Olsonomics

The power of business development: A chat with GrubHub's Steve Sanger

Tue, 15 Feb 2011 06:00:00 -0800

Sales and business development are sometimes very hard to distinguish. In fact, a lot of companies use the terms interchangeably, which is unfortunate given the difference in the two functions. Following up on last week’s sales-focused interview with Craig Wortmann I thought it would be useful to interview a business development veteran as a way to compare and contrast business development and sales. Luckily, my friend Steve Sanger, V.P. of Business Development at GrubHub, was willing to chat with me about his thoughts on business development. I think you will find this interview especially insightful.

Steve, please tell the Enterprise City readers a little bit about you.

I am currently the vice-president of business development for GrubHub, the leading website for consumers to order food online for delivery, where I am responsible for negotiating partnerships that drive revenue for the company. In addition, I am a member of GrubHub’s senior management team involved in defining and executing the company’s overall strategy.

Prior to GrubHub, I held various roles at Tribune Interactive (now Tribune Digital), Wm. Wrigley Jr. Co., Diamond Management & Technology Consultants (now PricewaterhouseCoopers) and First Industrial Trust. I received my MBA from the University of Chicago Booth School of Business and my undergraduate degree from the University of Kansas. If anyone is interested in my thoughts on the technology space, they can follow me on Twitter @stevesanger.

Perfect. Let’s dive right in, shall we? What is business development? Isn't it the same as sales?

To me, business development is about identifying opportunities, either externally or internally, that have the potential to drive additional revenue or intrinsic value for the company. In addition to structuring business deals with third-party companies, my day-to-day work involves some corporate strategy, strategic marketing (since many of our partnerships are a form of marketing), corporate development, advocating product ideas that increase revenue and looking at various channels such as mobile and social, to drive orders to GrubHub.

The trend the last few years has been to group business development in with sales, which is unfortunate and limiting in its scope. Business development can be confused with sales because of the common goal between the two business lines (i.e. driving revenue). I would say that differentiating factors for business development are the focus on large-scale partnerships and the involvement with the long-term strategic goals of the company. Not to say that sales does not get involved in these initiatives, but sales has a focus of acquiring one customer at a time and being the “face” of the company.

When should an entrepreneur consider hiring a business development person?

I think each business hits a certain inflection point when the need for a business development person is important. For GrubHub, the decision to hire a VP of business development came at a transitional time in the company’s history. Sales were increasing in each of GrubHub’s 13 markets, and the company had plans to launch in more new cities. GrubHub’s co-founders, Matt Maloney and Mike Evans, did not have the time to develop the relationships required for successful business development efforts due to the company's success. Matt was focused on raising capital for the business, and Mike was involved in managing the day-to-day operations. Matt and Mike recognized the need to bring someone into the organization that could quickly get up to speed on GrubHub's business and had a background executing deals with digital companies.

Matt and Mike believe that GrubHub’s growth can be achieved through multiple channels and that business development can build revenue growth on top of the success of its top-notch sales team run by Nick Kellermeyer (VP of sales). Other successful Internet ventures, such as OpenTable, benefited tremendously from business development efforts, and Matt and Mike want to replicate that success.

The addition of business development as a new business line came at the perfect time. We are at an exciting point in our company’s history given the recent round of series C funding from Benchmark Capital and the growth potential from that investment.

What are the key skills one should look for in a business development person?

There are five skills that I think are essential for a business development person to be successful.

-- Interpersonal skills – The “softer skills” are often overlooked in business in general, but they are incredibly important, especially in a business development role. You need to be an effective communicator and listener, both internally and externally. If I am speaking to a prospective partner, I focus more on what their objectives/goals are and how GrubHub might be able to assist them in achieving those goals. I am selling, but I never assume GrubHub’s content will work for everybody.

-- Analytical skills – You need to be comfortable using data to prioritize and drive business decisions. You also need to be able to use your analytic skills to track ongoing progress and evaluate new opportunities that might be beneficial to the company.

