Agile business development

Bringing Agility to Business Development
Somik Raha, Associate
SmartOrg, Inc
smartorg.com
© 2000-2012 SmartOrg. | Confidential and Proprietary.1

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Please feel free to contact sraha@smartorg.com if you have any
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© 2000-2013 SmartOrg. | For Classroom Use Only. Not for distribution.2

Agenda
Evaluate
option
value
Introduction
• Business Development
• The Agile Manifesto
• Current State
• Values

Definition of Business Development
Business Development is the turning of an idea into a
marketable business asset

Agile Software Development greatly increases
quality and productivity
Collaborative development
Working software
Customer collaboration
Responding to change
Processes and tools
Comprehensive documentation
Contract negotiation
Following a plan
OVER
The Agile Manifesto
We value…
That is, while there is value in the items on
the right, we value the items on the left more.

Current Business Development vs. Agile Business
Development
Processes and tools
Comprehensive paperwork
Following a plan
Processes and tools
Comprehensive documentation
Following a plan
Collaborative Development
Working business models
CURRENT BUSINESS DEVELOPMENT FOCUS
AGILE BUSINESS DEVELOPMENT FOCUS
NON-AGILE SOFTWARE DEVELOPMENT FOCUS
Working software
AGILE SOFTWARE DEVELOPMENT FOCUS

Poll: What role do you play in your organization?
1. Business Development
2. Marketing/Sales
3. Product Management
4. Product Development
5. Project Management
6. Engineering

Agile practices support the Agile manifesto

What practices get us to the goalpost?
?

Agenda
Evaluate
option
value
Business
Development:
Turning idea into
marketable
business asset
Market
Performance:
Given business
development has
succeeded, how
will this product
fare in the
market?
Combined Value:
What dollar
amount represents
our option value
of developing this
idea as a business
given where we
are right now?
Introduction

Agenda
Evaluate
option
value
Introduction

Business development is about managing
increasing amounts of investment
Time
Cashflow

Agile business development is about
learning/failing/succeeding quickly
Time
Cashflow

We will communicate Agile Business
Development with a catalog of patterns
“Each pattern describes a problem which occurs over
and over again in our environment, and then describes
the core of the solution to that problem, in such a way
that you can use this solution a million times over, without
ever doing it the same way twice.”
“What is a design pattern?” from Design Patterns: Elements of Reusable Object-
Oriented Software by Gamma et al., 1995
Elements of a pattern: pattern name, problem, solution, image* and
consequences
* optional

Evidential Work

Pattern: Evidential Work
When investing serious money behind an idea, it is easy to be
distracted away from the evidence needed to justify the investment
by the work that needs to be done.
Therefore, design work to deliver evidence as quickly as possible
Consequences
A clear idea of the proof needed to justify investment, the work
needed to deliver that proof, the cost and the schedule of that
work
Related Patterns: Communicate evidential work with “Learning
Plans”

The Mortgage Question
What do you need to see before mortgaging
your house to fund this project?

Simulation: βCorp
Makes statistical data
analysis products
New
Product
Allows analysis of the effectiveness of marketing campaigns
by examining social media chatter for emotional content
around the product.
This product will help βCorp enter the social media space.
What evidence do you need to see before mortgaging your house on this product?

Simulation: Evidential Work
Phase 1: Develop
Value Proposition,
Get Approval
•Customer Enthusiasm
•βCorp Sponsorship
Phase 2: Prove
Value Proposition
with Customers
•Technical Performance
•Customer Commitment
Phase 3: Prepare to
Scale
•Robust Pipeline
•Scalable Business Case
• Solicit pilot customers
• Business case analysis
• Obtain right to pursue
• Requirements / gap analysis =>
technical roadmap
• Preliminary offer
• Pre-sales, talk to customers
• Incubation structure defined
Investment: $0.5M
4 FTE x 6 month x $200K = $400K
Expenses = $100K
• Conduct 2-4 customer pilots across
areas - map processes, demonstrate
value
• Fill gaps in platform and services
• Capture learning
• Build resources / PMO
• Plan G2M / business
• Extend / revise roadmap
• Advance needed technology
• Define full platform
Investment: $4M
20 FTE x 1 year x $150K = $3M
Expenses, capital = $1M
• Complete, harden platform
• Establish channel / G2M
• Sales / BD
• Marketing / communication
• Set up P&L / organization
• Deliver operationally to first pilots
• Conduct additional pilots of new kinds
• Support structure
Investment: $6M
Team, Expenses as in Phase II = $4M
Sales, Business Development = $1M
Support, infrastructure = $1M

