The Snippet is a Weekly Newsletter on Product Management for aspiring Product Leaders.
When Product Managers are asked what some of their most risky assumptions are, they often cite market risk assumptions or technology risk assumptions. This is what the vast majority of PMs spend time thinking about and validating.
Market Risk — the assumption that there is meaningful demand for the product you are building
Technology Risk — that the core value proposition (that eliminates the market risk) can indeed be built in reality.
The thing that Product Managers and builders often don’t take into account is Distribution risk assumptions, which is, — can a product successfully be distributed/delivered to customers at scale?
I learnt this lesson the hard way. A few years ago, we built a Smart HVAC diagnostics product that was technologically groundbreaking, and our early customers loved it—but after 3 years of repeated product and business model iterations we couldn’t hit the scale we’d had hoped for. It was a great product, but we’d tremendously underestimated the challenges in distributing a groundbreaking product that people had never heard of before.
Peter Thiel, in his book Zero to One speaks to this exact challenge:
“Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product — even if it easily fits into already established habits and anybody who tries it likes it immediately — you must still support it with a strong distribution plan.”
“Most businesses actually get zero distribution channels to work. Poor distribution — not product — is the number one cause of failure.”
The bottom line? Nail your product’s Distribution plan. Without it, your product doesn't hit scale. Without scale your product cannot reach its full potential , no matter how great or groundbreaking it is.
TL;DR: If you are a PM reading this, you need to think about your product’s distribution strategy alongside the product build. You need to get together with your Sales & Marketing teams and start this early. Take a look at your product’s success KPIs and ask your self — how do we get there?
Figuring out the right distribution strategy
I wish I could tell you that given a product, there is a formula to arriving at the right distribution plan— unfortunately there isn’t.
Finding out the right distribution strategy takes time. It takes structured iterations, experimentation and lots or rinsing and repeating. Like most things with building a product, there is no magic bullet.
Here’s my best recommendation. Take a scientific approach to figuring out the right channel for your product. Start with first principles. Identify a broad set of channels that you think may work, and Experiment , Measure & Learn to identify your core channels that are demonstrably and repeatedly bringing you profitable customers. Then double down on these channels.
Talking about first principles—taking a hard re-look at your product & customer segments is a great point to get started.
Take a look at your Product
Is it a hardware only /Software only/ Connected IoT product? — To deliver Hardware products to customers, you will need to figure out the physical logistics and there will almost always be a lead time involved. Distributing Software products is theoretically easier as they can be delivered instantly to the customer via a completely online experience.
Is your product fully self service? — If you’re selling a hardware/software product that involves a non trivial installation procedure — you’ll need feet on the street to help customers get set up. These could your own “customer support” people , or you can appoint a distribution channel, train their people and use them for installation.
Is your product “New to the world”? — This is an important question to help figure out your sales and distribution strategy. While launching the only product of its kind gives you a first mover advantage, don’t underestimate the challenges you’ll face in just about everything on its path to scale.
You have to figure out everything from scratch. A repeatable sales strategy, a delivery mechanism, logistics, the right channels etc. There is no precedent you can take inspiration from, your target customers have no established habits around purchasing it and no functional recall either. You have to educate them. And rest assured, while you are setting the Sales & distribution strategy up, your competitors are watching you — and will have the benefit of your learnings.
Take a look at your Customer
Do your customer segments search for products online? -of course they do! While most people still don’t buy things online, most make a purchase decision on the internet.
By the numbers, 80% of consumers go online before heading out to the store. And e-commerce is still less than 20% of worldwide total retail sales as(COVID might drive a step function change to that rate).
The point is — You need to get your customer’s attention online and not miss avenues to increase their recall for your brand. Make sure your product is present where your customers are. Finally, let them know clearly where they can buy your product.
Are you in the distribution “Dead Zone” ?
In his book ZERO to ONE — Peter Thiel notes a very interesting issue in how some products find themselves in the distribution dead zone.
Here’s Thiel’s model —On the extreme left, if your product is serving the consumer space, that distribution problem has largely been solved. There are proven ways to reach individual consumers, and unless your product is super complicated, with the right marketing strategy and an effective lead acquisition funnel you can really drive your cost of customer acquisition down and scale your product without investing in a salesforce (for a long time anyway).
On the extreme right, if you are selling high value products that require increasingly complicated sales processes, you will need to invest in a personal salesforce — as a consequence your CAC is going to be high as well. But since your products are high value/priced items (they better are), you make enough margins to maintain a salesforce. Its a sustainable model.
Then, there is the dead zone. You are in this zone if you are selling to small businesses, and you have a product that is priced at say a $1000.
Small businesses are incredibly hard to target en-masse — there might be no core marketing channel to reach small businesses owners. At a $1000 price point, you also cannot justify a salesperson going to every small business that might be a prospective customer— there’s just not enough margin to do that.
Its not that businesses that find themselves in the dead zone never scale —but the odds are stacked against them. It also takes them a lot longer. Things get even more complicated if you need to “train” your customers on how to use your product. This is exactly what our Smart HVAC product faced.
Distribution Strategies in the Dead Zone
If you are indeed in the dead zone you have a few options to scale your product.
Narrow your focus: Even if your product is an accounting software that almost any small business can use, break down your target by further segmentation — e.g. restaurant owners, car dealerships, Florists etc. Then employ marketing tactics to reach this sub segment and drive awareness about your product.
Multi step Regional / Geographical distribution — this is where you set up 3rd party distribution to cover geographical territories where you target segments or sub-segments reside. In this model, you sell to your distributors at a wholesale price, and then distributors sell to end users (small businesses) in their assigned territories at a agreed upon markup. But let me tell you from experience — choosing the right distributors is the key to success here, and its very hard to get it right—it is a lengthy process. Multi -step distribution also comes with other challenges — channel conflicts, Pricing issues etc — but if you do get it right, that’s the fastest way to scale your B2B product.
Partner/Bundle with other Successful Products: Another way to reach your customers if you find yourself in the Dead zone is to partner with products that have scaled this challenge. A case in point is Ubiquity . Ubiquity makes cost effective Wi-Fi access points and sells to small businesses. It takes a 2 step regional distribution approach to reach these small business owners. Its a hugely successful business. The quality of its products and their value price points have generated massive “word of mouth” momentum for its products. Ubiquity’s customer support is community run with over 4M members that help each other troubleshoot technical issues. This community generates a kind of network effect that is rarely seen in B2B hardware products. But I digress. The point is to find successful products like Ubiquity that are successfully selling to your target customers and partner up with them.
There are a lot more concepts in distribution that what I covered here, but as always , understanding the first principles will take you a long way.
In a lot of ways, figuring out the right distribution strategy is the biggest determinant to your product’s success. Yet, its something that many Product Manager’s tend to think about very late in the game, if at all. The default behavior is to leave it the sales and marketing folks to figure out, while the PM stays in the “build” lane.
But like Naval Ravikant says, if you are somebody that understands how to build and how to sell what you build, you will be unstoppable.
Thanks for reading!
The Snippet is a Weekly Newsletter on Product Management for aspiring Product Leaders.
(Image Credits: @chuttersnap)
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