How does a lean company put together business development deals?
Shopify uses a method called “Agile Business Development,” so I invited Harley Finkelstein, the company’s Chief Platform Officer, to teach it. As you’ll hear in the first example of the interview, this method can turn even a potentially contentious legal disput into a partnership that leads to growth.
Shopify is a platform that enables people to create online stores that look beautiful and increase sales.
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Harley Finkelstein, Shopify
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Hi everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. How do you put together business development deals at your company? Shopify uses a method called agile business development. So I invited Harley Finklestein, the company’s Chief Platform Officer to teach it. I’ve had friends at Shopify for and as many of you might have noticed they have even sponsored Mixergy programs here. So I’ve gotten to see over the years how they do biz dev. That’s why I emailed them and I asked if one of their guys would be willing to come here and talk about it. Shopify is a platform that enables people to create online stores that look beautiful and that increase sales.
Harley, welcome to Mixergy.
Harley: Thanks, Andrew. Thanks for having me. I’m a big fan of Mixergy and of yours, so I’m really happy to be on the show.
Andrew: Well, thank you. So, do you have an example of agile biz dev in action?
Harley: Yeah, I’ll give you an example that happened but two weeks ago. Besides being Chief Platform Officer, I’m also legal counsel for the company and often what I receive is emails from different people in the industry telling me that some other company might be infringing on our intellectual property. About two weeks about I got an email from a colleague at another company and it said, “Hey, look at this logo that’s being put out there by another sort of shopping type company.” I looked at it, and it was a clear infringement of our IP. I put together my cease and desist letter as I always do and grabbed the USPTO Trademark registration notice and I sent it over there. What I did was I didn’t necessarily work it in a highly litigious manner. I actually worded the email in a very friendly manner, “Hey, by the way, just so you guys know, this is our logo and this is what we all need the trademark for. However, I checked at your site, really interesting, congratulations.” What I was trying to do was I was trying to be as agile as possible, in that if they wrote back to me and they complied it would be really easy for me to then maybe work with them on some sort of project or deal. Whereas if I came off as an over litigious lawyer, they probably wouldn’t have complied and there wouldn’t be any opportunity. This company happened to comply really well, really quickly, I should say, and they changed their logo right away and they apologized. Two weeks later we’re actually doing an app deal for our app store with them.
So, it was just a way to challenge the status quo of the business development has traditionally been done by some of the bigger companies. I have a couple of tenants and principles that I’d to talk about.
Andrew: Okay. So, I like how flexible that is, and as someone who’s out there on the Internet always worried about lawyers, I think we are worried about getting cease and desist lawyers from companies that are just trying to destroy us. It’s kind of cool that a lawyer isn’t out to destroy everybody, but is looking for ways to build relationships.
So the word agile is something that we know from the development world. Can you explain what agile development is, and then we’ll talk about how you adjusted it and used it for business development?
Harley: Yeah, absolutely. When I first met Toby, Shopify’s founder and CEO, in 2005, he was talking to me quite a bit about agile software development, which is sort of a new way of coding. There was something called the Agile Manifesto, and I’ll just read off a couple of the tenets that struck me as being the most interesting. It was: “Individuals and interactions over processes and tools. Working software over comprehensive documentation, customer collaboration over contract negotiation, and responding to change versus following a plan.” What I really like about the concept was it created a bit of a theory that done is better than perfect. It allowed us to produce really great software very quickly and then pivot as needed.
So I was really impressed by what Toby was talking when it came to agile software development. I liked the idea that companies were looking at their debt cycles a little more close and a little more focused, and rather than simply accepting traditionally what the best practices were, they were actually challenging those best practices. So I felt there was a need to do the same thing with business development, because frankly post biz dev deals take a long time, are extremely static, and more times than not don’t actually go anywhere. So I felt that was a bit of a call to action for myself to create my own sort of style when it comes to BD.
Andrew: Okay. So, done is better than perfect is one of the pillars of agile business development. What are some of the others? Can you list them for me now and then we’ll in depth into them and maybe illustrate many of them with examples.
Harley: Absolutely. So the number one principle that we use in our BD and that we thinks works really well is the ability to pivot as quickly as possible. So an example was the example that I provided earlier where I should have been writing a cease and desist letter, but I allowed room within the cease and desist letter for pivoting as needed. So the ability to be proactive as well as reactive is one of the central tenants.
The next one that I really do believe in very strongly is some sort of magic number in terms of what is your company’s appetite in terms of communications in an effort to close a deal. So at Shopify I’ve picked the number five. I believe that after five communications, whether it by email, or by phone, or in-person, that should be sufficient to close at least some sort of deal with that particular partner. And I’ve noticed that a lot of companies are sort of used to having these BD sort of term sheet discussions almost to ad nauseam and months on end until they get to the point were either the falls on the table because of sort of deal litharge or it’s just so uninteresting. So the five communication close works for us, but that’s more of an individual number and every number needs to figure out what their magic number is.
The next thing I think is important is, we use sort of bit of a rubric in terms of how we go through those communications and we always start with what we call an executive tickle, meaning we always try to get some executive at the company sort of interested or tickled by some idea. And it’s often very casual and very basic. Mr. CEO or Mr. CTEO, here’s an idea we had. We think it’s pretty cool. If you’re interested, hit us up. And often that turns into a follow up email from the CEO, cc’ing the head of BD or cc’ing somebody saying, “Hey, can you look into this?” So our first move is sort of a tickle.
