients.
As mentioned in the introductory article, you should make sure that you ask the right questions. To avoid just copying what others have already said, I encourage you to either listen to this talk by Eric Migicovsky or read the book that inspired him.
The best companies are the ones where the founders themselves maintain a direct connection to their users. — Eric Migicovsky
A vast topic in this area that is very difficult (impossible?) to get right from the start is the pricing of your product and services — try to learn as quickly as possible what the price sensitivity is in your market.
In general, sales is a fundamental and underappreciated (especially by technical people) activity of any company, so as with any other job, don’t be afraid to seek outside advice. (Shoutout to Manuel Hartmann’s Sales Playbook)
To really make all business development efforts count, it is crucial to structure the work and information gathering from the start with one of the many Customer Relationship Management (CRM) tools available. In the beginning, you need it mainly to manage contacts & associated meeting notes and to keep an overview of your sales pipeline. It can also ease communication efforts by providing mail templates for different occasions.
After trying several tools, we decided to go with Hubspot as its free plan met most of our needs, was easy to use and customize, and well-integrated into Gmail. To make the most out of the meeting notes, it is best to define templates and have a standardized color coding for different aspects that can come up in conversations: Opportunities, objections, or feature requests, for example. Make sure to spend more time on actually meeting people than writing notes, though — the real important aspects you should hear over and over.
The definition of the sales pipeline will be very individual to each company, a straightforward pipeline for B2B sales could look like:
- Leads: Any contact that could be a potential customer
- Prospects: The person was contacted, and there is some confidence that a sales opportunity could be there
- Opportunity: There is a first proposal on a concrete deliverable, timeline, and price-point
- Deals: A quotation has been accepted, for example through a purchase order — there are no further negotiations from here on and it’s all about delivery
I think it’s essential to manage work on this pipeline somewhat similar to product development and have regular sync-ups (“sprints”) to assign tasks; the most significant difference to “standard” development work is that many tasks will depend more on external influences.
Generating Leads
Leads can come from any “channel”: website, e-mail campaigns, referrals, advertisements. Few points from my side on this topic:
- When going to conferences, try to hold a presentation — even if what you are presenting is not directly your product itself, it can supercharge the networking opportunities at the event. We often presented topics around the connectivity standard SiLA that our products were using.
- So-called “content marketing” is getting more and more popular: Providing value to a community for example by writing articles in your area of expertise, or organizing meet-ups and public workshops. You need to reserve active time for this to be fruitful.
- An often under-appreciated channel is open source development: You can build credibility by building up new projects or contributing to relevant ones in your industry. Many developers also find this attractive as they can showcase their craft instead of hiding everything behind closed doors.
- Openly accessible work apart from software development can also be organizational such as the collaboration with associations, in our case SiLA, or contributing to the developments of DAOs, for example the foundation of VitaDAO by Molecule.
Qualifying Prospects
This step aims to find out as early as possible if there is a possible fitting opportunity. As mentioned in the previous chapter, it is essential to have good qualification criteria for projects you want to embark on. In addition, try to choose your customers wisely as well — if it’s already a hassle to set up productive calls initially, it most likely isn’t worth the money.
Some clever customers will try to get on smaller or unprofitable deals with you on the promise of much bigger orders later on. Be aware that this is usually just negotiation tactics, and follow-ups need to be very concrete (best in written form) to be worth anything. Be careful about providing discounts, as customers might expect to stick with the discounted pricing in the future.
When setting up the first calls and qualifying the clients, you should have a designated account manager for each client responsible for closing the deal and avoiding changing the contact person throughout the pipeline.
As recommended in many sales articles, it is important that you genuinely listen to clients about their problems and ask specific questions before pitching any solution. Try to identify if the problem can really be solved well with the product or service you offer. Don’t try to sell at all costs; if your solution doesn’t solve the problem, it’s a signal of the market that you should get back to the drawing board and either provide a different solution or talk to different customers.
Once you believe your solution (or concept) can solve their problem, it is vital to get as hands-on as possible to establish trust, either with a product demo or even just wireframes (using tools such as Adobe XD, Figma, or Balsamiq). Force yourself to get inputs as early as possible, even if your product stage feels embarrassing. (as popularized by the “Lean Startup Movement”) Don’t underestimate its effect on a customer, even to just “push some buttons” on your software. And don’t overestimate the importance of a working product; Especially in introductory calls, it might not make any difference if you use mockups or “real” software.
Closing Deals
Once the problem to be solved is identified, the goal is to get to an agreement on what you are going to offer. Before fleshing out a full quote, it is best to first send an ad-hoc proposal that makes sure that you are on the same page on the structure of a sale, such as deliverables and ballpark costs — you would be surprised how often the price expectation won’t match, especially when you are still experimenting.
When writing the quotation, make sure that you understand the client’s purchasing process. Even small things like not writing the correct address can delay deals, which can be pretty painful, especially in the beginning.
Bigger clients often have an “innovation budget” to spend on trying out less established products and initiating more risky projects. It is OK to pursue those in the starting phase but make sure you don’t mistake these deals for a validation of your business as you might not actually solve any real problem — always find out why they are buying from you.
Sales Skills
There are hundreds of sales books with conflicting viewpoints that are rarely, if ever, research-driven — such as the famous “Getting to Yes” book, whereas Chris Voss advocates for “Early No” instead in “Never Split the Difference”. It still helps to read some books in this area to define your own style; you can’t copy someone else convincingly anyway.
Negotiation is not an act of battle; it’s a process of discovery — Chris Voss
In most must-read lists I have found the mentioned book by Chris Voss (an excellent summary here) that sounds like being purely about negotiation but is really about tips and tricks to be a better listener. Some of the key take-aways for me in this are:
- Never forget that you are talking to humans and not “rational robots” — and humans want to be accepted and understood.
- Always be ready for surprises, don’t assume you know what the other person wants. Go into a conversation with the certainty of your ignorance and try to reveal your unknowns.
- I agree with Chris opinions on trying to get early no’s: Instead of following up on a client asking “Would you like to do this project with us?”, ask “Have you given up on this project?” — you will be surprised how much more information you can uncover!
Many of the tips you read can be hard to implement when it comes to actual price negotiations, such as letting a potential client give a “pricing anchor” first. Especially in the startup phase, I think it’s important not to forget that the target price you want to sell your offering at might be completely wrong in terms of market expectations — and you need to change your business model.
In the next article, I write about necessary and unnecessary meetings in a small organization.
