How Not To Blow Your Capital on the Distribution Build-out

April 10, 2014

Opportunities to blow the proverbial cash wad on a premature distribution build-out apply equally to the Sales 2.0 inside model, a many-legged direct enterprise sales team approach, an indirect reseller channel, or a web marketing-driven self-service or inbound model.  The common theme revolves around ramping your distribution and marketing channels before the company or product is ready, thereby burning precious and very expensive capital. Here are some key things to avoid before you spend money going big market.

1.      Do not ramp the sales channel before the product is ready and/or stable.

Sounds obvious, but we see it all the time.  In many cases the minimum viable product (MVP) isn’t ready for mainstream distribution.  In other cases, either the product quality is lacking or delivery infrastructure is not up to the task.  In either case, customers usually refuse to come back for another bite of the apple AND negative word of mouth is created.

2.      Make sure you have a clear definition of product differentiation, or company identity.  To gain traction, there must be some reason for customers to prefer your offering over other alternatives, whether it be pricing, availability, convenience, performance, feature set, etc.  Sales and Marketing must be able to explain concisely why the customer should care about what you offer.  Like-wise, early adopter customers like to identify with a company’s mission or brand.  If there isn’t a succinct and compelling one, much of the early adopter word-of-mouth and viral power is lost.

3.      Understand where the product is in the adoption curve.  

This is my partner Geoffrey Moore’s Crossing The Chasm 101, and a common failure scenario for many startups.  The initial updraft from early adopters is mistaken for broader market demand, and marketing and sales capabilities (and costs) are ramped to meet a demand that is not yet real or sustainable.

4.      Identify a viable target market segment.  It’s virtually impossible to serve an entire market from the get-go.  Scarce resources need to be pointed at a target customer segment (the sweet spot or ideal customer/consumer) that is most open to your current offering.  The segment can be defined in a traditional approach like vertical markets ala Crossing the Chasm, or by other segmentation approaches. 

The important concept is that the segment has a common set of characteristic which Marketing and Sales can clearly identify to qualify an account, or target digital marketing efforts, and where penetration of influential members of the segment provide leverage in selling to other members of the segment (i.e.: referral value, competitive pressure, viral effect, etc.)

5.      Don’t over-hire at the top.  Especially early in a company’s life, selling is a trial and error process, where many things from the viability of the MVP, to product and company positioning, to sales processes are being tested and often rejected.  It is not uncommon for startups to hire sales leadership that is a) either over-qualified and have let their selling muscles go to waste or don’t have the fire any more for early adopter hand-to-hand combat (e.g.: selling), or b) are inexperienced at the startup game.  They were successful with an established brand and all the attendant infrastructure and support, but are lost when having to create it all from scratch. 

Leaders tend to want to hire followers (they are leaders, after all), instead of focusing on getting belly-to-belly with the customer. The best approach is to first figure out what kind of followers they need to hire and then learn what the followers will need from a support and resource perspective to be successful.

6.      Don’t hire the wrong sales leaders and sales people.  Over hiring at the top often leads to this mistake.  In other situations, it’s a failure to correctly identify the successful characteristics and qualities of the appropriate marketing channel, or sales person, usually because the company has not yet learned enough about the required sales process, positioning, etc. 

7.      Wait to ramp sales headcount until you have defined a clear sales process/methodology.  Hiring a bunch of sales people without a tested, proven sales process isn’t much different than unpacking a clown car.  A bunch of well intentioned (and often highly compensated) folks are going to run around aimless and ineffective.

8.      Don’t allow lead generation capacity to fall behind sales hiring.  Whether it’s inbound leads driven by marketing efforts, outbound call centers, or inside lead-gen teams, qualified leads are the life blood of any sales effort.  Hiring too many sales reps without sufficient lead flow leaves them alone on an island with limited opportunities to thrive.

9.      Don’t mis-align the delivery and customer support infrastructure with the distribution capabilities.  A funny thing happens when you begin marketing and selling, you get customers.  Lots, if you get all the rest of it right.  Unfortunately, if you aren’t prepared to service and support them, those same happy early customers become surly and counter-viral, sucking-up all your sales resources in customer service issues, and making it harder for them to sell since they have no references.