The second move is what we call, the sizzle. That’s really where we get into the nitty-gritty. We talk about the deal, what it’s going to look like, we made what the terms are, what the advantages for us and the advantages for the partner would be. And that’s sort of the middle area and that usually takes the most amount of time.
Finally what we typically do just before we finalize is we pivot and close. The reason the pivot is really necessary right before close is, if you look at sort of a decision making map and this is what I want, this is what they want, there is a point in the middle where our interests do align. That last pivot just before close is a very effective way to figure out what that middle piece is and eventually sign some sort of deal.
So that’s sort of the process again, tickle, sizzle, and then close.
So the last thing that I’ll go into and then we can go a little bit in detail about these things, is simplicity. We do very large deals here at Shopify. We’re very fortunate that big companies want to work with us and small companies as well, and we’ve realized that deals simply are just too complicated. They get complicated for no other reason than either there are too many chiefs and not enough Indians on the call. Either the actual objective isn’t very clear, and so we tend to keep things very simple. We don’t write emails that are longer than lines in a BD deal. If it’s more complex, we put it into a spreadsheet if needed. But we keep all our deals very, very simple and that seems to work really well for us.
Andrew: Okay. Let’s go into these and put some flesh on them by adding some examples. Which of these do you want to start with first?
Harley: We can talk about anyone you want. Maybe we’ll talk about the central theme, which is just the ability to be agile and to pivot because I think that is central to this entire theory. Again, this agile BD theory is a theory we’ve been trying out for a while. I didn’t learn this in my MBA. Maybe I wish I would have learned that in the MBA, but this is sort of our theory on how things work.
So in terms of starting with the idea of pivoting, in software development that tenet, done is better than perfect, what that allows you to do is you submit a certain application. You write certain code to create a certain application, and then you let users test and provide you with feedback. The iterations that you receive out of those are extremely valuable. That’s the same thing with business development. When I think of a deal or I meet a partner at Austin or at Sourcefire, something like that, and I think, “All right. This is how the deal looks to me. We’re going to do this, they’re going to do this, and then here’s what we’re going to get, and that’s what they’re going to get,” often I actually don’t even realize what the sweet spot of the deal is until very later on in the negotiation process. And because of that, I think that ability to sort of move and change, and pivot your interests, and what the objectives are, are extremely important.
Andrew: Do you have an example of that? You see the thing about biz dev that it sounds like one of these very corporaty functions that startups have that just doesn’t feel clear. Once you understand business development deals, you can have other companies send customers to you, can get other customers to expose your brand, can get other companies to send customers to you, then it gets really exciting. The only way that we can help exemplify that is by showing specific examples. Do you have an example of a business development deal that’s sending a lot of customers to you?
Harley: So we’re always looking for new partners, and Shopify has a couple of different partner platforms. So we have our App Store, where app developers create apps for Shopify. We’ve have an amazing and really robust theme store where some of the world’s top designers build themes for us. We also simply have just traditional referral partners, so many design shops that simply refer business to Shopify. I think every single deal is obviously unique in itself, but they all fit into one category are the next. A great example of one of the, I think, more traditional business development deals that we’ve done is we actually found a design shop in Los Angeles that I loved, a very successful design shop, but they were actually building WordPress themes. So I contacted them and said, “Hey, I’d love you to build a theme for Shopify. I think it would be really, really interesting. You already have a great reputation. You have the right branding. Build a theme for the Shopify theme store. I think it will be lucrative for you, and our customers will just love it.”
We began talking, and by the third of fourth call it, became very clear that there was a larger opportunity here. The theme was interesting, but frankly, they were less interested in the theme and more interested in starting to use Shopify as a way to just satisfy client builds. So that particular deal had to pivot almost 180 degrees, and the halfway mark because it became clear that is wasn’t really about this designing a theme, it was about having them act as a bit of a value added reseller for Shopify. Six months later they have a theme. The theme looks great. They’re also referring a ton of business to us. They’re very happy because now they’re able to do client builds in a much more effective and time sensitive manner, and we’re happy because obviously they’re sending great customers to us as well.
But I think conventionally that type of conversation would have led to them building a theme and the whole thing would end right there and we’d be done with it. Where by being a little more creative and a little bit more open minded, we were able to do some real business with that, which is fantastic.
Andrew: I love that. I love that. I’ve got to do more and more of that. You get, in business, into this mindset of you have to go and find your customers. You have to build the perfect webpage and the perfect landing page to convert those customers, and then you have to figure out a way to get them to buy more. But what I admire about people who are really good at business development is they create these partnerships where suddenly they get a flood of customers coming in, that I wouldn’t inherently think about as part of my business, that I wouldn’t naturally start to envision, and I wouldn’t know how to begin getting them. So I want to know more about your process. The thing that intrigued me most, as you were talking about the different tenets of agile biz dev is the tickle, partially because you gave it such a great name. But can you give me an example of how you might tickle the executive, maybe that’s not coming off not exactly the way you meant it, but how do you tickle their interest? How do you get somebody interested in a potential biz dev deal and a potential brainstorming session that could lead to the kind of opportunity that you just describe for us with the theme company?
