A Guide to Investing in Business Development Companies (BDCs)

What is a bdc, types of business development companies.

bdc business model

Big Yield Means Big Risks

bdc business model

How to Choose Quality BDCs

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BDCs and Taxes: What You Need to Know

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Closing Thoughts on BDCs

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Business Development Companies: The Basics

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The public consensus on Business Development Companies (BDCs) is that they are “the new business bank,” filling the middle-market financing gap left by the financial crisis of 2008 and subsequent banking regulations in the following years. While this is true, it is an oversimplification of the BDC business model.

BDCs are a form of Private Equity Fund; however unlike traditional Private Equity Limited Partnerships (Private Structure Private Equity Funds), they are publicly traded providing investors the liquidity offered from being listed on the public stock exchanges. Further, BDCs have a very specific focus on middle market companies, or companies that are in the $100million to $1billion valuation range, with hyper-growth potential.

BDCs, like private equity funds, only invest in privately offered businesses. Like Private Equity Funds, BDCs invest in a wide range of industries, and their deals carry a variety of structures. Unlike Private Equity funds, which raise capital in the form of Limited Partnership Units from institutional investors, BDCs invest capital that they raise from a wide range of sources, including long-term debt, convertible debt and equity.

BDCs are high-yield investments, in which a majority of their cash-flows are distributed to underlying investors.

As of November 1 st 2014, there were 31 publicly listed BDCs with around $25billion in total market capitalization and approximately $40billion in total assets under management when measured by Net Asset Value.

Comparing BDCs to Traditional Companies

The most significant difference between BDCs and traditional companies is that BDCs are limited to financing private companies. BDCs also differ from traditional companies in that they are governed by a management company, and thus are viewed as an investment fund.

BDCs, unlike traditional companies, are taxed as Regulated Investment Companies under the Internal Revenue Code; therefore they pay little or no corporate taxes so long as they meet certain income, diversity and distribution requirements. On average, BDCs distribute 98% of their taxable income to avoid all corporate taxation.

Due to the business model of BDCs, the majority of the revenue and thus the majority of the income generated by BDCs are from investment gains and are taxed as capital gains, providing a tax advantage to investors.

The BDC Business Model

BDCs operate a business model very similar to the merchant banks of “the old days.” BDCs raise capital and then lend or invest this capital in private business. The capital BDCs use to lend or invest in private businesses comes from 3 (sometimes more) main sources.

The first source of capital for BDCs is senior secured debt, also known as corporate bonds. BDCs typically, unlike banking institutions, borrow long term at low fixed rates (200-400 basis points above treasuries); this is the first source of capital. The second source of capital comes from convertible bonds and other hybrid securities. BDCs also raise capital through equity offerings, typically through an Initial Public Offering.

This capital is pooled and used to finance middle-market private businesses. BDCs invest in businesses in a variety of structures, most commonly, through convertible bonds. These convertible bonds pay a coupon, sometimes fixed, sometimes variable, and carry the option to convert the bond to equity as the company grows.

The coupon payments provide income for the BDC to make debt service payments and pay investors the distributions required to maintain their “pass through” taxation structure. As the companies the BDC finances grow in value, the BDC converts the bond to equity and exits the equity through management buyouts, strategic sales, and initial public offerings.

These exits provide significant increases in total assets. Exits also provide cash to pay down debt, cash to pay distributions to investors, and collateral to borrow additional investment capital, which in turn allows the BDC to finance more private companies, larger or more valuable private companies, and provide more financing to each private company.

By providing a private company more capital, BDCs can gain a larger share of the company; they can increase the company budget, which in turn leads to faster growth and a quicker exit. Further, with a larger pool of capital BDCs can broaden their investment diversity leading to less portfolio level risk and a higher propensity towards having a more companies that they’ve invested in turn out to be wild successes and generate very large returns on their investment.

Investor Benefits of BDCs

Investors benefits of BDCs include exposure to private equity, a traditionally difficult to access, highly complex asset class. Private equity is known as a return enhancement asset class, with the top 25% of funds (from a performance perspective) average returns that are 400-800 basis points higher than that of the S&P 500. This performance enhancement is the main reason why institutional investors have consistently increased their target allocations to private equity over the past 3 decades, and are expected to continue to do so.

Investors benefit from BDCs, like with all investments, when the investment generates a return. Traditional private equity funds are not publicly traded and carry no liquidity, therefore they cannot be sold making the sole source of the return to investors in a traditional private equity fund is from investor distributions. BDCs, however, as a publicly traded investment, like any publicly traded stock, generate a return when the stock price increases, and the investor sells the shares of the BDC for more than what they paid. This is known as price appreciation.

When an investor owns stock it is common to receive dividends. As discussed in the “Comparing BDCs to Traditional Companies” section, BDCs distribute, on average, 98% of their taxable income to investors in order to avoid corporate level taxation. BDC dividends are called distributions because of the RIC structure. These distributions are measured in percentage terms, known as the yield. The yield is a ratio of annual distributions relative to the current price of the shares of the BDC.

The historical average yield of BDCs over the past 10 years has been 9.1% according to the Wall Street Journal. Translated in dollar terms, this means that if an investor bought $100 worth of BDC shares, on average, the investor would have received $9.10 per year. The yield of BDCs is significantly higher than the yields of other classes of publicly traded investments, such as Utilities & REITs which average approximately 4% Yield, 10-year treasuries, which have averaged about a 3% yield, or the S&P 500, which has averaged approximately 2% yield.

BDC1

Source: OWLshares™

Yields on BDCs are fairly stable due to their structure as an RIC which must distribute at least 90% of their taxable income, therefore as assets and income grow, which typically leads to stock price growth, the cash distributions must grow as well.

BDC History

                                               

The history of BDCs begins in the 1970s when Private Equity funds began gaining significant popularity among large, sophisticated institutional investors.   Though Private Equity funds began to increase in popularity there were inherent limitations in the federal laws and regulations that guided the private investment company creation and management. The laws and regulations, as they were blocked Private Equity and Venture Capital fund’s capacity to finance small, growing, and private businesses due to specific language in Section 3(c)(1) of the Investment Company Act of 1940, also known as the 1940 Act, or simple 40 act, which stated that only 100 entities could own an investment company or fund that invested in private businesses. This language explicitly eliminated the potential for funds that provided financing to small or mid-sized private companies from raising capital through a public debt or equity offering.

Private Equity fund managers took action by urging Congress to improve and solve this issue. The legislature listened and acted, passing the Small Business Investment Incentive Act of 1980, which would become known as the 1980 amendments. The goal of the 1980 amendments was to incentivize the creation and management of publicly offered and traded investment vehicles that would finance and invest in private companies. This theoretically would lead to an increase in the flow of capital to small growing businesses, thus stimulating the economy while also providing new investment opportunities to the public. Within the 1980 amendments, Congress created a category of closed-end investment funds that would solely finance and invest in private companies, whether through a debt, hybrid or equity structure. The goal of BDCs would be two-fold, provide financing to growing businesses, thus stimulating the economy, and generate capital appreciation and/or current income, thus increasing the wealth of public investors.

Among other issues, the 1980 amendments sought to achieve these goals by loosening the restrictions that were in place in the 1940 act that discouraged private equity managers from becoming participants in the regulated, public investment management industry. The most notable regulations that were loosened with the 1980 amendments were restrictions in regards to compensation of the manager and the use of borrowing facilities for the private equity funds. With these changes to the law, BDCs were born, however in their infancy; there were only 3 BDCs that were publicly listed at the turn of the century. The following decade would lead to significant growth in the BDC market. From the year 2000 to now, the BDC industry has grown in number of BDCs more than 10-fold. Assets, measured by total BDC market capitalization have increased XX-fold as well. With this growth came opportunity for investors. Investors are now, not only able to gain exposure to private equity, but can do so with significant diversification and liquidity leading to significantly lower portfolio risk when investing in private equity through a basket of BDCs.

Explaining Middle-Market Private Equity Business

  Middle market companies, or collectively “the middle market” can be defined by a number of different metrics. Most broadly however, the middle market is defined as companies that carry a valuation in the range of $100million to $1billion. The US middle market is massive; in fact, it is so large, that if it were a country it would rank as the fourth-largest economy in the world. Collectively, the Middle Market makes up 1/3 rd of gross annual receipts of US Companies. The middle market is also a significant source of economic growth, employing about 1/3 rd of the workforce in the US, with similar numbers across Europe and the developed world.

Middle market companies have significant competitive advantages, in that they are not too large to adapt to changes in the technological landscape often leading to a higher degree of efficiency by deploying newer technologies. This in turn, leads to economic growth by stimulating demand for new technologies and the companies that create them, which, more often than not, are middle market companies themselves.

The middle market is a growth sector among investment opportunities, possibly the largest, not only in size but in potential returns. The majority of middle market companies have the potential to become large-cap brand name industry powerhouses, however often they lack the access to capital to scale their businesses. Middle market companies are too small to go public, have not yet turned a profit, or have not yet reached the value goal the owners have in mind before selling. Further, often these companies, while well known in their industry, do not have the brand power to attract strategic buyers.

Middle market financing is historically underserved by banks, private equity funds, institutional investors and the public. Recently, with new banking regulations, this historically underserved industry has become even more underserved, leading to what has become known as “the Lending Gap”. Financing middle market growth companies, specifically, and industries more broadly, is the metaphorical bread and butter of BDCs. BDCs focus on providing these companies large capital infusions, helping them scale and grow their business, often with the goal of taking the company public through an IPO, selling the company through a strategic acquisition, or negotiating a management buyout. BDCs exit their investment with the goal of generating large total returns, often after only holding for 3-5 years.

While there are many companies that are publicly traded that would be considered middle market, there are many more with significantly larger growth potentials that have not yet taken the company public. For the average investor the only way to access these opportunities is through a BDC. For institutional investors, the most transparent and the only liquid form of investing in these opportunities are also to access them through BDCs.

History of the Middle-Market Private Equity Business

Since the middle ages to the late 1960s and early 1970s, the Middle Market Private Equity business was dominated by banks that either focused on merchant banking, or had a large merchant banking operation. Merchant banking, though not defined by law, is typically defined as a negotiated private equity investment by a financial institution, in which the institution receives unregistered (privately held) securities of either private or publicly held companies.

Merchant banking, at its core, is a focus on making investments in middle-market private companies that have significant growth opportunities, yet do not carry the risk of a start-up or early stage company, as they have already established themselves in their industry. Being established, yet having significant growth opportunities, merchant bankers see an opportunity to make investments that have larger return opportunities than loans, as the equity the merchant bank receives in return for the capital investment is expected to grow significantly over the life of the investment.

With the evolution of banking regulations, merchant banking activities, in the US at least, faded after the great depression, as the 1933 Glass-Steagall Act drew a fine line between investment and commercial banking. As a result, merchant banks evolved into pure investment banks, and commercial banks with merchant banking operations seized to exist. The merchant banking operations were replaced by wealthy individuals and families. As the need for investment in private companies increased, and thus the opportunity to make a profit increased, wealthy individuals and families were replaced by Private Equity funds and firms.

The opportunities available were not, however, the main reason for institutional involvement in Private Equity. In the 1970s changes to the Employee Retirement Income Security Act (ERISA) rules and regulations, tax laws and changes in security laws led to an increase in demand for private equity investments among the largest institutional investment firms, public and private pension funds. Private and public pension funds found private equity investments appropriate for meeting their long-term objectives. Private equity is viewed by most investors as a return enhancement asset class, with very low liquidity and as pensions do not have a need to have liquid assets, they have continued to increase their allocations to private equity investment opportunities in an attempt to meet or outperform their goals.

While private equity is a fairly broad category, the majority of private equity investments are focused on the middle market. In the case of venture capital most venture capital firms, historically, focused on late stage venture capital, allowing friends, family (of the company founder) and angel investors to accept the risk of a startup or early stage opportunity. The majority of mezzanine private equity financing has been, historically, focused on middle-market (late stage) growth companies, and scaling businesses to their value goals in order for the company to execute their exit strategy. Buyout capital, historically, has focused on middle-market consolidation, spin-off or growth opportunities, taking a controlling stake in the company and either restructuring their capital structure, or the company’s entire operational structure, in order to unleash the value of the company.

This was the case from the 1970s through the late 1990s, however, the bursting of the tech bubble of 1999 led to a shift in paradigm in many ways. Buyout funds became more conservative, focusing on larger companies with severe inefficiencies, and/or distressed companies with a high-propensity to succeed post-bankruptcy. Venture capital firms shifted their focus to early stage companies that have the opportunity for a much shorter time-frame for the investor, typically VC firms now focus on Series A or B capital, and exit in Series C only 3-5 years later.

Mezzanine financing, by private equity firms, has mostly shifted into the private investment in public equity business, providing already public companies with capital needed to achieve certain expansion goals. The middle market has become neglected. The 1980 act (discussed in the “BDC History” section above) allowed for the public offering of private equity funds, but due to a lack of opportunities, very few publicly offered private equity funds had been listed on US exchanges.

As the opportunities in the middle market grew, as did the number of BDCs that became publicly listed. Currently BDCs are the premier middle-market private lender/investor, and have filled, as we will discuss in a later topic, what has become known as “The Lending Gap”.

