The Entrepreneurial Manager

Harvard Business School

20 April 2001

Entrepreneurial Manager Tool Kit

Managing Relationships

The Business Development Puzzle

Five years ago no one had heard of business development.

Today - Critical function for many companies• 12% of 199 HBS grads went to business

development (higher than marketing or general management)

• VP Biz Dev key member of management team Why?

Partnerships have become... More numerous More strategic More diverse More novel More varied in form

• depth (gold, silver and bronze partners)• duration• type (licensing, investment, alliance,

acquisition)

The Business Development ProcessIdentifyOpportunity

DevelopBusinessModel

Identify/ScreenPotential Partners

StructureDeal

ManageRelationship

Clearly ArticulateOpportunity

Evaluate Opportunity

Map needed resources/skills

Decide which todo in-house andwhich outsource

Identify potentialpartners

Apply preliminaryscreen

Evaluate finalistson key criteria

Evaluate alternativeforms -Licensing -Equity investment -Alliance -Joint-venture -Acquisition

Structure contractto manage risks -Transfer -Reduce -Share

Negotiate Deal

Manage portfolioof ongoingpartnerships -Key metrics -Individual and portfolio level

Manage relationships -Ownership -As they evolve -Multiple points of contact

Line Vendor(MTS)

Office CoffeeSupply

DistributorsBrewers

$650-$825

Brewers

$1000

Filler Line

$500k-$700k

K-Cups @ $0.25 ea..

$0.04 Royalty per K-Cup

Brewer at ?

K-cup @ $0.50 ea..

Out of Pocket Cost = $0.13 per K-cup

Coffee Drinking Employee

Starbucks Alternative = $.75-$1.00

Brewer Vendor(Vandelay)

Office Manager

Map Keurig’s Business ModelMap Keurig’s Business Model

Premium Coffee

Identify Gaps in Guidant Value ChainSourceWire

Catheter AfterloaderDistribution, Tech, IP

Guidant

Neocardia

Novoste

Nucletron

X ?

X X

X

X X

?

?

Simple Rules for Screening Partners

Have I heard of the company? Is it a top website as measured

by Media Metrix? Is it backed by sophisticated

venture capitalists? Is it headquartered in a

technology-savvy location? Have they been referred by

someone I know?

Shared vision on where industry is going.

75 employees/75% engineers. Able to create short-term and

long-term wins. Similarities in culture and

chemistry. Geographic proximity to

current locations.

eBay's Partner Rules Cisco's Acquisition Rules

Neither marriage nor one night stand. Where are we headed?

• What will each party contribute?

• What can each party expect?

How do we get there?• Ways to communicate, discuss and interpret.

• Governance including decision rights.

What is the timing?• Benchmarks, milestones, targets and penalties.

What is forbidden?• What can we not do?

How do we get out?• e.g., buyout, divorce, shotgun

Structuring Deals for Experiments

Managing Relationships Ongoing management is required because

reality is too complex to fully contract. Guidant’s Approach - Ginger Howard:

• Identify an Owner on each side responsible for the contract, negotiation and deliverables.

• Philosophical Alignment of People and Business Processes.

• Formal Reviews - Milestones, etc.• Constant Communication - Talk every day…• Ruthless Honesty.

Outstanding Questions How can managers assess whether business development is right for

their organization? How can managers articulate a clear vision for the business

development group and tie it to concrete performance metrics? What are best practices in optimizing each step in the process of

identifying, evaluating, negotiating and managing partnerships? What are the key design considerations for a biz dev group?

• Organize by technology, market or deal type?

• Optimal level of centralization?

• How best to bridge the boundaries between business development and other staff and line units?

How to identify the best candidates, evaluate and compensate staff? How to use contracts to capture and consolidate learning?