Harley: So, I think the first thing is, you have to keep in mind who you’re talking to here and you’re trying to achieve two things with the tickle. You’re trying to convey some sort of level of interest on your part to do something with the company, but you also want to get some sort of executive buy in. The other piece to it is you don’t necessarily want to put all your eggs in that one email basket, because, again, that is sort of the antithesis of the agile maneuver. You want to make it specific to the point that they don’t think that you’re just cold calling them or you’re simply just throwing something out there and hoping something works. You want it to be specific enough that they say, “Yeah, that makes sense,” but general enough that they can say, “Well, maybe this is what he’s thinking this is actually even more interesting.”
So the sort of executive tickle really just achieves that level of interest and ascertaining that someone at the executive level has any clue or has any appetite for this and then obviously making sure you send out some sort of details just so they don’t think you’re cold calling them.
I think the other part of the executive tickle portion is that you have to realize who you’re talking to. These are people that are often traveling, very often, maybe they’re never in the office. They’re always on the road. So they might be checking this on their BlackBerry or their iPhone. I can’t tell you how many emails I get on a daily basis that are three to four pages long that are simply tickle emails. Usually I flip it to one of our junior BD guys here and I say, “Is there anything here?” Nine times out of ten, if it takes them three pages to tickle my interest, it’s not a deal for us. So we’re very careful to combine that being specific without being overly static because, again, you do want the dynamicism of the deal to flow.
Andrew: Ah, you know what? That’s so interesting because when people send me biz dev emails, often what they do is they list a very drawn out plan for us of how we could work together, which they think is helping, but really what it’s doing is adding extra complexity at point where I don’t even really know who they are. Or what they do is they spill out every single potential deal that they would have, hoping that one of them is going to grab my interest. You’re saying, ‘”o. All of that is going to get your email sent to someone within the company who’s going to fish through what you should have delivered in the first place, which is just like one grain of exciting potential, and that’s what you should start with.”
Now I could see how when you talking to a theme, I’m going to stick with the theme maker example, I could see if you were emailing a theme company and saying, “Hey, how about creating a theme for Shopify,” there’s a potential for just locking them into that one view of the relationship. How do you phrase it in a way that says, “Hey, this is just one potential idea that I have, but really what’s exciting is we have big products, great products, that both of our customers would love. All I’m trying to do is figure out, is there a way for us to work together?” How do you not lock yourself in?
Harley: So it’s all in, and this obviously comes with practice and everyone has their own style, I tend to be fairly assertive and maybe even some of it is borderline aggressive with my BD emails. My business strategy is often very assertive. I mean, in your face. I’m not necessarily passive about things. I’ll tell you exactly what I’m thinking. I’m okay with that, I’ve accepted the fact that bold people make bold moves, and you often make bold mistakes like that, but I’ve come to terms with that. But I think in our style we will often say, “Dear Design Shop CEO. Love what you did for this particular side wash.” It’s like specific things as they relate, so that they actually see that there is a connection, we’re not cold emailing them. Then often what we’ll say is, “Listen, we’ve really been thinking about having a premium section for themes from the world’s greatest designers.” A little padding doesn’t hurt either.
But once you do that you shouldn’t really go into any specifics. They don’t need to know what the rev share is. They don’t need to know what kind of theme they need to make or what their thoughts are on it. You’ve said to them, “You’ve done some good stuff. I think I have an idea. Let’s just have a chat.” Nine times out of ten what will happen is that CEO will forward that email to the head of that particular department, and they’ll CC me and they’ll say, “Hey listen. Speak to Harley. I think there might be something here.” So again, it’s vague without being sort of overly vague. It’s being able to for them to figure out almost in a snap judgment, but there’s a little bit of ambiguity to the extent that they’re actually going to call you to see, “Let’s me just make sure I know what Harley’s talking about here.”
Andrew: How long is the email that you send out that’s just supposed to tickle their interest?
Harley: Five lines max. We really don’t go over. In general, we never try to write emails that are longer than five lines. Again, my background is as a corporate lawyer, which tends to be a little bit verbose and overly wordy and using things like legalize. I think that five lines is sufficient. I don’t really want to read an email that is longer than five lines. If we have to get into the specifics, rev shares, non-competes, and sort of the specifics of the deal, that can happen on a phone conversation or a Skype call or even just in a bullet point. But that should be saved until the end of the conversation. First you need to figure out that this is something you both want to get into, and then after that happens, things start to move much more smoothly.
Andrew: All right, Step number two would be the sizzle. Can you give me an example of that?
Harley: Totally. This is where you get into the specifics. So keeping that theme developer example in mind, this had two elements to it. One, we really wanted them to design a theme because we know that having that branding in our theme store would do really good stuff for us and would really showcase our theme store as not just a generic place where a million themes lie, but to demonstrate that we’ve sort of curated our theme store with some of our favorite designers. So, again, the sizzle had to do with, ‘”What is a rev share going to look like in terms of that deal? Who makes what? Do we get a percentage? Do they get a percentage? How are we going to market that?”
The second piece, obviously, is the referral deal. They’re going to send us business. Do we create a separate landing for them? Is the rev share for the referral business sufficient? Do we handle support or do they handle support? The sizzle aspect, that’s where you’ll get your hands dirty. But the idea is that by the time the sizzle is completed you should have a really good idea of exactly what the terms are, the term sheet should be done. This way the close is actually fairly collegial, it’s romantic even. “Thank you so much. This is a great deal. We’re really excited and let’s move on and let’s make something happen.”
So the sizzle is where you want to get your contentious issues out of the way. This way, by the time you’ve finished that sizzle, it’s all hugs and rainbows.