Dodd-Frank & the New Landscape in Middle–Market Lending

In 2007 the stock market reached its all-time high (at the time), however destruction was right around the corner. Housing prices started to decline, investors, banks and homeowners had massive, highly leveraged, exposure to the housing market, and a fire-sale of both homes, mortgages and mortgage derivatives began to take place. The bursting of the housing bubble led to widespread bank failures, and in September 2008, the stock market collapsed, experiencing its largest decline in decades.

The US government via legislation and subsequent action by the Treasury Department along with the Federal Reserve Bank would take unprecedented measures to try a prevent the US economy from falling into a depression. While the policies and measures taken to do so have been the subject of much debate since, the effects of the deep recession, already in motion, would have lasting effects.

Not only did the economic downturn likely result in a landslide victory for Barack Obama in the presidential elections and landslide victories for the democrat senate and congressional candidates running for office in 2008, but it also led to significant US Government stimulus programs and new regulations. In the financial sector, while stimulus and monetary easing were among major actions, the regulatory changes, namely Dodd-Frank, are likely to have the most long-lasting effect on the banking industry.

While very few, if any, experts are privy on all the new rules and regulations embedded in Dodd-Frank, and while it has yet to be fully implemented, the banking industry has essentially stood still. Lending, particularly lending to businesses that are too large for Small Business Administration (SBA) loans, and too small for public offerings, has dried up significantly, in comparison to the pre-financial crisis activity.

While lending to middle-market companies is likely not prohibited in Dodd-Frank, the uncertainty associated with the rules and regulations within this massive piece of legislation, combined with increases in capital ratios, reserve requirements, and greater clarity on other activities such as SBA lending, mortgage lending, securities lending, and public capital market investing, have resulted in a massive gap in middle-market financing activities by banks.

The Lending Gap – Middle Market Financing Demand Growth

The lending gap is the term used to define the lack of investment capital available to a specific sector of the economy. Since 2008, the lending gap has referred to the lack of investment capital available to lend or invest in middle market private companies. Many professionals believe this lending gap was a direct result of regulatory reforms that occurred after the financial crisis in 2008. The reason for the lack of investment capital, which historically has been provided by private equity firms and banks in tandem, is that private equity firms have shifted their focus to distressed companies and consolidation opportunities, while banks have shifted their operations to focus on large publicly traded businesses and small businesses that are eligible for SBA loans and the subsequent insurance that the SBA provides that bank for making such loans.

Below is a flow chart that shows where middle market companies find their financing and a chart that shows the decrease in the participation of bank lending to middle market companies.

BDC2

The lending gap has created a drag on the economy, and even as it begins to close, it will take years for the economic effect of middle market companies finding their financing, to begin to show. Middle market companies are the largest provider of new jobs, as they grow and scale, middle market companies hire hundreds of new employees, build new facilities and corporate campuses, and engage in trade activities with other businesses. This all leads to economic growth as these new jobs provide employees income that they use to consume. Middle market companies however, due to the lending gap, have not been hiring as actively, resulting in slower economic growth in the US.

The 1980s provided legislation, particularly the 1980 act, which would provide a solution to the current lending gap, however, in the post-financial crisis, and post-Dodd-Frank world, it would take time for the provisions in the 1980 act to result in economic activity, and middle-market private equity financing. Since 2008, and more recently, post-Dodd-Frank in 2010, the 1980 act has become much more relevant. The ability to offer publicly traded private equity fund vehicles has become far more economic, with the long line of opportunities to invest in middle market private companies.

How this Effects BDCs

The result, and one of the many unintended consequences of Dodd-Frank has been slower middle-market growth, however it has also presented opportunities. As the lending gap widened, the number of new BDCs being formed has increased, and is beginning to close the gap.

Since the Dodd-Frank passed into law, the formation of new BDCs has increased by well over 100% each year, the total number of BDCs has dramatically increased, the assets managed by BDCs have more than tripled, and the middle-market financing activities of BDCs have been ramped up to meet the demand. BDCs have many opportunities to provide significant financing to middle-market growth companies that have been searching for investment capital for year now. These investments present the opportunity for significant returns on investment and allow BDCs to deploy their investment capital in a diversified manner, lowering their portfolio risk.

While the lending gap, as it was, was an unfortunate and unintended consequence of banking regulations, all in all BDCs have stepped up to fill the gap, and have become a very popular investment vehicle to provide the public exposure to professionally managed investments in middle-market private companies and fill the lending gap. Further, BDCs have opportunities to grow that were created by the lending gap and this unintended consequence of the regulatory reforms post-financial crisis.

The lending gap, thanks to BDCs has mostly been filled, and the supply of middle market investment capital and middle market financing demand has come closer to equilibrium.

Risks of BDCs

While BDCs, being publicly traded, are subject to many of the same risks that any publicly listed stock is subject to, they are also subject to additional risks that may not be relevant to an investment in a traditional company. BDCs employ leverage in their financing activities, meaning that they borrow the majority of what they invest, and attempt to earn a return on their investments that outperforms the interest rate they pay on their loans. Leverage may lead to increased return on investment, but can also lead to increased losses when an investment fails to generate a return.

BDCs are subject to liquidity risk within their portfolio. While the BDCs themselves are publicly traded, and offer liquidity similar to stocks of the same size, the companies BDCs invest in are privately held, and therefore have no liquidity. BDCs rely on executing an exit strategy of either taking the companies they invest in public, or selling the companies they invest in to a strategic buyer. If needed in short order, BDCs would have a difficult time liquidating their investments without taking significant losses; therefore it is extremely important that BDCs are managed by experienced private equity professionals with significant demonstrated success in multiple market cycles.

BDCs are subject to interest rate risks. Any company that borrows at a variable rate has interest rate risk, likewise, any company (traditionally banks) that lends money at variable rates, has interest rate risk. BDCs both borrow and lend. While the majority of BDCs borrowing activities are long term (10 years or longer), and at fixed rates, it is likely that a BDC will refinance their loans when they have large windfalls from investment gains, at which point, interest rates may have risen, leading to a higher cost of capital.

Further, BDCs typically lend at variable rates (with some form of equity convertibility, equity options, or equity warrants), which carries dual sided interest rate risk. If rates go down, which is highly unlikely in today’s environment, but over the long term becomes a more likely scenario, BDCs will receive lower coupon payments (if they haven’t already converted or exited the loan), which will make it more difficult to pay their debt service, or at least make it less profitable.

If interest rates go up, there is the possibility that the companies BDCs lend to become less profitable, grow significantly slower, or in a worst case scenario fail, as a larger portion of their revenue has to go towards debt service payments, leaving less net income to reinvest in growing the business. While the business model of a BDC, borrowing long-term at low fixed rates and lending shorter term at variable rates with equity convertibility, minimizes interest rate risk, investors should still be aware of the risk.

Andrew N. Smith, CAIA is a Co-Founder and Chief Product Strategist for OWLshares and serves as the chairperson of the Steering Committee for the Los Angeles Chapter of the CAIA Association.

©2024 Chartered Alternative Investment Analyst Association®

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Investor Alerts and Bulletins

Investor bulletin: publicly traded business development companies (bdcs).

Sept. 25, 2020

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide investors information about business development companies, or BDCs, that are traded on national securities exchanges. It is important to understand them before investing.  

What are BDCs?

BDCs are a type of closed-end investment fund . They are a way for retail investors to invest money in small and medium-sized private companies and, to a lesser extent, other investments, including public companies. BDCs are complex and have certain unique risks. This Investor Bulletin discusses BDCs whose shares can be bought and sold on national securities exchanges, or “publicly traded” BDCs.

Read more about publicly traded closed-end funds at Investor Bulletin:  Closed-End Funds .

How are publicly traded BDCs similar to other SEC-regulated investment funds?

In some ways, BDCs are similar to other investment funds - like mutual funds , other closed-end funds, and exchange-traded funds (ETFs):

  • BDCs pool money from many investors and invest that money.
  • All types of investors, including retail investors, can own shares.
  • Investors own shares representing a pro rata or proportional part of the BDC.
  • BDCs’ offerings of shares are registered with the SEC, and BDCs are regulated by the SEC.
  • BDCs’ investment managers may be investment advisers that are registered with the SEC.

In some ways, publicly traded BDCs are also similar to other closed-end funds and ETFs:  their shares are typically bought and sold on national securities exchanges at market prices.

How are BDCs different from other SEC-regulated investment funds?

As a technical matter, BDCs are not registered investment companies but elect to be subject to many of the regulations applicable to registered investment companies.  The main difference between BDCs and other SEC-regulated investment funds is the type of companies they invest in. BDCs invest in debt and equity of small and medium-sized private, or some small public, companies. The companies BDCs invest in are typically in their early stages of development, or are distressed companies that may not be able to obtain bank loans or raise money from other investors. Sometimes BDCs may help manage the companies they invest in. BDCs are sometimes compared to venture capital funds or private equity funds, which provide exposure to private, often illiquid, investments and may provide assistance to the companies they invest in. However, BDCs are open to all investors, including retail investors.

In addition, BDCs are structured differently from other closed-end funds, mutual funds, or ETFs. BDCs also have more leeway to invest using debt and other leverage.

These differences create potential benefits and risks unique to BDCs.

What are some potential risks and benefits of investing in BDCs?

As with any investment, you could lose money investing in a BDC.

Investment Risks. BDCs invest in small and medium-sized companies that are developing and/or financially distressed. Many are private companies that don’t make public disclosures, and the shares of the companies do not regularly trade on a national securities exchange.

  • What this means for you: BDCs’ equity investments have potential for growth and their debt investments may earn higher interest rates than those of other debt investments, so BDCs may seek to achieve a higher return than other types of funds. But such equity or debt investments could also increase BDCs’ risks. There are risks in owning shares or loaning money to the small- and medium-sized companies that are different from, and in some ways more significant than, investments in larger public companies. These smaller companies may be more likely to go out of business or default on their debts. Also, it can be difficult to find information about the companies BDCs invest in and to know for sure what they are worth.

Different Investing Opportunities.  At least 70% of a BDC’s total assets must be invested in certain types of investments, including certain privately issued securities, distressed debt, and government securities.

  • What this means for you: BDCs can offer a different investing opportunity for retail investors than is offered by typical mutual funds, ETFs, or other closed-end funds. Investing in a wider range of assets can be a good tool for portfolio diversification and may mean that a BDC follows movements of the stock market less closely. But these investments can expose you to certain risks, as described in this Investor Bulletin.

Exposure to Leverage or Debt.  BDCs can and often do use more leverage or debt than other types of funds to purchase their investments.

  • What this means for you: BDCs’ use of leverage can increase your return but can also increase your losses. It can also increase risk and can make the price of BDC shares more volatile. In addition, it can be more expensive for BDCs to borrow to invest if interest rates go up. Higher interest rates can also reduce BDCs’ profits. 

Paying a Premium or Discount. The market price for BDC shares may be greater or less than the shares’ net asset value (NAV) . Shares that sell at a price higher than the NAV are said to be sold at a premium, and shares that sell at a price lower than the NAV are said to be sold at a discount. BDC shares may sometimes trade at a discount, but may sometimes sell at a premium.

  • What this means for you: Trading at market price means you may pay more or less for BDC shares than the current value of the fund’s underlying investments. This pricing creates an additional layer of risk and opportunity when owning BDC shares. If you purchase shares at a premium, you are paying more than the current value of the underlying investments. If you purchase shares at a discount, you are paying less than the current value of the underlying investments, but you may not be able to sell the shares other than at a discount.

Potentially large distributions. BDCs’ distributions can include income generated by the fund – interest income, dividends, and/or capital gains – but can also include a return of capital. Because of their tax structure, most BDCs (that have elected a certain tax status) must distribute 90% of their taxable income to their investors each year.

  • What this means for you: BDCs may pay large distributions. If the distributions include a return of capital, BDCs may not be as tax-efficient as other investments. In addition, a return of capital means you are getting back some of your principal, which is the money you originally invested. A distribution that includes a return of capital reduces the BDC’s asset base (the money the BDC has available to invest) and may make it harder for the BDC to make money in the future. It also means that the value of your remaining investment in the BDC may decline. When a distribution includes a return of capital, the BDC will send you a written notice.

Higher Fees. BDCs often have higher fees than other investment funds, like mutual funds or ETFs. Typically BDCs that are managed by an investment adviser have an advisory fee, which is generally equal to 1.5% - 2% of the fund’s gross assets annually, plus certain incentive fees generally up to 20% of any profits earned. Because management fees are typically calculated on gross assets, which would include leverage, the actual management fee charged to investors may be higher depending on the amount borrowed by a particular BDC. Also, BDCs’ operating expenses may be higher than those of other types of funds. In addition, if an investor buys BDC shares in the initial offering, the investor will pay a sales charge or commission that will be a certain percent of the purchase price. If an investor purchases BDC shares on a securities market, the only transaction fees the investor pays are typical brokerage commissions.