-- Negotiation skills – Every business development deal will involve some form of negotiation and it is important to have some negotiation skills, in addition to familiarity with legal documents. It is important to keep in mind that negotiations do not have to be arm wrestling matches. Identify what is important to each party through an open and honest dialogue and work towards a common goal of getting an agreement done.

-- Experience in corporate strategy – You need to be constantly aware of what is going on in the market, both with your competitors and new technologies that will emerge. You also need to think about how you might be able to take advantage of opportunities to drive share/revenue.

-- Marketing skills – Just about every deal involves marketing to some extent. I need to make sure that any business partnership with another company is reflective of the GrubHub brand.

Is there a need for business development in every company or is the function more important in some verticals than in others?

Yes, but business development can be most successful in service organizations. The technology space is a unique industry in that partnerships are a necessity of the business. By creating multiple touch points, GrubHub can get its name and product offering to a variety of different consumers. For instance, GrubHub just established a partnership with Bing’s iPhone and Android mobile applications through Microsoft. This partnership will introduce Bing mobile users to the GrubHub service and make ordering food from their smartphones easier.

Which books and websites do you recommend for those interested in learning more about the art and science of business development?

I am a huge consumer of media and need to stay on top of all news and technology trends that are occurring in the digital space so I can look for potential business opportunities for GrubHub. Unfortunately, there are not a lot of sites dedicated to business development, but I read TechCrunch, Search Engine Land and Paid Content daily. I am very active on Twitter and enjoy reading information from Mark Suster (@msuster, entrepreneur/VC), Jeremiah Owyang (@jowyang, social media expert), Fred Wilson (@fredwilson, VC at Union Square Ventures) and Danny Sullivan (@dannysullivan, SEM/SEO expert) to name a few. I also actively follow GrubHub (@GrubHub) on Twitter and through Google Alerts to stay abreast of what people are saying about us.

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Coupon Psychology: What we know

Tue, 08 Feb 2011 07:00:00 -0800

Something to chew on:

"Get $x off"

Framing a coupon as "get $x off" causes people who are promotion-focused (i.e. looking for gains) to buy more stuff. In particular, these folks will buy more exotic/less familiar brands when presented with this type of framing. [This is probably why Groupon frames their discounts in this way. They want to find the customers who are willing to try new things.]

"Save $x"

Framing a coupon as "save $x" causes people who are prevention-oriented (i.e. focused on avoiding losses/don't want to miss out on good deals) to buy more stuff. However, they will only buy safe, well-known brands when presented with this type of framing.

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To Groupon or not to Groupon: Research on group deal profitability

Mon, 07 Feb 2011 07:00:00 -0800

The economics of the Groupon deal are of great interest to me. Having spent much time reading through academic work on the efficacy discounting and coupons during my time at Chicago Booth it struck me that many Groupon merchants may not find a Groupon deal to be profitable for them. Why? Well, it turns out that couponing and discounting tends to erode value for merchants (on average) based on what I have read. Perhaps Groupon and other similar discount vouchers also erode value.

It isn't a stretch to think that Groupon might erode value. After all, they ask merchants to discount their products by 50% and then Groupon takes 50% of the remaining 50%. Therefore, merchants effectively discount their products and services by 75%. Merchants need a margin of over 75% to profit on each Groupon customers sale. The typical Groupon merchant is unlikely to have that level of margin meaning they take a loss on each Groupon sale. That said, there are scenarios where merchants may find Groupon deals to be profitable.

A recent paper by Benjamin G. Edelman, an Assistant Professor at Havard Business School, Sonia Jaffe, a PhD cadidate in Economics at Harvard University, and Scott Duke Kominers, a PhD cadidate at Harvard University's joint program of Business Economics illustrates two mechanisms by which a discount voucher system - like Groupon - can benefit merchants.

1. Price discrimination

Discount vouchers can facilitate price discrimination. Price discrimination allows merchants to discount their products and services for people who do not value them at the same level as ordinary (regular) customers. The issue here is that a merchant's regular customers can purchase and use discount vouchers as well, eroding value for the merchant.

