How to validate your distribution strategy
This video is a part of our ClassroomX educational series on the nuts and bolts of building a startup today. From defining your business model to growth, product strategy, and building your community, these 15 lessons by domain experts aim to equip young founders with crucial insights to transform their early-stage products into viable businesses.
How to validate your product distribution strategy
Once upon a time, businesses primarily interacted with their customers one transaction at a time. A customer might walk into a store, buy something, and move on with their lives without the business knowing who they are or how to build a stronger relationship with them. But today, customers expect a personalized experience, while sellers hope to create indelible bonds with buyers.
What you’ll learn from this session:
- How to determine the lifetime value of your customers (4:45)
- How to assess your distribution channels (12:00)
- How to validate your distribution strategy (23:45)
About Jakob Fricke
Jakob Fricke is director of platform at Samsung NEXT. Sometimes called the Swiss army knife of Berlin’s tech ecosystem, Jakob has co-founded several startups in the publishing and entertainment space, was Director of Product at tape.tv, and helped build up the digital unit of German car manufacturer Daimler. At Samsung NEXT, he facilitates collaboration between Samsung and the European tech ecosystem.
Product isn’t everything
These days, customer acquisition is more competitive and costly than it used to be online, while for a lot of companies the cost of building and launching products is lower than ever. Therefore, founders will only be successful if they put the same amount of emphasis on product distribution as they do on creating a great product experience.
Types of channels
According to Fricke, successful channels connect a product with key audiences, while keeping customer acquisition costs below the lifetime value of a customer.
Sales and distribution channels include:
- Crowdfunding platforms such as Kickstarter
- Pop-up retail spaces in airports or even within large retail chains
- Social media platforms for B2C sales such as Instagram
- B2B social media channels such as LinkedIn
Fricke also encouraged his audience to think strategically about multichannel distribution. “In the end, you’re going to have not just one channel,” he said.
For example, a product might get started with a Kickstarter campaign and then move to channels that can run longer. “You need to figure out your channel mix at the end of the day that is sustainable,” he advised.
Finding the right mix of product distribution channels requires evaluating channels across four main criteria:
- Size. Consider the maximum number of potential customers you can reach through a given channel. “Channels always have a certain size,” Fricke said.
- Cost. Evaluate how much it will cost you to use a given channel. That includes time spent creating social media posts as well as paid ads.
- Quality. The best metric for the quality of a given channel, Fricke said, is conversion rates. Consider recurring engagement as well as single transactions.
- Competition. Determine which channels your competition uses, with an eye toward trying some less-crowded options.
Once you evaluate potential channels, Fricke advised startups to begin with just a few to validate by running some tests. He laid out the framework for validating a given distribution strategy through experimentation:
- Define your goals for the test. You might, for example, want to test whether a given social media platform is a feasible channel.
- Be explicit about the underlying hypotheses and the expected outcomes.
- Determine the scope and budget. Here, as Fricke noted: “You say, ‘What are the resources and next steps that we need to do to get that done?’”
- Evaluate the results. Depending on the results of a given test, you can make adjustments and run a new experiment on the same channel or move on to another one.
- Rinse and repeat. Use this framework to build a structured roadmap of experiments which should help you to better understand and operationalize channels without going full in from day one.
Better distribution for better products
Besides saving companies time and money, Fricke said, this process helps companies build better products. “If the engineers don’t care about SEO optimization and you figure out this is relevant, you need to go back and re-engineer a good part of the front end,” he said. Testing acquisition strategies early on will help to loop insights back into the product development process.
Getting out of what can be a product-centered comfort zone is the key to startup success, Fricke said. “Ultimately,” he concluded, “it’s your responsibility [as a founder] to not just to build a product, but to build a great business.”