Andrew: Before we continue, I’ve got to ask a question that I’m sure is going to be on my audience’s minds. The question is Shopify is huge right now. It’s got money in the bank from investors. It’s producing revenue on a regular basis. It’s got lots and lots of stores. How many stores are on Shopify right now, by the way?
Harley: About 14,000.
Andrew: 14,000 stores are built on Shopify, so that gives you a lot of heft. When Shopify emails a theme company, the theme company’s going to take the email no matter what and is going to want to talk to you, no matter what. When you’re approaching someone at a conference and you say, “Shopify,” I mean you and I met at South by Southwest for the first time in person, I heard Shopify, not just because I had a relationship with you, but I said, “This is the gorilla in the eCommerce space. I’ve got to find a way to get Harley to come back to the barbeque so we can hang out and talk a little bit more.” The point is, to me, it feels like it’s easy for Shopify. Will these ideas work for smaller companies? Going back I know that you had a history of starting eCommerce sites yourself. Would these ideas have worked for you back then, if you discovered agile business development? Do you have an example of one of the companies and how you might have drawn a deal based on what you’ve learned based on what you’ve learned from agile business development?
Harley: Absolutely. Frankly, it’s the deal that brought me to Shopify. My background is in startups, and I had a small T-shirt company when I was at McGill during my undergrad. Once I entered law school, because of some relationships in the T-shirt business, I was offered to buy the rights to certain licenses – Spiderman, Batman, Superman, Rolling Stones. Effectively the deal was I can take these licenses, but I had to sell them what’s called DTC, Direct to Consumer. So I needed a way in order to actually have my own retail shop, and obviously I didn’t have the finances at that point to open up a brick and mortar retailer. So there really was only one option and it was selling online. I had a couple of online businesses previously, but I’d never have really done eCommerce in a substantial way. At the time, Toby and I and a group of other entrepreneurs in Canada were meeting every Friday night at a coffee shop to share best practices. So I pushed Toby to sort of let me license his software, this at the time where he was initially selling snowboards through Snow Devil and had moved on to software as a service industry.
One of the things that I brought up at one of these sessions was, “I’m in law school. I have some businesses. I don’t have time to run the post office or to have my own fulfillment facility to ship out all these T-shirts.” So Toby and the guys were like, “Well, Harley, look at a third party fulfillment company. Maybe they can help you.” I was like, “Great, that’s amazing. They’ll stock it, they’ll ship it, they’ll pack it, they’ll send out the tracking number. If there’s any returns they can facilitate that.”
But I called up all these third party fulfillment companies and frankly nobody wanted to talk to me because I was selling 10 shirts a day or 15 shirts a day. This is more of a supplier supply you relationship, but it’s all business development in general. I called and I called and I called, and I said, “Listen, give me a break. I know your minimums are 1,000 units a week. I can’t do that, but give me a chance.” What was really helpful for me at that point was not to get them to give me a discount at the onset. I said, “Here’s what I’ll do. Let’s create a bit of a sliding scale or a bit of a test period. Give me six months to build up my business. Charge me this rate because this is what I can afford to pay. If things go well, I will be loyal to you guys for the next two years and I’ll give you a 24 month contract. If it doesn’t go well and you guys are losing money or I’m not getting the benefit that I need, we can always go ahead and shake hands and sort of walk away as gentlemen rather than as foes.” That was actually a very effective way for me to get in the door, and I was able to get one of the largest U.S. based third party fulfillment companies to take on Smoofer.com, which was my T-shirt website because, again, I didn’t say, “I’m going to be huge one day. If you’re not going to give me what I need now, you’re never going to get me.” I was very candid, I was very humble. I said, “I am a small business. Here’s what I can afford. It’s more than I want to pay, but I’m willing to give it to you. But, again, I’m committed to this and if you’re committed to me, then when I become a bigger company, you guys will have my business.”
When people contact Shopify today, it’s very different than they contacted us 18 months ago. When they contact today, I find some of the best small business entrepreneurs are the ones that are very candid, they’re very humble, they’re approachable. They say, “Here’s what we have. We’re not very big yet, but we’re trying to get there. Can we do something together?” Those are some of our most lucrative deals because they start out completely transparent. The flip side was I could have pretended I was a big dog and say, “Hey, I’m going to be the biggest licensed T-shirt company in the world. If you don’t take me now, you’re never going to get me.” That would have been the wrong approach.
Andrew: All right. I like that. I’m wondering about the size of the people who you’re working with. Is there an 80/20 rule that’s applicable when it comes to biz dev at the Shopify now? Are you getting 80% of your customers from 20% of the partners that you created through these business development deals?
Harley: I don’t know if it’s exactly 80/20, but there is sort of a Pareto scenario happening here, and that happens with most companies. One of the things I’m also careful of with my own business development team, one of them in particular is a phenomenal up-and-comer who just graduated from his undergrad from business school, I think three weeks ago, and he’s been working here part time and now he’s finally on full time. When I’m setting up some of his metrics and some of his objectives for the next quarter, I have to think very carefully because I didn’t want to give him objectives that were strictly based on, I guess, the finances or the ROI for that particular deal. I want him to have enough of an understanding that he wasn’t cherry picking deals. A very challenging aspect of BD is people often cherry pick deals that they think will become the most lucrative. I can tell you from experience that some of our best deals were totally serendipitous, and we never even contemplated the initial objective when we first contemplated that particular deal.