Learning Plans

Pattern: Learning Plans
When communicating development plans, it is easy to lose sight of the
learning needed to justify further investment.
Therefore, depict key stages of evidence needed and the work
needed to deliver that evidence on a timescale
Consequences
A simple timeline that communicates key evidential stages, the work
involved (details and investment) and the sequence.
Related Patterns: Evidential Work and Evidence Assessment

Simulation: βMark Learning Plan
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10
βMark
Phase I – Develop
Value Proposition,
Get Approval
• Solicit pilot customers
• Business case analysis
• Obtain right to pursue
• Requirements / gap
analysis => technical
roadmap
• Preliminary offer
• Pre-sales, talk to
customers
• Incubation structure
defined
Investment: $0.5M
4 FTE x 6 month x
$200K = $400K
Expenses = $100K
Phase II – Prove Value Proposition with
Customers
Customer enthusiasm,
βCorp sponsorship
• Conduct 2-4 customer pilots across areas - map
processes, demonstrate value
• Fill gaps in platform and services
• Capture learning
• Build resources / PMO
• Plan G2M / business
• Extend / revise roadmap
• Advance needed technology
• Define full platform
Investment: $4M
20 FTE x 1 year x $150K = $3M
Expenses, capital = $1M
Technical performance,
Customer commitment
Key: Major Phase
• Work during phase
• Phase Investment
• Proof points at milestone
Cumulative investment
through launch
Total: $10.5M
P&L commit May 11
Phase III – Prepare to Scale
• Complete, harden platform
• Establish channel / G2M
• Sales / BD
• Marketing / communication
• Set up P&L / organization
• Deliver operationally to first pilots
• Conduct additional pilots of new kinds
• Support structure
Investment: $6M
Team, Expenses as in Phase II = $4M
Sales, Business Development = $1M
Support, infrastructure = $1M
Robust pipeline,
Scalable business case

Evidence Assessment

Pattern: Evidence Assessment
Different people understand different things when talking about
uncertainty in a qualitative fashion, which makes communication
difficult.
Therefore, assess calibrated probabilities for each point of
evidence, multiplying to get overall probability of success
Consequences
A simple quantitative understanding of uncertainty that is
comparable across projects.

Simulation: Comparing projects by their phase
allows us to calibrate
Why does a Phase 1
project have such a high
probability?
After recalibrating
Idea
Prove
Scale
Idea
Prove
Scale

Pattern: Reasons Behind Numbers
People can get into a mindless number game and lose sight of the
real purpose of uncertainty assessments – to discover learning
gaps.
Therefore, before accepting numbers, obtain reasons for them.
Consequences
The logic behind the numbers is made transparent, facilitating
team learning.

Pattern: Blind Polls
People can follow power and feel shy to share what they truly know.
Therefore, disallow calling out numbers in a group, forcing each
member to write down their number and then collect it when all are
done
Consequences
Differences in numbers become transparent and drive discussion in
learning gaps, leading to possible adjustment after the group has
new knowledge

Simulation: Evidence Assessment of Phase 2:
Prove Value Proposition with Customers
Phase 1: Develop
Value Proposition,
Get Approval
Phase 2: Prove
Value Proposition
with Customers
Phase 3: Prepare to
Scale
•Robust Pipeline

Phase 1: Develop
Value Proposition,
Get Approval
Phase 2: Prove
Value Proposition
with Customers
Phase 3: Prepare to
Scale
•Robust Pipeline
Technical Performance
Run Human Control Group,
• βMark picks 90% of all actual chatter
• βMark distinguishes correctly between +ve and –ve
feelings at least 90% of the time
Customer Commitment
• At least one customer signs up for company-wide
adoption

• Technical Performance
• Human Control Group confirms that βMark picks 90% of all
actual chatter
In your chat:
List reasons for success
List reasons for failure

Simulation: Evidence Assessment Summary
Human Control Group confirms that βMark picks 90% of all
actual chatter
Success
Failure
Reasons for Success
• Lab results promising
Reasons for Failure:
• We’ve never done this
before
Given these reasons for success
and failure, what is your probability
of success?

