SPECIAL REPORT – Business Development
Thinking about how to build sales? Reps have a short term focus, looking for the next deal. Consider investing in the longer term. A good Business Development exec should outgun any Sales Rep, put you in with the right people, and totally ignore current market chaos. Buckle in though, it’s pricey; and it takes time.
Last weekend our team prepared a Special Report for a client who wanted to add a Business Development specialist. The report was released on March 30, before we had access to all the month end and quarter end reports.
In fact, we didn’t really consider waiting for the big government and industry releases, because we had a different focus.
The study was inspired by some growing pains our client was having.
Clearly, the company leaders had an interest in generating new sales. They just weren’t certain how to do it.
In the past, like many engineering based firms, the company had built a good business through repeat sales to satisfied customers. When they wanted to create new business with a new customer, the corporate principals would personally conduct a targeted marketing and sales effort.
The company ran an experiment with this theme last year. They made a small investment in a semi-retired executive who made a part time effort to generate new business. Needless to say, it didn’t pan out too well.
Now, as the economy improves, the company is contemplating another attempt. They’re wondering how to split out the Business Development side (marketing,) and ask somebody to go out and open lots of new doors for them.
HOW TO PAY FOR BUSINESS DEVELOPMENT?
One big question: How do you pay a Business Development guy, and how much should you pay?
Still smarting from last year’s trial marketing effort, it wasn’t certain that any combination was going to be appealing to this group. Since they had already lost money on a weak performance, how enthusiastic would they be about stepping up for a proper commitment? We thought we’d find out.
While I grilled our best candidate over and over on how Business Development could pay off for this employer, I was also receiving results from our internal research effort, combing through the internet. As the team pawed through job postings, association reports, contract announcements, and industry reviews, the links poured in for days.
Then we turned around and talked to other real-life people who could shed light on our study. (To this day, most of them probably don’t realize they were a part of this research. They were just helpful folks, willing to chat a bit.)
When the dust settled, here’s what we had accumulated:
– Samples of actual pay packages for real people.
– Examples of current Business Development job opportunities.
– The candidate’s current position and Return On Investment
– A functional compensation model for his work.
– A value model from the client’s point of view.
As we reviewed our results and started to draw conclusions for my client, we began noticing some really eye-opening trends.
What surprised me most was the surge of companies (of all sizes) looking to add Business Development people, right now. It’s big.
And with all that activity, I figure there’s a chance that you, too, might be considering the strategy, for your company. If so, maybe these notes will help you organize your thoughts. It’s a portion of our study that isn’t too company specific.
First things first, I guess… We start with a quick look at the position itself.
UNDERSTANDING THE POSITION
It’s no surprise that Business Development is a big investment. And it’s a long term investment.
The nightmare for company leaders who are just now contemplating this strategy: Unlimited expenditures for uncertain results.
The good news: It’s not a matter of pumping out a pile of money and hoping things work out. You can actually determine if you’re on track, within weeks of startup. And you can monitor and project your progress toward new revenues all along the way.
Or, at least, that was the situation surrounding this particularly well-connected candidate.
The surprise cost: There’s no way around it. Business Development is a chaotic process. The whole point is to create new relationships where none had existed before. And that pretty well guarantees that your support staff is going to take on a whole load of new work, like estimating and quoting. And it creates significant time demands on the president and vice president, or their credible stand-ins.
If you’re considering going down this path, plan for that expense now.
As I told the client, once you’ve planted these seeds, you do have to show up to harvest the crop.
We started off, looking to answer the question:
“How should we pay a Business Development candidate?”
It turns out, that’s not the only question.
Any answer creates immediate follow-up questions like:
“What do we get for the investment?”
“How does it work?” and
“Can we afford it?”
We tried to keep a lid on the conversation, so we could get the study out of our hands and make it available to the leaders who had to evaluate a strategy.
Our study was created, then, as a first resource to help guide company leaders through their process.
UNDERSTANDING BUSINESS DEVELOPMENT
It’s not sales.
It’s more like face-to-face marketing.
And, because some folks get a little sloppy about what marketing means, let’s agree that sales is more transactional. Marketing creates awareness, desirability, and credibility.
Marketing people don’t make sales. They enable them.
SALES REPS VS. BUSINESS DEVELOPMENT
OBSERVATION #1 – In a sense, this difference helps explain why industry typically lays off sales reps, going into a downturn. Employers don’t believe there will be any business to close. And they REALLY don’t believe that their reps will spend their time opening new opportunities.
OBSERVATION #2 – Along the same lines, this is why Business Development people are in high demand, coming out of a recession (like right now.) Companies are deliberately positioning themselves to compete for new business opportunities.
OBSERVATION #3 – Business Development is not paid the same as the Sales Team.
– Business Development is compensated for quality and quantity of new opportunities.
– Sales pay usually rewards closing ratios and profit margins.
Strong Competitors already know they can win.
They use Business Development to get them in the game.
AN EXAMPLE OF HOW BUSINESS DEVELOPMENT WORKS
Think of a Business Development specialist as a Relationship Marketer.
In the Business Development world, the relationship is everything. It’s the foundation for your future business growth.
And your Business Development person will be making huge quantities of contacts at very high levels. Lots and lots of them.
The basic process is pretty simple:
Your Vice President of Business Development makes a friend,
Gets you invited in, and
You build on an opportunity.
From there, he expects your business to grow from project to project.
… from each original source point of contact.
Did I say Vice President? You should consider it. If most presentations are going to be made at the VP level, you want your Business Development person coming in at that peer level. It indicates you’re serious about the relationship.
WHAT SHOULD YOU EXPERIENCE?
Business Development should get you invited into one company after another.