Even in terms of the metrics that I give my team here, yeah, I want to see results. Anyone can open deals. It’s tough to close deals, so we have to be focused on closing deals. But I also don’t want them focused the point that all they think about is, “Which deal is going to close quick enough?” They have to also look at the bigger picture. So I think there’s a blend between that need to explore uncharted waters with also some major ROI metrics because, again, you don’t want to waste all your time opening deals that never end up closing.
Andrew: How do you know the ROI? Or how can you predict the ROI, I’ll say return on investment. I’m sure everyone knows ROI, but just in case. How do you know the return on investment before you close a deal? How can you predict it?
Harley: So I have an amazing CFO here and great VP of Revenue here who has taught me some really great stuff about some of these things. One of the things that they’ve taught me to get really good at is forecasting. They’ve allowed me to figure out, almost immediately, what a potential forecast is for any given deal. I have my own internal sort of gauges. I know what kind of deals I’m looking for. If the best case scenario of a deal is going to bring us five new customers, I’m not really sure we’re going to go down that path in a substantial way. But if the possibility or the optimistic forecast is 5,000 new customers, that’s something I’m willing to look at. So often, particularly at Shopify, the ROI isn’t a dollar figure. It’s actually either an acquisition figure in terms of conversions from leads, prospects to customers, or it’s actually a brand awareness figure, “Okay. This will get us in front of 3 million eyeballs. These are not only just entrepreneurs, these are vetted entrepreneurs that are familiar with eCommerce and are really quite smart about it and will be potentially opening businesses.” That’s a lot stronger of an ROI proposition and conversation to have than, “This is going to net us $1 million.” That to me doesn’t really tell me much because I want to know exactly how that million dollars is going to get into our bank accounts. So I’ve found that customers, and other metrics that are proxies for finances, are a much better metric to use than actual finances themselves.
Andrew: All right. Let’s look at the next step here in the process. Wow, 14,000 stores on Shopify, unreal.
Harley: Yes, it’s very exciting.
Andrew: All right. The next step is keeping simple. Why is that a step in the process? Why is that so important that you wanted to bring it up? What’s the danger you’re avoiding?
Harley: So, I heard a couple of years ago, it was actually from a family member who’s an entrepreneur and he said, “One of the things you should think about is that simplicity is the art of maximizing the amount of work that isn’t done.” What’s interesting is, as a young man, as a student, as a law student, I was always told, “There’s no secret to success. Work as hard as you can and you’ll get to where you want to be.” I still believe that in certain context, but sometimes there’s a much simpler way to get there. So I think simplicity is a theme that carries through the entire agile BD process. It’s simplicity in writing emails. It’s simplicity when talking about the terms of a deal. It’s simplicity in terms of some of the legal agreements even. I’m fortunate that I have the benefit as being legal counsel myself. I say to another company’s lawyer, “I think you’re overblowing this. I think you’re making a mountain out of a manhole and it doesn’t make any sense.” Whereas other companies can set up a sort of default and say, “Well, if the lawyers need this and the lawyers need that, so we’ll comply.” So I do have a bit of an additional advantage on the legal side because I have this understanding.
But even in terms of that sizzle part, where that is sort of the most complex part of the entire three stage process, you can keep things simple. You don’t have to create massively complex sliding scale rev share agreements. You can say, All right. From 0 to 10 stores, here’s what we’re giving you. From 11 to 20 stores, here’s what we’re giving you. From 21 to 100 that’s your rev share. That’s the end of it and either you agree or you don’t to it.
Oftentimes when we’re doing deals with partners of ours that are large scale companies, online businesses throughout the world, we get deal exhaustion. We get lethargic, it’s so boring. We’re sitting on these BD calls and we’re scratching our heads thinking like, “This is the most boring call we’ve ever taken.” It doesn’t have to be like that. You can keep things really exciting and you can have fun about these deals, and you can keep things fairly simple. The truth is the best deals are the simplest ones. You’ve probably had similar experience that whether it’s a sponsor or it’s a guest speaker that comes on Mixergy. If you don’t understand right away exactly what they’re talking about, something’s wrong. This isn’t rocket science for the most part. This is a matter of, “Here’s the deal. Here’s my objective. Here’s your objective. Here’s what I’m willing to invest. Here’s what you’re willing to invest. Does it make sense or not?” I think all too often these BD deals get blown out of proportion, and our success in terms of business development has always been centered around the idea of simplicity is best.
Andrew: What about this, one of the reasons that deals get so complicated is because everyone is trying to account for every possible contingency like, “If we break up, I want to be able to make my logo back, and I want to make sure that you don’t ever say that we worked together. If you achieve such super human feats as sending us a million customers in the next week then we want to make sure that you’re protected properly financially,”‘ and like all these different terms come in and they make a lot of sense at the time because you really do want to protect your brand. You do want to make sure that you get the right upside if there’s some extremely big upside. When that happens how do you tell a team of people, “Wait, let’s just let it go”? How do you tell yourself, “Let’s let go of some of these contingencies. Life will be okay if we don’t have every protection and every contingency covered.”?