  • What this means for you: These fees reduce the value of your investment. If you buy BDC shares in the initial offering, you will likely pay higher fees than if you were to buy the shares of the same fund later on a securities exchange. In addition, typically the price of BDC shares immediately decreases after an initial offering, and the shares sell at a discount. If you buy or sell BDC shares on a securities exchange, you will pay a typical brokerage commission, but not any sales loads or purchase or redemption fees.
  • Regardless of whether you purchase your shares in an initial offering or on a securities exchange, you will pay for the BDC’s operating expenses. These expenses – management fees, distribution fees and shareholder services fees – are paid indirectly by shareholders out of the BDC’s assets. For a list and explanation of fees associated with a BDC investment, you should review the fee table, which is available in the fund’s prospectus, or other relevant fund documents, or ask your financial professional.

Before you invest in a BDC

  • Carefully  read all of the fund’s available information , including its registration statement, prospectus, and any recent 10-Ks, 10-Qs, and 8-Ks. You can get this information by looking at the fund’s filings on the SEC’s EDGAR database , from your investment professional, or directly from the fund.
  • Understand the fees and expenses you will pay for the fund, and compare them to other investment options.
  • Be sure that the fund’s investment strategy is consistent with your goals.
  • What kind of companies does the BDC invest in?
  • What kind of loans does the BDC make? Are they higher quality loans or lower-rated loans? 
  • How much debt has the BDC taken on to make its investments?
  • Has the BDC consistently paid distributions to its investors? A long and stable distribution history can show that the BDC has paid its loans and has money available to return to investors.
  • What fees and expenses are my investment dollars subject to?

Additional Information

Investor Bulletin: Publicly Traded Closed-End Funds

Investor Bulletin:  Interval Funds

Investor Bulletin:  How to Read a Mutual Fund Prospectus ( Part 1 of 3: Investment Objective, Strategies, and Risks ); ( Part 2 of 3: Fee Table and Performance ); ( Part 3 of 3: Management, Shareholder Information, and Statement of Additional Information )

 FourWeekMBA

The Leading Source of Insights On Business Model Strategy & Tech Business Models

business-development

The Complete Guide To Business Development

Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing , and distribution . While marketing usually relies on automation to reach a wider audience, sales typically leverage a one-to-one approach. The business development’s role is that of generating distribution.

Table of Contents

What does a good business development process look like?

A good business development process should have as the primary aim to drive business growth with strategies, partnerships, and unconventional marketing to 10x the output of the organization.

The success of companies like Google also depended on their business development capabilities .

Although you might be looking for a straightforward definition of what business development is, you need to understand that this is a discipline in continuous evolution, which is the main driver of business growth for many companies, especially at B2B and enterprise levels.

In this context, a good place to start is to define what business development is not.

Why does business development matter?

Seth Godin does a great job of explaining why business development is so important:

Business Development is a mysterious title for a little discussed function or department in most larger companies. It’s also a great way for an entrepreneur or small business to have fun, create value and make money. Good business development allows businesses to profit by doing something that is tangential to their core mission. Sometimes the profit is so good, it becomes part of their core mission, other times it supports the brand and sometimes it just makes money. And often it’s a little guy who can be flexible enough to make things happen.

Seth Godin also highlighted:

The thing that makes business development fascinating is that the best deals have never been done before. There’s no template, no cookie cutter grind it out approach to making it work. This is why most organizations are so astonishingly bad at it. They don’t have the confidence to make decisions or believe they have the ability to make mistakes.

Those words resonated with me as I found myself in the position of leading the business development of a tech startup.

If a proper deal is found, business development can make your organization successful overnight.

But searching and finding deals and executing them successfully feels like a gold rush.

Therefore, to make business development work, it is necessary to make it a process.

The process needs to be focused on understanding how to drive value for your organization by leveraging partnerships that can bring your business to the next level.

Business development is also about leveraging and tweaking your existing business model to make it scalable.

When Google closed the deal with AOL  overnight Google, a rising star, could be featured on the largest online portal.

Before moving forward, it is essential to understand the difference between business development and sales.

Business Development vs. sales

Thinking about the business developer as the sales guy, it’s limiting. Not that a business developer doesn’t sell, but it does so by creating a distribution .

In other words, rather than looking at a single sale, the business developers try to find sales channels to tap into to speed up a company’s scaling.

If that means selling a product or a service directly, the business development person will temporarily become a sales guy.

Imagine the scenario of a company that has no clients. In that context, a business developer must find the first clients as quickly as possible.

Those clients will serve to launch the company’s growth, while the business developer will look strategically at ways to have those clients become partners.

Therefore, all of a sudden, a few clients become your distribution channel.

Even though the business developer acted as a sales guy from the outside, he never lost sight of the long-term strategy .

business-development-vs-sales

The successful business developer thinks like a marketer but acts like a salesman

Business development is a mixture of sales and marketing .

In many cases, a business developer will use marketing and PR activities to establish critical relationships for the business.

Those relationships will become partnerships to generate new distribution channels .

business-development-mixture-marketing-and-sales

Business development is about nurturing the right relationships with partners that can become distribution channels

Where the sales process ends up with a closed deal.

The business development relationship starts with a closed deal.

The business developer knows that a deal closed is just the starting point of a long-term relationship that can impact the business in the long run.

Therefore, the business developer will translate that paying customer into a trusted partner and an advocate for your business.

Thus, a sales person thinks in terms of the client by client basis. The business developer must switch the thinking to what sales enable a snowball effect on the company’s bottom line. 

For instance, some clients will refer to other clients, enabling word-of-mouth. 

In another case yet, closing a deal with a known player also means having that publicity that is necessary to bring in other customers. 

Thus, the business developer understands that to succeed, it’s critical to have a long-term view of each deal. 

Where you don’t want to optimize for short-term gains on a single client but rather create a strong position in the market. 

That is why the business developer is a sales person at the core, yet she/he also needs to deeply understand the product and how to talk with technical teams while aligning marketing teams. 

All while making sure to keep these teams aligned with the customers’ business goals. 

That is what a top-performer business developer does.

She/he aligns the technical/product team, with the marketing team, while relentlessly working on making sure product and marketing are in line with the customer’s business goals. 

When you master the above as a business developer you become one of the most valuable people in the organization. 

Business development guides marketing automation

Marketing automation is a powerful tool for any business. However, marketing automation is also risky.

Indeed, automating processes requires a deep understanding of your customers.

Thus, before you can automate the marketing processes, you’ll need the business developers to help the marketing team structure those processes.

Indeed with unique insight into the company’s customers, the industry, and competitors, the business developer will advise the marketing department on how to structure and set up automation processes that fit long-term organizational growth .

In fact, one of the greatest pitfalls, especially for startups, which try to automate processes very early on is premature optimization .

premature-optimization

The business developer is the person within the organization that understands how valuable is the interaction with the customer, especially in the early days. 

Therefore, the business developer will know that, over time, business processes must be – in part – automated. 

But she/he will be the guardian of the interactions with customers, making sure that the company doesn’t fall into the trap of premature optimization.

Indeed, initially, to be able to grow, the company must leverage, as much as possible, interactions with customers.

Therefore, part of the organization, like customer support, rather than being automated, or optimized, should be highly expensive (meaning the top people should be devoted to it), as, from these interactions, you will get a wide range of feedback that will be critical to speed up growth, through iterations. 

Business development scales up businesses

When Google closed its deal with AOL , it was a turning point for the tech company that would become a unicorn first and a tech giant then.

It started with a business development activity that allowed Google to build a partnership with AOL and kill its competitors!

A successful  business development person is a quick learner and a renaissance man.

He will be able to learn about as many disciplines as needed to have a deep understanding of the industry that will drive the company’s growth.

For instance, if you think of a business developer in the digital marketing world, he’ll probably be someone that understands SEM, SEO, funnel optimization, content marketing , sales, and all the other channels available to grow a business .

But at the core, the business developer will remain a salesperson, thus, she/he understands that those channels are instrumental to building up distribution power. 

Thus, creating options to scale . 

business-scaling

Business development is about a growth mindset

The business development process could vary greatly based on the industry, business model , and stage of maturity of a company.

If you are called a business developer for a startup, most of the activities will be connected to growing the startup and bringing it to the next growth stage.

Therefore, the successful business developer needs to have a fine-tuned mindset for growth.

In business, it’s often called 10X mindset or moonshot thinking .

Yet, it doesn’t matter what you want to call it, what matters is you know that you need to work hard, extremely hard today, and do that consistently to build an incredible business. 

moonshot-thinking

In fact, one of the major misconceptions in the current business landscape is that of believing that you can build a successful business quickly. 

While that might happen to a few, very lucky ones. 

Developing an incredible business, takes time, hard work, consistency, and a five-ten years timeframe. 

That is why it’s critical (if you want to become a top performer) to like what you’re doing. 

From that standpoint, a tool like the Bud Caddel Diagram might work to assess whether you’ll make it on the other side, from amateur to top performer.  

how-to-come-up-with-a-business-idea

Business development requires a high level of understanding of a potential partner

To be able to build a relationship quickly, a business developer has to understand the business dynamics of a potential partner.

Indeed, just by tapping into the economics of a partner, the business developer can craft the perfect deal/solution.

For instance, when Google proposed the deal to AOL , it was so good for AOL, and it had no risk for them that they couldn’t say no to it.

Yet AOL was an established network, which allowed Google to get into the next stage of growth and scale.

Understanding what deal can build up distribution is critical. As it enables the company to build momentum and follow a flywheel model of growth . 

And growth moves from linear to exponential, and that is how the business achieves scale. 

What activities does business development imply?

Anything that helps build up a solid distribution strategy falls into the business development processes.

Tasks of a business developer can range from basic sales calls and LinkedIn/email outreach to closing major deals. 

What tasks you will be performing daily will depend on whether you’re a top performer within the organization and at what stage of development the company is. 

For instance, for a new company/startup, building a sales pipeline in the first place is critical. 

And outreach becomes a key component of day-to-day activities. 

You’ll spend most of your time identifying potential prospects and reaching out to them to build momentum in the sales pipeline. 

For that matter, you can use methodologies like MEDDIC to identify the right prospects. 

meddic-sales-process

Or the BANT method . 

bant-sales-process

Or yet the CHAMP method . 

champ-methodology

Whatever methodology you pick, what really matters is consistency and the understanding (as you ramp up the outreach) of the market’s landscape. 

Once that is full, and you have enough deals coming through, you will focus on consolidating these deals and ensuring those reach the maximum potential. 

Especially at an enterprise level, before the full sales cycle matures, it might take 1-3 years. 

In that process, you’ll need to outreach, onboard, grow and consolidate the deal. 

And depending on the deal size, the revenue you’ll be able to bring in from a customer will highly depend on your ability to consistently work to understand the changing business goals of your customers as their organizations change and evolve. 

You will act almost as a valuable player within the customer’s team; only then you’ll be able to really grow the deal size and fully consolidate the potential contract value of the customer. 

For instance, if you take organizations like Palantir , which work, on huge government contracts, to develop those fully, the enterprise salesperson will follow a 2-3 years journey of the development of the contract.

palantir-business-model

The sales pipeline is a basic tool for a business developer

pirate-metrics

A sales pipeline is as a visual representation of your sales process where all your potential customers are displayed and neatly arranged according to their phase in your sales cycle. Source : salespop.pipelinersales.com/sales-professionals/what-is-sales-pipeline

A business developer has to be able to build up predictable sales processes to generate continuous streams of leads for the organization.

The sales pipeline is a valuable tool for setting up those processes.

Also, being able to track your sales pipeline is a critical activity.

A sales pipeline is just a way to have a clear in which stage of the sales process you are with a potential client.

As shown by Sales POP , from the initial contact to closing a deal, it takes a few steps:

  • Initial contact.
  • Qualification.

At each of those actions, we can assign a probability of closing a deal.

For instance, at the initial contact, you don’t have an idea whether the person you’re reaching out to would later become a customer.

Therefore, the more you move down the pipeline, the more the chances of closing the deal improve.

Sales POP research shows that each of those stages has a chance of success as follows:

  • Initial contact –   0 %.
  • Qualification –   10 %.
  • Meeting –   30 %.
  • Proposal –   60 %.
  • Close –   100 %.

Therefore, you have 1 in 10 chances of closing a lead after you have qualified.

Once you have met, defined the project, and sent a proposal, your chances will improve up to 60%.

The chances of closing a deal also depend on other factors. For instance, have you previously worked with this person?

In short, if you have already built trust, it will be easier to close the deal. If you are expanding a project you were working on, then it might be easier as well.

Therefore, it will depend upon several factors crucial to any deal.

Yet the business developer can have clarity about the stage of a business deal.

In that way, the business developer can plan the actions and activities that will get the sales process going.

What actions can the business developer perform to improve the sales pipeline?

There are several ways to improve sales processes. Some examples comprise:

  • Experimentation with new tools  or channels.
  • Find out new tactics from your peers.
  • Creating new partnerships.
  • Managing existing partnerships to expand the scope of work.
  • Direct sales (outreach, live demonstrations, free training).
  • Off-line activities (live seminars or industry events).
  • Content marketing or PR activities.
  • Talk to clients to improve products/services.
  • Learn how to build relationships with influencers.
  • Use LinkedIn for social selling.
  • Experiment with new  distribution channels .
  • Develop relationships with media partners.
  • Create new packaging for your service.
  • Draft commercial offers.
  • Up-sell, cross-sell, and leverage the core product to offer. complementary services.
  • Create sales processes.
  • Build up a predictable sales funnel.
  • Help marketing to build sales funnels for continued lead generation.