Face to face with the correct decision maker.
With real potential.
In an atmosphere favorable to your sales team, including your:
– Vice President
– Project Manager
Evidence suggests a good Business Development pro should deliver 20 – 30 new introductions his first year. (This will vary by industry group, and all the other things you already know.)
Think in terms of two introductions a month.
HOW IS THIS KIND OF PRODUCTION POSSIBLE?
It’s an ongoing, dedicated effort. It works best if your Business Development person is very, very big on personal contact.
Under those circumstances, you may be scrambling to handle all the opportunity.
That’s because your Business Development VP isn’t your detail person. Somebody else handles that.
Here’s the great part:
A good Business Development specialist will be from your industry segment.
It’s someone who in fact does understand all the details at all the levels.
In any part of the process, this is someone who can and will hop in to help.
Some Business Development people can estimate, bid, present, or even run a project. (Those are the folks who really know what they’re talking about.)
(Don’t get greedy. Keep your Business Development effort working on Business Development. You have other people who should be doing the functional stuff.)
WHAT’S THE RAMP UP TIME?
A well connected pro from the industry will have an easy time building off previously established contacts. In some cases, these efforts will start from scratch (for example, you might be switching markets.)
Starting from absolutely nothing, good quality contact totals might accumulate to 700 – 1,000 people by the end of the first year.
Your pay off, of course, takes longer. Do expect to take in new business during the first year. You can also expect to run negative. In year two, you might very well go positive and never look back. In the engineering world, a single million dollar contract should recover your start up investment. A ten million dollar engineering contract can make you good for the next ten years.
Realistically, you need to understand that initial contracts with any new customer may be small while you build credibility. Later contracts should be large. And that is your reward.
Net, net: The actual time frame when you go positive is uncertain. Figure sometime in your second year. If you can sustain a positive effort and track it, you ought to recover a rolling payoff in multiples of your initial investment, once the results start coming in.
WHAT DID OUR RESEARCH TEACH US ABOUT COMPENSATION?
Every time, proper Business Development compensation comes down to
– a base pay package,
– expenses covered,
– with incentive tied to how the employer benefits from these services.
For an engineering firm, I recommend thinking of a pay package in the neighborhood of $200,000. A quarter of that will be incentive based.
Here’s why: Many Business Development executives in engineering companies were once Senior Engineers, themselves. They are typically Professional Engineers or Principal Engineers (or both.) The way they become Business Development people is by jumping off a cliff and spreading their wings.
Their employer usually says something like, “I’ll guarantee you the same money you were making as an engineer. That will be your base. Then, if you do any good, you’ll get incentive pay on top of that.”
OK. A little informal, but common. That means that engineers at that level – across the U.S. – who can easily earn $120,000 to $180,000 as an engineer, will expect nothing less as a base.
COST COMPARISONS – ACTUAL BUSINESS DEVELOPMENT OPENINGS
Does that hold up in real life? It does.
Right now, you can find numerous postings for Business Development professionals with base figures running from $150,000 – $200,000. Sometimes you will see stock options on top of that.
In fact, I was shocked to realize how many Business Development openings are under active search right now. In our narrow study, we found dozens.
Employers range from the huge conglomerate names to the small startup outfits. It’s everywhere.
What I can’t easily tell you is whether companies are actually closing on the candidates they find, or whether they’re stringing them along, hoping to wait as long as possible before they pull the trigger.
COST COMPARISONS – PROFESSIONAL ENGINEERS & PRINCIPAL ENGINEERS
As I mentioned earlier, this is a typical starting point for creating a base pay rate for Business Development people in our industry.
For lack of a better plan, employers will tell a Senior Engineer that it will be safe to move into Business Development. There will be no pay cut. The base will remain the same.
Therefore, the pay for Professional Engineers and Principal Engineers frequently comes in at the same rate as the base for Business Development people.
I have done extensive searches for Professional Engineers. Most at the level I’m describing accumulate around the $140,000 – $160,000 income level.
WHAT’S HAPPENING NOW
I think it’s safe to say that smaller, unfunded companies are finally tapping out. It may be possible to pick up contract work, but it’s not possible for them to cover an entire payroll.
Larger companies have cut staff to the bone. They have a core team, and that’s it. Most companies who are searching for work have a greater problem when they find it: How do they finance the work, and how do they get the work done?
Resources from just two years ago may not be available any longer.
Everybody, it seems, is willing to invest (or consider investing) in some kind of a sales effort.
Middle level engineers are being repositioned as Sales Reps. Senior Engineers stay back and take care of the existing accounts.
Again, it’s not clear to me how a company will fulfill a contract when their engineers have been turned into sales people.
MORE IMPORTANT: I’m also not clear that newbie Sales Reps can compete with powerhouse Business Development pros. I don’t think they’ll have a chance.
The toughest part today is timing. Nobody wants to be left behind. Nobody wants to be the first guy out of the gate, only to get his nose bloodied.
So many leaders hesitate.
You can solve this problem using a longer term Business Development strategy. It blows through the near term instability, ignoring it completely. Business Development focuses on the larger, more certain pay off down the road.
You’ll be in the right place when the timing is right.
WHAT YOU GET
The key is to sustain your effort. If you can go the distance, I believe your rewards will be significant:
You will be meeting new business sources shortly after your campaign begins.
You will be circulating where higher margins will be available.
You will become well known, at a personal level, in this industry and in your market.
As the economy recovers, tight knit communities will first let contracts to people they know and trust.
And that’s a very good time to have a persuasive Business Development VP on your side.
If you have specific questions about how our study might apply to your strategy, please call or e-mail your questions to firstname.lastname@example.org We’re happy to share what we’ve learned at absolutely no obligation.