Ben Franklin and the art of business developmentMarch 31, 2011: 2:40 PM ET
What today's Internet entrepreneurs can learn from one of America's original founders
By Mike Volpi, contributor
In the late 1770s, America was a start-up nation that had declared war against the Microsoft or Google of its time. While the American entrepreneurs were courageous, industrious and intelligent, they were facing a formidable foe – England had the most powerful military and sophisticated technology of the day. Amongst the leaders of the newly-founded nation, there was a realization that the United States could not have prevailed over England alone. It needed an ally.
For the 100 years leading up to American independence, the rivaling superpowers of the day were England and France. But, France had recently faced scarring defeats at the hands of the English in the Seven Years' War, so American leaders needed a great envoy to convince King Louis XVI to join forces with them. They chose Benjamin Franklin, who got on a ship bound for Pairs... to do some Business Development work.
Much has been written about Benjamin Franklin and his effort to convince the French to partner with fledgling United States. Interestingly, so many of the concepts apply to today's Internet world. By observing the circumstances of the time, entrepreneurs can learn what are the best practices in Business Development which are still applicable today.
Lesson 1: Who to partner with
France, the "Number 2" power at the time, had a healthy dislike and animosity toward the top power. With a 440-year history of wars with England and reeling from the recent loss to the English, the French were intrigued by the idea of getting back at their rival. They were the obvious ally for the Americans.
Here is the first lesson of Business Development. A start-up's natural partners are not the market leaders. Generally, market leaders enjoy the inherent advantages of being the biggest and most powerful player. They may have weak spots here and there, but, the natural momentum is to maintain the current state of affairs. Hence, working with start-ups who have a disruptive agenda is generally not the obvious course of action. The more natural ally of the start-up is the second- or third-place player who still has scale and power, but has an interest in changing the current order of things.
Take the example of Zynga in its early days with Facebook and MySpace. While the two social networking superpowers were at war with each other, when Zynga started, it decided to put its eggs in Facebook's basket. Why? Because, Facebook was the number 2 player. They wanted to use the eco-systems forces to continue their growth and surpass MySpace – which was the leader in social networking at the time. The partnership ultimately yielded big dividends for both, propelling the companies to leadership positions in the respective markets.
Lesson 2: How to work you partner's organization
While France seemed like the obvious partner, it was actually rather difficult to convince them to join in the cause. The French were ostensibly at peace with Britain and were reticent to make a bet on a start-up nation. The idea of supporting an uprising against a monarchy did not resonate well with King Louis XVI. Franklin began by finding an advocate within the French court. He found it in France's foreign minister: Comte de Vergennes. Franklin saw that Vergennes had a streak of independence in him and a love for the middle-class qualities of the Americans.
Lesson two in Business Development is to find your advocate in your partner's organization. As a board member, all too often I get the request from entrepreneurs to get an introduction to the most senior person I know in a powerful organization. Entrepreneurs want to meet Larry Page, Steve Ballmer or Mark Zuckerberg. With their natural conviction and will power, founders believe they can convince anyone of how significant their company is going to be. They often forget that these big-time leaders are awfully busy and have a few other things to worry about: like running their own company. Not that meeting with these celebrity figures is the wrong move – it can work. But, it is a low-probability option and one that can backfire by alienating the business development leader of the partners' organization.
A better path is to cultivate a relationship with the right person in your ally's organization. Sell them, dine them, and allow them to be the hero by having discovered you. Understand what their agenda is within their own company and help them become successful. It is much easier for CEOs in large organizations to follow their own team's recommendations, rather than to push down an unpopular view into the rank and file.
When I was responsible for business development at Cisco, many companies would sweet-talk John Chambers' admin staff to have a meeting with him and pitch their company. Inevitably, he would walk down the hall with Diet Coke and presentation in hand and ask me to have a look. Sometimes, these were start-ups that we had already decided not work with (and had now managed to turn us off for a second time….). Even if the idea was interesting, the fact that these companies had completely skipped the process and gone straight to the top did not ingratiate them with Cisco's bus dev team, who now had to act as their shepherd through the complex organization. The entrepreneurs that we got most excited about were the ones that came to us through recommendations of people we knew or that we somehow discovered. The really good ones, allowed themselves to be discovered.
Lesson 3: Convincing your partner
Vergennes was a great ally for Franklin and the Americans. He advocated supporting the United States to the French court. He made the case that England was an aggressive and unjust enemy and that it was in France's political and economic interest that England be crippled in this "divorce" from America. Franklin employed one of the best strategies in Business Development to convince Vergennes and, ultimately, Louis XVI to support the US. He appealed simultaneously to both their realism and their idealism.
