If a tree falls in a forest and no one is around to hear it, does it make a sound? If a great product can't get into the hands of the customer, is it a great product?
Distribution is often the middle child of any startup family (forgotten, neglected, but the most important and the best…but I digress). Oftentimes a company is so consumed with building the best product that it will forget to think about how it’s going to reach the right customer. When a founder is describing what makes their company so great, no one ever talks about the distribution. There are plenty of great products out there that never saw the light of day because poor sales and distribution killed the company. On the other hand, companies that build up strong distribution advantages can protect themselves from the competition.
A health tech company that uses AI to improve on a medical process needs to figure out how hospitals and doctors make buying decisions for these types of products. Oftentimes, it involves conducting trials with a local research hospital in cooperation with leading local doctors. The advantage here that a foreign competitor cannot easily replicate is the relationship with the local medical establishment.
A startup selling some innovative new consumer item might achieve a leading position selling on an online platform, consistently appearing at the top of search results, or a leading position negotiating shelf space with key brick-and-mortar partners.
How about when it’s time to expand to a foreign country with a big market with only nascent players? The health tech company has no relationship with the local medical establishment, and are totally indistinguishable from the dozens of other players trying to secure a trial or cooperation. They can show all the evidence they want, but evidence from a foreign country, especially if it does not share many cultural similarities, is often discounted.
The consumer item startup, entering a new market, also faces issues replicating its previous success distributing on the new country’s leading online marketplace, and will likely have to start from scratch in selling in physical stores as well. Distribution and marketing costs swell, hurting the viability of the startup in the new market.
When a startup that has figured out how to make distribution work for them by turning it into a differentiator against competitors looks to expand to a new market, it should carefully choose a market where their advantage travels.
-David
This is part 4 of the series “How well does your competitive advantage travel?”
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