business development and the developer

October 10, 2006 12:19 PM

When to bring a business development person into a startup?

I am in the process of starting a software business with three other people. Currently we are two developers, a graphic and ui designer, and a project manager. We have identified the product that we want to create and sell/license, and have begun designing it. We have already been approached by several potential customers who are really psyched about it. We have a lawyer who is helping us write the operating agreement for our LLC. Things are moving along.

We've been approached by a couple of business-types who have said that they think it's a great idea, and that they would like to be in charge of raising money, marketing the product and growing the business. The first one was a total jerk who we promptly told to buzz off. The new guy seems nice and fairly capable, and he has started several businesses in his time that he has grown and sold to pretty major corporations (Aldus being the biggest, yes this was back in the day). In short, he seems like a pretty good match.

As none of us has experience beyond our sole-props and small LLCs (we're all just freelancers, not really entrepreneurs), we fully acknowledge the need to find someone to do biz dev and to be in charge of the marketing and so forth at some point, but my question is: when is the proper time to do this? As we are currently drafting the operating agreement, my assumption is that this guy is looking for a 1/5th equity stake. But it seems to me that we would be in a much better position to grow the business as much as we can ourselves before bringing someone else in - i.e., build the product, make the sales to the already interested customers, and then hire someone to "take it to the next level" as they say. And then we wouldn't have to sacrifice such a large portion of the company. But I'm not sure about this, either - maybe having someone with the company from the ground up is the proper way to go.

What do you all think?

posted by peptide to work & money (6 comments total)

1. never give the company away to bizdev people. Bizdev is a fancy word for "sales," and sales people are best managed by commission. No salary, and certainly not a share of the company.

2. If you have plenty of customers now, what do you need this guy for?

3. Contacts from "back in the day" are very likely worthless. If the guy hasn't been actively doing deals, his contacts are cold by now. That means that they are either no longer in the business they were in the past, or are way out of your friend's league.

4. Always, Always, Always tie a sales person's commission to their sales. Give them a fraction of actual cash flow, not corporate ownership. Keep ultimate control in your hands (unless you completely sell out, in which case, sell for cash NEVER for stock)
posted by b1tr0t at 12:44 PM on October 10, 2006

I think it depends on what you want first. If you're looking towards starting a mega-corporation, it might be handy to have him on board.

On the other hand, there's nothing wrong with just continuing what you're doing. You've already achieved the hard part- you've found a customer for your product. Doing all the business stuff yourselves will also give you an opportunity to grow and learn on your own. You may eventually find that you don't even need a professional business type person. Doing it this way will also let you more accurately assess your needs when the time does come.
posted by unexpected at 12:48 PM on October 10, 2006

Bizdev isn't *just* sales.

If you're really looking for someone to manage your business from a day to day & strategic front that is far more than your typical sales guy can do.

But I don't think you *need* to give away a stake in your company if you don't want to. If you don't have any sales/up fronts from your potential customers to fund a salary that's a harder nut to crack, but even then you don't have to give 1/5 of the company away. It's entirely up to you as a group to draft the agreement and find someone who will work for what you're offering.
posted by FlamingBore at 12:52 PM on October 10, 2006

All founders' stock should have some sort of vesting in order to protect the other partners. This can take the form of a right to buy back the shares that declines over time (say 3 years). That way, when this bizdev dude doesn't work out or another technical founder burns out or has a kid and has to quit for a steady paycheck, they don't take 1/4 or 1/5 of the company away with them. (May need a C Corp instead of an LLC, depending on your state.)

That being said, I'd echo the other commenters. Often you won't need a straight salesperson until later -- they are hobbled until you have a finished product and a defined market to tackle.

Perhaps take him on for a time as a consultant to see how it works out. Make sure goals and responsibilities are clear -- does he handle just sales? operations? is he the de facto CEO? If nobody else wants to handle the business operations -- lawyers, leases, accounting, payroll -- having somebody like this adds a lot of value.
posted by troyer at 1:37 PM on October 10, 2006

Speaking as a real life sales / biz dev guy...

They could the same job - could be totally different. One thing I've noticed over time is that Biz Dev folks often consider themselves above the sales folks, and thus above the grunt work of building and managing a sales pipeline.

You really need both functions in the company. For all the anti sales propaganda you'll likely get here, at the end of the day if somebody isn't selling your software, you aren't going to survive. However, who should be doing the selling - direct sales force, resellers, independent agents etc. is something none of us can even guess at without knowing a lot more about your company.

You do also probably need somebody setting up partnerships, co-marketing agreements, reseller agents and all that stuff. That is usually the domain of a Biz Dev person,although in a small company the CEO frequently does it.

If you can get one person to do both, great. Just make sure somebody approaching you as a Biz Dev guy isn't afraid to pick up the phone and find business too. It's an integral part of sales.

How you compensate him is a whole 'nother question. And again, it depends a lot on the nature of your product.

Feel free to contact be off-line via my profile. Most of my life since 1996 has been selling for technology start ups. I have an opinion or two. Note - I'm not looking for a job or a consulting gig. I'm not gonna try to bill you for answering a few questions ;)
posted by COD at 1:47 PM on October 10, 2006 [1 favorite]

Some of what b1tr0t advocates, I might agree with, in certian situations, but I have no idea whether your situation, or that of the biz dev guy you've thought about, warrants any of it. The thing about business situations is that they generally resemble some other situation, and none are in all aspects unique, but every one, including cookie cutter franchise operations, is different.

The right time to bring on a biz dev person depends on your company's needs, and the biz dev person. If none of you have management experience, and you can find that in an older, truly wiser head, who is a great personality fit with the rest of you, and yet can counter-balance weaknesses you may have as a business group, by strength of character and the respect you develop for his intellect, you'd be crazy not to be trying to lock such a person up now.

Selling software to jazzed up customers isn't a hard game. Keeping them jazzed up after they've got it (and turning them into solid references) is a bit more of a stretch, and keeping them as customers when they come back with "essential enhancements" that you can't reasonably do, is an art form. If you don't think that's a possible road you'll travel, enjoy your naiveté while it lasts. If you do, having a good biz dev guy on board, who takes the lead customer facing role prior to deliveries, can literally save your bacon.

Because sometimes you can be so close to a problem and its technical solution, that you can't see the forest for farming trees. So, if you hope to ever sell this startup, getting used to having marketing and managment as normal functions in your play pen, will be vastly beneficial.
posted by paulsc at 1:56 PM on October 10, 2006