The realism was a pragmatic thread of logic: It was in France's best interest to have the English face defeat in this conflict. Plus, the US was willing to give up a significant geographic slice (the Louisiana Territory) in return. The French clearly wanted to beat the English and the Louisiana Territory was like an interesting option for future value.
The idealism was really an appeal to the fact that America's independence movement was one based on the moral virtuousness of freedom. Why should America be bound by obsolete rules from a King from across the Atlantic Ocean. How could France not join in this movement? It was an appeal to the heart of the French rather than the mind.
In today's world a similar strategy can work brilliantly. Good business development deals have certainly elements of both realism and idealism. Realism is about alignment of economic interest between two organizations. Companies have goals they want to achieve: Reach new customers, secure resources, tackle competition, ultimately creating more value of their stakeholders.
In the case of entrepreneurial ventures, the smaller company will often have a technology or other asset that the bigger company can use to its benefit. In addition, the start-up has "option" value: An unknown economic benefit that could reward the stakeholder when exercised at a later date. Not surprisingly, many of the more interesting business development deals involve the larger company taking an equity stake in the entrepreneurial venture. The alignment of economic interests can be permanent or temporal – it is not mandatory that a business development deal last a prolonged period of time. The parties involved can definitely strike an accord that is short-lived, but mutually beneficial.
Franklin appealed to the "heart" of the French in his negotiations. This is a much more subtle and delicate strategy. In today's context, this is about selling the vision of the new venture to the partner organization. Visions are amazingly appealing concepts. Even the most pragmatic of gatekeepers want to be part of the creation of something significant. It appeals to the human desire to aspire and the affinity to the "cool new thing." The vision can also be fortified with indicators of early success. When you are small, it doesn't take much to show 100% growth. While, the numbers can still be small in an objective sense, growth and early adoption can be powerful reinforcements to a vision. Faced with a compelling vision, early success and a sense of destiny, entrepreneurs can convince larger partners to embrace them as partners.
Lesson 4: Managing your partner
In 1777, the French were convinced. They initially provided funds and weapons to the Americans, but gradually increased their support to their full troops. America had acquired its powerful ally. But, Ben Franklin did not turn around and come home. In fact, he resided in Paris from 1778-1785. While there, Franklin wove himself into the French high court and continued to maintain a high fidelity communication line. Many historians attribute this continued presence as the secret to a successful partnership between the U.S. and France.
Business development professionals in today's Internet era often forget the importance of relationship management that begins once the legals of an alliance are signed. The agreement between two companies is just a starting point. Relationship management ensures the coordination of efforts between the two parties; smooths out misunderstandings and miscommunications; and re-arranges the agreement as the context of the partnership changes over time. In an ideal situation, it is best if the same person who originally architected the agreement also play the role of managing the relationship.
This was the case with Franklin and the French. The power of this arrangement is that the authors of the partnership have the original context and principles under which the agreement was drafted, hence they can often overcome difficulties much more easily. In the event that is not possible, however, it is still important that the two parties assign specific people to manage the relationship manage and maintain those resources in place for as long as possible.
There are often two problems with this: resource limitations (especially for a small company) and the fact that "deals" are organizationally rewarded, but relationship management is not. On the resource limitation issue, the only answer is that this is an prioritization issue – how complex is the relationship to manage and how important is it. The higher the complexity and the importance, the more critical the need to apply resources to it. On the rewards issue, it is best to apply metrics or performance indicators to an alliance and reward both architects and managers of that deal when it is successful. If those rewards don't exist, the job of the relationship management becomes just a chore all too often.
We often pride ourselves for having tackled issues that no one else in the past has seen. In reality, history often teaches us tremendous lessons that apply even in today's world. Emails have replaced messengers traveling on ships, encrypted keys have replaced waxed seals. But, the principles of deal-making and relationship management in complex organizational contexts are very much the same. It takes a lot of acumen and good process to get a business development deal done. It takes patience and persistence to manage relationships. Today's Vice Presidents of Business Development can learn a lot from a man who flew a kite with a key on it 250 years ago.
A special note of recognition to Walter Isaacson and his book, Benjamin Franklin: An American Life, which served as an inspiration for this post.
Mike Volpi has been a partner with Index Ventures since 2009, before which he served in several executive roles for Cisco Systems, including chief strategy officer. This post first appeared on the firm's blog.