Why Even Hot Startups Need To Do Business Development

Zulily Plan B

A friend was telling me about a great Brian Wilson concert he went to. Wilson is the creative mastermind of the Beach Boys and he had fellow Beach Boy founder Al Jardine with him for the show and a slew of other great musicians. The audience was on its feet throughout the show and singing with all the great Beach Boy tunes and when it was over they refused to sit down or leave.

They demanded more.

The band didn’t disappoint. They retook the stage and lit into “Barbara Ann” and “Surfin’ USA.” Wilson knew he needed to have more to offer his fans and he produced.

Where was the business development?

It’s a lesson business owners need to learn and that was recently highlighted by the financial crash and burn of Internet retailer, Zulily. Wilson had a great audience entertainment strategy while Zulily didn’t have a solid business development strategy.

Zulily is one of those enterprises that streaks across the IPO sky like a Death Star falling out of its orbit. At its high point, it was valued at some $9 billion. When its growth tanked, so did its value and QVC picked it up for the bargain basement price of about $2.4 billion. Unfortunately, in the startup world, it’s easy to get blinded by your initial idea and then be caught without any business development ideas when the original idea runs its course.

Flash sales were Zulily’s original hot concept. It offers deep discounts on great brands. Zulily doesn’t hold any inventory. It buys merchandise as it is ordered and buyers have to wait a couple of weeks to receive their orders. Because Zulily started during the recession, initially there were plenty of manufacturers looking to dump excess inventory. However, today supplier inventories are in balance, consumers are less pleased by the wait-vs-discount tradeoff, and there are other flash sale sites.

Zulily didn’t have an encore prepared.

Hiring a director of business development isn’t a high item on most founder’s “to-do” list. After all, they’ve done the initial business development by coming up with the original concept. But for most businesses, that’s not enough. Look at how Amazon has done business development; it has branched out into all kinds of services. In fact, I think that its web services area is doing very well in terms of profits and that part of the business is quite unlike selling Oprah Book Club bestsellers.

Where were the brand loyalists?

The handwriting was on the wall with Zulily when most of its customers made one purchase and never returned. Any business that doesn’t have a way to develop brand loyalty as part of its strategy is always swimming in perilous waters. The very nature of offering super low prices on items that will be on sale one day and off sale the next, makes developing brand loyalty virtually impossible.

The only people who will be loyal are deep-discount shoppers who have no idea what they want and are willing to wait for three weeks to get it. I suppose some hoarders fall in to this category, but it’s a very small universe. So the question becomes, once you saturate that universe, where does your business development strategy lead you for expansion.

It’s interesting to note that QVC made a very smart business development move acquiring Zulily. It looks like the Zulily shopper universe doesn’t overlap the QVC shopper universe very much, so QVC is adding a valuable source of new sales. Further, I supposed that sometimes QVC will have the kind of excess inventory that it will want to dump via a non-QVC branded retailer.

Finally, there’s nothing wrong with doing one thing great and specializing. However, you need to realize what your limits are and come up with a business development strategy – a Plan B, or at least Plan A(2) – that will deliver growth beyond your current organic limitations. It can be appealing to a new group of customers, adding features to your current product or service, buying or founding a related business, expanding into new territories, offering tiers, or other strategies.

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