Why undertake a career in  business development?

Being a business development person means having an entrepreneurial spirit. It’s almost like you are a business within your business.

Therefore, working as a business development person helps you:

  • Develop an entrepreneurial mindset.
  • Get more freedom compared to a traditional job.
  • Dynamic work that pushes you to learn new things quickly.
  • Make more money (the variable is an important part of the remuneration).
  • Higher pressure but also more fun than a traditional job.
  • Be your own boss (if it is in a large organization, of course, you will respond to someone. However, the only boss you have are the commercial objectives you agreed upon).
  • Build a professional network quickly.

What are some downsides?

Of what I can think of, here are some I identified:

  • The bottom line is your mixed blessing. Although you might be doing things right for specific periods, you just don’t seem to be able to close enough deals and partnerships or create a proper distribution strategy . From the outside, that might look like you’re not doing your job properly what I like to call outcome bias . In those periods, you have to be good at thinking about your track record.
  • Your pay is proportional to the objective you’re able to achieve. Therefore quite volatile.
  • Some days it just seems you’ll never get to achieve the financial results agreed upon. It is normal to feel like that. The good side is that you’ll feel what any entrepreneur experiences.

Overall the balance is positive. Now the most critical question. How do you make a business get traction?

The channels you can use to get traction

Gabriel Weinberg, CEO, and founder of DuckDuckGo , a search engine that doesn’t track your data , put together in his book, Traction, a list of channels that are critical to allow a business to grow .

He identified quite a few channels:

  • Targeting Blogs.
  • Unconventional PR.
  • Search Engine Marketing.
  • Social and Display Ads.
  • Offline Ads.
  • Search Engine Optimization.
  • Content Marketing.
  • Email Marketing.
  • Viral Marketing.
  • Engineering as Marketing.
  • Business Development.
  • Affiliate Programs.
  • Existing Platforms.
  • Trade Shows.
  • Offline Events.
  • Speaking Engagements.
  • Community Building.

As a business developer, you must understand some channels to grow a business.

What’s a secret weapon for the business developer? LinkedIn

65% of salespeople who use social selling   fill their pipeline , compared to 47% of reps who do not. source: blog.hubspot.com/sales/sales-statistics

LinkedIn is a fantastic tool for generating conversations that can help speed up the prospecting phase.

What can you do with LinkedIn?

  • Find new B2B clients.
  • Build new partnerships.
  • Get media coverage.
  • Personal branding for business.

Those things are possible if you are consistent.

Three ways to build relationships with businesses are:

  • Outreach to people that might get value from what you offer.
  • Use LinkedIn publishing to create awareness or become a thought leader in your niche.
  • Share and like posts about people you admire to strengthen your relationship and create value for your network.

A crash course in sales canvassing

Sales canvassing is a process where you get in touch with potential customers who have never heard about your brand.

sales-process-sales-tactics

Examples of sales canvassing are door-to-door sales and cold calling.

Those are critical strategies as they might be inexpensive and sustainable ways to generate qualified leads without relying on sales consultants or expensive lists.

However, to be successful, the process of sales canvassing needs to be structured.

Why does sales canvassing matter?

As many new startups operate in the digital space, it is easy to assume that old sales techniques are outdated.

Thus, we all like to speak about marketing funnels, automation, and multiple touch points.

However, for any business to be sustainable needs a continuous stream of leads; in many cases, this implies cold calling or approaching people who have never heard of you.

Indeed, unless you have a massive marketing budget that you can use to grow your brand quickly.

In most other cases, you need a sales force that can venture into the world and create contacts with customers who don’t know about you.

However, to make the sales efforts effective, you’ll need to ensure your sales force has a plan, a strategy , and a process to follow.

That is what sales canvassing is about.

That is a process through which salespeople can have consistent results nonetheless of the single outcome.

When you make the sales canvassing process yours, that is when your company can become sustainable in the long run, as you won’t need to depend on other companies to provide you with a consistent stream of leads, you’ll be able to generate them on your own.

Also, you’ll be able to grow a sales department able to create new opportunities independently from the marketing department.

That doesn’t mean you’ll need only sales canvassing. In many cases, having multiple touch points with a potential customer via proper marketing strategies is a good strategy as it makes it way more comfortable for your salesforce to close a complex deal.

In other cases, though, it is also critical to have an independent sales force able to open up new opportunities, primarily when your brand isn’t yet established.

So what steps do you need for your salesforce to take advantage of sales canvassing? Some key ingredients are:

  • Have the sales force once understand the product/service and its strength and unicity.
  • Make sure your sales force understands what problem your product or service solves.
  • Have them set clear targets and share them with the rest of the team.
  • Make the value proposition clear to your sales force.
  • Prepare scripts and speaking points but let them be flexible enough to handle a complex conversation.
  • Get them ready to be rejected.
  • Rejection is a key to the learning process.
  • Focus on a single channel but leverage several media.

Understanding the strength and unicity of the product/service

When a salesperson ventures to bring in customers that have never heard of your brand before, it becomes critical that the sales force is very knowledgeable about the product and service and can explain it in the simplest terms.

Focus on the problem and payoff

When approaching someone that never heard about your brand, why even focus on explaining who you are?

Instead, focus on their issue and what solution you have for them.

They need a short-term payoff.

Find out the payoff and struggle your potential customer has and propose a solution. That is when you’ll listen.

Set a target customer

During sales canvassing, it is critical to have a laser focus. You need a list of contacts, but it makes sense to start from a profile that fits your company’s existing customers.

Indeed, when approaching a customer that never heard about your brand, you’ll need to understand what problem you can solve.

But she/he won’t trust you can answer it unless you showcase studies that resemble their situation.

When you tell a business owner you’ve already helped someone in a similar situation, it’s easier to trust you, even if they have never heard of your brand.

When you take the time to understand the problem, propose a solution, and show a similar case study, sales canvassing becomes way more effective.

Have a script but leave it flexible

Many salespeople like to use scripts. Scripts are prepackaged dialogues usually drawn from old conversations with existing customers.

While scripts are a good starting point, you need to be flexible.

Indeed, with sales canvassing, you’ll deal with people who have never heard about your brand and company.

Would it make sense to engage in a dialogue you had with a client that already knew you? Not really.

Rejection is part of the process

During sales canvassing, the risk of being rejected is exceptionally high.

It is critical to allow your sales force to understand that it is not something personal but rather that it is part of the process.

Rejection is what makes them more effective.

Focus on a single channel but leverage several media

During sales canvassing, it is important to focus on a single channel.

Therefore, if your preferred way is telemarketing, you’ll use the phone. However, not all customers like to be reached by phone.

In that scenario, you’ll need to learn how to use several channels, from social media to emails.

The important thing is to be able to generate a conversation for long enough that the person, on the other hand, trusts you can bring actual value.

When you get there, you win.

Examples of sales canvassing

Sales canvassing can be done in several ways, like:

  • Telemarketing.
  • Door-to-door.
  • Direct mail.
  • Networking.
  • Introductory sales letters.

Whatever medium you choose, it is critical to have a process with clear objectives, which is repeatable and where rejection is part of the learning process.

A crash course in sales and marketing alignment best practices

marketing-vs-sales

In Marketing vs. Sales, a cleared out the distinction between the two activities and when it makes more sense for an organization to leverage on marketing rather than sales and vice-versa.

While it is essential to understand the difference between marketing and sales, it is also critical to understand how they work together.

Marketing and Sales are working together.

As Peter Drucker pointed out in his book  Drucker Management, “ there will be always, one can assume, be a need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. ”

While marketing can get to the point of understanding the customer and make the sales team superfluous – to a certain extent.

The sales team, though, is a critical link between the marketing department and the customers.

Salespeople are involved in the whole customer journey at a personal level.

Indeed, not only the salesperson might speak to the potential customer in the most delicate moment when she/he is deciding whether it makes sense to purchase your product or service.

But it assists the customer throughout the entire process.

For instance, a critical moment of the customer journey is when she/he needs assistance or support.

While this phase might be in part automated, in most cases, you’ll need a support team, which is often sales-oriented, to assist the customers.

In those phases, you can unlock many insights about the customers that marketing will never manage to have with automation alone.

That is when sales and marketing come together to create a customer-centric journey.

In what other ways than sales and marketing work together?

Lead generation

The usual funnel sees the marketing department in charge of giving the sales team a list of leads (people that might be interested in your product or service) they can work on and bring in as customers.

While this is the traditional process, it is important to remark that often the opposite happens.

For instance, if you take the sales canvassing process  that allows the company to acquire customers that have never heard about your brand.

In that scenario, a sales team can give valuable insights to the marketing team on where to focus their attention and understand the areas where the company’s marketing activities might be improved.

In the era of AI and machine learning, it’s easy to assume that automation should come before anything else.

However, automation, if done without coordination between the marketing and sales teams, doesn’t add any value.

If at all, it can create irreversible damage to your brand.

Therefore, before you set up any automation, you need a deep understanding of your customers, your product, your value proposition, and the journey customers take to go from the first touch point with your brand to the referral stage and on.

Thus, before the marketing department creates any automation, you need them to coordinate as much as possible with the sales team to make sure the automation process leverages customer insights that only the sales force, which is in touch with the customer base daily – has at its disposal.

Related : Marketing vs. Sales

Viral marketing

Many believe that you need a viral marketing campaign to make the lead acquisition process smooth and inexpensive.

However, even though viral marketing  can do that, you might initially need intense coordination between sales and marketing (and engineering) to understand what part of your product might carry some virality.

For instance, if you run a SaaS business , in some cases, it might make sense to create a free version of the product (the so-called freemium model ) that becomes an essential part of the lead generation process.

However, what features, or how many volumes, can you offer for free to acquire enough customers? A/B testing and big data will help.

However, to set it up correctly, you need insights from the sales teams.

Those mentioned above are just some of the activities for which sales and marketing working together can really create an effective strategy for the growth of your brand and business.

Therefore, even though it makes sense to understand and keep a clear distinction between sales and marketing so that each of them can focus on specific aspects of the business with accountability and set results.

On the other hand, it is critical to understand the level of coordination that sales and marketing can achieve.

Related :  Dropbox Self-Serve Business Model

More sales best practices to apply to your business

Sales and distribution are two primary ingredients for any business’s success. Thus, starting from the best practices for your sales team is the first step toward building a profitable business .

Of course, once you have mastered those the time is right to start experimenting with new sales strategies that none out there is doing. Yet if you’re missing the best practices, this is an excellent place to start.

Action plan

Salespeople have to act and do it as quickly as possible.

Procrastination is the first enemy as the more time you spend thinking, the less you’ll have time to act and start sending emails that can lend you new clients or calling those contacts you have on your desk.

However, to make your action more effective, a plan is needed.

An action plan is merely a set of predetermined steps and a workflow you’ll need to organize your effort.

Customer targeting

customer-segmentation

One key ingredient to making sales processes successful is the ability of the sales team to target the right leads. Indeed, imagine the case of a salesperson contacting a hundred people and closing none.

In many cases that happens when the salesperson doesn’t know who’s the ideal target that can benefit from the company’s service or product.

Sales canvassing

sales-canvassing

When a company has mastered lead generation by automating part of the activities of its marketing department it is easy to have salespeople forget about the first and hardest stage, getting in touch with people that don’t know your brand.

Instead, have your salespeople spend a part of their time doing sales canvassing or contacting with cold calls or emails people that don’t know your brand. When they master this process, they can also uncover insights about why your business didn’t manage to be recognized among valuable segments of the market as well.

Sales scripts

When a company starts up, you’ll probably have one or two salespeople that have a weird profile. In short, they are not typically just people that mastered the sales process; they are more like renaissance men and quick learners.

They ventured into the business world when none or few people knew your brand and built the company from the ground up. Thus, those people know your company and product better than anyone else.

Therefore, you don’t have to reinvent the wheel each time. Instead, have the new team members of the sales team take advantage of scripts that cover up the main concerns and questions potential customers might have and how to address them. Keep in mind that the script is just a tool to guide the sales force, but it is meant to be improved over time.

Email templates

Just like scripts, email templates can be a great help to salespeople to use what has already worked and rolled it out on a larger scale.

It is essential to keep improving those templates to allow sales emails to gain higher and higher conversion rates. Even though templates do work, it is vital to let at least a small part of it be personalized.

Thus, while you can have a template, you still need to do your research and make sure you offer some valuable information to get the lead interested in what you’re saying. Why would anyone listen to you if you’re sending out the same message to anyone?

Personalized message

Before contacting anyone make sure to do your research. People are interested in listening to you when you can deliver them solutions to their problems.

None cares about your product or service or who you are (unless you’re a rockstar). Thus, before sending that message, are you providing something valuable to the person on the other side?

Value proposition

One of the less understood aspects of selling is the fact that you only need to pick up the phone as many times as you can and sell your product.

However, while this is a prerequisite, it is not really what makes the difference. When you’re reaching out to someone, you need to understand what motivates them, and their value proposition.

Marketing usually can deliver a value proposition and make it seen by as many people as possible.

But that value proposition will be not tailored. In short, your product or service doesn’t have a single value proposition, but it will have as many as many potential clients exist out there.

The salesman has to be able to find the value proposition in the product or service that most suits the potential customer on the other side. That is how you get attention.

