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Business Development Revisited August 15, 2012

Posted by Tim Rodgers in International management, Supply chain.
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Earlier this year I wrote about business development as a possible new career direction (see Business Development, Not Sales). Lately I’ve been thinking about a generalized, logical processes for identifying and targeting new business opportunities, derived from my own experiences as a customer and a supplier.

The underlying question that must be considered for any new opportunity is the cost of the service (or product) provided. That may sound obvious, but I think there are a lot of people who still think that any revenue is “good” revenue. Certainly business development must be driven by the desire for revenue growth, but that growth should be profitable, either as an independent revenue stream, or because of its contribution to return-on-assets or other measures of financial leverage. A supplier may choose to provide a service that is not immediately profitable with the expectation that it enables a long-term revenue stream (for example, early entry to a rapidly growing new market or new technology), but that should be supported by a net present value (NPV) calculation.

For the sake of simplicity, I’m going to focus on suppliers of services, although I think the same guidelines apply to suppliers of hardware parts or products.

Generally, leveraging a current customer who is already using services from the supplier is easier and more profitable than trying to establish a business relationship with an entirely new customer. There are two directions to take when leveraging an existing customer:

1. New services at the same customer. The customer is already familiar with the supplier, and already has purchasing and supplier management processes in place. If the supplier’s performance has been solid, the customer may be open to suggestions regarding additional services, particularly if there are bundling benefits that lead to lower price and/or lower management cost on the customer side. For the supplier there may be additional benefits in reducing the cost-of-service (COS) by leveraging the overhead and assets required to support this customer.

2. Same services at a new customer, specifically where the current customer can provide a meaningful benchmark and/or recommendation. An example would be another division or business group within a large corporation. There’s less risk and a faster learning curve for the new customer because of the foundation established with the existing customer, and the supplier may be able to realize economies of scale by providing the same service to a wider customer base.

Regardless of whether the new business opportunity can be leveraged from an existing customer, the following questions determine the next steps in the process:

Is this a new customer? If yes, then identify reference contacts (internal or external) that can help communicate value and reduce the perceived risk.

Is the customer already buying this service? If yes, then winning more business requires replacing an existing supplier. Because there’s a natural resistance to change, this means offering something better, and that requires an understanding of the customer’s needs and how the supplier can offer an attractive alternative value proposition. If the customer is not currently buying the service from any external supplier, then the prospective supplier must create a business case that describes the benefits and helps address concerns, this time in comparison with an internal supplier of the service.

Is the supplier already providing this service? If yes, then the supplier should be able to identify opportunities to support multiple customers from the same assets and resources to reduce overhead and cost-of-service. If no, then the supplier must evaluate the incremental revenue vs. the cost to add the new service. Again, an NPV or similar analysis is essential.

That’s how I would do it.

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