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the top 10 principles of
Speech number four is about BizDev.
How many of you do business development for your companies?
Okay. I hope I can
shed some light on the process. Maybe
you can instruct me on doing BizDev even better.
Here are the Top 10 things I’ve learned about it.
Ensure that the middle and
bottom like the deal.
BizDev deals blow up because the middle and the bottom of the company
don't like the deal. Most
of it is done with a press conference by two egomaniac CEOs who don't
know each other and saw the press release the night before.
They're coming together to announce this great partnership, and
you know what? Those
kinds of partnerships always blow up.
The key for BizDev is not that the egomaniac CEOs like the
deal, it is that the middle and the bottom¾the
engineers, the product managers, the people who really do the work¾those
are the people who have to like the deal.
The CEOs come and go; they have a short attention span. The CEOs are dumb. The
middle and the bottom is where real work is done, and that's how you
have to make BizDev work.
Build from strength, not to
BizDev is done to cover weakness.
We have a weakness, you have a weakness, two plus two can equal
four. Well, usually, two plus two equals three because you're
highlighting each other's weaknesses instead of highlighting each
I'll give you a very practical example.
When I was at Apple, we did a deal with DEC.
Apple had a weakness with no telecom and no datacom strategy.
DEC had a weakness with no personal computers. We were doing a deal together to cover each other's
respective weaknesses instead of highlighting each other’s
respective strengths. That
deal blew up. One reason it blew up was because the middle and bottom of
each company didn't like each other.
We thought the people at DEC were a bunch of dinosaurs in the
mainframe and minicomputer business; the people at DEC thought that we
were sitting out in Cupertino in beanbag chairs with our Birkenstocks
drinking white wine. Much
of that is true, actually.
The key is that when you want to do great BizDev, two plus two
has to equal five. Highlight
strengths; don't do it to cover weaknesses.
Two strong companies make strengths even stronger, not two weak
companies trying to cover each other's butts.
Find a champion.
champions are not CEOs, not the people at the top.
They are product managers, secretaries, administrative aides,
those kinds of people. They
are not people with highfalutin’ titles.
You need to find that champion.
This champion is an evangelist; this champion sees the alliance
as a way to make the world a better place.
That's the key. Find
a champion, and it's never, ever the CEO.
If you are told that the CEO is championing your cause, that is
a warning sign. Find someone lower in the organization to be your
Cut win/win deals.
matter how tempting it is to cut a win/lose deal, always cut a win/win
deal, especially if you're the gorilla.
Many gorillas feel that they have so much power that they can
stick it to a company in a partnership.
Never do that. If
you don't cut a win/win deal, it will blow up.
I don't care how strong a gorilla you are, if you're sticking
it to your partner, your partner will find another gorilla.
Find a lawyer who wants to do
need to find a lawyer because lawyers are going to cut deals and
they're going to okay deals, but you need to find a lawyer who wants
to do business, not prevent it. Most
lawyers want to prevent business.
They view themselves as the adult supervision in the company.
You need to find a very specific kind of lawyer who loves to do
deals. These are very
Establish the right legal
found the right lawyer, you need to establish the right legal
framework in which that lawyer operates.
Here it is. Say to
that lawyer, “This is what I want to do; now keep me out of jail.”
Don't ask the lawyer, “Can I do this?”
Say, “This is what I'm going to do; now make it legal.”
That's the right perspective for BizDev.
Put an “out” clause in
goes back to the theory of cutting win/win deals.
You put an out clause in the deal so that after 90 days, if
things don't work out, you can just tear up the contract and walk
away. Many companies are
afraid to put in an out clause. They
feel that they've negotiated such great terms that they want to have
this thing automatically renew every year in perpetuity since it's
such a good deal. When you do that, you set too much pressure upon the
agreement. Put an out
clause in the deal as a pressure valve that releases problems. I believe that if you have an out clause in the deal, people
are more likely to aggressively make the deal work because they know
that if it doesn't, we can blow it up very easily.
If you don't have an out clause in the deal, you're very
hesitant to do aggressive things because you're always worried that
you’re going to get stuck in it.
Put in an out clause and that will make for longer lasting
deals, not shorter ones.
Explain it to a woman.
is very tricky for me to explain.
I get in trouble with it all the time, but I truly believe
this. When you come up with a BizDev idea, you need to explain it
to a woman. The word is woman, not spouse. There's
a big difference because spouse includes men.
You need to explain it to a woman
because, I believe, women have much better judgment.
The problem with men doing BizDev is that deep in our DNA for
millions of years we have believed that we need to kill things.
We cannot go out and kill things anymore, at least not people,
so BizDev is the most logical expression of that hostility.
Deep in our DNA we have this ROM that says to go out and cut
deals because we're men, and that leads to very stupid deals.
Whenever you come up with a BizDev idea, explain it to a woman
because women have better judgment.
They'll tell you if a deal is good or not.
Asking a man is wasting time; explain it to a woman.
Don’t expect people to do
something you wouldn’t do.
ninth thing is never to expect people to do something you, yourself,
would not do. I keep
harping on this thing that even if you're the gorilla and you can
enforce a win/lose deal with no out clause, don't do it.
If you wouldn't do something, don't expect other people to do
it. It will blow up.
Don’t form an alliance with
people who . . .
tenth thing is don't form an alliance with people who have two or more
of the following four qualities.
Before I tell you these four qualities, understand that I know
the difference between correlation and causation.
