This post originally appeared on the American Express OPEN Forum, whereMashable regularly contributes articles about leveraging social media and technology in small business.
At an early stage company, there are many unknowns when it comes to doing business deals intended to drive adoption or revenue. Is the product ready for distribution? Will this deal live up to expectations? What if the partner does something that delays a launch? How much should we charge? Should we charge? What is the right thing to do right now?
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Often, the deals that you do not do are as important as the deals you do. A bad deal can consume and distract important resources, waste valuable time, cost money and in some cases take a company completely off the rails. Here are some tips on deciding what deals you should do and what deals you shouldn't do.
1. Assess Opportunities Quickly
Don’t make this complicated. The matrix below is simple and can be used to plot opportunities to lead a discussion that produces clear next steps. Measuring growth is pretty straightforward, as are users, revenue and page views, while quantifying strategic can be a bit fuzzy. But, in most cases, teams can agree on the high level attributes. Keeping this framework simple, short and actionable is a must. Set direction and lay out next steps — then check in along the way.
2. Money Is Different Than Revenue
Revenue deals are tied to a company’s core assets and talents, and become a repeatable and scalable business. This involves an understanding of the different pieces that need to come together and how it comes together in your operating plan (whether you need to hire staff, buy servers or pay commissions, for example).
3. Money Deals Distract Your Company
Why? Because these deals do not play to the skills and vision of the company or leverage the core assets and talents. These deals typically happen when someone approaches the company and offers money in exchange for what amounts to customized development, or when a company is struggling and trying to reduce cash burn, find a business model or simply build momentum. There are exceptions here –- sometimes the right deal can take the company out of its comfort zone and lead to bigger and better opportunities, but that is more of the exception.
Revenue Deals
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- Leverage core technology
- Plays to team’s strengths
- Scales efficiently
- Good for users, the company and partners
- Feels right
Money Deals
One-off project
Often priced on estimated effort
Opportunity cost is a factor
Strong internal hesitation
Need to generate cash flow is a primary factor
4. Debate the Assumptions, Not Partners
We all have our opinions of company X versus company Z, so it is important to discuss a potential deal in the context of the value it brings to your company. Productive conversations focus on the assumptions like conversion rate or channel reach of one partner versus another. If there are serious differences of opinion, you may want take a step back before moving ahead with any deal and make sure the team is aligned on where you are going.
5. You Can't Always Measure the Big Opportunity
Strategic deals and revenue deals can overlap — hopefully they do. However, there may be instances where the path to revenue is not immediate or measurable. This is a great time to get advice from your board, advisors and key management. Write out a short list of the benefits for both sides and refine the list to a point where you are comfortable with the reasoning and discussing the points with others. Putting the points on to paper (or screen) force you to crystalize your thinking and when you talk through it with someone it almost always leads to great insight.
Making decisions that impact resource allocation is not easy, especially when smart, passionate people have strong and often reasonably informed opinions. Hopefully these tips will help you focus on building a great product that can drive revenue and avoid “money” deals.
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