The Art & Science of Business Development

Stephen Madsen Monomoy Capital Partners

Business Development is a broad concept that can sometimes be difficult to pin down. It encompasses not only hard data, systems, and figures but also networking, relationship building, and deal acquisition. Joining us this week to help us explore the art and science of business development is Stephen Madsen, Director of Business Development, Deal Origination, and Capital Markets at Monomoy Capital Partners. In our conversation with Stephen, we hear how he has spent his career focusing on adding value to others without expecting anything in return and how actively facilitating introductions creates goodwill and positively affects people’s perception of you. We also explore how he and his firm were able to leverage data more efficiently and use their limited time and resources to keep track of buyer opportunities and remain top of mind.

Key Points From This Episode

  • Stephen’s definition of business development and how it shifts depending on the context.
  • Why Stephen believes there is both an art and a science to business development.
  • Some of the elements that make up the science of business development like data analysis and pattern recognition.
  • The importance of facilitating networking opportunities and how this has served Stephen in his career.
  • How to recognize how you can facilitate networking opportunities for others.
  • How actively facilitating introductions creates goodwill and positively affects people’s perception of you.
  • Why you shouldn’t assume that people already know one another.
  • How to take a systematic approach to business development.
  • Using data analysis to address specific questions around business development.
  • How to efficiently use your limited time and resources to identify and keep track of potential opportunities and relationships and stay top of mind.
  • The importance of the watch list process at Monomoy and how it has informed their data analytics.
  • How the data revealed the superiority of in-person meetings for securing deals.
  • Stephen’s theories for why in-person meetings are more likely to result in successful deals.
  • Why tracking data can be tedious and how Stephen’s company had a surprising experience when they started their watchlist.
  • A call to action for listeners this week: identify where you can track information around your relationship building and how you can leverage that.


[00:00:01] ANNOUNCER: Welcome to Branch Out, a Connection Builders podcast. Helping middle-market professionals connect, grow, and excel in their careers. Through a series of conversations with leading professionals, we share stories and insights to take your career to the next level. A successful career begins with meaningful connections.

[00:00:20] AD: Hey, everyone. Welcome to the Branch Out podcast. I’m your host, Alex Drost. Today we are joined by Stephen Madsen, Director of Business Development, Deal Origination and Capital Markets at Monomoy Capital Partners. Stephen shares how he has spent his career focused on adding value to others without any expectations in return, in how he and his firm have leveraged data to become more effective and efficient in their business development efforts.

I hope you all enjoy.

[00:00:52] ANNOUNCER: Connect and grow your network. We are on LinkedIn. Search for Connection Builders.


[00:00:56] AD: Stephen, welcome to the Branch Out Podcast, excited to have you here today.

[00:00:58] SM: Alex, thank you very much. Excited to be joining you.

[00:01:01] AD: So, talking to our listeners for a minute, Stephen and I connected through me seeing an article that he and his firm helped author for the Middle Market Growth magazine. The article is titled, In Person Is the Essential Currency of PE Business Development. I’m not going to give all the details away behind the article. But I just wanted to mention, this is where we kind of started our conversation. So, I reached out to Stephen and we started just talking about what is business development? What does it actually mean? And really getting his take as a professional who spends his entire time in the business development space.

So, Stephen, my first question to you is, how do you define business development?

[00:01:36] SM: That’s a great question. I think, we could do a whole podcast just on that topic. But really, when I think about business development, it has different meanings and different contexts. In some contexts, it really refers to sales. Sometimes you’ll see sales teams refer to it as business development teams and larger corporate context. In some areas of our industry, of finance, you’ll see business development, meaning investor relations. But in our particular little corner of the world in the private equity and investment banking universe where you and I suspect most of your listeners, and I certainly traffic, business development really refers to the sourcing and originating of deal flow and transactions, that private equity firm or other private investor can pursue either for acquisition or for some other type of investment.

[00:02:26] AD: Okay, so let’s recap on that a little bit. This is sourcing and originating deal flow, opportunities, and, again, specifically in private equity, investment banking, that’s likely a transaction. And then for the service providers around that ecosystem, it’s the opportunities to facilitate and to help in whatever consulting or other engagements might be needed to help facilitate that transaction. Is that a fair summary?

[00:02:53] SM: That’s exactly right. I think that’s why it’s one of those terms that has some flexibility, and all the meanings are somewhat related. They’re all relationship-oriented roles. But that kind of differential between the more sales focus, versus the more industrial focus versus the more deal origination focus is key. I suspect for people in the sort of service provider universe around private equity ecosystem, if they have the title business development, it’s most likely that they are doing some type of more kind of sales relationship building to provide a service.

One group I did miss, and I’ll just add this on quotations, sometimes you will see business development, meaning corporate development, so kind of in-+house acquisition teams at a large corporate.

[00:03:34] AD: I think that makes sense. And again, for the context of the conversation that we’re going to dig in today, we’re going to talk in and around, I’d say what I call it in general, the professional services ecosystem, but really, again, in your specific role, it’s investment banking, private equity, it’s the deal flow, deal origination side of that. Again, for our listeners, that’s the context of where we’re going to dig in.

Now, Stephen, when I read this article, a couple things jumped out to me, and to our listeners, we’ll make sure the article is linked in the show notes here for reference. But one thing when you read through your article, first off, you really make a case for the value of in-person and you make that case by going through a series of analysis that you did. That really led you and I to talking about well, how do you succeed at business development? Again, your analysis here had quite a bit of data backing it, and you had said something to me that I thought was really – is an interesting way of looking at business development. You said to me that there’s an art and a science to business development.

