“Business development” is one of those terms that, on the surface, is pretty self-explanatory. Clearly, it refers to helping a business grow into a viable, sustainable source of profit. But at the same time, the term is quite vague.
A lot of different factors go into helping a helping a business grow, from marketing and sales, to increasing profit margins and distribution. So what is business development exactly, and why does it matter for your company?
There is no single definition of the term “business development” that is widely used, but it could be defined as the pursuit of opportunities designed to create long-term value for a business.
In that regard, business development is not concerned with immediate “wins” such as a big sale, or a limited-time offer. Instead, the key focus of business development is to increase the value of a business in the long-run, such as by establishing a strong base of repeat customers, or improving a brand’s name-recognition and reputation.
Measuring Business Value
So when we ask why business development is important for your company, the answer may seem obvious: value is good. But there are many ways to measure value, and not all of them are worth as much as the others.
“One of the most basic ways to measure the value of a business is to look at the profit it makes”
Terry Abbott, Shelbourne Accountants
Looking at profit alone is a simplistic overview, but many things can affect business value in the short-term, such as a big, one-off sale.
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This would make the profit for that particular year look bigger, but if the sale was a guaranteed one-off, then this profit does not accurately reflect the overall status of the business in general.
Measure By Intangible Assets
Another, less-common way to measure value is to look at its intangible assets.
For example, a comprehensive global supply chain is an incredibly valuable asset for a business to have, as it enables them to introduce new products to as many different markets as possible in a short period of time.
This will attract better business partners and enables them to negotiate more lucrative contracts. Alternatively, if you owned the intellectual property rights to a biodegradable form of plastic, you would not need to make any sales before the value of your business increased substantially.
The Five Stages Of Business Growth
Business development prioritises opportunities such as these, which create long-term value, but also take longer to build up. Exactly what kind of strategic opportunities a business developer will pursue depends on which of the five stages of growth the business is at.
Stage one: An Idea Is Born
The first stage is where the idea is born, which involves identifying any potential long-term opportunities, whether there is a gap in the market, and if there could be profit.
Stage Two: The Idea becomes a business
If an idea is worth following up on, the next stage is to turn it into a business. In this stage, the development opportunities include seeking funding and investment, finding the best staff, and identifying and securing customers.
Contrary to the definition of business development as seeking “long-term” opportunities, you could argue that this stage focuses on securing enough funding in the short-term to keep the business afloat.
However, this is just a means to securing the long-term goal of creating a viable and stable business.
Stage Three: Bringing In New Customers
The third stage is quite important in terms of business development, but can often be skimmed over by entrepreneurs who get swept up their success so far.
Logically enough, most businesses in this stage want to bring in new customers, and scale the business as much as possible. But before trying to increase profits, it is best to try to increase your profit margins.
Once the business is established and has a reliable client base, you have a period of reasonable safety.
Stage Four: Increasing Business Profitability
This is the time to try and increase your productivity, lower costs, and increase your profitability.
Not only will it be easier to attract customers with a better, cheaper product or service, but any subsequent sales you do make will be more profitable for you.
Once you have made your operation as efficient and cost-effective as possible, it is time to scale the business. This involves seeking new clients, as well as new distribution channels, in order to increase your share of the market, as well as identifying any new potential revenue streams.
This could include things like a subscription-based service, the introduction of a new product to your portfolio, or the repositioning of the business in order to enter entirely new markets.
Case Study: Michelin Star
A perfect example of a company that has done this well is Michelin. Few badges of honour in any industry command the same level of recognition and respect as the Michelin Star. And yet few people ever stop to wonder why the ultimate prize in decadence and sophistication is awarded by a company that sells tires, one of the least glamorous products available. In reality, the reason is ingenious for its simplicity, and highlights exactly what a good business developer should be doing.
In the early 20th Century, around the time cars were becoming more commonplace and less of a luxury item reserved for the rich, Michelin had a strong international distribution network. Using this network, the compiled a free guide with information to help motorists, from maps and repair instructions, to hotel and restaurant recommendations. The initial idea was to encourage people to drive more by making it as easy and appealing as possible, thereby increasing tire sales. Today, the guide is so successful in its own right that many people never even realise it is associated with a tire company.
Stage Five: Business Maturity
The final stage of business development is when the business matures, which is marked by an increased, stable market position, and a plateauing of the rate of expansion.
But even if profits are healthy and you own a huge share of the market, stagnation is never a good thing for business.
At this point, therefore, a business developer needs to decide the way forward.
This means either going back to stage four and looking for new opportunities to expand, or simply deciding that you have taken the business far enough and planning your exit, such as by selling your stake in the company or taking it public.
In some ways, business development is a relatively formulaic process. In order to be done as well as possible, the stages should be followed in sequence, which pretty much anyone can do. But ultimately, the people who will be most successful at business development are those who can think outside the box, and identify opportunities that others have missed. If you can do that, then achieving success could be as easy as simply sticking to the formula.