2. Advertising

Merchants can benefit from discount vouchers if they view them as advertising. Discount vouchers can help get the word out about a merchant's offering to thousands of consumers. Of course, the hope is that these consumers return for future visits and pay full price. Otherwise, value is again eroded.

In any case, dicsount vouchers of the type provided by Groupon count on repeat purchases (increased customer lifetime value) to make the economics work for merchants (unless merchants have margins greater than 75%). It is still unclear whether or not discount voucher users are the type that will come back to merchants they like or whether they just go from Groupon to Groupon or buy vouchers for merchants they already frequent. If most discount voucher users tend to be of the latter group then merchants will see an erosion of value.

As the authors of "To Groupon or not to Groupon: The Profitability of Deep Discounts" suggest, merchants need to start measuring the impact of discout vouchers on their business to determine whether or not the deals are profitable. Unfortunately, very few merchants measure the efficacy of discount vouchers.

Additional data: A recent study completed at Rice University suggests that 1 in 3 Groupon deals are not profitable for merchants and 40% of merchants who used Groupon woudn't use it again. This study had 150 repondants so take it for what it is worth.

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Entrepreneurial Selling: An Interview with Craig Wortmann

Sun, 06 Feb 2011 10:20:00 -0800

In my latest Crain's column I interviewed Craig Wortmann - sales veteran and professor at the University of Chicago Booth School of Business - on entrepreneurial selling. Selling is probably the most important thing for entrepreneurs to master. Whether it is selling the product, prospective employees or investors entrepreneurs need to be effective sales people. Craig is a sales expert and the insights he provides in the interview below are copious.

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[Re-posted from Crain's]

I recently read an article suggesting that business is fundamentally about two things, innovating and selling. This column is about the latter. Craig Wortmann, a 20-year sales veteran and entrepreneur, was nice enough to grant me an interview. I think you’ll find his thoughts on selling in entrepreneurial situations enlightening. Without further ado, let the interview begin.

Craig, please tell the Enterprise City readers a little bit about you.

I am currently the founder and CEO of Experience Period, a firm that helps companies build and tune their sales engines. In addition, I am a clinical professor of entrepreneurship at the University of Chicago Booth School of Business, where I teach Entrepreneurial Selling and Building the New Venture. I also wrote a book titled “What’s Your Story?” that looks at how leaders and sales professionals use stories to connect, inspire and overachieve. If anyone wants to know more about me, they can read a detailed bio at http://www.salesengine.com/about/.

All right, let’s dive right in. What are the key points of your sales process?

A sales process should be simple. The process I use with clients and students has six steps:

Lead generation
Qualifying
Determining fit
Proposing
Closing
Re-setting expectations

Interestingly, when I ask sales teams where they are most comfortable, they always choose steps 3 and 4. Why? Because those are the least awkward parts of the sales process that require the smallest amount of discipline. It takes tremendous discipline to get up every day and generate leads. But because we don’t like to do this, we hide behind our laptop screens and send e-mails, all the while telling ourselves that we are “prospecting.”

Entrepreneurs AND sales people need the right combination of knowledge, skill and discipline, and I’m big on the last one. It’s like working out…either you do it consistently and achieve your “fighting weight” or you don’t. But that’s the beauty of selling. You know. There’s no hiding it.

Professional sales people may look at my sales process and think; “Qualifying is out of place.” And they would be right. Qualifying only starts after a lead is generated, but it doesn’t stop until after the close. This is the purpose of “re-setting expectations.” After the close, an entrepreneur must walk the client through exactly what they get and what they don’t get, thereby ensuring that they have properly set expectations and not overpromised. I added this step to the sales process after almost losing my first company by bringing in early clients who expected too much from a small team.

How does entrepreneurial selling differ from selling inside a big company?

Entrepreneurial selling is fundamentally different from what salespeople do in a large company. In an established firm, the salesperson is the tip of a powerful spear (see fig. 2 below) – a company fully staffed with product development experts, marketing mavens, customer service reps, IT professionals, legal support and operations teams. The sales professional is armed with brochures, pricing sheets, prospect lists and samples or demos, not to mention a plethora of case studies and success stories. He can draw on relevant stories of the value created for satisfied customers. He can point to the shiny happy people on the brochures. And any entry point to the sales conversation is a good one, because the customer already understands most of the necessary context.