Obviously, some of the data analytics are around the science and I want to dive into those in a little bit here. But can we start with what do you mean when you say it’s an art in the science to business development?

[00:04:45] SM: Yeah, look, I think it’s an art and science because there is a really bespoke relational custom aspect to it, that’s it’s driven by one on one or small group human interactions, and really tracks more to the – I would call that more on the artistic side. There’s an art to being memorable. There is an art to doing the right favors at the right time and building the right bridges. There is an art to building that kind of warm fuzzy feeling that makes people want to do business with you. It drives a lot of your interactions.

And then on the other side of it, there’s a science to it. When you’re conducting hundreds or thousands of these interactions every year, you start to be able to pull out patterns, you start to be able to recognize some of the more kind of hard data driven aspects that really should inform and direct some of those softer, more artsy sides of the business development equation. So, that’s broadly speaking, how I bucket it, and I’m sure we’ll dig in from that.

[00:05:54] AD: Let me say it back to you, and make sure I’m hearing you right. On one half, the art side, you have the simple reality that at the core of business development is human to human interaction and generally getting one to one or small group setting. And by nature, human to human interaction is highly unpredictable. You’re not necessarily going to apply a specific model around it. There’s some level of finesse that has to go into being successful there. And something that at some level, it’s not necessarily, here’s the manual, follow these six steps in an algorithm, and you’re going to make it to where you want to make it. Because it takes experience, it takes intuition, it takes softer skills to succeed in that element of it.

And then on the other side of this, the point you’re driving at, that I think is a really important one is that if you are a professional who spends either your full time career responsibilities in business development, or a meaningful chunk of your time there, which most professionals do, ultimately, there are going to be patterns, there are going to be certain bits of information and drivers that you can understand that will help you better understand your own areas of success, and what activities will ultimately lead to the long term success. That’s as much as anything, maybe the law of large numbers in some ways, right? As you get more and more and more, there’s going to start being some patterns that will help you understand where you truly succeed at. Is that a good way of thinking about it?

[00:07:23] SM: Yeah, I think that’s exactly right. You start to see, as you start to quantify some of your interactions, and you start to study the patterns, that the scientific piece of it really does jump out off the page, and you can use that to fine tune your sourcing, and to better direct all of your interactions.

[00:07:42] AD: Awesome. We’re going to jump back into that here in a few minutes, because I do think that’s really fascinating, some of the trends that you all were able to uncover by looking at your data. But before we go there, let’s talk around what is the art side of this mean. Previously, when you and I were chatting about this, you had said something that I thought was really simple, but also really fundamental to success here. You said, the most important thing you can do is do as many favors as possible, and you cannot look at it transactionally, you have to look at it and know that in aggregate, you’re going to come out ahead, as long as you have the mentality of my goal is to do as many favors as possible as you had said there. Can you walk me through some of the thinking behind that?

[00:08:24] SM: Yeah, so this was actually advice – I can’t claim credit for this. This was advice I got from the father of one of my good friends, actually, the night before I started my first job. So, this would have been back in October 2008. I remember he said this to me, and it was such a strikingly sensible observation that really stuck with me. He said, “Do as many favors for as many people as possible. Treat it like your most important bank account and make deposits all the time.”

When you unpack that, you cannot think about the world transactionally on that basis. If I introduce two people who should know each other, because something good might come out of it. I’ve hopefully booked two favors in the process, but they may not be able – they may never pay me back. They may go on to do billions of dollars in business together and forget that I exist. You know what, that’s okay. Hopefully they remember. They should remember. If you make enough of those types of favors, people do remember. When I was starting out in my career, I remember sitting down and thinking to myself, how do you execute on this? I was the most junior people. How do you execute on favors? What can you do?

What I realized was that I had some ability to help people get job interviews at the firm, I was working at the time. And so, I would use that where possible and where I could do so judiciously. Among the people I was starting to meet my professional network who were more senior, where there were opportunities to introduce to people who should know each other and didn’t, I started taking those opportunities. You want to do that selectively, somewhat judiciously. You don’t want to just introduce every random person you come across to another random person. But I began to put those into practice really almost day one of my career, and it served me well ever since.

[00:10:21] AD: So, what I hear you saying there, I like that you said is ultimately you look to make introductions or make connections, among others that you’re dealing, right? In one case, it was, who can you help get interviews at the firm you’re at. Or in another case, it’s who are two people you know, that maybe don’t know each other and look to connect them. To your point, you need to be thoughtful in nature of this. This is not something where you just make a list of everyone you know, and connect them.

But what I heard you say loud and clear there, is you stepped back and you took time, you took conscious time and intentional effort to think about who do you know that you might be able to connect to someone else, that you can look to add value by simply saying, “Hey, the two of you should really know each other. And I hope the two of you can connect.” Without any perception of what’s in it for you. Just simply from, I know this will add value, and this is a way to do favors to others. Is that the right way of looking at it?

[00:11:16] SM: Yeah, that’s exactly the right way of thinking about it. I think there’s an art to sitting down and saying, “What can you do?” I’m at a point in my career now. Actually, I have a lot more ability to do a much wider array of favors, and make connections that I couldn’t have dreamed of making when I was starting out. To sit there and say – for anybody to sit there and say that there’s nothing that they can be doing to add value in their network around them, they really haven’t thought it through systematically. And they’re not placing themselves in the positions where where you can acquire an inventory, opportunities to put people together. So, if there’s an aspect to where you have to take a step back and examine what is available to you.

