The Entrepreneurial Manager Harvard Business School 20 April 2001

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

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

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

4. The Business Development Process Develop Business Model Identify Opportunity 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. Map Keurig’s Business Model Office Manager Brewer Vendor (Vandelay) Office Coffee Supply Distributors Brewers $650-$825 Brewers $1000 Brewer at ? K-cup @ $0.50 ea.. Line Vendor (MTS) $500k-$700k Premium Coffee $0.04 Royalty per K-Cup K-Cups @ $0.25 ea.. Filler Line Out of Pocket Cost = $0.13 per K-cup Coffee Drinking Employee Starbucks Alternative = $.75-$1.00

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

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

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

9. Managing Relationships • Ongoing management is required because reality is too complex to fully contract. • Guidant’s 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 • How can managers assess whether business development is right for their organization? • How can managers articulate a clear vision for the business development group and tie it to concrete performance metrics? • What are best practices in optimizing each step in the process of identifying, evaluating, negotiating and managing partnerships? • 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? • How to identify the best candidates, evaluate and compensate staff? • How to use contracts to capture and consolidate learning?