Not so for our entrepreneur. For her, the situation is flipped on its head (see figure 3 below). She is salesperson, executive, hiring manager, fundraiser, accountant, janitor, product visionary and the company’s best customer service rep – able to answer all the myriad questions that arise from customers. Her stressful days are spent running back and forth across this landscape trying to balance all these requirements on an unsteady foundation of extremely limited resources – time, people, capital and data. This is the first major challenge of entrepreneurial selling – constantly teetering on a shaky foundation while staying focused on bringing in business.

How do you go about finding leads as an early-stage startup?

As a startup, the temptation tends to be throwing the net wide in the hopes of capturing attention and generating as many leads as possible. I think this is a mistake. What I recommend to clients is that they force their initial target segment through a series of finer and finer “filters.” In my first business, I targeted “corporate education.” That’s ludicrous. Every corporation educates its employees, and so by targeting everyone I was targeting no one. As expected, I closed a bunch of business with clients who didn’t reference each other and thus was stuck with a cold start to selling with every single prospect. Dumb.

Entrepreneurs need to get disciplined (there’s that word again) about narrowing, not expanding, their target segment. By forcing the segment through ever-tighter filters (US/New York City/Web-savvy/Design houses/Small sales team/etc), the sales messaging, objections, proposals, and services become so much clearer and focused on actual client pain.

What is one of your key sales tools?

The entrepreneurial sales toolkit has about a dozen essential tools. One of the most powerful of these tools is our stories. The good news is that our stories are a “natural resource.” They don’t have to be purchased, but they do have to be captured, distilled, organized and practiced.

In my first book, "What’s Your Story?", I discussed a tool for sales teams called the Story Matrix. The Story Matrix is designed to capture the four types of stories that sales people and entrepreneurs need to be telling; success, failure, fun and legends.

Stories build powerful connections with prospects and clients, and as entrepreneurs and sales people mature, they rely more on stories from other clients’ experiences and less on features and technical specs (and PowerPoint slides!). Sales teams can make that progress now, but they need to build out the tool and then practice.

Always be closing is something sales folks hear a lot, but how does one get to a close?

My strong opinion is that this notion of “always be closing” is wrong. If you must have an “ABC” I prefer “always be conversing and converting.” At IBM we learned six different ways to close. Six! That’s ridiculous. If I use the “puppy dog” close vs. the “trial close” on you, I’m really just manipulating you.

Instead, what I believe about closing is that closing is the natural outcome of a sale done well. Show me a sales person or entrepreneur who is disciplined, focused on qualifying and asking great questions, and I’ll show you a closer. It’s not a trick. Here’s another way to think about it. For those men and women who are married and who asked your spouse to marry you, when you got down on one knee…weren’t you pretty sure you were going to get the deal?!

What books or websites do you recommend reading for those of us interested in entrepreneurial selling?

There are many books on selling and many on entrepreneurship. Oddly, there are no books that discuss entrepreneurial selling. That said, my favorite current sales book is Snap Selling by Jill Konrath. I also recommend my website at salesengine.com for additional resources.

For presentation preparation I recommend Slideology by Nancy Duarte. It offers good advice on how to construct slides IF you absolutely must have slides.

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Latest Crain's Post: The IRR Calculation & the Impact on VCs

Sat, 29 Jan 2011 18:14:00 -0800

A short discussion on IRR and how it affects the decisions VCs make about their portfolio companies. An example is included as well. Read more.

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Latest Crain's Post: Personal metrics & managing life

Sat, 22 Jan 2011 10:35:00 -0800

Based on Clayton Christensen's 2010 HBS commencement speech entitled "How will you measure your life?"

Read the full post.

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Investing: The starting line & finish line are important

Fri, 14 Jan 2011 19:04:00 -0800

The New York Times recently released a visualization of S&P 500 returns over various time horizons (partly excerpted above). It is pretty fascinating. On the surface it shows that timing does make a different in investment returns. This has particular implications for mutual fund investing. Since mutual funds tend to use their 1, 5 and 10 year returns to market their fund the data isn't that representative unless, of course, you had your money in their fund for that entire period. If you invested and withdrew at different times your returns could be very different.