[00:12:01] AD: Examine what’s available to you. And again, the point here that I think is really important for our listeners to take away is, if you’re sitting here saying, “Well, I don’t really know how to add value to my network. I don’t really know anywhere.” But the truth is, if you slow down and look around, there’s probably a lot of ways that you can. It takes time, it takes thought, it takes effort. But if you do that, and I’d love for you to to speak to this, if I hear you, right, you did that for a long time and overtime as you built your career and you built your network, and you built that positive momentum by doing as many favors as you could, and that bank account continued to grow. Ultimately, you’re now in a position where the magnitude of the favors that you can do and the ways in which you can do favors has drastically increased.

You had said this to me before, that you believe that patience is a virtue when it comes down to this. I think this plays in a lot to what we’re talking about here. Because when you were first starting out, and you did what you could with who you knew, I’m sure at times, it felt like you were you’re working at it, and you were putting this effort and making these introductions and in doing the work that you thought you were supposed to be doing, but you weren’t necessarily seeing a direct return on that investment. Is that fair?

[00:13:14] SM: Yeah. I mean, don’t get me wrong. You can see very direct return on that investment. It does happen that somebody is so taken by something that you’ve done to them that they’ll come back and shower you with opportunities or praise or money or whatever it is. But more likely, more likely you’re banking goodwill, and you’re changing people’s permanent view of you. I’ll never forget, this was while I was at GLG. So, probably 2011. I was maybe three years out of college. I realized that I had a client that was a fairly sizable private lender. I had a personal friend that was running or senior person at a pretty good size, middle market private equity firm. I put together that the two of them had never met each other and that the firms have never done the business together. So, I facilitated the connection.

To this day, that private lender is a close relationship of mine. We get lunch periodically. We’ve talked to them about some deals actually here at Monomoy. Simultaneously, my friend who was was running the PE firm, continues to be someone who I can call upon and draw on for advice, draw on for connections, perspective. So, we’ve maintained a very active dialogue over years on that side as well.

[00:14:37] AD: Something you said there that really jumped out to me I think’s important here is you had mentioned, you said, banking goodwill, changing people’s view of you, and that’s what you’re ultimately accomplishing by going out and doing favors, right? Now, what you had just described is you went on to that, there was no – you made an introduction where there wasn’t any direct necessarily benefit to you in that moment. But in doing that, you created some goodwill, that meant you had a stronger relationship with someone, that in anytime you can build positive goodwill around yourself, there’s going to be momentum and benefits that come from that. You were able to change the way people view and perceive you. Because they looked at you and said, “Oh, Stephen’s looking to help me and Stephen made this introduction. Yeah, Stephen was able to really help me accomplish whatever it might be, or help me meet the right person.” And those thoughts will stay in their mind. All that’s doing is really helping to build more and more of an increased positive perception of who you are as a person, and as a professional in your career, right?

[00:15:33] SM: That’s exactly right. I’ll add one other lesson to kind of take away from that story. Had I just assumed that all these important people knew each other, I would never have done anything with it. So, that’s the other kind of hidden lesson in that story is don’t be afraid to ask. People know when you’re genuinely trying to be helpful. So, they may say, “Oh, yeah, we have a relationship with X, Y, Z capital. We’ve done five deals with them. Thanks, but no thanks.” But they understand that you’re trying to add value. They understand that you’re trying to help. And they’re never going to begrudge you asking the question. “Have you dealt with these guys?” I’m close to a couple of them. So, that’s the other kind of embedded point in that.

[00:16:18] AD: I think that’s a really important one, especially again, talking to anyone who may at times feel like you’re in a position where you don’t necessarily know where or how to add value. You feel like you don’t have anything to bring and you sit back and say, “Well, they probably already know each other. Why would I ask them?” I’m sure they have a relationship there. They might, you don’t know. But if you don’t ask, if you don’t go and ask the question, you’re never going to find out. As you’d said, in your case, you went and asked the question, and the answer was, “Oh, no, we actually don’t. I would love that introduction.” But in the event that they do, to your point that you’d made, people aren’t going to look at that as negative. People are going to look at that and say, “Oh, that’s awesome. You were trying to help me. Thanks, I’m good there.” But still, there is some positive goodwill that’s created out of that situation, no matter what. But at the end of the day, if you were afraid to ask, you never would have started that, you never would have had any of that opportunity come out, if you didn’t initially ask.

Okay, so let’s talk then. Let’s summarize a little bit. We said the the art of this, there’s a lot of nuance behind it. This is a lot about looking to do favors. This is about recognizing that it takes patience and that you are just creating goodwill, you’re changing people’s perspectives around you, you’re looking to do favors for people. We know that. We understand kind of the art side of that. Let’s talk about some of the – maybe the science side of that, right? So, I’m going out there. I’m making introductions. I’m looking for places to add value. I’m continuously doing that in building some of the goodwill, how can I get smarter about that? How can I use some data or some analytics to help me think through that maybe a little bit more from a scientific standpoint?