Related :  What Is a Value Proposition?

10x goal setting

Among the most misunderstood things about sales is the goal-setting process. Many believe that is fine to set reasonable goals.

Thus, they won’t shoot to the moon but rather be happy with a discrete objective.

For instance, they might say, “why don’t we increase sales by 50% this year?” And for many, this is a massive increase.

Yet if you are not ambitious enough not only you won’t reach the objective but you won’t even take the necessary actions to get there.

In short, to reach massive results, you need to have quite ambitious goals, and targets. Those will ask for the kind of actions that will get you motivated in the long run.

Related :  Moonshot Thinking

Understand the client’s business model

If you’re selling to another business, you need to understand its psychology. While indeed when you sell to a consumer, you want to understand their necessities.

When it comes to business, you want to study their business model indeed. How do they make money? Who are their customers? What do their customers want? What cost structure does the business have?

All those aspects will be critical to understanding what the person, on the other hand, is motivated by and get you closer to delivering the solution that works best for them.

Related :  Successful Types of Business Models You Need to Know

This is the most critical word in sales, yet many neglects it. When you’ve spent hours prospecting, researching, and meeting a client you’ve done only part of the work.

However, when you don’t follow up, you’ve wasted your time. You could have well not done the work at all.

The follow-up is probably the thing that requires the least effort (that is more a matter of organization), yet that is what gets you to close the deal.

Until the potential client gives you an answer which might be positive or negative, you need to follow up!

Related : How Does ConvertKit Make Money?

Fill your pipeline, always!

In some cases, you might think your pipeline is good enough. That is when you start losing ground. To avoid the risk of being left with an empty pipeline, you need to be prospecting at all times.

Some deals might take way longer than expected to be closed, in that scenario you need a backup plan, which is your pipeline and how full it is.

sales-cycle

Keep in touch

When you’ve closed a deal or received a No as the answer, you can’t just leave it up there. You need to keep in touch with that person as what might have prevented closing the deal might have been timing.

On the other hand, if you already closed a deal with that person keeping in touch might allow you to understand when that person has additional needs and whether you can help your company to fulfill them.

Deliver value before closing

Many think of selling as closing a deal. While closing is part of the process, you’re selling (or serving) at all times.

The common mistake is to think you have to deliver value only when the customer has been acquired and has given you the credit card.

Instead, you need t deliver value as soon as you start interacting with a potential client. Why does she/he need to trust you?

That person doesn’t know you, how she can be sure you’re the person she wants to have business with.

There is only one way to prove it, to deliver value before the sales are closed.

Outstanding support

After you’ve closed the sales, it isn’t like your work is over. If you provide a service the most delicate part of it is the first stage of usage of that service by the new customer.

Indeed this is still a process in which the person needs to understand whether you can be trusted to deliver the value you promised.

Therefore, you need to be on top of it.

The way you support the client once she has acquired your product or service determines how much your business can be trusted.

Also, an essential part of any sales funnel is the referral side.

When you’re providing outstanding support not only you’re retaining valuable customers, but you also have those people refer your business to others.

In the end of it, it’s about listening

Based on the research by Hubspot those are the top four  ways to create a positive sales experience , according to buyers:

  • Listen to their needs (69%).
  • Don’t be pushy (61%).
  • Provide relevant information (61%).
  • Respond promptly (51%).

Therefore, it is critical to learn to listen, which does not mean thinking about what you have to say next when the other person is listening. But instead to focus solely on what the other person says emphatically.

One mantra I have (or at least I try) to follow is “how do I create value for this person?”

Once that becomes hardwired, it will be much easier to get things going!

Business development and business engineering

In my own experience, as a person that worked in the sales industry for years, going from business development to sales director.

I can say that one of the most valuable ways to become great at business development has been a deep understanding of the business world, through which I labeled business engineering . 

business-engineering-manifesto

Business engineering is a combination of business modeling , design thinking, and a deep intuitive understanding of scale, which makes you act more like an intrapreneur than a salesperson. 

Other tools and resources for your business:

  • Business Strategy: Definition, Examples, and Case Studies
  • Successful Types of Business Models You Need to Know
  • How Does PayPal Make Money?
  • How Does WhatsApp Make Money?
  • How Does Google Make Money?
  • How Does Facebook Make Money?
  • Marketing vs. Sales
  • The Google of China: Baidu Business Model
  • Accenture Business Model
  • Salesforce: The Multi-Billion Dollar Subscription-Based CRM
  • How Does Twitter Make Money?
  • How Does DuckDuckGo Make Money?
  • How Amazon Makes Money: Amazon Business Model
  • Netflix Business Model

Handpicked popular case studies from the site: 

  • The Power of Google Business Model in a Nutshell
  • Amazon Business Model
  • Spotify Business Model
  • Apple Business Model
  • DuckDuckGo: The [Former] Solopreneur That Is Beating Google at Its Game

More Resources

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

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Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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  • A Game-Changing Business Development Strategy to Achieve Consistent Growth

Joe Pope

Your business development strategy can be key to the success or failure of your firm. In this post, we’ll explore how to create a strategy and associated plan that can propel an individual, a practice or an entire firm to new levels of growth and profitability.

Business Development Defined

Business development (BD) is the process that is used to identify, nurture and acquire new clients and business opportunities to drive growth and profitability. A business development strategy is a document that describes the strategy you will use to accomplish that goal.

The scope of business development can be wide ranging and vary a lot from organization to organization. Consider the model of how professional services organizations get new business shown in Figure 1.

business development funnel

Figure 1: The three stages of the business development funnel

The first two stages of the model, Attracting Prospects and Build Engagement, are traditional marketing functions. The final stage, Turning Opportunities into Clients, is a traditional sales function. In the traditional role, business development would be looking for new channels of distribution or marketing partners.

But roles are changing and naming conventions evolve. In today’s world many firms refer to the entire marketing and sales process as business development. I know, it can be confusing. So let’s sort it out a bit.

Business Development vs. Marketing

Marketing is the process of determining which products and services you will offer to which target audiences, at what price. It also addresses how you will position and promote your firm and it’s offerings in the competitive marketplace. The result of all this activity should be an increasing awareness of your firm among your target audience — and a stronger flow of qualified leads and opportunities.

Download the Business Development Guide

Historically, business development has been a subset of the marketing function that was focused on acquiring new marketing or distribution relationships and channels. While this role still exists in many companies, the business development title has become interchangeable with many marketing and sales functions.  

Business Development vs. Sales

Sales is the task of converting leads or opportunities into new clients. Business development is a broader term that encompasses many activities beyond the sales function. And while there is some overlap, most traditional BD roles are only lightly involved in closing new clients.  

Business development is often confused with sales. This is not too surprising because many people who are clearly in sales have taken to using the title of Business Developer . Presumably this is done because the organization believes that the BD designation avoids some possible stigma associated with sales.

Nowhere is this practice more prevalent than in professional services. Accountants, lawyers and strategy consultants do not want to be seen as “pushy sales people.” This titular bias is firmly rooted despite the fact that developing new business is an important role of most senior members of professional services firms.

Since so many clients want to meet and get to know the professionals they will be working with, the Seller-doer role is well established in many firms. The preference for Seller-doers also tends to discourage firms from fielding a full-time sales force.

As an alternative approach to leveraging fee-earners’ time, some firms have one or more Business Developers on staff. In the professional services context, these folks are often involved in lead generation and qualification, as well as supporting the Seller-doers in their efforts to close new clients. In other organizational contexts, this role might be thought of as a sales support role.

The result of this confusing picture is that many professional services firms call sales “business development” and make it part of every senior professional’s role. They may also include some marketing functions, such as lead generation and lead nurturing, into the professional’s BD responsibilities.

It is this expanded role, where business development encompasses the full range of lead generation, nurturing and sales tasks, which we will concentrate on in this post.

See also: Heller Consulting Case Story

Business Development Examples

To be clear on what this role entails, let’s consider this business development example:

Bethany is the Director of Business Development at a fictional mid-sized architecture firm. She is not an architect herself. Nor is she involved with any aspect of delivering the projects that the firm has signed. Instead, her role is exclusively focused on signing new business for her firm—with either new clients or existing ones. 

For new clients, Bethany spends much of her time responding to RFPs, communicating directly with inbound leads generated by the marketing/sales enablement team, and nurturing potential clients that she met at a recent industry conference. Bethany also collaborates with the marketing team in the development of new materials she needs to sell to new accounts.

When it comes to existing accounts, Bethany also has a role. She meets monthly with delivery teams to understand whether current client projects are on scope or if change orders are needed. Moreover, she maintains a relationship with key stakeholders of her firm’s clients. If another opportunity for more work opens, she knows that her relationship with the client is an important component to that potential deal.

In this example, Bethany is the primary driver of business development but that does not mean she is doing this alone. Imagine she has a colleague Greg who is a lead architect at the firm. While Greg’s first focus is delivering for his clients, business development—and even marketing—should still be a part of his professional life. Perhaps Greg attends an industry conference with Bethany, he as a speaker and expert and her as the primary networker. The business development dynamic should not end with Bethany and should permeate the whole organization.

In this business development example, you can see that the range of roles and responsibilities is wide. This is why it is essential for business development to not be ad hoc, but done strategically. Let’s talk about that now.

Strategic Business Development

Not all business development is of equal impact. In fact a lot of the activities of many professionals are very opportunistic and tactical in nature.This is especially true with many seller-doers. 

Caught between the pressures of client work and an urgent need for new business they cast about for something quick and easy that will produce short term results. Of course this is no real strategy at all.

Strategic business development is the alignment of business development processes and procedures with your firm’s strategic business goals. The role of strategic business development is to acquire ideal clients for your highest priority services using brand promises that you can deliver upon.

 Deciding which targets to pursue and strategies to employ to develop new business is actually a high stakes decision. A good strategy, well implemented, can drive high levels of growth and profitability. A faulty strategy can stymie growth and frustrate valuable talent.

Yet many firms falter at this critical step. They rely on habit, anecdotes and fads — or worse still, “this is how we have always done it.” In a later section we’ll cover how to develop your strategic business development plan. But first we’ll cover some of the strategies that may go into that plan.

Top Business Development Strategies

Let’s look at some of the most common business development strategies and how they stack up with today’s buyers .

Networking is probably the most universally used business development strategy. It’s built on the theory that professional services buying decisions are rooted in relationships, and the best way to develop new relationships is through face-to-face networking.

It certainly is true that many relationships do develop in that way. And if you are networking with your target audience, you can develop new business. But there are limitations. Today’s buyers are very time pressured, and networking is time consuming. It can be very expensive, if you consider travel and time away from the office.

Newer digital networking techniques can help on the cost and time front. But even social media requires an investment of time and attention.

The close relative of networking, referrals are often seen as the mechanism that turns networking and client satisfaction into new business. You establish a relationship, and that person refers new business to you. Satisfied clients do the same.

Clearly, referrals do happen, and many firms get most or all of their business from them. But referrals are passive. They rely on your clients and contacts to identify good prospects for your services and make a referral at the right time.

The problem is referral sources often do not know the full range of how you can help a client. So many referrals are poorly matched to your capabilities. Other well-matched referrals go unmade because your referral source fails to recognize a great prospect when they see one. Finally, many prospects that might be good clients rule out your firm before even talking with you. One recent study puts the number at over 50%.

Importantly, there are new digital strategies that can accelerate referrals. Making your specific expertise more visible is the key. This allows people to make better referrals and increases your referral base beyond clients and a few business contacts.

Learn More: Referral Marketing Course

Sponsorships and Advertising

Can you develop new business directly by sponsoring events and advertising? It would solve a lot of problems if it works. No more trying to get time from fully utilized billable professionals.

Unfortunately, the results on this front are not very encouraging. Studies have shown that traditional advertising is actually associated with slower growth. Only when advertising is combined with other techniques, such as speaking at an event, do these techniques bear fruit.

The most promising advertising strategy seems to be well-targeted digital advertising. This allows firms to get their messages and offers in front of the right people at a lower cost.

Outbound Telephone and Mail

Professional services firms have been using phone calls and mail to directly target potential clients for decades. Target the right firms and roles with a relevant message and you would expect to find new opportunities that can be developed into clients.

There are a couple of key challenges with these strategies. First they are relatively expensive, so they need to be just right to be effective. Second, if you don’t catch the prospect at the right time, your offer may have no appeal relevance — and consequently, no impact on business development.

The key is to have a very appealing offer delivered to a very qualified and responsive list. It’s not easy to get this combination right.

Thought Leadership and Content Marketing

Here, the strategy is to make your expertise visible to potential buyers and referral sources. This is accomplished through writing, speaking or publishing content that demonstrates your expertise and how it can be applied to solve client problems.

Books, articles and speaking engagements have long been staples of professional services business development strategy. Many high visibility experts have built their practices and firms upon this strategy. It often takes a good part of a career to execute this approach.

But changing times and technology have reshaped this strategy. With the onset of digital communication it is now easier and much faster to establish your expertise with a target market. Search engines have leveled the playing field so that relatively unknown individuals and firms can become known even outside their physical region. Webinars have democratized public speaking, and blogs and websites give every firm a 24/7 presence. Add in video and social media and the budding expert can access a vastly expanded marketplace.