Simulation: Probability of Success of Phase 2
βMark Evidence Assessment
Phase I: Develop Value Proposition, Get Approval 37.5%
Phase II: Prove Value Proposition with Customers 43.2%
Overall Probability 3.88%
Forward
chance of
success
3.88%
10.4%
Customer Enthusiasm – 50%
βCorp Sponsorship – 75%
Coverage Accuracy – 90%
Emotional Accuracy – 80%
Customer Commitment – 60%
Phase III: Prepare to Scale
Robust Pipeline – 60%
Scalable Business Case – 40%
24%24%

Simulation: Probability of Success of Phase 2
βMark Evidence Assessment
Phase I: Develop Value Proposition, Get Approval 100%
Phase II: Prove Value Proposition with Customers 43.2%
Overall Probability 10.4%
Forward
chance of
success
10.4%
Customer Enthusiasm – 100%
βCorp Sponsorship – 100%
Coverage Accuracy – 90%
Emotional Accuracy – 80%
Customer Commitment – 60%
Phase III: Prepare to Scale
Robust Pipeline – 60%
Scalable Business Case – 40%
24%24%
SUCCESS

Debrief: Reflections/Questions?
Evaluate
option
value
Introduction

Agenda
Evaluate
option
value
Introduction

After development has succeeded, we are
ready to double-down
Time
Cashflow

Agile business development incorporates
multiple scenario-thinking before doubling down
Time
Cashflow

Evidentially
Assessable
Factors

Pattern: “Evidentially Assessable Factors”
Economic factors that are hard to support with evidence can be
easily manipulated to distort our understanding about opportunity
size.
Therefore, decompose economic models such that factors that are
hard to support with evidence are derived from other factors that
are easy to assess on the basis of evidence.
Consequences
Assessment conversations remain rooted in real world knowledge
instead of devolving into the abstract. Numbers produced are of
much higher quality.
Related Patterns: “Extreme Credible Ranges” and “Most Leveraged
Uncertainties”

Simulation: Decompose economics to identify
assessments and calculations
Total Addressable
Market
e.g. 10K units in
year of launch
Penetration
e.g. 20%
Market
Share
e.g. 25%
Units Sold/yr
e.g. 500
Unit Price
e.g. $70K
Revenue
e.g. $35M
Unit Cost
e.g. $2K
Fixed Cost
e.g. $5M
Variable Cost
e.g. $1M
Annual Profit
e.g. 29M

Pattern: “Extreme Credible Ranges”
Groups have a tendency toward groupthink and compromise, which
prevents discovery of important information gaps on factors that drive
economics.
Therefore, get groups to dwell on the credibly extreme ends of each factor
and capture both ends of the assessment as a range, along with a realistic
assessment.
Consequences:
Those who have a difference of opinion are no longer ignored, but
factored into the decision-making process. We are no longer anchored to
the optimistic or pessimistic, but have both along with a realistic scenario.
Related Patterns: “Evidentially Assessable Factors” and “Most Leveraged
Uncertainties”

Simulation:
Market Share for βMark
High
Low
Reasons for High
• Not much competition
yet
Reasons for Low:
• A big competitor may
get in before us
Base
40%
30%
20%
20%
10%
5%
40%
5%
30%,
20%,
20% 25%
Total Addressable Market (TAM): 5-10-20
thousand units
Penetration of similar technology: 10%-
20%-30%

Most Leveraged Uncertainties

Pattern: “Most Leveraged Uncertainties”
It is easy for us to fixate on uncertainty in economic factors that are
in front of us, or the factors with the highest leverage, as opposed to
looking at both and finding the ones that really matter.
Therefore, identify the most leveraged uncertainties
Consequences:
• Conversations can now focus on uncertainties that have the
most leverage, instead of just focusing on swing in uncertainty or
leverage by themselves.
• Discussion focused on obtaining upside and containing
downside
Related Patterns: “Extreme Credible Ranges” and “Evidentially
Assessable Factors”

Simulation: The top bars in the Tornado identify
the uncertainties with the highest leverage
The 10-50-90 bar summarizes overall
uncertainty into a single range:
Low: -18M Base: 44M High: 197M
Top 4 factors
capture most
of the variance
in NPV

Debrief: Reflections/Questions?
Evaluate
option
value
Introduction

Agenda
Evaluate
option
value
Introduction

Pattern: “Simple Options Valuation”
Placing dollar values on development opportunities is a task that
can be obfuscated by complex financial models, which shift the
focus away from collaborative learning discussions toward magic
numbers.
Therefore, use simple options valuation to make clear the logic
behind development opportunity valuation.
Consequences:
The equivalent dollar amount in a simple
valuation incorporates the uncertainty in the
opportunity and is directly traceable into its
constituent components.
Related Patterns: Uncertainty-Value Screen,
Productivity Ordering