[00:17:58] SM: Sure. So, I think there are a number of really empirically driven aspects of business development, and I’ll bucket them broadly in two categories. There’s what I would call kind of the blocking and tackling, or the plumbing of business development, which is to say, being systematic. Having a process, saying to yourself, we’ve got X, Y, Z opportunity that is on our watch list. It’s been a month since we last heard anything about it. We need to follow up. Having all of that baked into a system where you’re able to track it, you’re being prompted to do your outreach, and you’re actually picking up the phone or getting on zoom or Going out in person and meeting with people. And I particularly like the last one, to do the follow up and get in front of the right people at the right time.

Then there is what I would call the more advanced side of business development or the advanced scientific side, where you’re taking some of the data and doing some real analyses, you’re asking yourself, where are their correlations, that where you can find them? Where is their causation? Although that’s tougher, how are we integrating different aspects of our data pool? So, how are you looking at not only say, your interactions and your calls, but also quality of the deals that are coming in versus how you classify different for us talking to investment banks or selling businesses. How are you classifying those? Starting to integrate those data points and cross reference between them to more intelligently create sort of a self-reinforcing more intelligent cycle. That’s all critical. We spend most of our time actually executing on planning and the blocking and tackling and it’s kind of the never-ending job of business development.

But you have to take a step back, just like you had to take a step back when you were thinking about what type of favors can you do for people from where you sit. You have to take a step back and you have to say, “Okay, how can I make this blocking and tackling process better? What new information can I incorporate? When I step back from the trees and I see the forest, how can I best navigate it?”

[00:20:08] ANNOUNCER: This is Branch Out, a connection builder’s podcast.

[00:20:17] AD: You said a lot there. Let’s unpack that a little bit. Let me first summarize and make sure I’m understanding this right. Again, we’re talking the scientific side of this. Part one, bucket one, is really about your process at the core. This is leveraging some kind of methodical approach and thoughtful approach that has a system behind it, that allows you to better manage and execute on the day to day ongoing, never ending activities of relationship building, of business development. And then bucket two, being the data analysis or the stepping back and saying, “Okay, what am I doing? What information have I collected? What can I learn from it? And how can I become more efficient and more effective in that day to day activities that I’m doing.”

So, let’s dive in, let’s unpack bucket one here first, for a minute. You talk about kind of the systematic approach, having a process and the blocking and tackling. I can speak from my own perspective. I’m sure you share thoughts around this, when it comes to business development. Again, we’re talking about building relationships with other people in a nonstop, ever changing world that is very fast pace, that has, what I would call an endless demand of things to do. When we’re talking about the relationship element of it, it takes a lot of time and energy and investment to be successful at building these relationships. It really is, in many ways, this is what I would call a top of mind business. I say that just because things are changing so quickly, and there’s an ever-constant flow of new information, new deals, new opportunities, new things to look at, that if you’re not staying in front of people that you’re building a relationship with, over time, inevitably, that relationship is likely to start to separate and not necessarily be as strong of a relationship for you.

So, when I look at, and I hear you on this, this is really about how do I become more effective and efficient in doing that nonstop process that’s required to be successful in business development. Then my question to you is, how do you think about that? What are things that you’ve looked at? What are things that your firm looked at? How to become smart around that? What do you actually do to be successful at becoming more effective and efficient in that ongoing activity?

[00:22:39] SM: Yeah, absolutely. So, I’ll say first. I think this is across all the different – going back to our first question, you know, across all the different types of variety of business development, you’re likely to find this kind of plumbing process, the blocking and tackling is most likely to be one of the commonalities. And that can take the form of how a sales organization uses their CRM default opportunities. Everybody has a different form that we do at Monomoy.

So, our goal at the end of the day is to invest in and partner with manufacturing businesses, distribution businesses, and consumer product businesses in the middle market. Those are the areas where we play, where we spend a lot of our time. So, my team and I spend – we go out into the market, trying to find those opportunities. We’re mostly talking to different deal sources, could be bankers, could be business owners directly, could be other kind of ancillary sources of flow. We’re looking for processes and for opportunities that may not get the attention that they warrant, and may present a little bit of a diamond in the rough.

Let’s talk about how, just to narrow in on one field. Let’s talk a little bit about how we cover investment bankers. Because I think that’s a nice, clear example. So, we have the universe of banks, and the universe of bankers, or it’s certainly the bankers that we typically deal with. We have all of those categories tiered. So, we can say, this is a top tier banker, or sorry, top tier bank and it’s a pureed banker. This is someone we need to be talking to all the time. This is someone we need to meet with in-person frequently. This is someone who has influence within their firm, and their firm has real relevance for our market. We’re looking at a whole host of data, when we’re making those determinations. So, this is one of the places where that kind of more advanced, scientific approach comes in.

We look at the size deals that we’re receiving. In aggregate, we look at the opportunity sets, that the banks are working on, both what they show us and what they don’t show us, and a number of other different factors to kind of feed in and figure out what the right tier is. So, that informs them how often we should be talking to them, how we should be approaching them what, what our talking points are, to some extent. We follow that process to generate the leads. And when a bank tells us about something that they’re going to be bringing out to market, or that they’re pitching, or that maybe a market with a competitor, or just an idea, they think is really interesting. We feed that on to what we call our watch list. The watch list is our universe of deals that we are expecting to see. that we’re hoping to see, that we’re tracking.

