The Value Hypothesis

Every time you propose a partnership with another company, you are making a guess as to why they’d want to work with you. According to the Grand Unified Theory of Business Development, business development is fundamentally focused on creating long term value. But whose value are you taking into consideration?
When two companies are evaluating an opportunity to work together, each is weighing the relative value of the same deal from their own unique perspective. While you approach a company with an understanding of the value that they can bring to you and your organization, they are making the same judgement what  you  can bring to  them  – and will decide accordingly on how to proceed.

Properly preparing to engage a prospective partner requires you to make an assumption about what would be a satisfactory response to the most pertinent question on their minds: “What’s in it for me?” I call this your Value Hypothesis.

What Is a Value Hypothesis


As any 7th grade grade science student can tell you, a hypothesis is an assumption that can be validated through experimentation and observation. Similarly, a Value Hypothesis should be a testable statement that can be validated or refuted when facing your prospective partner.

Take an example:

“Widgetco’s products sold through Gearly Inc.’s well-established sales channels in Europe can drive $15MM in incremental sales annually,” might read one conceived by Gearly in an effort to court Widgetco in partnership.

Whether written merely to strategize how to connect with a potential partner or put directly into the context of an introductory email, your Value Hypothesis will inform your approach to engaging in partnership discussions from the very start. As written from the perspective of one company, a Value Hypothesis makes an educated guess about whether and why an opportunity has any true appeal for the other.


Formulating a Value Hypothesis


A well-understood and carefully crafted Value Hypothesis enables a more deeply engaging partnership discussion at every stage from first contact to getting ink on a contract.

The more you can do to forecast the other side’s reaction to your Value Hypothesis, the more you can do to affect their response to it. The more appealing you can make the prospect of partnering with you, the more likely you are to get a meeting, to get a deal, and to get a successful partnership in place that drives mutual value for the long-term.

There are a number of considerations to include when formulating your Value Hypothesis:

  • Can you clearly state the potential value of this opportunity to them?
  • Does this opportunity mesh with the organization’s strategy? If not, might they consider it a worthwhile shift in their priorities?
  • Is this opportunity significant enough to be considered worth their time and energy?
  • Are there reasons why partnering with you would be the best route for them to realize the value of this opportunity?
  • Have they publicly signaled (in the press, a 10-K, other partnerships, or in their actions) an interest in the type of opportunity that you’re proposing?

Validating the Value Hypothesis

Formulating a Value Hypothesis forces you to put a stake in the ground before approaching a partner, but when put in front of the partner those assumptions will be subjected to an exhaustive battery of tests that may determine the fate of your deal.


Validation #1 – Getting a Meeting


Everyone’s busy – especially those folks who you believe would make for great partners (guess what: lots of other people probably think they’d be great partners too). So why would someone take the time to respond to your request to have a meeting, let alone afford you a precious time slot on their highly curated calendar?

Putting forth the effort to conceive, challenge, and refine your vision of what value your partner can realize by meeting with you will go a long way in securing that first sit-down.

Your initial outreach, be it an email after an introduction or a cold call to someone you’ve never met, needs to offer your counterpart a compelling reason to take the time to meet with you. This doesn’t only go for warm leads that come with an introduction – as warm and toasty as your first contact may be, any introduction that’s not followed by a compelling reason to meet with you suffers a lower chance of earning a response.

The degree to which someone may accept or decline your invitation to engage in further discussions depends heavily on a number of variables. Take our preceding example of a Value Hypothesis used by Gearly when approaching Widgetco:


Widgetco’s products sold through Gearly’s well-established sales channels in Europe can drive $15MM in incremental sales annually.


Perhaps Widgetco was motivated by the Gearly’s original intent of helping them enter the European market, and would take a meeting to explore that opportunity.

But perhaps instead they are interested in pursuing a similar distribution partnership across Asia, Africa, and the Middle East. Although those markets may not have been explicitly stated in the original outreach sent by Gearly, the very prospect that an opportunity to enter those markets may enter into the discussions could suffice enough to encourage Widgetco to take the initial meeting based on Gearly’s proposal.

A well-reasoned Value Hypothesis may incite a large enough spark of excitement to get you in the door, but keeping up that momentum requires you to continue your effort to understand and validate “what’s in it for them.”

Validation #2 – Building Interest

Getting through the gate and into a partner meeting is a feat that implies some degree of accuracy in your original Value Hypothesis. And yet, there is still much work to be done to ensure that the opportunity to forge a deal remain alive throughout the remainder of the partnership discussions. As you embark down the path of fleshing out the form and structure of a collaboration, the questions around whether it’s worth it for these talks to proceed to a signed deal will only get more intense.


Take again our preceding Value Hypothesis example:


Widgetco’s products sold through Gearly’s well-established sales channels in Europe can drive $15MM in incremental sales annually.

What’s the best way to validate your Value Hypothesis once you’re in the door? Just ask:

“We at Gearly would propose a distribution partnership by which Widgetco sells your products into the European market via our sales channels. How does that sound to you?”

How might Widgetco react to the suggestion of this opportunity? Does Widgetco have any interest in entering into the European market, or might they envision a move into other geographic markets as a higher priority? Is a $15MM opportunity enough to whet their appetite, or might they require a more expansive partnership to make the effort worthwhile with at least $50MM in potential. Or yet still might Widgetco find the option of international expansion appealing, but are less than sure that working with Gearly is the best path to pursuing the opportunity?

Starting with a well-informed Value Hypothesis on how cooperating can realize long-term value for both companies provides an anchor point for a partnership discussion that can evolve organically. And now you have the opportunity to work collaboratively with your partner to determine if there is a path forward that creates enough long-term value for both sides to warrant a deal.

Validation #3 – Closing a Deal

Almost incontrovertibly, the initial outline of a deal that you proposed will be subject to the ideas, edits, and whims of your partner.  Incorporating the input and feedback of your prospective partner is crucial to securing their engagement on a partnership, but so too is it crucial to make sure the newly-refined opportunity at hand still creates enough long-term value for your organization to be satisfied in pursuing it.

As you proceed through the partnership discussions and further define the shape of the partnership, the need to validate whether the the deal makes sense flips back on to you: as the structure of a partnership morphs throughout the negotiation, is the opportunity that’s on the table still one that you find valuable enough to pursue?

Let’s take one final look at our Value Hypothesis example – now modified with potential revisions embedded during the course of the discussions:


Widgetco’s products sold through Gearly’s well-established sales channels in Asia, Africa, and the Middle East can drive $50MM in incremental sales annually.


Does Widgetco’s edits to the selected markets change Gearly’s interest in the deal? Do they have the resources, capacity, and interest to pursue the opportunity now that it looks different from what was originally intended? Is this still an opportunity that Gearly finds worth pursuing?

In effect, before proceeding to the closing of a deal, now you must compare the potential for long-term value that can be created from the opportunity as it now stands against the your own organization’s wants and needs. After the impact of the revisions of the negotiation process, does the Value Hypothesis of the deal that’s been structured still work for you?


What’s In It For Us?

Leaping the hurdles required to bring a partnership to market can require a quick jog or a slow slog, but the process of vetting and validating the prospective deal starts and ends with the same question. To get past the starting line, one must develop a perspective on “what’s in it for them.” To make it to the finish, any partnership must create a balanced answer to “what’s in it for us.”

9 Responses to The Value Hypothesis
  1. […] as going to your local coffee shop to talk with prospective customers, but the need to test your Val...

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