Harley: So that actually happens quite often when we’re dealing with other publicly traded companies or we’re dealing with government related companies, or we call them ‘cat in a crown’ corporations, which are companies that are subsidized by the government. There’s a lot of red tape in these deals. And because of the red tape it necessitates a lot of terms to the deal. So what I found very helpful is I’ll say, “Okay. Well, you’ve given me a term sheet with 50 different terms on it. I’m comfortable with the first three, which I think are the only important ones, so I’ll agree to those three. In terms of the other 47 terms, why don’t we table this for a discussion in six months from now?” I’ll tell them a little bit about why I like the idea of beta testing so much. I think it’s important. You can pivot, you can change. I find that once I say to them, “Okay. Well, instead of having 50 terms, I’m going to put four terms. The three first terms are the most important and the fourth term will be a necessary conversation or renegotiation in six months time.” That it is a very powerful statement because now they know they’re not locked into anything.
They can go back to their superiors or to their board of directors and they can say, “Well, here’s the deal we have with Shopify. We don’t love it, but it might work out to be really, really lucrative and we can explore that in the six month period. Then the worst case scenario is, if the deal blows up and doesn’t work out for either party, at that six month period you’re able to renegotiate.” So that’s sort of term renegotiation or, again, the same thing, it’s that pivot all over again. This way you’re just pivoting in terms of terms. I think that’s crucial.
Andrew: What if you can’t table an issue like the logo issue, the breakup issue? Do you get yourself to say, “Wow, I’m looking for an easy answer.” I’m looking for an answer that you might give your people as a mantra and say over and over again, “This is our idea.” I mean, “This is our mantra. This is how we avoid complicated terms.” Do you have something like that?
Harley: We do. We have a couple of things. So, in terms of payment gateways, “I want to do business with Shopify,” we have something called Active Merchant, which is an open source payment gateway library that our team here created. In terms of partners’ applications, “I want to integrate with Shopify,” we’ve created the API. That’s sort of the rational, the objective behind some of these APIs, some of these platforms. So for example, almost since inception we’ve been inundated with payment providers and gateways that want to do business with Shopify and want to help Shopify’s customers in different countries accept different payments. Each one of those conversations may have taken five communications and may have been a couple of weeks in terms of closing. Instead what we did is we have the Active Merchant library, payment gateways on their own can integrate, to an extent, without actually needing anything from Shopify and often those results in some of the best gateways.
On the App Store, our App Store is really amazing right now because all these partners, that for a long time wanted to go to Shopify and couldn’t get in the door, can simply build an app themselves for Shopify and not only get into the App Store, but they can promote it themselves, they can gauge exactly what the conversion rate for it is, or the penetration rate for use of those applications. What that does for us is it doesn’t necessitate a three month, or a two week, or even a five day sales cycle. It’s there. If you think your product is that great, put your money where your mouth is and just simply build the app on our App Store. If it is as great as you say it, we’re going to see that because we’re going to see the penetration rate, and at that point, that’s when we’ll call you back and we’ll say, “All right. You obviously have something here. This is worthwhile for us. It’s a great feature for our customers. Here’s the rev share, here are the terms of the deal, here’s the marketing assets or collateral. We’re willing to invest in this.” That to me is the new bred of BD, not necessarily the six month sales cycles.
Andrew: Harley, there’s something that’s kind of in my head bugging me, the 14,000 number. When you said it I said, “Wow,” and I thought to myself, “Does that come across as disingenuous? Does that come across like I guy who’s sponsored by Shopify who’s just getting excited about numbers as a way of pumping up his audience about that?” I’ve got to say I’m very careful when I have a sponsor to have a wall between the sponsorship and the interview, just because you’re a sponsor doesn’t mean that you come on. The 14,000 number, the reason it got me so lit up is because I know how hard it is to get even one customer. To get someone to come into a door and buy something from me is not easy. But to get someone in the door to say, “I’m going to sign up for a Shopify store and essentially, not marry, but commit myself to a long-term relationship on the Shopify platform and count on Shopify to increase my sales, that is not an easy sale to make to a store owner, and it’s not one that they make over and over again.” If I sale a course on Mixergy, you can buy another one from me or a competitor tomorrow. If you sign up for a store on Shopify you can’t go and start another store somewhere else tomorrow, or break down your store the next day and create another store. So when I see 14,000, that’s impressive and if anything, I’m biased towards numbers here. When I actually see someone say, “I’m successful,” but say, “Hey, here’s a metric that shows my success,” that’s when I get lit and I say, “Oh, interesting.”
Harley: You’ve obviously seen us from almost day one, Andrew. You’ve known us and have seen the growth here. So, I guess for you in particular it’s really interesting to see that number, because just a couple of years ago when we last spoke, we were maybe 2,000 customers. So those are 14,000 active businesses that are actually conducting commerce on Shopify. These aren’t flaky numbers. These are 14,000 stores on Shopify. Some of them are large store like Angry Birds, and GE, and Amnesty International, and Pixar, and Tesla, but most of them are small and medium size businesses that are doing tremendous sales using Shopify. Part of that is there is a comment, there’s no question about it. We’re not selling you one cheeseburger for $2 and it doesn’t really matter if you don’t like the cheeseburger, you don’t ever go back there.
There is a bit of a time investment and resource investment when it comes to building a store, but what we’ve tried to do is, we’ve tried to mitigate as much risk as possible. So we give you a 30 day free trial. We make Shopify extremely scalable, so you never actually have to leave Shopify even if you’re selling 2 million plush toys like Angry Birds. You can start small and build it so you don’t ever have to leave.
