Don’t try to be original, just try to be good”.
– Paul Rand
Distribution isn’t sexy am I right?
In my today post, I will write about one of the most overlooked aspects of starting a business. Is something that almost all of us put aside because we don’t think is a priority.
As young aspiring entrepreneurs we have so many business aspects to think about; how to achieve a product/market fit, what features shall be included in our Value Proposition, define our target group and the list goes on…..
Thus, the common sense dictates that we have to first sort out what matters most and leave the rest (details) for later on, after all day has only so much hours isn’t it? And by the way distribution channel isn’t in the category of the “sexy” tasks of an aspiring entrepreneur….
In the following few paragraphs I will explain why by ignoring this crucial dimension will jeopardize your startup future before even go to market and how to avoid that.
Why does it matter?
The answer is crystal clear. Through that medium (distribution channel) you intend to achieve the following objectives:
a) Root to market; The selected distribution channel will be the mean that will allow you to actually deliver your final product to you end user (customer).
b) High PM; It would have a critical role in achieving the highest possible PM (profit margin) without affecting the quality of the delivered value to your customer
c) Support your final Value Proposition; Back up your value proposition by allowing your customers ease of access and getting instant or swift feedback
d) Minimize Counterparty risk; Eliminate factors that will not be under your control but can be harmful for your startup; (keep control of your product)
e) Create a scalable startup business; the distribution channel is vital importance in that aim
Thereby, if we don’t select and structure wisely our “future product” distribution channel it will be simply impossible to achieve the above goals and avert the respective traps that accompany any bad channel decision.
Unfortunately many aspiring entrepreneurs take lightly that decision and when they understand that their startup “doesn’t have legs” try to reverse their initial bad decision. Hopefully will not be one of them…..
How to structure “smartly” your distribution channel
Here we are! In the following paragraphs I will outline which stages you have to go through so as to make your mind and take the right channel decision for your startup.
Having said that it has to be noted there is no silver bullet. Namely each one of us should factor in all the available options and the nature of his/her startup and act accordingly.
Nonetheless, there are certain universal principles that should be taken into account for facilitating us towards the purpose of a opting the proper distribution channel.
a) Root to market: This decision will not be taken by you but mostly will be decided by your target group. In order to select the appropriate channel you have to follow the below methodology
– Research your market: By that I mean that you have to identify how similar “products” than yours are currently shipped. Are the current market players use direct (e.g. via their website) or indirect distribution channels (e.g. through retailers). Identify if there is a difference between the higher-end options and the cheaper products channels.
– Gauge your target group satisfaction: Are your prospects pleased with that distribution channel? Don’t guess but ask them and read behind the lines. Keep in mind that if something is not broken there is no need to get fixed. If not, carry out a small research and find out what could be a viable alternative (don’t worry for now, in the next posts I will walk you through how to validate all of your business model assumptions and one of them is the distribution channel). Bottom line is that in the end of the day your customers will define how they prefer to buy your particular product type.
b) High PM: Any channel decision has a direct impact on the startup revenue model. By selecting to have a direct channel (e.g. from your startup site) will allow you to have minimal costs per sale. In the contrary if you select to go with the indirect channel (e.g. distributors) a significant cut will be in place for each sale but you will have greater market exposure.
Create a list with various ways of doing so: Enumerating all the potential manners that you can distribute your product. See what your rivals do but don’t stick only on them. See how products in other industries with similar nature are shipped and include them only if they practically can be used for your particular “product”.
Assess the options through the following factors: Cost and performance. In other words you have to factor in how much will cost you each option and what performance will have for both you and your customer. After doing so classify them based on your understanding having in mind these 2 dimensions (cost and performance).
c) Support your final Value Proposition; As we pointed out above, 2 factors should be taken into consideration; ease of access and pace of feedback (for how to create your Value Proposition check out this post)
–Ease of access: How much effort does it require from your final user. Always remember that the less the end-user effort (of your customer) the highest the perceived value and charging potentials. It doesn’t matter how good your product is, exclude everything and assess that variable.
E.g. Once I wanted to order some audio material from probably the best personal development expert and the available options of his program were only in a CD form. After some serious though I decided to go for it. Do you know what happened?
I had to wait for almost 2 weeks to arrive and I had to pay additional tax because that product was considered in my country as a luxury item. As you can imagine I will not buy again from him although that his material was compelling.
Back up your value proposition by allowing your customers ease of access and getting instant or swift feedback
Pace of feedback: In any kind of startup you seek the highest possible pace of getting feedback. Why? To iterate and resolve/fix problems as quickly as they can be reported to you. The more direct your distribution channel is the swifter the pace of information coming in. In our era the customers have the upper hand; with a single button they can ruin your reputation (social media) and with a single button they can buy a similar product from your competitor. Try to not give them the chance and eliminate that factor.
d) Minimize Counterparty risk; The dilemma as it is described by Josh Kaufman is the following; “Trusting another business to deliver your offer to your customers frees up your limited time and energy, but it also increases Counterparty Risk—the risk that your partner will screw up and diminish your Reputation”.
To be frank I explored both options for my startup and after I went through the pros and cons of each option I’d definitely go with less distribution partners as possible even go lean (on my own). Of course it always depends on the business model and the nature of each startup. In addition for freeing your time and energy we have far better alternatives and will be described in the scalability dimension.
If in your startup you think is impossible to go without other distribution partners, prepare a thorough scenario analysis, namely if they screw up with their responsibilities to have a clear plan how you will handle that adverse situation.
e) Create a scalable startup business; This is super important, scalability is not just a must is prerequisite. Having said that, you have to build all the elements of your startup business model to support that ultimate objective.
How to do it?
Automation: Ideally you have to standardize your distribution process in a way that would not require any direct involvement by you. For web-based startups is fairly simple. Nevertheless nowadays even non-web startups have integrate in their distribution model the online dimension due to the phenomenon pros.
Affiliates: I will not explore this element a lot (I will elaborate it thoroughly in a marketing oriented post). However I’d like to stress the point that distribution can happen via that channel with limited risk if it structured in a way that is recommended from our startup experts (I promise that will be included very soon as a part of our marketing post).
After you take into consideration these 5 core factors you have to create a final list with your top-3 channel options and focus only in one of them. You have to concentrate and select only one in order to be able to test it via our MVP and measure its effectiveness.
That’s it for today, I hope to found that post helpful in your objective of becoming your own boss. If yes it would be great If you could share it with the buttons below.
“Action may not always bring happiness, but there is no happiness without action” —BENJAMIN DISRAELI, former British Prime Minister/
[Contributed by Andreas Aravis, founder of No More Startup Myths. He is a 25-year old junior startup development specialist, blogger and aspiring entrepreneur.]
