Learn the basics of business development and a breakdown of some important principles.
For new biotech and medtech entrepreneurs, understanding the meaning and value of business development can be a challenge, but one that it is important to overcome. A good business development strategy can guide a startup through many decision points and help them remain focused on their primary goal. A poor strategy (or lack of one) can result in a company’s efforts being dispersed and diluted rather than honed in on an important milestone. Read on to learn the basics of business development and a breakdown of some important related principles.
Put simply, business development is the practice of making a business better. The vagueness of this definition is one of the reasons why it is difficult for entrepreneurs to understand initially. In Forbes, Scott Pollack writes a more complete definition of business development: “the creation of long-term value for an organization from customers, markets, and relationships.” This definition is better than the first, in that it clarifies why adding foosball tables to a startup’s break room isn’t business development, but it still allows for a lot of variety in interpretation. In fact, this looseness of meaning is important. Businesses are all different, so the strategies and activities that will generate long-term value will also be different for each.
Keeping in mind this plethora of valid meanings of business development, there are certain activities that are usually considered to fall into the category. They include sales, marketing, and partnerships. For biotech and medtech startups, they are generally still developing their product and therefore not selling to customers yet. However, both marketing and partnering are important for biotech and medtech startups, and are heavily intertwined with business development.
Market research and strategy are important aspects of business development that are related to marketing. Market research, or the process of gathering data about a company’s targeted customers, is done for the purpose of improving a company’s products, advertising, and predictions about profit, among other things. This research is accomplished in different ways depending on the type of data needed.
Primary market research is the practice of directly contacting potential customers to ask them about their needs regarding the product. This direct data gathering allows companies to ask the exact questions they need to and to carefully choose who to interview. However, it is a time consuming process to contact individuals so the number of data points ultimately gathered is usually low.
Secondary market research, by contrast, does not involve contacting people directly. Instead, existing data sets are analyzed for information that may inform a company’s choices. This allows for a large number of data points, but the questions have already been asked so they may not be exactly the ones that the company needs answered. Rather, the information that a company has access to may allow them to find correlations relating to their potential customers from which they can draw conclusions.
A company’s competitors are also part of the market, and so gathering information about them is another essential part of market research. A company can find out exactly what their customers want, but a competitor with an existing product that fulfills those needs will have an advantage over something new and unknown to the market. Therefore, analyzing the competition is important so a company can determine whether they have a competitive advantage.
These data gathering processes help to form the basis by which business development decisions are made. Market research tells a company if they are moving progressively closer to a product or service that people will actually buy. If they are not, then the data is also useful to tell a company what they might want to do instead. From this data, a strategy for improvement can be formed, which is essentially the definition of business development.
When analyzing market data, many companies find that they can’t solve all of their problems with only their own resources. This results in a strategy that employs business development to bring in other entities to serve as partners.
Another method of generating long-term value for a business is through partnerships. This is the most commonly recognized piece of business development. In biotech and medtech startups, founders usually think about partnerships in terms of working with large pharmaceutical or medical device companies that can assist in bringing a product to market. This is indeed an important category, but there are other types of partnerships that also bring value to a startup. For example, a startup might develop a partnership with one of their vendors such that the startup agrees to purchase a type of reagent only from that vendor in return for preferred access to the product if there were to be a shortage. Regardless of the type of partnership, there are some principles that determine whether working with a partner is a good idea or not.
Primarily, a partnership must be a win-win situation. The startup is looking for someone that can solve a problem for them, but the difference between a paid transaction and a partnership is that it goes both ways. A partner must also need something from the startup.
As business development is often defined within the scope of partnerships, the following “formula for business development” is essentially a formula for partnering with other companies. Whereas outsourcing is simply paying another company to do a task instead of completing it internally, partnering involves an exchange of other types of value. As it is akin to a bartering system, it is inherently more complex than a simple exchange of goods or services for money. However, successful partnerships generally do follow a simple formula:
{Target Identification} + {Understanding of Drivers} + {Solution to Drivers} = BD Success
This formula, sometimes referred to as simply, TDS (target, drivers, solutions) can be applied to business development partnerships or any situation in which there are a variety of potential targets with whom an exchange of resources, expertise, or other value might be in the interest of both sides. The concept works because it is about aligning incentives and motivation with other entities such that both benefit.
This step in business development is when the potential customers, partners, vendors, etc. are determined and analyzed. Frequently, companies will cold-call or email startups to make what initially sound like partnership offers, but that turn out to be sales pitches. The prudent startup will analyze these communications to see if they are good targets for business development or not. What makes an entity a good target is a high potential that their goals are aligned with the startup’s goals, and that they have something valuable to offer.
However, startups especially have to be cognizant of which partnerships they choose to pursue because they will require resources to manage. A good target provides a startup with help on an important problem that they would not be able to tackle on their own without expending more time and effort than they can afford.
Target identification does not stop with the entity. Ideally, a target for business development is an individual whose job it is to find strategic partners. This person will already be motivated to talk to potential partners, which makes the next steps in the formula possible.
Once a target is identified, their business motivations must be determined. The information on a company’s website may not reveal what is truly important to them in a partnership, as websites are usually customer-focused. This step requires discussion and a mutual quest for understanding. If a potential partner is not open to sharing reasonable amounts of information, they probably are not a good fit. Furthermore, if upon questioning they are found to not be interested in goals that align with the startup, that is a signal that the partnership is unlikely to work.
An ideal strategic partner is one whose drivers are similar to but not competitive with the startup’s own motivations. For example, a good strategic partner might be targeting the same customers, but selling a different type of product.
Another important thing to understand about drivers is, they must be a priority for the business. If a company has a problem they want to solve, but they have a list of 10 more important problems to solve first, they are unlikely to put effort into the lower priority issues. And keeping in mind that the ideal target is an individual, what is that person’s priority at the company? If they have a stake in solving a specific problem, that is a highly motivating driver.
After a startup identifies a target and discovers their drivers, a partnership can move forward if that startup can solve the problems those drivers present, and in return generate value. Determining whether a solution is possible and makes sense to pursue involves multiple factors. A startup might have the ability to solve a potential partner’s problem, but so much time and effort could be required that it would pull resources away from other areas, or it could cost more than what they’d receive in return. The same might be true for the partner--it might cost so much for them to solve the startup’s problem that it wouldn’t make sense.
A partnership needs to be win-win or it won’t work. Because any relationship requires effort to keep up, the long-term success of a partnership is important to consider so that the net result is added value for both sides. A short-term benefit can be tempting, but it should be considered carefully. Because startups have limited resources, they must consider which partners will provide the highest return on investment.
For specific advice on how startups can partner with large pharmaceutical companies, see the post, Tips for Partnering with Big Pharma.
In some ways business development is an experiment. It begins with the startup forming a hypothesis that a particular customer or company wants what they have to offer. Then that hypothesis is tested via market research and conversations to determine drivers. If the hypothesis is found to be incorrect, the startup uses that information to change what they do. Business development is an ever-changing, iterative process. It both informs and is informed by a company’s overall strategy. Sometimes pursuing a partnership is part of enacting a chosen strategy. Sometimes the results of a partnership cause a company to change their strategy. This duality is why business development is so important and why it’s so often misunderstood.
For a startup in biotech or medtech, this basic understanding of business development can provide perspective, which is especially important for often detail-oriented scientists. Business development isn’t a complicated process, it’s simply the act of improving. If a startup is working toward its goals, reevaluating its assumptions via market research, and taking advantage of partners to solve its most intractable problems, it is engaged in business development. A company doesn’t have to have a single employee whose job title includes business development so long as there is a focus on generating long term value.
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