Perhaps the biggest lesson this chart shows is that investors should stay the course. Only 6 of the 20 year periods lost money. Long term investing is clearly the best strategy for retirement. Trying to time the markets is the route to losses for many reasons.

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Latest Crain's Post: Would-be entrepreneurs, don't force it

Fri, 14 Jan 2011 18:13:00 -0800

Full Article on Enterprise City

Running your own show. Taking your destiny into your own hands. This is the dream of many. The latest recession showed all of us, once again, that seemingly stable jobs aren’t necessarily stable. It is clearer than ever that the only constant is change. Perhaps it is time to go off and start something on your own. There’s only one thing holding you back – you don’t know what you want to do.

No ideas, no problem. Just go to your local coffee shop or pub and brainstorm – either alone or with potential partners – and you’ll come up with something viable. Right? Wrong. Sitting around brainstorming won’t necessarily help uncover the right business for you to start right now. You may come up with a number of seemingly great ideas, but you may not be the right person or in the right place to do anything about them. What you need to do is think of something that involves your unique skill set and network. In other words, don’t force it. You need to find an idea that you are uniquely capable of executing.

As a guy who tried to force entrepreneurship a number times, I can tell you that forcing it is a path with a higher likelihood of unhappiness and, in some sense, failure. The plus side of failure was that I learned a lot. Most important, I learned not to force things. Instead, I decided to commit to a path I am passionate about (i.e. building great software and web-based products and services) while leaving my mind open for opportunities, thus, giving serendipity a chance. Of course I will increase the odds of serendipity by being involved in the community, but I won’t force anything.

Jack Dorsey, co-founder and creator of Twitter, is one of my favorite examples of a guy who didn’t force it. Dorsey talked about his path to Twitter in a recent interview conducted by Kevin Rose. During the interview Dorsey outlined his childhood obsession with maps. It was this obsession that led him to teach himself programming – he wanted to create interactive maps for himself. While creating interactive maps he learned he loved something called dispatch and eventually entered the dispatch business. After many years in the dispatch business he decided he wanted to round himself out by working on consumer facing software. At this time he started working at Odeo. Odeo was eventually pushed aside by Apple’s podcast directory, and there was an opportunity to pivot to a new business. At this point Dorsey resurrected an idea he had years before for something I call “personal dispatch” and that you, and the rest of the world, call Twitter.

It is evident that Dorsey was in a unique position to both create (obsession with dispatch) and execute (connection to proven entrepreneur Evan Williams and to venture dollars) on the Twitter idea. Dorsey didn’t force it. Rather he followed his passion for dispatch down a path that led to Twitter.

Many other successful founders and founding teams seem to come about their ideas in the same way. For example, the FeedBurner founders worked on web publishing and “push” technologies for years before founding FeedBurner. Their focus arguably put them in a unique position to capitalize on RSS technology and, perhaps, made them part of a small group of people who had the capacity to recognize the potential and the problems inherent in feed technology.

While it is enticing to start a new business immediately – after all, you probably have a number of great ideas – I’d urge you not to force it. Follow a path you are passionate about and remain open to serendipity. This will increase your likelihood of success and of happiness.

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F. A. Hayek & the Austrian School

Mon, 10 Jan 2011 21:47:01 -0800

As time passes I find myself sympathizing more and more with the Austrian view of economics. One of the key figures in that school was an economist by the name of F. A. Hayek. Hayek's ideas are incredibly fascinating and I plan to talk about them in more detail in future blog posts. That said, I found a solid primer on Hayek in the latest episode of EconTalk. Check out the hour long podcast for a briefing on Hayek's intellectual encounters with Keynes, Hayek's role in the socialist calculation debate, Hayek's key ideas (including the ideas of emergent behavior and the limits of the scientific approach to the social "sciences") and a discussion of which of Hayek's works are the most accessible (hint: reading "The Use of Knowledge in Society" is a good first task). Enjoy!