We have a couple of different watchlist, but for the purpose of this conversation, I’ll focus in on our watchlist of kind of forward looking watchlist of processes on to come. Once we’ve got to deal on the watchlist, now we’re specifically tracking that deal. So, we may have a deal from a, frankly, less relevant banker and a less relevant bank. But the deal is really interesting. So, we’ll have our follow-up schedule determined by making sure that we’re going to get in front of that deal, and we’re going to get a look at it.

Now, obviously I love all bankers equally. I spent a lot of time with them. But I only have so much time today. My team only has so much time. And so, we are looking at that and saying, “Okay, let’s make sure we’re checking in on this. Let’s make sure we’re following up on it. And make sure that we’re on the buyers list.” And more than that, sometimes, we’re positioning as we continue to have these conversations. Sometimes we’re positioning ourselves not only to be on the buyers list, but to be the top buyer on the buyer’s list. To be the guy who – to be the firm, that the advisor is going back to your clients saying, Monomoy is really interested in this one. They’re all over me about it. They have relevant industry experience. They’ve got interesting operating partners who know the space really well. We’re going to make sure that we really talk to them thoroughly and put them in a good position to get this deal done. Because they’re a logical acquire.

So, we’re working to get those types of connections, and then often too, in a process itself, we’re maintaining some level of ongoing dialogue with the banker to help make sure that we’re getting the best possible competitive position.

[00:27:14] AD: I want to make sure – one thing I thought that you said was really important. One, this comes down to managing a limited set of resources for these types of activities. Back to, at the end of the day, there’s going to be more places you could spend your time than you have hours in the day and resources to dedicate the process of tracking and thinking about all of this is really about helping you identify where is your – you and your team’s time best spent and best invested.

Now, what I also heard you say is break it down and I’m going to use different words in these, but I think I’m looking at this the right way. On one hand, you’re tracking relationships. You are tracking firms, or individuals at those firms, in which you want to have a consistent rhythm of reaching out, touching bases, seeing what’s going on, and just understanding – just as a way to stay front of mind, but also to uncover any opportunity that might be there.

On the other hand, you’re also tracking, as you said, deals are potential opportunities that are coming to market. But really, they’re opportunities. They’re things that you say, “Okay, this is a specific opportunity with a specific firm or specific banker in this case, that you may also be tracking in wanting to chase in the follow up and make sure that you’re staying in front of an understanding where that process is that, where it is in their process and how you can best position yourself to be a part of that.” Is that a fair kind of the two primary areas you’re spending time?

[00:28:50] SM: I think you’ve nailed it. I think the only comment I would make is that I’m talking about the routine in the system where we talk to investment bankers and track kind of forward-looking new processes, were I to paint the broader picture. We also have processes for tracking credit opportunities. We’re tracking deals that maybe we think haven’t traded, but are going to come back around, and we actually spent a lot of time on some of those opportunities. So, this is one system within a broader system. But you’ve nailed it.

[00:29:24] AD: Let’s dig into this specific system, because I think this is highly relevant. Again, I like talking about in the context of the deal world in private equity, investment banking. I think it’s an easy understanding point for many of our listeners. But I think for anybody that’s in – as you kind of alluded to earlier, this is the part that’s probably the most common across any form of business development. But specifically speaking to anybody who is a professional service provider that works in the professional world, the two primary areas that I believe are worth tracking are your relationships and your opportunities, right? Again, it’ll be specific and unique to every firm.

But the one point you had put in there is that you all look at it and have some form of a tear ranking system behind it. I want to be – this is an error I actually think is really fascinating to talk around. Because this isn’t about saying one person’s better than another. As you said, you love everyone equally, you’re just trying to manage your time and make sure that you can dedicate a limited amount of resources to put them to their highest and best use. By having a tiered system, it allows you to say, “Okay, here are the people or the firms, the individuals that I know, are the places that I am most likely to have some kind of synergy, add some kind of value and create some kind of opportunity. So, I’m going to focus as much time as I can on my tier ones. I’m going to talk to them more often. I’m going to have a more often follow up. But then I have my tier twos. There are still places that I think I can add value, but maybe I’m touching them less frequently. I’m having fewer touch points, because I know that I’m better off to spend my time in the tier ones.”

And then I think the same would probably apply under opportunities, right? Where you’re saying, this is an opportunity that’s worth really making sure we’re staying on top of because it’s right down the fairway, versus, this is an opportunity that might be interesting, but we can check in on it. Again, limited resources and where you’re spending time. Is that the way you all think about it inside?

[00:31:14] SM: Yeah, I think you’re exactly right. It all comes down to prioritizing your time, to making sure that you’re spending more of it with the right people to make sure that you’re determining who the right people are and what the right opportunities are as systematically as possible, to generate the right return, the right opportunity set for the firm.

[00:31:36] AD: Prioritize your time and spending more of it with the right people. I think that is a great way of looking at it.

Now, the other side of this that I think I heard you say earlier, is some level of reminder is automation. It’s kind of going back to the – I just think about how we use our CRM. You have a series of relationships that you want to touch on once a quarter, well here’s my reminder telling me who I need to go reach out to, so I don’t even have to think about where I’m supposed to spend my time. I’m tracking that and I know where I’m supposed to spend time. Is that what you mean, when you say some kind of automation reminder and tools behind it?

[00:32:13] SM: Yeah, we run all that out of the CRM. There’s some flexibility that you want to build in there. Sometimes, you’re going to see somebody at a conference or something and so you may wait for that opportunity. Or sometimes that given parties totally snowed under with a live deal or something and you circle back around to them when that’s done. But as a general rule, that’s exactly what we’re doing in the CRM.

