Private equity · Partnerships

Should you give equity to a business development person, who joins late?

Nickolay Kolev Freelancer at Private

September 2nd, 2016

I have created a B2B service. It is a done in its current development stage and right now I need to get some traction. I need that to 1) prove and tune my product and 2) be able to approach investors.

I am a technical person and need to work with a business development agency or person to achieve my goal.

At this stage, how should I compensate this partner? I can only offer equity at the moment, but how much?

Chip Scully Vice President at Adestra

September 3rd, 2016

Give equity only if you want that Bus Dev person to feel like they are part of the same team.  I would think that would mean that you do offer equity.  You can also tie equity to their success - though that likely makes it more complicated.  Last time I check a bunch of engineers w/o Bus Dev does not get you too far, and visa versa.  

Martin Omansky Independent Venture Capital & Private Equity Professional

September 3rd, 2016

Grant options based on performance. Tie the exercise period to some time frame. Our experience tells us that to Ttract a CEO, for example, you need to furnish options of +/- 10% over a 3-5 year period. Sent from my iPhone

Neil HereWeAre Want To find-close Business Online without competition Before They Google Search? We solve this problem 1(508)-481-8567

September 3rd, 2016

Using manufacturer's reps. I went from Zero$ to $1,000,000 in one year. Carefully selecting reps based on their connections and clients in my clearly identified target market audiences, I got them to take on my product because it, IN THEIR VISION was perfect re what they were known for selling and it was, in their opinions perfect for their markets and clients. 

Remember, Reps get paid on each sale and don't take on a product unless they know they can do well with it. That's why that path can work for you re sales and validation of your product and its marketability.

Also, since manufacturers reps are respected as process, product, solutions and software experts in their fields by their target audiences, they can bring their reputation into the selling process for you instead of you trying to get sales and acceptance traction as an unknown "new kid on the block". THat gets you the fast start and long term repeat business without having to hire a business development person.

On the product validation/value marketability side, The other side of going through manufacturer's reps is that as you talk with them, they can and will give you an honest and accurate assessment of what you offer, your competition v you, if it can sell, why, to whom and also if it cant sell and why.

That type of real world input is a critical key to unlocking how, what it will take, who will be your ideal target audience and what type of actual sales volume you could expect. Even more important that kind of input will tell you if you should even proceed with your product v time and probable ROI/profit opportunity. 

OK, thats my real world example of how to address your issues re business development and also getting traction/sales. You may not need investors id you go in this direction but if you do, you can approach investors with a product that has sales already.

Martin Omansky Independent Venture Capital & Private Equity Professional

September 4th, 2016

I don't agree 100% with every point you made, Paul, but I especially disagree with your assertion that "a good biz development person can build a business around ANY product", This is misleading. Ideally, you want a business development person to have a command of the technology and comparative advantages that the product brings to the market - and you want a biz development person to have knowledge and long experience in the relevant industry, I do agree that a generalist biz dev. person can be helpful, but someone with such skills and industry/technology chops would be preferable. Sent from my iPhone

Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

September 3rd, 2016

You compensate people based on what you think it takes to motivate them to accomplish your goals. Seems to me "joining late" isn't the standard... I can think of lots of companies that are more than 100 years old that provide equity incentives to key employees.

Mike Masello

September 3rd, 2016

I'll tell you from the business side, if the person is worth their weight, the equation is the same.  Often the tech side feels undervalued, but when anyone is approached for an equity only position that they would be working 40+ hours/week on you should be viewing that person as a partner.  Especially given the stage it sounds like you're in.  If you're X months in with little to no revenue and you need a partner that is expected to be a co-founder expect to divvy up a significant portion of equity:

Jim Scott CFO * Financial Growth Accelerator * Virtual Company Architect

September 3rd, 2016

Make any offer performance based and contingent on results. Options only in common shares or participation rights. If they want Preferred Shares- beware, you are dealing with rip off artist. 

Ephraim Ben Dor

September 3rd, 2016

Find someone YOU WANT to be a *partner* with (!)  and lure him with whatever you have to in order to bring him on board. I've seen 5-months "dating periods" so take your time.  If your equity is vested make his too and if not - give him the same deal you get.  that was a bad advise you got - don't make any offers contingent on success or future performance unless you are paying cash salary.  because you'll filter out too many good opportunities at this stage.  also those who said to pay commissions only gave you a bad advice too - it works only if you are willing to accept high turn over of people which is not what you need at this stage.  Good luck! 

Paul Mobley, MBA

September 5th, 2016

Martin, I agree with you that part of the process in developing a business around a product is to understand the industry, product attributes, and the competitive forces that dictate who will get to keep the value created.

Nickolay I was not trying to minimize the importance of the work that you've done to create value.

The fact is that a business strategy isn't necessary without a product/service that meets the needs of a group of current or potential customers. So while you might say that the person/agency in business development (which I assume is more than sales but also includes the corporate leadership and strategy to build a profitable business) is coming late it seems to me that you were not ready for that role until now.

In business school they often talk about the product as a widget. Why? Because the skills they're trying to teach can be applied to many different products/services in a multitude of industries including government and non-profits. The information on the product was not shared so it was distilled into a widget.

Even if you start to generate revenue it is possible to succeed into bankruptcy (i.e. If you get traction while losing money on each customer and you don't have enough resources to get to the break even on the customer's lifetime value).

The point I was trying to make is that each step along the way, as you grow the team, you'll need to assess if each person and the skills and/or resources they bring will improve the value of the business and move it towards profitability. I was not trying to say that one skill set was more valuable than another. It's the combination of valuable skills working towards a common goal that creates a viable business. As the leader you'll need to assess the importance of the next set of skills that are required to accomplish your goals and your bargaining power to obtain them.

Ashley Titus Founder at RAGS Solutions

September 3rd, 2016

Could I also connect with you on LinkedIn as I am in a similar situation and could do with such support.