But these developments also open firms to much greater competition as well. You may find yourself competing with specialists whom you were never aware of. The impact is to raise the stakes on your business development strategy.

Combined Strategies

It is common to combine different business development strategies. For example, networking and referrals are frequently used together. And on one level, a combined strategy makes perfect sense. The strength of one strategy can shore up the weakness of another.

But there is a hidden danger. For a strategy to perform at its peak, it must be fully implemented. There is a danger that by attempting to execute too many different strategies you will never completely implement any of them.

Good intentions, no matter how ambitious, are of little real business development value. Under-investment, lack of follow through and inconsistent effort are the bane of effective business development.

It is far more effective to fully implement a simple strategy than to dabble in a complex one. Fewer elements, competently implemented, produce better results.

Next, we turn our attention to the tactics used to implement a high-level strategy. But first there is a bit of confusion to clear up.

Business Development Strategy Vs. Tactics

The line between strategy and tactics is not always clear. For example, you can think of networking as an overall business development strategy or as a tactic to enhance the impact of a thought leadership strategy. Confusing to be sure.

From our perspective, the distinction is around focus and intent. If networking is your business development strategy all your focus should be on making the networking more effective and efficient. You will select tactics that are aimed at making networking more powerful or easier. You may try out another marketing technique and drop it if it does not help you implement your networking strategy.

On the other hand, if networking is simply one of many tactics, your decision to use it will depend on whether it supports your larger strategy. Tactics and techniques can be tested and easily changed. Strategy, on the other hand, is a considered choice and does not change from day to day or week to week.

10 Most Effective Business Development Tactics

Which business development tactics are most effective? To find out, we recently conducted a study that looked at over 1000 professional services firms. The research identified those firms that were growing at greater than a 20% compound annual growth rate over a three-year period.

These High Growth firms were compared to firms in the same industry that did not grow over the same time period. We then examined which business development tactics were employed by each group and which provided the most impact.

The result is a list of the ten most impactful tactics employed by the High Growth firms:

  • Outbound sales calls from internal teams
  • Providing assessments and/or consultations
  • Speaking at targeted conferences or events
  • Live product/service demonstrations
  • Presenting in educational webinars
  • Pursuing industry award opportunities
  • Business development materials
  • Email marketing campaigns
  • Conducting and publishing original research
  • Networking at targeted conferences or events

There are a couple of key observations about these growth tactics. First, these techniques can be employed in service of different business development strategies. For example number three on the list, speaking at targeted conferences or events, can easily support a networking or a thought leadership strategy.

The other observation is that the top tactics include a mix of both digital and traditional techniques. As we will see when we develop your plan, having a healthy mix of digital and traditional techniques tends to increase the impact of your strategy.

Business Development Skills

Now that we have identified the key business development strategies and tactics, it is time to consider the business development skills your team will need. Business development skills require a broad range of technical skills but there are some that make a difference.

When the Hinge Research Institute studied marketing and business development skills in our annual High Growth Study , we found that the firms who grow faster have a skill advantage within their marketing and business development teams.

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Let’s dive into the top three skills from this list. 

The number one business development skill high growth firms enjoy are strong project management skills. And for experienced business development specialists, this makes good sense. Staying organized, accurately tracking business development activity, and managing accounts are essential for building and maintaining strong business relationships. Activities like the proposal development see business development team resources manage and produce a strong proposal quickly, including the right stakeholders, and without sacrificing quality.

The next most important skill is simplifying complex concepts. In business development conversations, it is vital that team members are strong communicators of your firm’s service offerings and capabilities. Those who are able to take a comlex scope of work and communicate it in a way that a potential buyer can understand. Speaking in industry jargon or overly complicated charts is a fast way to see a business lead become unresponsive. Therefore, it is no surprise to see that the fastest growing professional services firms have an advantage in communicating complex information in a way that buyers understand.

The third most important business development skill is face-to-face networking. Despite the hiatus of many in-person events, high growth firms still reported that strong networking skills are a top skill enjoyed by their firms. Strong face-to-face networking skills are as much of an art as it is a science. While some can be more charismatic than others, everyone can prepare their teams with the resources and plan they need to succeed in a networking environment.

Review the other business development and marketing skills in the figure above and determine which skills your team should aim to develop. Strategy development for planning your business development plan, research for understanding the competitive landscape and industry trends, and social media prowess all play an important role in business development, too. Developing these skills should be a key priority of your business development team.

How to Create Your Strategic Business Development Plan

A Business Development Plan is a document that outlines how you implement your business development strategy. It can be a plan for an individual, a practice or the firm as a whole. Its scope covers both the marketing and sales functions, as they are so intertwined in most professional services firms.

Here are the key steps to develop and document your plan.

Define your target audience

Who are you trying to attract as new clients? Focus on your “best-fit” clients, not all possible prospects. It is most effective to focus on a narrow target audience. But don’t go so narrow that you can’t achieve your business goals.

Research their issues, buying behavior and your competitors

The more you know about your target audience the better equipped you will be to attract their attention and communicate how you can help them. What are their key business issues? Is your expertise relevant to those issues? Where do they look for advice and inspiration? What is the competitive environment like? How do you stack up?

Identify your competitive advantage

What makes you different? Why is that better for your target client? Are you the most cost-effective alternative, or the industry’s leading expert? This “positioning” as it is often called, needs to be true, provable and relevant to the prospect at the time they are choosing which firm to work with. Be sure to document this positioning, as you will use it over and over again as you develop your messages and marketing tools.

Choose your overall business development strategy

Pick the broad strategy or strategies to reach, engage and convert your prospects. You can start with the list of top strategies provided above. Which strategy fits with the needs and preferences of your target audiences? Which ones best convey your competitive advantage? For example, if you are competing because you have superior industry expertise, a thought leadership/content marketing strategy will likely serve you well.

Click to play video

Choose your business development tactics

A great place to start is the list of the most effective tactics we provided above. Make sure that each technique you select fits your target audience and strategy. Remember, it’s not about your personal preferences or familiarity with a tactic. It’s about what works with the audience.

Also, you will need to balance your choices in two important ways: First, you will need tactics that address each stage of the business development pipeline shown in Figure 1. Some techniques work great for gaining visibility but do not address longer-term nurturing. You need to cover the full funnel.

Second, you need a good balance between digital and traditional techniques (Figure 2). Your research should inform this choice. Be careful about assumptions. Just because you don’t use social media doesn’t mean that a portion of your prospects don’t use it to check you out.

Online and Traditional Marketing

Figure 2. Online and offline marketing techniques

When, how often, which conferences, what topics? Now is the time to settle on the details that turn a broad strategy into a specific plan. Many plans include a content or marketing calendar that lays out the specifics, week by week. If that is too much detail for you, at least document what you will be doing and how often. You will need these details to monitor the implementation of your plan.

Specify how you will monitor implementation and impact

Often overlooked, these important considerations often spell the difference between success and failure. Unimplemented strategies don’t work. Keep track of what you do, and when. This will both motivate action and provide a great starting place as you troubleshoot your strategy. Also monitor and record the impacts you see. The most obvious affect will be how much new business you closed. But you should also monitor new leads or new contacts, at the bare minimum. Finally, don’t neglect important process outcomes such as referrals, new names added to your list and downloads of content that expose prospects and referral sources to your expertise.

If you follow these steps you will end up with a documented business development strategy and a concrete plan to implement and optimize it.

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8 Types of Business Models & the Value They Deliver

Stacks of coins in a garden

  • 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

  • Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
  • Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

  • Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
  • Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

  • Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
  • Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

  • Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
  • Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

  • Pros: You don’t have to have a novel idea to make money using a lease business model. You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
  • Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

  • Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
  • Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

  • Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
  • Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

  • Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
  • Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

So You Want to Be an Entrepreneur: How to Get Started | Access Your Free E-Book | Download Now

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

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About the Author

The future of healthcare: Value creation through next-generation business models

The healthcare industry in the United States has experienced steady growth over the past decade while simultaneously promoting quality, efficiency, and access to care. Between 2012 and 2019, profit pools (earnings before interest, taxes, depreciation, and amortization, or EBITDA) grew at a compound average growth rate of roughly 5 percent. This growth was aided in part by incremental healthcare spending that resulted from the 2010 Affordable Care Act. In 2020, subsidies for qualified individual purchasers on the marketplaces and expansion of Medicaid coverage resulted in roughly $130 billion 1 Federal Subsidies for Health Insurance Coverage for People Under Age 65: CBO and JCT’s March 2020 Projections, Congressional Budget Office, Washington, DC, September 29, 2020, cbo.gov. 2 Includes adults made eligible for Medicaid by the ACA and marketplace-related coverage and the Basic Health Program. of incremental healthcare spending by the federal government.

The next three years are expected to be less positive for the economics of the healthcare industry, as profit pools are more likely to be flat. COVID-19 has led to the potential for economic headwinds and a rebalancing of system funds. Current unemployment rates (6.9 percent as of October 2020) 3 The employment situation—October 2020 , US Department of Labor, November 6, 2020, bls.gov. indicate some individuals may move from employer-sponsored insurance to other options. It is expected that roughly between $70 billion and $100 billion in funding may leave the healthcare system by 2022, compared with the expected trajectory pre-COVID-19. The outflow is driven by coverage shifts out of employer-sponsored insurance, product buy-downs, and Medicaid rate pressures from states, partially offset by increased federal spending in the form of subsidies and cost sharing in the Individual market and in Medicaid funding.

Underlying this broader outlook are chances to innovate (Exhibit 1). 4 Smit S, Hirt M, Buehler K, Lund S, Greenberg E, and Govindarajan A, “ Safeguarding our lives and our livelihoods: The imperative of our time ,” March 23, 2020, McKinsey.com. Innovation may drive outpaced growth in three categories: segments that are anticipated to rebound from poor performance over recent years, segments that benefit from shifting care patterns that result directly from COVID-19, and segments where growth was expected pre-COVID-19 and remain largely unaffected by the pandemic. For the payer vertical, we estimate profit pools in Medicaid will likely increase by more than 10 percent per annum from 2019 to 2022 as a result of increased enrollment and normalized margins following historical lows. In the provider vertical, the rapid acceleration in the use of telehealth and other virtual care options spurred by COVID-19 could continue. 5 Bestsennyy O, Gilbert G, Harris A, and Rost J, “ Telehealth: A quarter-trillion-dollar post-COVID-19 reality? ” May 29, 2020, McKinsey.com. Growth is expected across a range of sub-segments in the services and technology vertical, as specialized players are able to provide services at scale (for example, software and platforms and data and analytics). Specialty pharmacy is another area where strong growth in profit pools is likely, with between 5 and 10 percent compound annual growth rate (CAGR) expected in infusion services and hospital-owned specialty pharmacy sub-segments.

Strategies that align to attractive and growing profit pools, while important, may be insufficient to achieve the growth that incumbents have come to expect. For example, in 2019, 34 percent of all revenue in the healthcare system was linked to a profit pool that grew at greater than 5 percent per year (from 2017 to 2019). In contrast, we estimate that only 13 percent of revenue in 2022 will be linked to profit pools growing at that rate between 2019 and 2022. This estimate reflects that profit pools are growing more slowly due to factors that include lower membership growth, margin pressure, and lower revenue growth. This relative scarcity in opportunity could lead to increased competition in attractive sub-segments with the potential for profits to be spread thinly across organizations. Developing new and innovative business models will become important to achieve the level of EBITDA growth observed in recent years and deliver better care for individuals. The good news is that there is significant opportunity, and need, for innovation in healthcare.

New and innovative business models across verticals can generate greater value and deliver better care for individuals

Glimpse into profit pool analyses and select sub-segments.

Within the context of these overarching observations, the projections for specific sub-segments are nuanced and tightly connected to the specific dynamics each sub-segment is currently facing:

  • Payer—Small Group: Small group has historically seen membership declines and we expect this trend to continue and/or accelerate in the event of an economic downturn. Membership declines will increase competition and put pressure on incumbent market leaders to both maintain share and margin as membership declines, but fixed costs remain.
  • Payer—Medicare Advantage: Historic profit pool growth in the Medicare Advantage space has been driven by enrollment gains that result from demographic trends and a long-term trend of seniors moving from traditional Medicare fee-for-service programs to Medicare Advantage plans that have increasingly offered attractive ancillary benefits (for example, dental benefits, gym memberships). Going forward, we expect Medicare members to be relatively insulated from the effects of an economic downturn that will impact employers and individuals in other payer segments.
  • Provider—General acute care hospitals: Cancelation of elective procedures due to COVID-19 is expected to lead to volume and revenue reductions in 2019 and 2020. Though volume is expected to recover partially by 2022, growth will likely be slowed due to the accelerated shift from hospitals to virtual care and other non-acute settings. Payer mix shifts from employer-sponsored to Medicaid and uninsured populations in 2020 and 2021 are also likely to exert downward pressure on hospital revenue and EBITDA, possibly driving cost-optimization measures through 2022.
  • Provider—Independent labs: COVID-19 testing is expected to drive higher than average utilization growth in independent labs through 2020 and 2021, with more typical utilization returning by 2022. However, labs may experience pressure on revenue and EBITDA growth as the payer mix shifts to lower-margin segments, offsetting some of the gains attributed to utilization.
  • Provider—Virtual office visits: Telehealth has helped expand access to care at a time when the pandemic has restricted patients’ ability to see providers in person. Consumer adoption and stickiness, along with providers’ push to scale-up telehealth offerings, are expected to lead to more than 100 percent growth per annum in the segment from 2019 to 2022, going beyond traditional “tele-urgent” to more comprehensive virtual care.
  • HST—Medical financing: The medical financing segment may be negatively impacted in 2020 due to COVID-19, as many elective services for which financing is used have been deferred. However, a quick bounce-back is expected as more patients lacking healthcare coverage may need financing in 2021, and as providers may use medical financing as a lever to improve cash reserves.
  • HST—Wearables: Looking ahead, the wearables segment is expected to see a slight dip in 2020 due to COVID-19, but is expected to rebound in 2021 and 2022 given consumer interest in personal wellness and for tracking health indicators.
  • Pharma services—Pharmacy benefit management: The growth is expected to return to baseline expectations by 2022 after an initial decline in 2020 and 2021 due to the COVID-19-driven decrease in prescription volume.