It’s fully customizable, you can start with a canned theme out of our theme store and then if you want to create a storefront that’s unique and personalized you can then go ahead and do it. We’ve taken a lot of different steps to make sure that the risk is completely mitigated or as mitigated as possible.
But we’re really impressed with the quality of our stores. Part of it is that, not only is Shopify trying to create an ecosystem around Shopify and make sure we’re the top platform, but we’re also evangelizing eCommerce. We’re at the forefront of what we call “the democratization of eCommerce.” We want to bring eCommerce to the masses. I was one of Shopify’s first users because I begged Toby for the code for Shopify and I wanted to use the platform. I had literally built my first store sitting in tax law class in an hour and a half. I don’t know HTML. I do a little bit now, but I didn’t then. I know nothing but design. As you can see, I wear a great sweatshirt every single day. I’m not necessarily this creative, funky guy who had all these different concepts.
Andrew: I wear a gray a T-shirt and jeans most days?
Harley: It’s because I used to work in a law firm where I had to wear a suit and tie, and now I’m just so happy to be in the startup environment, I love it. But, yeah.
Andrew: You know what? I wear a T-shirt every single day here and what happens is I always wear a T-shirt and because some of my past guests have said, “Hey, Andrew, you’d look a lot better on camera is you wore a button down shirt. You’re the interviewer. You want to look like you control the conversation.” Because they said that they convinced me and I started bringing shirts that I have here on the hook and every day before an interview I toss a shirt on. If I knew you were okay with a T-shirt, I would have just gotten to come over here.
Harley: Yeah, totally, t-shirts, sneakers, I [inaudible] them. Yeah, I love the casual environment. As a total side note, the culture and ecosystem here in the Shopify office, in Ottawa, is killer. We’re at 65 people now. Everyone is super focused and passionate about what they’re doing. It’s a very relaxed culture. This afternoon Cody, our CTO, ordered some pizzas and took some developers in for a bit of a lunch and learn on a totally separate topic. We’re huge about that sort of culture. So I love the fact that I can wear a T-shirt and jeans most days, so it’s great.
Andrew: All right. After simplicity, you mentioned pivot then close. Do you often have to pivot before close a deal with a client? Once you’ve sizzled them, once you’ve talked through the deal, once you’ve kept it simple, and once it seems like you’ve got the deal, how often do you have to then say just before the end pivot, adjust, and come up with a different deal?
Harley: So for us, one of the main objectives, beyond conversions or, as I mentioned, a proxy for finances, or a brand awareness, one of the things we’re always trying to attempt with every biz dev deal is, we want to harness our partner’s competitive advantage. So for example with the theme developer it was their brand. Their brand stood for very design focused, really great, clean design, and so the leverage or their competitive advantage for us, in that respect, was their brand. Often we don’t figure out what the company’s competitive advantage is until the end. So you might go to a design shop and think . . .
Andrew: . . . lost the conversation. If we did, we’ll come back. Ah, there we go, I thought we lost the conversation, sorry. The video just froze.
Harley: Oh, no worries.
So often we don’t figure out what the partner’s competitive advantage is until very, very far along. It might take three or four phone calls or communications before we say, “Ah, I got it. They’re not willing to concede on this. But they haven’t actually offered this yet and actually we need this and not that.” So the pivot just before the close we find to be a very, very valuable strategy because it allows us just to fine tune everything. Often it leaves everyone with big smiles on their faces because they say, “You know what? I wasn’t sure Harley wasn’t going to go for that, but he did in the end and it looks great.” It typically does end the conversation and the deal on a very positive note, but the reason I pivot just before close is often because able to ascertain what the precise competitive advantage is until very late along, very late on in the conversation.
Andrew: And you said five points of contact. Is it five before you close a deal or five before you get them interested and go down the path to a deal?
Harley: No. This sounds ambitious, but it’s five for a deal.
Andrew: Really? You could close a deal within five contacts? You send over the tickle, you have the conversation to get them excited, and within five points of contact you close a deal with them?
Harley: That’s the deal. That’s what we try to do. Often, a text message or an email saying, “Hey, what time are we going to do our phone call?” We don’t consider that a communication. That’s simple setting up a communication. It sounds ridiculous, but you do have to sometimes have a meeting about a meeting, and we try to avoid all that, but that does happen. But I mean five substantial conversations and dialogues about the deal itself. We believe that no matter what the deal is, how complex it is, we should be able to do it in five communications. Now often we get to number six or number seven and what I do is I bring the team in and I say, “Where is this going?” We say, “Well, the reason it’s taking so long is because it’s red tape, or they’re on vacation, or they’re not fully sold yet.” Depending on what the reason is, we may decide to continue. If it’s that they were on vacation or the leadership hasn’t bought in yet, we may decide, “You know what? Let’s do one more and let’s do a conference call with the C-levels for the particular deal.” If it’s something like they’re simply not convinced or we’re having the same conversation over and over again, maybe there’s a tax issues because of the tax jurisdiction, that’s something that we might say, “You know what? It’s not going to work and let’s move on.”
The reason that the five communications is so important is because business development, I think more than any other practice in a business, in any company, it can be drawn out to nauseam. And often you see that, you see people working on deals for 18 months and you ask them, “So what’s happening there?” The answer’s always the same, “Well, we’re almost there. We’re almost there.” I think that’s going to change, being almost there. You don’t need a month to close deals anymore. If it’s a simple deal, maybe you only need one day.
