Start With Distribution

Yeah, and half them bitches sold ‘fore they off the table
Gotta look, nigga wantin’ my half, I’m gonna split it

– 50 Cent (Major Distribution)

Every few weeks I talk with someone who is thinking about leaving their corporate job, or graduating from their MBA program, and starting a company. More often than not the product idea and space are decent but their ideas around distribution are complete crap. It has been helpful to lead them down a thought process around different potential distribution models and the cost structures around each.

When you think about this, it’s not a huge surprise that they have trouble with distribution. Normally they are coming from big company environments where any product that is created gets instant users, global distribution and some press. Here are a few basic distribution models that are common in technology startups.

  1. Inside sales – You create a funnel to capture contact information from potential customers (usually this is through a content strategy or buying prospective customer lists). You hire a young sales team to call the customers and get them to purchase the product.
  2. Outside sales – You create a list of your potential customers and hire national, regional or local sales managers or contractor representatives to go “door-to-door” to their connections and sell your product.
  3. Freemium – You build an amazing product and give people a taste of what it does and sell a premium package to users who want the true value. Don’t get stuck giving away all the value in the free product and expect people to upgrade for piddly add-on features that you created just for monetization.
  4. Classic eCommerce – You have products and sell products while trying to do some fun things to differentiate yourself and your buying experience
  5. Advertise on your massively popular website – You’ll experience The Struggle more than most, but power to you if you can make it work
  6. Viral – Your product has inherent “virality” which whenever it is used gets your name and value proposition in front of new prospective clients. Think about when you sent your first email from your iPhone and it had “Sent from my iPhone” at the bottom of the message, you were part of Apple’s viral strategy.
  7. Arbitrage with digital advertising spend – If it costs you less to acquire a customer through search engine and/or social media marketing than each conversion then you can exploit this and grow your business by purchasing customers. In most cases where this is true, the total potential revenue from this channel isn’t huge, so you’ll likely need other channels to really gain scale.

I didn’t talk about Franchising even though it’s the subject of the introductory lyrics because it’s not that common with startups that I’ve seen, although I’m sure it’s used (and probably in some very interesting ways). In any case, let me know if there are some other models that should be covered here.

Start With Distribution

Distribution is the only obstacle

Hi, my name is, my name is
(What? Who?)
My name is Slim Shady

Ahem, excuse me
Can I have the attention of the class
For one second?

– Eminem “My name is”

Distribution is the ability to get a product in front of its target audience. Hopefully most of the people in it. This is the hardest obstacles for startups, and plenty of companies build amazing products but fail because they lack distribution.

We don’t need to reinvent the wheel to do it successfully. There are plenty of examples that entrepreneurs can adopt and tweak to their own unique needs. Over the past year we’ve seen a lot of strategies, but most of them fall into a few high-level categories:

The PR machine – Constant attention from traditional and non-traditional media. Constant new “events”, “deals”, “scandals” keep the companies name in popular discourse and bring in a steady stream of new users.

The Social Virus – A product that by its very nature, or through added game mechanics, incentivizes you to share it with your friends. Twitter, Facebook, Quora, Groupon and Zynga have exploded into public consciousness through intelligent use of this strategy. You’ll find some of the top minds in the tech startup world, from Dave Morin to Tom Higley amongst many others, are working on mastering this new strategy.

We’re Mad Men – You can pay someone else to give you millions of target market eyeballs on your product. Its expensive, but if you can successfully acquire customers for less than you make from them in the lifetime that they are a user, then keep spending money.

The Partner – The idea here is to find a partner that has the right eyeballs, but wants additional ways to monetize them. The startup offers the company a cut of its profits in exchange for help getting them to adopt the new product.This is one of the most popular strategies, because it normally requires less up-front costs and improves a new company’s brand.

Word of Mouf – It needs to be included, because nearly all new companies think that if they build a cool product people will instantly get the word out. The truth is that most startups take time to get product/market fit during which time their product isn’t something groundbreaking. Its an avenue for growth, but companies will normally run out of money before it gets them enough traction.

At the end of the day, the right distribution method will likely be a combination of a few of these strategies. Have you used any of these strategies? Have any pros and cons you can share? We’d love to hear what you (our awesome readers) think.

Distribution is the only obstacle