New and innovative business models are beginning to show promise in delivering better care and generating higher returns. The existence of these models and their initial successes are reflective of what we have observed in the market in recent years: leading organizations in the healthcare industry are not content to simply play in attractive segments and markets, but instead are proactively and fundamentally reshaping how the industry operates and how care is delivered. While the recipe across verticals varies, common among these new business models are greater alignment of incentives typically involving risk bearing, better integration of care, and use of data and advanced analytics.

Payers—Next-generation managed care models

For payers, the new and innovative business models that are generating superior returns are those that incorporate care delivery and advanced analytics to better serve individuals with increasingly complex healthcare needs (Exhibit 2). As chronic disease and other long-term conditions require more continuous management supported by providers (for example, behavioral health conditions), these next-generation managed care models have garnered notice. Nine of the top ten payers have made acquisitions in the care delivery space. Such models intend to reorient the traditional payer model away from an operational focus on financing healthcare and pricing risk, and toward more integrated managed care models that better align incentives and provide higher-quality, better experience, lower-cost, and more accessible care. Payers that deployed next-generation managed care models generate 0.5 percentage points of EBITDA margin above average expectations after normalizing for payer scale, geographical footprint, and segment mix, according to our research.

The evidence for the effectiveness of these next-generation care models goes beyond the financial analysis of returns. We observe that these models are being deployed in those geographies that have the greatest opportunity to positively impact individuals. Those markets with 1) a critical mass of disease burden, 2) presence of compressible costs (the opportunity for care to be redirected to lower-cost settings), and 3) a market structure conducive to shifting to higher-value sites of care, offer substantial ways to improve outcomes and reduce costs. (Exhibit 3).

Currently, a handful of payers—often large national players with access to capital and geographic breadth that enables acquisition of at-scale providers and technologies—have begun to pursue such models. Smaller payers may find it more difficult to make outright acquisitions, given capital constraints and geographic limitations. M&A activity across the care delivery landscape is leaving smaller and more localized assets available for integration and partnership. Payers may need to increasingly turn toward strategic partnerships and alliances to create value and integrate a range of offerings that address all drivers of health.

Providers—reimagining care delivery beyond the hospital

For health systems, through an investment lens, the ownership and integration of alternative sites of care beyond the hospital has demonstrated superior financial returns. Between 2013 and 2018, the number of transactions executed by health systems for outpatient assets increased by 31 percent, for physician practices by 23 percent, and for post-acute care assets by 13 percent. At the same time, the number of hospital-focused deals declined by 6 percent. In addition, private equity investors and payers are becoming more active dealmakers in these non-acute settings. 6 CapitalIQ, Dealogic, and Irving Levin Associates. 7 In 2018, around 40 percent of all post-acute and outpatient deals were completed by an acquirer other than a traditional provider.

As investment is focused on alternative sites of care, we observe that health systems pursuing diversified business models that encompass a greater range of care delivery assets (for example, physician practices, ambulatory surgery centers, and urgent care centers) are generating returns above expectations (Exhibit 4). By offering diverse settings to receive care, many of these systems have been able to lower costs, enhance coordination, and improve patient experience while maintaining or enhancing the quality of the services provided. Consistent with prior research, 8 Singhal S, Latko B, and Pardo Martin C, “ The future of healthcare: Finding the opportunities that lie beneath the uncertainty ,” January 31, 2018, McKinsey.com. systems with high market share tend to outperform peers with lower market share, potentially because systems with greater share have greater ability not only to ensure referral integrity but also to leverage economies of scale that drive efficiency.

The extent of this outperformance, however, varies by market type. For players with top quartile share, the difference in outperformance between acute-focused players and diverse players is less meaningful. Contrastingly, for bottom quartile players, the increase in value provided by presence beyond the acute setting is more significant. While there may be disadvantages for smaller and sub-scale providers, opportunities exist for these players—as well as new entrants and attackers—to succeed by integrating offerings across the care continuum.

These new models and entrants and their non-acute, technology-enabled, and multichannel offerings can offer a different vision of care delivery. Consumer adoption of telehealth has skyrocketed, from 11 percent of US consumers using telehealth in 2019 to 46 percent now using telehealth to replace canceled healthcare visits. Pre-COVID-19, the total annual revenues of US telehealth players were an estimated $3 billion; with the acceleration of consumer and provider adoption and the extension of telehealth beyond virtual urgent care, up to $250 billion of current US healthcare spend could be virtualized. 9 Bestsennyy O, Gilbert G, Harris A, and Rost J, “ Telehealth: A quarter-trillion-dollar post-COVID-19 reality? ” May 29, 2020, McKinsey.com. These early indications suggest that the market may be shifting toward a model of innovative tech-enabled care, one that unlocks value by integrating digital and non-acute settings into a comprehensive, coordinated, and lower-cost offering. While functional care coordination is currently still at the early stages, the potential of technology and other alternative settings raises the question of the role of existing acute-focused providers in a more integrated and digital world.

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Healthcare services and technology—innovation and integration across the value chain.

Growth in the healthcare services and technology vertical has been material, as players are bringing technology-enabled services to help improve patient care and boost efficiency. Healthcare services and technology companies are serving nearly all segments of the healthcare ecosystem. These efforts include working with payers and providers to better enable the link between actions and outcomes, to engage with consumers, and to provide real-time and convenient access to health information. Since 2014, a large number and value of deals have been completed: more than 580 deals, or $83 billion in aggregate value. 10 Includes deals over $10 million in value. 11 Analysis from PitchBook Data, Inc. and McKinsey Healthcare Services and Technology domain profit pools model. Venture capital and private equity have fueled much of the innovation in the space: more than 80 percent 12 Includes deals over $10 million in value. of deal volume has come from these institutional investors, while more traditional strategic players have focused on scaling such innovations and integrating them into their core.

Driven by this investment, multiple new models, players, and approaches are emerging across various sub-segments of the technology and services space, driving both innovation (measured by the number of venture capital deals as a percent of total deals) and integration (measured by strategic dollars invested as a percent of total dollars) with traditional payers and providers (Exhibit 5). In some sub-segments, such as data and analytics, utilization management, provider enablement, network management, and clinical information systems, there has been a high rate of both innovation and integration. For instance, in the data and analytics sub-segment, areas such as behavioral health and social determinants of health have driven innovation, while payer and provider investment in at-scale data and analytics platforms has driven deeper integration with existing core platforms. Other sub-segments, such as patient engagement and population health management, have exhibited high innovation but lower integration.

Traditional players have an opportunity to integrate innovative new technologies and offerings to transform and modernize their existing business models. Simultaneously, new (and often non-traditional) players are well positioned to continue to drive innovation across multiple sub-segments and through combinations of capabilities (roll-ups).

Pharmacy value chain—emerging shifts in delivery and management of care

The profit pools within the pharmacy services vertical are shifting from traditional dispensing to specialty pharmacy. Profits earned by retail dispensers (excluding specialty pharmacy) are expected to decline by 0.5 percent per year through 2022, in the face of intensifying competition and the maturing generic market. New modalities of care, new care settings, and new distribution systems are emerging, though many innovations remain in early stages of development.

Specialty pharmacy continues to be an area of outpaced growth. By 2023, specialty pharmacy is expected to account for 44 percent of pharmacy industry prescription revenues, up from 24 percent in 2013. 13 Fein AJ, The 2019 economic report on U.S. pharmacies and pharmacy benefit managers , Drug Channels Institute, 2019, drugchannelsinstitute.com. In response, both incumbents and non-traditional players are seeking opportunities to both capture a rapidly growing portion of the pharmacy value chain and deliver better experience to patients. Health systems, for instance, are increasingly entering the specialty space. Between 2015 and 2018 the share of provider-owned pharmacy locations with specialty pharmacy accreditation more than doubled, from 11 percent in 2015 to 27 percent in 2018, creating an opportunity to directly provide more integrated, holistic care to patients.

Challenges emerge for the US healthcare system as COVID-19 cases rise

Challenges emerge for the US healthcare system as COVID-19 cases rise

A new wave of modalities of care and pharmaceutical innovation are being driven by cell and gene therapies. Global sales are forecasted to grow at more than 40 percent per annum from 2019 to 2024. 14 Evaluate Pharma, February 2020. These new therapies can be potentially curative and often serve patients with high unmet needs, but also pose challenges: 15 Capra E, Smith J, and Yang G, “ Gene therapy coming of age: Opportunities and challenges to getting ahead ,” October 2, 2019, McKinsey.com. upfront costs are high (often in the range of $500,000 to $2,000,000 per treatment), benefits are realized over time, and treatment is complex, with unique infrastructure and supply chain requirements. In response, both traditional healthcare players (payers, manufacturers) and policy makers (for example, the Centers for Medicare & Medicaid Services) 16 Centers for Medicare & Medicaid Services, “Medicaid program; establishing minimum standards in Medicaid state drug utilization review (DUR) and supporting value-based purchasing (VBP) for drugs covered in Medicaid, revising Medicaid drug rebate and third party liability (TPL) requirements,” Federal Register , June 19, 2020, Volume 85, Number 119, p. 37286, govinfo.gov. are considering innovative models that include value-based arrangements (outcomes-based pricing, annuity pricing, subscription pricing) to support flexibility around these new modalities.

Innovations also are accelerating in pharmaceutical distribution and delivery. Non-traditional players have entered the direct-to-consumer pharmacy space to improve efficiency and reimagine customer experience, including non-healthcare players such as Amazon (through its acquisition of PillPack in 2018) and, increasingly, traditional healthcare players as well, such as UnitedHealth Group (through its acquisition of DivvyDose in September 2020). COVID-19 has further accelerated innovation in patient experience and new models of drug delivery, with growth in tele-prescribing, 17 McKinsey COVID-19 Consumer Survey conducted June 8, 2020 and July 14, 2020. a continued shift toward delivery of pharmaceutical care at home, and the emergence of digital tools to help manage pharmaceutical care. Select providers have also begun to expand in-home offerings (for example, to include oncology treatments), shifting the care delivery paradigm toward home-first models.

A range of new models to better integrate pharmaceutical and medical care and management are emerging. Payers, particularly those with in-house pharmacy benefit managers, are using access to data on both the medical and pharmacy benefit to develop distinctive insights and better coordinate across pharmacy and medical care. Technology providers, together with a range of both traditional and non-traditional healthcare players, are working to integrate medical and pharmaceutical care in more convenient settings, such as the home, through access to real-time adherence monitoring and interventions. These players have an opportunity to access a broad range of comprehensive data, and advanced analytics can be leveraged to more effectively personalize and target care. Such an approach may necessitate cross-segment partnerships, acquisitions, and/or alliances to effectively integrate the many components required to deliver integrated, personalized, and higher-value care.

Creating and capturing new value

These materials are being provided on an accelerated basis in response to the COVID-19 crisis. These materials reflect general insight based on currently available information, which has not been independently verified and is inherently uncertain. Future results may differ materially from any statements of expectation, forecasts or projections. These materials are not a guarantee of results and cannot be relied upon. These materials do not constitute legal, medical, policy, or other regulated advice and do not contain all the information needed to determine a future course of action. Given the uncertainty surrounding COVID-19, these materials are provided “as is” solely for information purposes without any representation or warranty, and all liability is expressly disclaimed. References to specific products or organizations are solely for illustration and do not constitute any endorsement or recommendation. The recipient remains solely responsible for all decisions, use of these materials, and compliance with applicable laws, rules, regulations, and standards. Consider seeking advice of legal and other relevant certified/licensed experts prior to taking any specific steps.

Before the COVID-19 pandemic, our research indicated that profits for healthcare organizations were expected to be harder to earn than they have been in the recent past, which has been made even more difficult by COVID-19. New entrants and incumbents who can reimagine their business models have a chance to find ways to innovate to improve healthcare and therefore earn superior returns. The opportunity for incumbents who can reimagine their business models and new entrants is substantial.

