1. The Entrepreneurial Manager Harvard Business School 20 April 2001 Entrepreneurial Manager Tool Kit Managing Relationships

2. The Business Development Puzzle u Five years ago no one had heard of business development. u 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 u Why?

3. Partnerships have become... u More numerous u More strategic u More diverse u More novel u More varied in form depth (gold, silver and bronze partners) duration type (licensing, investment, alliance, acquisition)

4. The Business Development Process Identify Opportunity Develop Business Model Identify/Screen Potential Partners Structure Deal Manage Relationship Clearly Articulate Opportunity Evaluate Opportunity Map needed resources/skills Decide which to do in-house and which outsource Identify potential partners Apply preliminary screen Evaluate finalists on key criteria Evaluate alternative forms -Licensing -Equity investment -Alliance -Joint-venture -Acquisition Structure contract to manage risks -Transfer -Reduce -Share Negotiate Deal Manage portfolio of ongoing partnerships -Key metrics -Individual and portfolio level Manage relationships -Ownership -As they evolve -Multiple points of contact

5. Line Vendor (MTS) Office Coffee Supply Distributors Brewers $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 Keurigs Business Model Premium Coffee

6. Identify Gaps in Guidant Value Chain Source Wire CatheterAfterloader Distribution, Tech, IP Guidant Neocardia Novoste Nucletron X ? XX X XX ? ?

7. Simple Rules for Screening Partners u Have I heard of the company? u Is it a top website as measured by Media Metrix? u Is it backed by sophisticated venture capitalists? u Is it headquartered in a technology-savvy location? u Have they been referred by someone I know? u Shared vision on where industry is going. u 75 employees/75% engineers. u Able to create short-term and long-term wins. u Similarities in culture and chemistry. u Geographic proximity to current locations. eBay's Partner RulesCisco's Acquisition Rules

8. u Neither marriage nor one night stand. u Where are we headed? What will each party contribute? What can each party expect? u How do we get there? Ways to communicate, discuss and interpret. Governance including decision rights. u What is the timing? Benchmarks, milestones, targets and penalties. u What is forbidden? What can we not do? u How do we get out? e.g., buyout, divorce, shotgun Structuring Deals for Experiments

9. Managing Relationships u Ongoing management is required because reality is too complex to fully contract. u Guidants 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.

10. Outstanding Questions u How can managers assess whether business development is right for their organization? u How can managers articulate a clear vision for the business development group and tie it to concrete performance metrics? u What are best practices in optimizing each step in the process of identifying, evaluating, negotiating and managing partnerships? u 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? u How to identify the best candidates, evaluate and compensate staff? u How to use contracts to capture and consolidate learning?