I generally treat business development as another description for marketing – identify the markets for the products being produced or could be produced by the company. Now, what is meant by markets? One real life example is the entrepreneur who developed flat screen advertising for elevators in China. For those who have not been in China, the elevator system for the many Chinese burgeoning skyscrapers is slow moving. This entrepreneur knew that he had a captured audience in a slow, sealed elevator. He also had access to the new technologies – flat screen TVs, which were being manufactured locally and inexpensively. Finally, that captured audience was an easily identifiable market – middle class or upper middle class riders, because who else would be riding an elevator in the large cities in China unless a target market to go to work at some office or meeting someone in that skyscraper. This entrepreneur recognized the key facts already: growing numbers of skyscrapers, easily available flat screens, slow moving elevators, a growing middle class – enough information that built a multi-billion dollar business. Hence he had the market identified, the technology, macro-economic trend, and the products. This example shows the simple approach to business development.
Let’s talk about technology first. Michael Porter of HBS many articles clearly underlie the fact that even marketing applies to technology. In other words, technology does not make a market, it only meets a demand for the market. Let’s look at iPods. Prior to the first iPod, one could easily buy a “PDA” – a personal digital assistant such as Dell’s. It had the same functionality of an iPod – one could store music, use it for calendars and rolodexes. It did have limited capabilities to interface with the Internet. Prior to PDA, there was the Sony’s Walkman, the personal cassette player. Sony and Dell were close to the solution, but failed to integrate technology development with the needs of the market. Cassettes had severe limitations in terms of size and diversity. The PDA did not simplify easily the downloading of music. Apple saw the markets and identified the technologies that would meet the needs of that market. With a fast shrinking data storage technologies, Apple could easily build smaller and lighter playing units. By adopting the other technology, the Internet, Apple developed a virtual shopping mall for music accessible to the market. Meanwhile, it negotiated with the music industry to pay only a third of price of the cost of each song as music royalties, and gain another source revenue beyond selling just the hardware – something that never occurred to Dell. And Apple knew that this is market was not price of an album, but volume even at $1 per song – all identified through the Internet. But this strategy did help Apple earn millions of dollars of revenues every year beyond the hardware sales, and simplified the life of users to download additional music for their iPods. None of the technology adopted in the original iPod was frantically new or disruptive. What was new was how the original iPod design and functionality met the needs of the market — from the Apple music store to the use of small but efficient storage devices – that simplified the life of a user to use a portable music device..
How big is the market? The first approach to marketing is to identify the size of the overall market – in other words, if you had 100% market share, what is the numerical size of that population. In the case of the elevators, one can suppose elevator traffic, newly built skyscrapers. For the iPods, anyone interested in downloading music and had access to the Internet. But market size can be small as well. In evaluating the value of a medical technology, I had an interesting challenge in identifying the size of the market. It took me over two weeks of understanding the technology, its application, the size of the market and the competitive environment. The technology was a proprietary software designed for implantable, electrical pain control system. The software platform established a management system on how quickly and slowly the electrical impulses would be dispensed. There were competing devices. There were implantable devices that injected pain killers to the spinal cortex. So I knew that there were various competitors but few major manufacturers. The key to the valuation was not the patent, or the unique technology. The key was the addressable market. Whatever implanted technology existed, it only applied the potential users of that technology – and the key was patients who suffered chronic pain – chronic pain being defined as long lasting pain that persists over long periods of time and most pain killers cannot resolve. In other words, for a population of 380 million, it would reflect somewhere in the vicinity of 3-4% of the population. That is the addressable market. So the market size was small, identifiable, but also revealed that the potential revenue lines were finite and small, even though the investment risk was small.
So the key to any business development is to find the addressable market, see if it increases in size or is finite, and determine the elements of the product or service that meet that addressable market. Without these numbers, how can any business determine the market potential or even make market share projections? How can you hit a target when you don’t know what it is? At least with these parameters, anyone can begin the first step to business development.