[00:32:40] AD: That all comes back to this efficiency. Why should I go spend my time trying to think about who I have to go reach out to, when I can use a systematic approach to tracking who I should reach out to. And again, this is going back to the art and science side. There is a place where you might have to say, “Well, I’m supposed to do according to this formula, an outreach. But I know that for these reasons, I’m not outreaching.” But again, it’s back to using some kind of a systematic approach that makes that process more thoughtful on the front end, less thoughtful in the actual action of going and doing it, so that you can spend your time thinking an energy focused on the actual relationship, not thinking about who you should be spending your time with.

Let’s dive in then to the second component, the second bucket here, the data analytics. And this is where I thought your article was very fascinating around this. Help me just dive in. Share me some some thoughts around how you’ve looked at data, what you’ve been able to see and what you’ve done by tracking some of those touch points in the information that comes out of going to all those interactions over time, and what it’s ultimately helping you understand about how to be most effective in your work.

[00:33:51] SM: So, I’ll start by saying that without our kind of watch list process, it would not have been possible to put together some of the data I put into this article. So, we can trace not every deal, but a significant portion of our funnels. Back to the first conversation we ever had about the deals. Long before somebody sent us a sim or a teaser or an NDA, we can go back and say what was the forum for the very first time that someone ever said you guys should really take a look at company X, Y, Z. Or, “hey, we’re going to be bringing a manufacturer of widgets with 25 million of EBITDA to market in the not too distant future.” We think it’s one that can be really interesting for Monomoy.

So, by using that data and kind of cross referencing between the output in our deals itself, and the data that we have on our interactions, I was able to go back and say, “Does it make a difference where we have those conversations, where we find these deals.” I bucketed into four groups. I bucketed it into deals that we sourced in city visits, meaning we’re going out into the world and doing individual meetings in a city with different bankers.

So, I’ve gone through – we use 2018 to 2019 numbers. These are mostly calls, when I say BD calls, but the numbers for Zooms and discussions over teams and all other stuff are almost identical to the numbers for calls. What I did is I looked at how many deals did we source per interaction. So rather than saying, in aggregate, how many deals that I get from calls versus how many deals I get from city visits? I said, on a per interaction basis, for one city visit thing, or for one call, how many deals did I get? Not shocking, we got more leads, more deals added to our watch list at city visits and meetings in our office in New York, at conferences, than we did by phone. But the discrepancy isn’t massive. Let’s call it 2x.

What was really surprising was the extent to which, as you went down the funnel, and you looked at how far do we get in these processes, and never forget that buying company is doing business value. But I mean, the close rate, I think, across all deals is somewhere below 1%. I think that’s true for all private equity. So, in order to get kind of representative numbers, you have to look at, kind of where did you go later in the process, not necessarily close things.

What we found was that by the time you were looking at how many management presentations, that is to say, how many meetings, company management, did we get per city visit meeting versus how many did we get on a call or conference, we were nearly five times more likely to go to a management presentation on a deal that we sourced out on the road in a city meeting, than over a phone call. You were, call it, 2x more likely to go to management presentation if your first meeting about a deal was at a conference versus a call. By the way, for those deals, and we didn’t include it in the article. But for those deals where we can’t track a first interaction, someone shot a teaser over the transom for no reason. I mean, the hit rates even lower there, not surprisingly.

If the numbers start to thin out a little bit to take this with a grain of salt. But by the time you go down to how many letters of intent are we submitting for interaction, you’re 10 times more likely to submit a letter of intent on a deal that was sourced during during a city visit versus a call, four times more likely to submit one, those sorts of the conference. So, you really see that step change in effectiveness. We didn’t apply any other filter to this. We just looked at two years of data, 2018, 2019 leads, and this was some analysis that we really had a chance to kind of step back and do during COVID.

What we saw was clear as day. When you get in front of people, when you have those interactions in person, it changes how you’re going to convert down the funnel, and it makes you more likely to succeed. I think I can’t prove any particular reason for why that is, but I have a handful of theories. I think to some extent, your enthusiasm for the deals are more memorable. People remember looking in your eyes and the questions you asked, and how you talked about it. I think oftentimes, the in-person meetings are more likely to run a little bit longer. I can’t tell you the number of times that you’re about to walk out of a room, and someone says, “Oh, well there is this other thing. There is this other opportunity.” And that’s the best thing you’ve heard all day.

So, sometimes, the gears just take a little bit longer to turn, there’s certainly an impact of people looking at their phone, or looking at their email or otherwise being distracted while they’re on the phone or on a Zoom. I think if you’ve been on a Zoom with more than two people on it, look around, someone’s on their email always. So, it’s a confluence of factors. But it was quite striking in our data, and really helped us say, okay, let’s just say we want to do all our sourcing by phone, which we were not going to do. But we would have to do nearly five times as many calls, which is really hard. Because even when you’re out on the road, doing meetings in person, you’re still doing calls in between meetings. So, some of that, it’s not a one to one substitution. Frankly, I think people who have tried doing, really source all via phone and also – a few firms that have tried it have had trouble retaining good talent. It’s a more fun job when you’re out of shaking hands.

[00:39:54] ANNOUNCER: This is Branch Out, bringing you candid conversations with leading middle market professionals.