Listen to EconTalk on F. A. Hayek

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First Enterprise City Column: The seed of an ecosystem

Fri, 07 Jan 2011 07:18:00 -0800

My first Enterprise City post is up. The piece is an introduction to my thoughts on the Chicago entrepreneurial ecosystem. Summary: The seed of a great ecosystem has been planted and now we need to help it grow. Look for more on entrepreneurship from me each Friday on Enterprise City. I'd like my posts to be the start of a dialog on entrepreneurship and technology in Chicago so please comment or reach out to me via email or twitter to discuss further. Thanks for reading.

Read the column: The seed of an ecosystem

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Robin Hanson & the Technological Singularity: A Lack of Purpose

Thu, 06 Jan 2011 18:54:00 -0800

EconTalk, a podcast I listen to each and every week, featured Robin Hanson of George Mason University on its' latest episode. The episode focused on Hanson's thoughts on the technological singularity. Hanson spoke about porting various people's brains into machines and how that would significantly increase productivity perhaps moving society to the point where output doubles every two weeks (currently we double output every 15 years). Of course I oversimplify the discussion. You should listen to the podcast if you want to hear more.

Toward the end of the show host, Russ Roberts, and guest, Robin Hanson, started to touch on the subject of whether or not we would want to live in a world where machines (robots, computers, etc.) did most of the work. Hanson argued that society as a whole would likely be richer so it would be fine (again, I am simplifying) even thought people were out of work. After all, these people would be taken care of and they could buy assets that, on average, would double every two weeks. However, I think he missed a big human factor - purpose.

Kurt Vonnegut in his first novel "Player Piano" showed us a world where machines do everything, the centrally planed economy provides much wealth to all and the only folks with jobs are the managers/scientists who run the factories. Most people don't have meaningful work in the world of Player Piano although they have plenty of food and other material items to live a reasonable life. The people are still upset though and suicides are prevalent. How could this be? People don't have to work or want for anything. The answer is purpose, specifically a lack of purpose.

In Player Piano people no longer have their work to give them purpose so they are left aimless and wanting for more out of life. In Hanson's dystopia purpose is also lacking. Humans need purpose. We need to contribute. Its in our DNA. I'm not sure I'd want to live in a world where we all had material goods and food but no ability to create things; no purpose. What do you think? Would you want to live in that kind of world?

Extra credit: Hanson's world involves copying various brains into computers or other machines (even though we don't fully understand the brain we could scan it and copy it). The machines in Player Piano are similar in that the best workers and craftsmen were the models. The machines simply emulate actual workers just like Hanson's machines emulate brains.

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The Joy of Stats with Hans Rosling

Thu, 30 Dec 2010 18:37:00 -0800

The Joy of Stats, a one-hour long BBC documentary hosted by Hans Rosling of Gapminder and TED fame, shows that there is nothing boring about stats. The first half of the documentary focuses on why data is so useful and provides a review of some basic statistical concepts. The second half of the documentary moves on to focus on data visualization and how good visualization can make data into a memorable story.

The documentary can be watched in its entirety below. If I were you I would give it a watch before heading out to party away what's left of 2010. You won't regret it.

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Journalism in the Age of Data

Thu, 23 Dec 2010 19:04:00 -0800

Data is becoming more ubiquitous each passing day. Google's economist, Hal Varian, summarized the impact of data proliferation when he said:

The ability to take data - to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it's going to be a hugely important skill in the next decades... ...Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it.

The proliferation of data, as you might expect, has hit the journalism world in a big way. In fact, it is profoundly changing the nature of journalism. One only needs to look as far as the New York Times' incredible information visualization group to see the impact data is having on journalism.

Geoff McGhee produced a fantastic documentary on journalism in the age of data during his Knight Foundation fellowship that I highly recommend for anyone interested in data focused journalism. I embedded below for your enjoyment. It is certainly worth the hour. If you are interested in a fully annotated version of the documentary please visit Geoff's site: http://datajournalism.stanford.edu/

Journalism in the Age of Data from Geoff McGhee on Vimeo.

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