I think part of that push had to do with the APIs and the new different platforms out there where you’re allowed to self promote yourself. There’s a fabulous blog post in 2006, you may have read it, Andrew, by Catarina Fake, called “Business Development 2.0.” It’s one of my favorites, and Toby actually showed it to me after I first got here. It was basically that when Catarina was running Flickr, she got tons of people wanting to integrate with Flickr, literally thousands of email requests saying, “I want to print the pictures out on hard copy,” or, “I want to build billboards from the pictures on Flickr.” Eventually it just became ridiculous. So Catarina simply set up the API and allowed people to build applications right in, in an integrated fashion, to Flickr. I thought that was brilliant. So we’re trying to do that as well, but we’re also using our own judgment and our own experiences to pivot that theory a little bit.
Andrew: So ultimately it’s possible that the right API is the best business development tool that you have because it enables people to come with ideas on their own and just go to town with them with your technology without even having to ask you, without even a single point of contact, they just do it directly.
Harley: What you almost do, is you almost crowd source whether or not the deal makes sense or not. So a theme store designer calls me up and says, “I want to build a theme for Shopify.” I’ve never heard of them. I’m looking at the design with our design team here and our chief design officer. We’re both not sure about that particular theme designer. We can say, “Hey, just build a theme, put it in the store, let’s let our users decide whether or not this is worthwhile.” Our user base is extremely collaborative, and they’re extremely outspoken, particularly about things that they don’t like. So often what that does is we put the theme out there, we allow our users to figure out whether or not this is a theme that makes sense and belongs in Theme Store. If the penetration rate, if they’re selling 30 versions of that theme in the first day, that’s really interesting. Maybe we missed something. Maybe we didn’t look at this deal the way we should. But often using that API and sort of crowd sourcing these BD deals in a bit of a beta test way, again, done is better than perfect, we feel like we get a lot of mileage. We cut down a lot of wasted time. We’re very efficient here and that’s great, we love that.
Andrew: All right. So I think I’ve got the process here, agile business development. I’m going to have the whole thing transcribed so people can just pull out the key points for themselves.
Anything else we need to leave people with?
Harley: No, I think it’s time for a change in a lot of these old business prep processes. My grandfather still tells me about the days of Ma Bell, which is basically like Momma Bell or these big corporations where you got a job when you were 20 and you worked at Ma Bell, or some telecom company, for the next 60 years, and it was almost like a paternal relationship. I think a lot of the business deals that happened in those times, in those generations, were extremely filled with red tape. They took a long time to close.
Times are different now. Business development is changing. Catarina created Business Development 2.0, or branded the 2.0. We’re probably at Business Development 4.0 or 5.0 now, and you can see that even with the likes of Zynga and Facebook. They didn’t necessarily have to ask permission for anything. All they needed to do was to get the API key to build games on Facebook and they did. That didn’t necessarily need the buy-in from Facebook other than the approval to give them the API key. Zynga has gone ahead and now they can tell Facebook whatever they want because they’ve ascertained the critical mass they needed. That’s business development as we see it. Although not all deals can be done on an API, it would be preferable if they could, there are certain tenets like agile BD that we think make it a lot more lucrative and a lot more efficient to do these types of BD deals without getting that lethargic aspect.
Andrew: I think we’ve covered the mechanics of it and the outline of it. The part that I would love to cover and we can’t to in an interview like this is, more of the creativity of it. Do you ever see those Tumblr blogs where people will put a picture of, I don’t know what, Crocs that are used and they’ll ask for user submissions of pictures of people with Crocs. Those kinds of blogs are tremendously creative. I’d love to see that kind of process used towards business development, where I come into a blog and every day I see a different business development deal described, just to get my creative juices flowing, just to see what’s possible.
Harley: I think that’s really interesting. I think the other piece of that is, is despite the fact that I’m saying the old version of traditional BD is maybe a little bit archaic or a bit of a dinosaur today, at the end of the day there are certain tenants that apply to them that still apply today. And being creative and having an open mind about those deals is very important, but I also think some of the best deals that we get, and I would argue to say that you probably agree with this, come from relationships, people calling me, “Hey, Harley, we met so and so here. I think you should talk to this person. He’s really interesting. I don’t know where the tie in is, but just have a quick conversation.” I find that those types of introductions often carry a lot of weight and we really like doing deals like that as well, where there is some one intermediary that thinks about it and vets it, almost for both sides, and then almost in a benevolent type fashion hands it off the parties. I love that, but I love to talk more about the creativity of the process because this is agile BD as it is May 24th, 2011. This might change, and hopefully it will change and we’ll come back on the show in couple of months and say, “All right. Well we’ve got a new idea to add to the mix and one more principle or one more tenet, and we think it’s killer.” So I will certainly keep you updated as this sort of theory of agile BD continues to evolve.
Andrew: I would love to hear about the innovation in your agile business development system and also from the audience if there’s any feedback on this interview. If you have any ideas of how to improve business development or maybe you want to share your stories with me about your own business development. Come back to mixergy.com/contact and you can reach out to me directly.
Harley, how can people reach out to you? How can they connect with you?
Harley: Email me, email@example.com. I’m hfizzle on Twitter. I love hearing from people. You know, don’t write me a three page email, please, as you now know. But, please, reach out to me. Email’s the best harley@shopify.
And thanks again, Andrew. This is really a pleasure.
Andrew: You bet, great to have you on. The company, of course, is Shopify. And thank you all for watching.
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