[00:40:02] AD: You’re not wrong at all on the more fun element of it, for sure. But what I think that the really important factor of all this is, you have more success that way. Again, as you said, I don’t think you can necessarily point to any specific reasoning behind that, at least with the data and kind of knowledge that we have around this. But ultimately, you are, in your role, you’re looking for a dealer opportunity. But speaking just broadly professional services in selling your product and in your case, your product is capital or an investment in a business, you are looking for a unique opportunity. The product you’re offering is relatively commoditized. But the position in which your firm is able to uniquely add value and have something that fits for them is something that maybe doesn’t come out quite as easy, in the brief quick check in phone call or the catch up over Zoom.

Whereas when you’re in a deeper conversation, talking about what’s likely not pure business, you talk about life and everything else that goes on, there’s a greater ability to dig in deeper, to share a bit more, to give people time to think, to get kind of a higher level of engagement between the two people that are having a conversation without the other distractions. That really leads to uncovering more opportunities that maybe weren’t there. At the very least, based on your data, it’s very clear that it uncovers higher quality opportunities. Things that are much more worth spending that time and energy on, versus having just purely a verbal conversation around it.

[00:41:36] SM: Yeah, I think that’s exactly right. Although, I’ll say, I’m not sure to what extent we’re uncovering higher quality opportunities or the opportunity is almost higher quality because of how it’s uncovered. Sometimes that may mean that we just get some context around it that we wouldn’t otherwise get. There are occasions where somebody starts in on something in a meeting and you’re sort of thinking to yourself, “Well, I’ve got to sit here anyway, I might as well hear him out.” And by the end of the conversation, you’re really interested. It’s a little easier to kind of jump off the phone or mentally tune out when you’re remote.

So, I don’t know what’s chicken and what’s egg here. This is a situation where in any case I can only prove correlation, I cannot prove causation. But the correlations are very real.

[00:42:25] AD: Correlation matters, and as we talked about from beginning, this is about where do you spend your time? How do you become more effective and efficient in what you’re doing with the limited resources and the unlimited amount of places you could spend your time? And you very clearly have uncovered trends and analysis that say, “Hey, this is going to be more effective for us and we should be thoughtful about how we’re spending our time to prioritize this form of activity, because it ultimately leads to higher, better opportunities for us.”

Now, a really key point behind that. You hit on this a little bit at the beginning, you have to track this information to begin with, which is a pain. No one really likes tracking information, but you had to track it, or else you never would have been able to do this. And you had to track a lot of it over time, where I assume early on in tracking it, it didn’t do much of anything for you, outside of the relationship opportunity that we talked about earlier, the efficiencies to help with the blocking and tackling. But the data analysis wasn’t really useful until you actually were diligently tracking this over a duration of time. Correct?

[00:43:26] SM: So, no. In this particular instance, and this is not going to be true of all tracking. But in this particular instance, we started building out our watchlist in early 2017, maybe Q2 2017. The impact was pretty immediate, because well, yes, well not for generating this type of data, that took a lot longer. But the impact in the sense of, we did talk about X, Y, Z deal, and no, I haven’t heard anything more about it in the last couple months and wasn’t supposed to come out a week ago, that impact was pretty immediate. So, then, you pick up the phone and you call people and say, “Hey, what happened to the widget manufacturer? Why haven’t I gotten that?” And there are a few opportunities that in fact, more than a couple, that took from 2017 to 2021 to mature that we didn’t see them become active in our pipeline until this year. But there were many others where we had a conversation and maybe somebody missed us on the other side of that, we were able to act as a safeguard against that miss because it was on our watch list.

So, we got some of that ROI immediately. But the deeper ROI of being able to understand not just, “Hey, here’s one opportunity, let’s make sure we don’t miss it”, or a couple of opportunities. But being able to take a step back and say, “Okay, how do I systematically, intelligently ensure that not only am I not missing things, but that I’m maximizing my chances of success in any given scenario.” That really took a lot longer. We didn’t have this data to systematically – I mean, we had to build up the library of data and it took a couple years.

[00:45:17] AD: Well, what I think it’s really important behind that, and I – when I look at the CRM and some of the value, no matter how you’re tracking, but ultimately, tracking data, and keeping track of the relationships and opportunities that you are pursuing, it allows you to bring, I guess, some level of transparency and accountability is the word that comes to mind for me. But even if that’s for yourself, personally, it allows you to step back and say, “Hey, I saw this. I should follow up on it. Now, I know that I’m supposed to follow up on it.” Nothing gets forgotten – I shouldn’t say nothing. But it certainly reduces the probability that something gets forgotten or falls through the cracks and allows you to really stay on top of the opportunities and those opportunities that are coming towards you. Is that the right way of looking at it?

[00:46:05] SM: That’s exactly right. I’ll share one other thing to our discussion around kind of correlation causation. We had to pull this out of the article to full length, but I’m happy to share it with people who are interested. We cut this data a million different ways as we were going through it. I have a chart that looks at just our top tier banks. We’re talking about the banks that have the most resources, that in theory should be able to build every buyer list off a pitch book and, and off of frequently cap like you and whatever resources they’re using. People who should really be the most systematic in their outreach, and this chart that shows two years of deals received and attracts against the number of in-person meetings we’re having with them.