I really do. But
I'm telling you with 100% certainty that there is 100% correlation
between lousy BizDev deals and people who have two or more of the
following four qualities. If
you find yourself engaged in conversations for BizDev with these kinds
of people do not do the deal:
a German car
If you find yourself dealing with someone who has two of these
qualities, I'm telling you¾you
think I'm kidding¾I'm telling you it will not work.
You laugh. I'm
is speech number four. BizDev
what’s a “venture capital
I'm going to rip through five minutes of telling what you what
Garage.com does. I'm
going to give you the Garage.com story because I'm not here for my
health; I'm here to find deals.
This is the problem we're trying to solve.
We believe that the venture capital business is inefficient.
There are three major causes of the inefficiency.
One is that the system is closed.
Most VCs will not read a business plan unless it comes to them
from a CEO in their portfolio, a lawyer, an accountant or someone they
already know. They use those people as proxies for screening. This eliminates the entrepreneur who's just beginning and
doesn't know these people or doesn't know how to get to a lawyer.
The system is closed, but I worked for Apple Computer where we
believe in an open system¾other
than licensing the operating system.
How do you get past the VC’s receptionist?
Well, Garage.com will get you past the receptionist.
We are a trusted source of referrals for these institutions,
and we read every business plan.
If you ask most VCs how many of the clients they funded came in
over the transom, they will tell you one out of 25 a year, best case.
At Garage.com, it's 50%. We
read 12,000 business plans a year.
The second thing is that the venture capital business is
regionalized. Most VCs,
to this day, want to do deals with companies that are within two
hours' driving distance via Mercedes S-500.
If you are a Virginia-based entrepreneur and you want to raise
Sand Hill money, good luck. We
can help do you that. It's
what we do.
The third point is that it's too serial.
You meet with one VC, get rejected, go meet another VC, get
rejected, go to the third, get rejected, etc.
We help you do it in parallel.
You're going to hit literally dozens of potential investors at
once with us. We try to
make market efficiencies and do things in parallel for you.
Those are the problems we want to fix.
This is our process. First,
we need to find you, which we do over the transom and through our Web
site, as well as through our own sources of referrals.
Again, we read 12,000 business plans a year.
Then we fix you. We
work with you for six weeks hands-on.
We cover topics like executive recruiting, so Amy Vernetti is
going to help you find the key people necessary for you to build your
team. We help with your
business model; we prepare your road show presentation; we find you
your first customers, your first partners.
We do all those things for you.
Then we fund you. We do it in two ways, a shotgun approach to 2,500 entities
and a rifle approach where we sit down with you and decide who's the
ideal investor for you. We
pick from a pool of 2,500 VCs, corporations and angel investors.
Finally, we follow you post-funding.
We continue to work with you, frankly, because we're an equity
holder and the purpose of Garage.com is to have liquidity advance, not
to own stock certificates that are worthless.
We keep on helping with new BizDev and customer relationships.
We also do follow-on investments since we would like to
continue to have the equity position in you by putting more money into
you. That's our process.
As a very quick overview, we're looking for startups in
hardware, telecom, wireless, IT infrastructure and life sciences.
These are the benefits we provide our clients.
First of all, access to capital.
Like I said, 2,500 potential investors.
We help you with your business model.
We do your recruiting for you.
We provide your first partnerships and your first customers.
If you want to get to Charles Schwab or E*Trade or Excite or
Yahoo or Inktomi or Victoria's Secret or Harry & David, we have
relationships with all these companies.
We can help you get in there as your first customers.
We also do your road show preparation and we provide interim
management through our CEO/CFO-In-Residence program, or we can provide
a CEO to help you get through the funding process.
We also help with your buzz and PR.
These are the fundamental services that we provide to clients.
On the other side of the equation, we also have investors¾the
2,500 entities that look at our deals. Here is what we provide
investors, in case you're an angel investor or a VC.
We take 12,000 deals down to 80; that's a service.
We're like DeBeers. We
have two tons of dirt in which to find one carat of diamonds, and,
like DeBeers, we'd like to have a monopoly.
Some day I'll be indicted for that.
Let's hope it comes to that.
We enable an investor to create an entire network of investors
around a particular company, so, if you want to invest in one company,
we can help you find the directors and advisors and the corporations
who also will invest in that company so you won't have to slug it out
alone. Finally, we
provide additional bandwidth. Some
VC firms have a headhunter to help them with their portfolio. We have four more headhunters who will help the headhunter
and the company fill out their portfolio.
We increase the bandwidth of the investors who have invested in
our clients. Those are
the benefits we offer investors.
This is the “Steve Jobs reality distortion” slide that
shows that we've done over 60 deals and helped companies raise more
than $200 million in the past two years. It's the tombstones of our clients, although “tombstones”
have a whole new connotation recently.
Garage.com is not an angel matchmaking service; we are a
venture capital investment bank. Remember, “venture capital investment bank.”
These are the kinds of institutions that have invested in our
companies, firms like Samsung
and Technology Crossover Ventures, Sony, Draper Fisher Jurvetson, NEA.
Roughly 65% of our deals are led by institutions as opposed to
The last thing I want to tell you in this ad is that we have a
conference called “Bootcamp for Startups.”
In two days we cover topics including the process of raising
venture capital, we review people's business models with a panel of
experienced investors and CEOs, we have an hour-and-a-half session on
how to properly pitch your company and we have a special session for
woman about pitching companies including the special concerns of women
as entrepreneurs. We talk
about exit paths and we also talk about how to create buzz and PR.
I don't think you could learn more about starting a high-tech
firm in two days than by coming to Bootcamp.
I promise you that it will be time and money very well spent.
And, with that, it's 9:22.
I have eight minutes to take questions.
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