Simulation: Simple Option Valuation
$0.75M
$82M
The equivalent
value just went up
because of
development
success
Think of this as an
equivalent value
representing the
uncertainty in this
deal
These numbers come
from the 10-50-90 bar

Pattern: “10-50-90 Bars”
Focusing on single number valuations of projects hides the
underlying uncertainty in the upside and downside of that project.
Therefore, use 10-50-90 bars to characterize uncertainty in each
development project.
Consequences:
• Shows the biggest upsides and downsides
that need to be managed
Related Patterns: “Productivity Ordering”,
“Uncertainty-Value Screen”, “Most Leveraged
Uncertainties”
Value 

Simulation: Compare Uncertainty for βCorp
Zoom can lose
a lot of money,
but it can also
make the most
money

Simulation: There is a big gap in market
understanding for Zoom
The top 4
uncertainties have to
do with market
understanding

Pattern: “Uncertainty-Value Screen”
People can get emotionally attached to pet projects and lose sight
of the big picture.
Therefore, use uncertainty-value screens to understand where
development projects fall and how they need to be managed.
Consequences:
• Facilitates a rich conversation on how to
feasibly move projects to a better place
• Great projects can be picked over good
ones, with transparent logic as opposed to
political posturing, making hard decisions
more acceptable to people.
Related Patterns: “Productivity Ordering”,
“Learning Plans”, “Evidence-Driven Funding”
Also known as: Innovation Screen

Simulation: Uncertainty–Value Screen for βCorp
What can we do
to move these
projects out of
this quadrant?
Zoom seems fairly
speculative –
need to get some
market thinking
going on it
Value given development success
ProbabilityofDevelopmentSuccess

Pattern: “Evidence-Driven Funding”
Investments in large opportunities with low chance of success are
necessary and yet, perilous.
Therefore, invest by evidence delivered in preceding phase.
Consequences:
• Investments are not arbitrary but thoughtful
• Investments are connected to delivery of evidence
• Projects not tied to P&L statements, which would kill innovation,
and instead managed through learning plan progress.
Related Patterns: “Learning Plans,” “Evidential Work” and
“Uncertainty-Value Screen”

Pattern: “Productivity Ordering”
Organizations use budgets as a given constraint when making
funding decisions, without clearly communicating the value of
securing more resources to fund development.
Therefore, order development projects by their productivity on a
plot of cumulative value versus cumulative investment.
Consequences:
• Provides feedback on the value-cut that
goes together with a cost-cut
• Emphasizes why the CFO was hired – to
obtain funding for important opportunities!
Related Patterns: “Uncertainty-Value Screen”
Also Known As: CFO Chart
Cumulative Cost
CumulativeValue
Budget Line
Extra Value
Extra Cost

Simulation: CFO Chart
Oyster
Pearl
Oyster
Zoom got cut down to
size because of the
inherent uncertainty
Cumulative Cost ($ millions)
CumulativeValue($millions)

Debrief
Reflections? Questions?

Analytic Practices of Agile Business
Development are the platform for collaboration
Proof
Points
Learning
Plan
Development
Uncertainty
Extreme
Credible
Ranges
Most
Leveraged
Uncertainties
Simple Option Value,
Value-Unc Screen,
CFO Chart
Watch
downside,
swing for
upside
Work to deliver
proof points
10-50-90
Summary Bar
Assessable
Economic
Factors

The analytic practices propel us toward the
goalpost

Continuing the Conversation
Learn More
• Include Business Design in Innovation
• Tornado Diagram: Resolving Conflict and Confusion with
Objectivity and Evidence
• Try SimpleTornado – open source
LinkedIn Group
• Invitations will be sent to attendees to join the “Agile Business
Development” group
Connect with me
• Please feel free to reach out at sraha@smartorg.com

Appendix

Pattern: “Purpose Values”
Dry intellectual logic does not motivate people to reach excellence.
Therefore, find the values that define the purpose of the
organization and align business opportunities and strategy to deliver
on these values.
Consequences:
People rally around the chosen opportunities and are excited to
make it happen
Read More: http://smartorg.com/2012/06/valuepoint6/

Simulation: Show Purpose Values of βCorp
Answer “What transformation in the world do you want
to bring about through the work of this company?”
Keep asking “Why?” When you can’t answer anymore,
those are your purpose values.
How well does the opportunity under development
support the purpose values?

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