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Business Development Costs - A Black Hole in your Budget?

businessdevelopmentWhat does business development mean to your organization? No matter how you define it, tracking and measuring your business development effort is critical to your success. 

Anyone running a business knows that they need to conduct business development in order to create positive cash flow and spur growth.

I once asked a guy with the job title of Business Development Manager about what his job entailed. He replied, "It is a great job. I get paid to schmooze with clients and potential clients. Business development is relationship building. And part of my job is to entertain the prospect...I play a lot of golf." 

I then asked him who was managing the outcome of his efforts. He just smiled and said, "It takes time to see an outcome. Business development doesn't produce results overnight."

Many government contracting small business owners do not seem to realize that they should be thoroughly tracking every aspect of their business development efforts. Some of them feel more comfortable hiring individuals (often ex-military or former federal government) to engage in business development activities instead of pursuing opportunities themselves. That said, if you cannot account for every dollar spent on business development and how much of a return it is bringing to your company, then you are setting yourself up for a disappointing outcome. We've seen many business development professionals come and go over the years with very little in the way of new contract awards to show for their efforts (or lack thereof). 

So what exactly do we mean by business development? Sales, marketing, advertising, client relations, public relations and strategic partnerships all come to mind when describing business development. While these descriptors are all applicable, they answer the question of what business development is, and not what business development does. The Oxford dictionary defines business development as "the activity of pursuing strategic opportunities for a particular business or organization, for example by cultivating partnerships or other commercial relationships, or identifying new markets for its products or services."

Because business development is a loosely defined concept, many organizations (even mature companies with otherwise strong policies and procedures in place) often approach it in a piecemeal and disorganized manner. This makes it difficult to measure how much the organization is spending, how much revenue it is bringing in, and most importantly - the return on investment (ROI) it is getting on business development efforts.

Some questions that need to be answered include:

Do the visions of the company CEO and business developers mesh from the top-down? For example, does the CEO believe that growth can be developed organically, or does the business developer believe that through a merger or acquisition is the best way to grow the business?

Is there cost realism for the goals of the business development process? Business development entails potentially expensive processes to develop and implement growth opportunities within and between organizations.

The most essential part of getting business development costs under control is realizing that not every opportunity is worth pursuing, and that the ones that are should be carefully vetted to ensure that the time, effort, and money are spent efficiently. For instance, breaking ground with a particular government agency can be difficult while dealing with a bureaucratic layer and an approved vendor list of incumbents that may offer excellent past performance. Once a company decides to start actually tracking business development and thinking about it strategically, it is remarkable how much wasted spending can be eliminated.

Fortunately, many government contractors working on projects are equipped to fully track and monitor business development costs. The solution is treating business development in the same manner that you treat all other projects whether internal (e.g., B&P/IR&D) or external (e.g., Contract or Grant). That is, organize and use the processes you already have in place to turn business development from a set of loosely connected activities into a project with discrete tasks representing activities. Software tools that companies already use to manage project costs and performance can be adapted to fit a business development project. 

A good starting point is to make certain that all business development personnel record time daily as if though they are working on a billable project, complete with notes that document what was accomplished on a particular day. Instead of having these individuals charge a single general selling and administrative (aka "SG&A") charge code on their time sheet, break the time down by activity and create individual charge codes for time spent on bids and proposals, meetings, client relations, seminars/webinars, product demonstrations, travel time, and direct selling activities to name some. There are unique benefits to government contractors by itemizing time spent on business development as such. For instance, while many categories of business development are unallowable per FAR 31.205-1, the cost of direct selling is allowable per FAR 31-205-38.

As Peter Drucker stated, "You can't manage what you don't measure." By thinking strategically instead of tactically, you will track your individual business development activities under a project, complete with budget to actual reporting. And with a project accounting system such as SYMPAQ - you can accumulate, track, measure and roll up indirect business development expenses under one or more indirect charge codes. By doing this, you will gain clear visibility into the full cost of your business development efforts and will no longer be staring into a black hole.

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