What’s striking when you look at this chart, is that there are fully eight different areas where a change in our in-person meeting activity, collectively with a steer of banks, immediately precedes a change in our deal volumes by one or two months. It’s really, I mean, the number of meetings you’re doing, the number of deals you’re seeing, really do kind of yo-yo up and down, month by month. And it’s really striking when you look at this, to see the places where, “Hey, here’s, a month or two out. There’s a spike, and there’s the corresponding spike a month or two later.” There’s no there’s no evidence seasonality to it. It works both on the the negative and on the positive. It’s not a long enough period of time, I think for me to say definitively that, “This is it, I found the answer key.” But it’s something that we were going to put in the article that got cut for length and I think it’s something that your listeners might find interesting.

[00:48:06] AD: Well, what you’re saying there is that those organizations in which you would assume already know that you exist and already have you on the buyers list to reach out to, that you may wrongly assume that there’s no need in spending extra time there, they already know who we are. We already going to be on the list and there’s no need to invest the energy there. By tracking this data and analyzing it, you’re able to actually see that the inverse is true. When you did spend time there, despite the assumption that you would already be on the buyer’s list, and you would already know – they would already know that you existed. Spending an investing that time and energy there actually yielded returns in a very noticeable way, correct?

[00:48:51] SM: Yes. The returns were noticeable. Interestingly, you could also see a little bit of a temporal lag, and that you had to have those conversations ahead of the deals. So, in that instance, I mean, what we saw with some of the other smaller banks, banks we don’t deal with as often could be a big bank just doesn’t do much in our sectors, we saw there was a little bit more, everything moving in lockstep. Maybe you get in touch with someone and you walk into a process that’s about to kick off here. I think what you saw was, you talked to the relevant MD, your VP, or whoever and they’re going to slot you down and get you in the list but you’re just as responsive, if not more responsive to that kind of face time. Because the recency, to your point, at the start of this whole discussion, to the top of mind nature of this business, as anybody else doing it.

[00:49:50] AD: Well, that’s an excellent time to bring us back. I want to do kind of a recap of everything we talked about. But the point you’re making here is that at the end of the day, the relationship matters. This is the top of mind business and we started our entire conversation around talking about business development, what does it mean that the point of relation – this is a relationship focused business, and that the art side of this is that it is human to human interaction. There is some level of unpredictability. There’s some level of finance that has to go into that, it’s very bespoke.

It’s generally one to one small interactions. The way to really succeed in that is by having the mentality of doing as many favors as you can. The most important bank account that you have, and you want to always make deposits was the advice that you had gotten when you were starting off your career, and you approach this by saying, “Look, I’m going to make whatever connections I can. I want to get out there. I want to help where I can even if I maybe early in my career don’t feel like there’s much to do.” I know there are places I can be helpful by just simply looking to do favors to connect people. And understanding that patience is a virtue in this business. It’s going to take time. You are not going to necessarily see the immediate returns at times, you might. But the long-term mentality of knowing that if you do the right things time and time again, you will eventually benefit from that. This is, you’ve banked up goodwill, or you are changing how people view you by looking for these opportunities to do favor to add value. But ultimately, you have to make sure that you’re not afraid to ask because if you’re afraid to ask, then you may not even on a cover that opportunity to begin with. Even if you do ask, and ultimately, that’s something that they may already have that relationship and they may not be in need of what you’re trying to help, you’re still doing, you’re still showing people that you’re taking initiative to help. So, don’t be afraid to ask.

Then we switched into talking about the science side of this. We said that there are really two buckets. Bucket one, systematic. Having a process. Having a systematic thoughts and approach to how you manage the day to day ongoing activities, the blocking and tackling of business development. And this is really about tracking the relationships, tracking the opportunities, having associated tiers so you know where to prioritize your time and spend it with the people that – spending your time with the right people. Because again, you have limited time and resources and you want to make sure to spend it on the right people and that you’re really just being more effective and efficient in what you’re doing, using reminders using – again, systematic approach.

But the second side of this was the data analysis, the looking for correlation. This really came from you all tracking data again and again, time over time, building some of that up and being able to look at it and start to make very clear correlations and say, “Well, look, if we do this activity, we’re able to yield a better result in the end and that all comes back to allowing you to be more effective and more efficient in your relationship development process.” Because you’re spending the time in the right places. I think where this full circle comes back around is this business. Business development is all about relationships, it’s all about building that human human connection, doing good, adding value to others, that takes time, that takes energy, and it takes consistency to do it. And anywhere that you can leverage a system tool or some kind of data to help you be better at that, it just frees up more capacity for you to spend your time in the right places and have the greatest level of results.

Stephen, this has been an excellent conversation today. I think we covered a broad range of topics around business development. I got some some great ideas out of it. To our listeners, the call to action for this week is find an hour, sit down, and think about where you can start being – where you can start tracking some type of information around your relationship building business development efforts, and leverage that. Whether you’re not tracking anything at all, then there’s a lot of easy places to start. If you have a tracking system, then think about putting an hour of thought into where you can add a different point of tracking, where you can analyze the data that maybe you’ve already collected. But really look and realize that leveraging the science side of business development, will really free you up and give you more ability to spend time on the art side, which is where the real success is going to come from this.

For our listener Stephen, how can they get in touch with you?

[00:54:20] SM: They can reach me on LinkedIn under Stephen Madsen or you can email me, [email protected]

[00:54:29] AD: Awesome. Well thank you so much for being here today. This has been, again, excellent conversation. Appreciate your contribution and looking forward to talking to you again soon.

[00:54:36] SM: I hope so. Thanks so much for having me on, Alex.


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