Institutions will be expected to do more than align with growth segments of healthcare. The ability to innovate at scale and with speed is expected to be a differentiator. Senior leaders can consider five important questions:

  • How does my business model need to change to create value in the future healthcare world? What are my endowments that will allow me to succeed?
  • How does my resource (for example, capital and talent) allocation approach need to change to ensure the future business model is resourced differentially compared with the legacy business?
  • How do I need to rewire my organization to design it for speed? 18 De Smet A, Pacthod D, Relyea C, and Sternfels B, “ Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era ,” June 26, 2020, McKinsey.com.
  • How should I construct an innovation model that rapidly accesses the broader market for innovation and adapts it to my business model? What ecosystem of partners will I need? How does my acquisition, partnership, and alliances approach need to adapt to deliver this rapid innovation?
  • How do I prepare my broader organization to adopt and scale new innovations? Are my operating processes and technology platforms able to move quickly in scaling innovations?

There is no question that the next few years in healthcare are expected to require innovation and fresh perspectives. Yet healthcare stakeholders have never hesitated to rise to the occasion in a quest to deliver innovative, quality care that benefits everyone. Rewiring organizations for speed and efficiency, adapting to an ecosystem model, and scaling innovations to deliver meaningful changes are only some of the ways that helping both healthcare players and patients is possible.

Emily Clark is an associate partner in the Stamford office. Shubham Singhal , a senior partner in McKinsey’s Detroit office, is the global leader of the Healthcare, Public Sector and Social Sector practices. Kyle Weber is a partner in the Chicago office.

The authors would like to thank Ismail Aijazuddin, Naman Bansal, Zachary Greenberg, Rob May, Neha Patel, and Alex Sozdatelev for their contributions to this article.

This article was edited by Elizabeth Newman, an executive editor in the Chicago office.

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Create a BDC model

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You can create a Business Data Connectivity (BDC) model by using the template for that kind of item and then adding the model to any SharePoint project. For more information, see Create a business data connectivity model . For more information about how to design the model, see Design a business data connectivity model .

To create a BDC project

On the menu bar, choose File > New > Project .

On the Create a New Project dialog select the SharePoint Empty Project * for the particular version of SharePoint you have installed. For example, if you have SharePoint 2019 install select the SharePoint 2019 - Empty Project template.

You can also search for templates by typing SharePoint in the Search text box at the top of the Create a New Project dialog. You can also filter the list of templates to show only the templates for Office and SharePoint by selecting "Office" in the Project type drop-down box. For more information, see Create a new project in Visual Studio .

Change the name of the project if you would like to, and then choose the Create button.

On the Specify the site and security level for debugging page, specify the URL of a SharePoint site on the local computer, choose the Deploy as farm solution option button, and then choose the Finish button.

You will test the model on the SharePoint site that you specified.

You must deploy the project as a farm solution because BDC models support only farm solutions.

An empty SharePoint project is created.

On the menu bar, choose Project > Add New Item .

In the Add New Item dialog box, choose the Office/SharePoint node.

In the list of SharePoint templates, choose Business Data Connectivity Model (Farm Solution Only) .

In the Name box, specify a name for the BDC model, and then choose the Add button.

A Business Data Connectivity Model item is added to the project. By default, the model appears in the BDC designer. For more information, see Create a business data connectivity model .

Related content

  • Create a business data connectivity model
  • How to: Add an existing BDC model file to a SharePoint project
  • How to: Use a resource file to specify localized names, properties, and permissions
  • How to: Include a custom assembly in a BDC feature
  • Integrating business data into SharePoint

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How to Create a Sustainable Business Model

Table of contents.

Creating a sustainable business model is a top priority for many companies. A sustainable business helps the planet and may prove more successful in the long run; customers want to work with companies that care about making a positive contribution to the world. 

Sustainability isn’t just for large corporations. Businesses of any size can work toward a sustainable business model by following specific practices and adopting a sustainable strategy.  

What is sustainability?

Sustainable means the ability to be maintained at a certain rate or level, and sustainable development meets current needs without compromising future generations’ ability to meet their own needs.

However, we must dig a little deeper to understand how the concept of sustainability is relevant to business development.

What is a sustainable business model?

To Rex Freiberger, president of Superlativ Media, a sustainable business model helps generate value for everyone involved, without draining the resources that help to create it.

“A business model meant to capitalize on a trend isn’t sustainable, for example, because the social resources that get it started won’t exist in years or even months,” Freiberger said.

Lia Colabello, managing principal of Plastic Pollution Solutions, noted that there’s a difference between a sustainable business model — a business that will likely achieve profitable growth —  and a business model that prioritizes sustainability.

“A sustainable business model is what every business leader hopes to achieve — a business that will turn a profit quickly and stay afloat for the long term,” Colabello explained. “A business model that prioritizes sustainability is one that, at a minimum, considers all stakeholders, assesses and addresses environmental impacts, and is transparent and thorough in its reporting.”

Eco-friendly packaging practices are a way to commit to sustainability. Other methods include careful resource usage and donations to worthy organizations.

What makes a sustainable business model work?

There are four key elements of a sustainable business model.

1. A sustainable business model is commercially profitable.

You can make a profit and be socially responsible . No business can succeed or scale unless it attracts customers. What is your value proposition? Who are your target customers ? Why is your business valuable, and what niche do you fill?

2. A sustainable business model can succeed far into the future.

A trendy business or one that relies on limited resources may be profitable for a few months, but how will it fare in a year or two? Resource availability and pricing are never guaranteed or fixed; you don’t want to build your castle on a sinking rock. 

3. A sustainable business model uses resources it can utilize for the long term.

You can’t have a sustainable business model without sustainable resources. Many business activities are limited by finite resources or exceptionally high prices. On the other hand, some resources may be readily available yet environmentally harmful. 

Palm oil is a famous example of a cheap and plentiful resource. However, farmers are razing acres of land and causing severe environmental destruction by cultivating the crop. Cheap resources may be tantalizing for business, but consider the big picture instead of taking a shortcut now.

4. A sustainable business model gives back.

One theory is that a truly sustainable business model is one that gives as much as it takes. This concept is called the cyclical borrow-use-return model. 

Bob Willard, expert and author on quantifiable sustainability strategies, contrasts this model with the current “linear take-make-waste model” that so many modern businesses are built upon, which he said is “culpable for contributing to [this world’s] unsustainability.”

Instead of taking from the Earth, a sustainable business “borrows” resources with the intent to replenish them. This concept of responsible consumption is one that both businesses and consumers can promote and practice.

Reducing resource burn — wasted time, money and other resources — is another way a business can prioritize sustainability.

What is a sustainable strategy?

A sustainable strategy takes the big picture into account. “A sustainable strategy is one that understands the flow of ‘in’ and ‘out’ — not just cash flow, but again, the resources, both tangible and intangible, that are required to create the product or service,” Freiberger explained.

Colabello noted that the most effective sustainability strategies start with an organization’s purpose. She encouraged businesses to ask these questions, similar to what you’d ask when crafting a vision or mission statement :

  • Why does the organization exist?
  • What problem is it solving?
  • How is it going to improve the world, environment and society?

“From there, a strategy can emerge that engages the entire brand ecosystem — internally, the supply chain, its communities and its industry,” Colabello said. “The approach is prioritized and diagrammed out, complete with goals, KPIs [key performance indicators] and a timeline. These are communicated both internally and externally, in keeping with transparency.”

Why do we need sustainable business models?

There are many ways to approach the issue of sustainability, but the simplest one, which can unite all stakeholders, is this: Kind businesses attract more customers. According to the 2022 Global Buying Green report , 86 percent of consumers under 45 were willing to pay more for sustainable packaging, and 68 percent purchased items in the past six months based on companies’ sustainability credentials.

It’s OK to be open about your sustainability goals and use your sustainability as a selling point. Customers will ask, and the friendlier you are about it, the more likely they will be to share that news with their friends.

But maybe you’re not motivated entirely by money. Perhaps you’re driven by the desire to be the change you’d like to see in the world. 

After all, the larger a business grows, the greater its impact is on the world and the people around it. And it’s better to start sustainably than to make the switch 10 years down the line — or when stakeholders begin pushing back on unreasonable business practices.

Going green can boost business and profits. Businesses are marketing green innovation to show consumers they prioritize environmental concerns.

How can you start and maintain a sustainable business model?

Getting started with a sustainable business model can be straightforward. Consider the following guidelines. 

1. Plan your resource usage. 

Consider the resources your business requires to operate, and then do the following:

  • Make a list of the raw materials you’ll need. This list will vary dramatically by business type. Software-as-a-service companies, for example, don’t require the raw resources that clothing brands do.
  • Consider where your materials might be sourced. Who is making or harvesting your product materials? How are they being sold?
  • Consider where the resources are coming from and how they are being transported. How far do they have to travel to arrive at your home or warehouse? How can you cut down on fuel miles? What are the riskiest resources on your list, and how can you increase their productivity while lessening your dependence on them?

After you address your resource usage, outline your manufacturing and business processes. Ask yourself these questions:

  • Which manufacturing processes are the most wasteful? How can you mitigate the adverse effects of these processes?
  • For physical materials, is it possible to source locally?
  • How are you packaging your products? (Sustainable, biodegradable packaging can reduce the amount of trash stuck in landfills.)
  • Which materials on your list are the riskiest or least sustainable? How might you replace them? Could you replace them now?
  • What are the end products of these processes? How can you reuse waste material? Does it have to be thrown away?
  • Can the produced waste be used as a resource or be fed into a different process to be used again? How can you reduce unusable waste?
  • Where can you reduce waste? How can you stretch your raw materials? Can you lower the number of resources used to create a specific product while maintaining its quality?
  • What are the labor conditions like? Are your laborers being paid fairly? Is their quality of life improving or worsening because of your business processes? Is their time being respected?

To make your business’s computing eco-friendly , implement cloud computing, allow your employees to work remotely, and eliminate paper from your workflow.

2. Consider alternative forms of company ownership.

The traditional top-down business model can create unreasonable wage gaps between those at the highest rungs of the ladder (CEO, other C-level executives, founders, managers) and those at the lowest (laborers tasked with creating raw materials or carrying out the manufacturing processes). Including everyone in your sustainability goals can help you keep your business on track and give those who are typically disadvantaged a larger say.

3. Engage your customers.

Going green can improve your brand reputation among consumers, but your dedication to sustainability may result in higher prices. But that’s OK; in a compelling blog post, series of posts or dedicated brand story page , tell your customers why they’re paying more for your products.

You might choose to engage customers by pledging a percentage of revenue to support a charity or by offering different shipping or packaging options. Customers who love your product can be converted into brand ambassadors when you create messaging that resonates with them. 

If you involve your customers in your discussions about sustainability, they will become more invested in your company’s success and your products. You could also consider crowdsourcing sustainability ideas from consumers through a forum or online group.

Sustainable businesses must lead with transparency when dealing with customers and shareholders. This means sharing wins and being honest when things don’t work out as planned.

What roadblocks are there to a sustainable business model?

Building a sustainable business can be daunting. If your business is stuck, you may struggle with one or more of these issues:

1. You hold innovation meetings, but ideas don’t go anywhere.

Many good ideas arise when founders or leaders get together at a workshop or meeting. However, you must nurture these ideas and draft a plan of action.  

2. Ideas are not implemented.

Another issue founders face is that the plans for change are never implemented. This could be because it seems too challenging to change the status quo or because the members of the company aren’t yet convinced of the need for a greener, kinder business model.

3. The implemented business models fail in the market.

Two of the most common reasons businesses fail to move toward sustainability include the wrong mindset and a reluctance to dedicate resources to change.

To address these issues, find your allies — those who believe sustainability is essential for the company’s bottom line and the larger world — and connect with them. Together, you can remove or alter harmful, outdated systems and encourage innovation.

Practicing and following through with your sustainability goals helps consumers feel closer to you and instills more trust in your brand. This is crucial at a time when customers expect more warmth and honesty from companies.

Why is sustainability important in business?

Shel Horowitz, an expert on green and transformative business profitability, raised three points about why sustainability is crucial in business:

  • Sustainability allows you to be here decades from now because you’ve created something of lasting value.
  • Sustainability makes you much more attractive in the eyes of customers, employees and other stakeholders who actively want to do business with companies that think beyond the single bottom line.
  • Sustainability helps the planet and its creatures heal from the abuse humans have piled on it, especially in the past 250 years or so.

Aside from businesses’ immense environmental impact, Colabello noted these forces putting pressure on companies to build robust sustainability strategies:

How is a business sustainable?

Freiberger believes a business can make itself sustainable by focusing on the bare essentials it needs to survive and then growing from there. Make long-term projections, and keep an eye on the distant future instead of focusing on more immediate profits, he advised.

As part of making your business sustainable, consider these statistics from the SUMAS Sustainability Management School , and determine where you can cut back to reduce your business’s carbon footprint :

  • An estimated 5 trillion plastic bags are used worldwide each year.
  • 400 million tons of plastics are produced globally every year.
  • Globally, only 9 percent of plastic ever produced has been recycled; 79 percent can now be found in landfills, dumps or the environment; and 12 percent has been incinerated.
  • With rapid population growth and urbanization, annual waste generation is expected to increase by 70 percent from 2016 levels to 3.4 billion tons in 2050.
  • If it continues at the same rate, the plastic industry will account for 20 percent of the world’s total oil consumption by 2050.
  • The construction and later demolition of buildings produce 40 percent of all waste.

If you are thinking about implementing a sustainable business model, consider the short-term expenses you will incur. However, these costs are a small price to pay for a better future and a compelling brand value for increasingly eco-conscious consumers. In other words, sustainability sells.

Jamie Johnson contributed to this article. 

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