Later today, I’m speaking at the Momentum Summit conference, which is being held at MIT.
My topic is “Forging Business Development Deals & Partnerships that make sense.” As I thought about this topic, I started to make a top 10 list of things to consider in a business development deal. This is by no means a comprehensive list, but a good start as you consider forging partnerships for your start-up.
One important note: from my experience, there are a lot of large companies that want to do deals with start-ups, but they don’t recognize that they are large and you are small. Use this list as a litmus test for any company that contacts you. Is it really worth your time to pursue a partnership? Why? Although it can be hard to do, often the best decision is to say “no thank you” and walk away early in the discussions.
That said, here are my Top 10 things to consider in a business development deal:
- Deal fit: This is the most important question that you need to ask yourself when you start working on a partnership. Is this deal a square peg in a round hole? Why is this deal critical to your business? Why is it critical to their business? Are you really sure it’s not a square peg in a round hole? (Now ask yourself again and be sure before moving on).
- Deal size: How big is this deal? Calculate the deal size based on how many months it keeps you alive (aka: your burn rate). As CEO of a start-up, my rule of thumb is that if it doesn’t buy us at least a month of burn, then it’s probably not something I should be working on.
- Product Requirements: How much custom work needs to be done to make this deal successful? Is it work that can be leveraged for future deals? (Hint: run screaming from deals that require a lot of custom work unless the deal size is sufficiently large)
- Partner Savvy: How clueless are the people you’re dealing with? Do they ask good questions? Do they understand the product and market? Dealing with clueless people is harder in the long-run, and adds a lot of time/cost to the deal.
- Traffic: Who gets credit for the traffic?
- Data: Who owns the data? How is it shared among the parties?
- Scalability: Does the deal scale with more success? What’s the big win?
- Termination: How do the parties amicably part ways? Who owns the data upon termination?
- Payment Schedule: What is the payment schedule? As a start-up, deals with upfront cash are way more important than other deals.
- Legal Costs: Can you get this deal done without significant legal costs? You might be surprised at how quickly legal fees can add up. Do as much of the contract writing as possible yourself and let your lawyer handle only what is absolutely necessary.