We are in the era of great ideas, everywhere I go people are talking about some great idea (the great app), yet if there is so many great ideas what is holding us back from getting it to market. Revolutionising an industries pain point is the key but getting it to the market is the wall that needs to be pulled down.
Throughout history there is numerous instances where the best product did not win. Nikola Tesla invented the alternating current electrical supply system. For a number of reasons it was technologically better than the direct current system that Thomas Edison developed. So here Tesla was the better scientist but Edison was the better businessman (he went on to start General Electric). Tesla went onto develop the idea of radio transmission but Guglielmo Marconi took it from him and then went onto win the Nobel Prize.
Ideas aren’t all that counts. The best product may not win. Superior marketing and distribution by itself can create a monopoly, even with no product differentiation. However the reverse is not true. No matter how strong your product – even if it easily fits into already established habits and anybody tries it likes it – you must still support it with a strong distribution plan.
“Entrepreneurs…often spend too much time creating products and too little figuring out how to get people to use them.” – Reid Hoffman, Founder of LinkedIn
Every entrepreneur envies the big billboard or a recognisable ad campaign, but we often advise start-ups they should resist the temptation to compete with bigger companies in big media spend and look for a marketing channel they can dominate. I was once told, you are more defined by what you say no to than what you say yes to (i.e. everyone is not our audience).
There are two key performance measures that set the limits for effective distribution. The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value) must exceed the amount you spend on average to acquire new customers (Customer Acquision Cost). In general, the higher the price of your product, the more you have to spend to make a sale – and the more it makes sense to spend it.
To succeed, every business has to have a powerful, effective way to distribute its product. Great distribution can give you a monopoly, even if your product is undifferentiated. While product differentiation in itself will not get you anywhere. Nikola Tesla did not succeed because he didn’t nail distribution. Understanding the critical importance of distribution is only half the battle; a company’s ideal distribution effort depends on many specific things that are unique to its business. Just like every great company it has a good, unique product, they’ve all found unique and extremely effective distribution angles too.
Companies like McDonalds owe their success more to their distribution systems than anything else. Marc Andreessen, says ‘many entrepreneurs who build great products simply don’t have a good distribution strategy. Even worse is when they insist that they don’t need one, or call no distribution strategy a ‘viral marketing strategy’.
Small business owners are not backwards with their approach to marketing but having a solid marketing channel is the hidden bottleneck. Most businesses get zero distribution channels to work, so it is poor sales rather than product is the most common cause of failure.
As Peter Thiel says, ‘If you get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.’
If you are looking at ways that can help drive revenue and profit, feel free to give us a call for a casual chat on 1300 235 378.