Founders make a lot of mistakes. It is a given. Some mistakes come from what you believe. From your reasoning framework. They are because you think in a particular way. These mistakes are hard to stop because you are doing all the right things according to your reasoning. I made several such mistakes while creating Future Startup.
One of those mistakes is not taking distribution seriously enough. My logic was plausible. Distribution doesn’t matter as long as you do a great job. It’s akin to product-level innovation for people building product companies. As long as I continue to innovate and release superior products, distribution should take care of itself.
This is not an entirely Pollyanian way of thinking. It makes sense and the reasoning is sound. By focusing only on your product, you save time and energy to do a really good job. It reduces distractions and you can do more good work. This is apparently a positive, self-reinforcing cycle.
But a great product alone rarely guarantees success.
But the challenge arises because a great product alone does not guarantee success. A great product can give you a relative edge in the market, but it alone can’t help you win. Good products need a vehicle to get to customers. Unless you have this vehicle built, it’s hard to achieve the expected success.
Moreover, product innovation is an incessant cycle. We must continue to innovate. Many uncertainties are involved. Other competitors can come ahead of you and make your innovation obsolete.
Innovation is expensive. If your product doesn’t sell enough, you won’t be able to fund your continued innovation, which can create real challenges for your business.
Legendary investor and a16z founder Marc Andreessen explains it best in his interview with Elad Gil for Elad’s excellent High Growth Handbook. From Marc :
“The general pattern of successful tech companies, contrary to myth and legend, is that they become distribution-centric rather than product-centric. They become a distribution channel, so they can reach out to the world. And then they put many new products through this distribution channel.
This approximates what Ben Thompson of Stratechery explains through aggregation theory where he discusses how the internet enables the aggregation of demand for digital platforms which ultimately led to excessive market power. Having a power of distribution is equivalent to having a power of aggregation of demand. Because as a distributor, you have a direct relationship with your customers. Now, as a business, if you don’t have that direct relationship with your customers at scale, it can lead to real downsides.
A lack of distribution power can create an existential threat
Marc goes on to explain how a lack of distribution power can create an existential threat to businesses:
“One of the most frustrating things for a startup is that sometimes they will have a better product but will be beaten by a company that has a better distribution channel. In the history of the tech industry, this is actually a more common pattern. This has led to the rise of these giant corporations over the last fifty, sixty, seventy years like IBM, Microsoft, Cisco and many others.
According to Marc, you cannot create a competitive gap using product innovation alone. You need both product and distribution. He explains:
“When it comes to defense, I think you build defense through a combination of product innovation and distribution building. You build it. You obviously want as much defense as possible in your product, so you try to go as far as possible. This is Peter Thiel’s idealized model of “building something no one else can build”. Or the SpaceX model of “go get all the talent”.
The problem with this is that true purely product-level defense is really rare in the Valley, as there are a lot of really good engineers. And there are new ones every day, whether they come out of Stanford or they come from other countries or whatever. And then there is the matter of leapfrogging. The next team has the opportunity to learn from what you’ve done and build something better. So I think pure product defense is obviously highly desirable, but it’s actually quite difficult.
I think distribution moats end up being at least as important. At some point whoever has the distribution engine and gets 100% of the market, at some point that engine itself is a moat. Again, this could be an enterprise sales team for a SaaS company, or the growth team for a consumer company. »
The power of distribution powers 10 Minute School — a case study
10 Minute School comes to mind when we talk about superior distribution. Over the years, the company has built these great distribution channels through Facebook groups and other community-building efforts, but it’s hard to break into its territory.
Having dozens of groups with thousands and in some cases millions of members means you can reach these people with relative ease and almost at no cost.
In edtech, you have to offer excellent content. Quality courses should dictate some measure of your success. At the same time, given the noise on the internet, it’s really hard for even the best content to get out without a significant investment in distribution.
Making great content is not enough. You need to find a sustainable way to get that content out to enough people. To that end, 10 Minute School has built an excellent defense. The strength of its cast alone can make it difficult for a new player to compete with it.
In a recent interview with Founder and CEO of Future Startup 10 Minute School, Ayman Sadiq explains how distribution superiority allows the company to contain its cost of customer acquisition:
“For us, it helps to have 25,000 free videos and 28 million social media subscribers, which gives us significant mileage. We get a lot of new users through organic and direct searches. a not on our scale in the industry. Given our size, our CAC is still small compared to ed-tech companies in India or Indonesia. CAC is an interesting factor when you think about the economy of the unity. “
He then goes on to explain the extent of 10 Minute School’s distribution superiority:
“Many of our instructors at 10 Minute School have a larger social follower base than the official 10 Minute School social channels. For example, I have 5.4 million followers on Facebook, while 10 Minute School 2.8 million.Our popular teacher Munzereen Shahid has about 4-5 million members in her various Facebook groups.There are other popular faces including Sadman Sakib, Sakib bin Rashid etc.
Later in the interview, Ayman explains how this huge distribution advantage functions as a competitive divide:
“We have a social follower base of 28 million. We are capitalizing on this. As our students are mostly young people, we are always aware of new market trends. Many of our instructors have hundreds of groups with over 100,000 members each. That’s an amazing benefit and the way we scale. We have teams that monitor and manage these groups and upload content regularly.
These groups are an important part. It’s a Facebook marketing model that we managed to break. When we talk about market fit of the brand, we are referring to this.
Now a newcomer to the market will have to invest a lot of money to get that level of visibility that we get almost for free through these channels.
This is what Marc Andreessen calls a distribution fluke. When you have a free 10 Minute School scale distribution channel, it is difficult for other competitors to easily enter the market.
The distribution advantage also allows the company to launch more products successfully. You simply use the same distribution channel to launch new products. Without a strong distribution channel, launching new products and acquiring new customers can be costly. This can create a competitive disadvantage to the extent that it can sink your business.
But how do you build strong distribution channels? The 10 Minute School experience offers valuable lessons, especially for people building digital businesses.
Building Distribution Electricity: Lessons from 10 Minute School
Building a solid distribution is not easy. This is a complex issue that requires strong strategic direction. But the most important thing in my opinion is the willingness to invest in building one.
Most tech companies ignore distribution and view product innovation as the only path to success. We must therefore get out of this myopic vision. You have to decide that distribution can make or break your business.
Once you decide to invest in building and owning a distribution channel, now comes the question of strategy. The strategy may vary from company to company. Your product and the market you serve should dictate your distribution strategy.
Some of the best channels for digital products are newsletters, social media, etc. Ayman Sadiq offers an interesting idea:
“We provide a ton of high-quality content for free. We have done this on channels such as Facebook, Youtube, etc. On my own Youtube channel there is no sponsored content. We have been doing this for 7 years.
In another place he explains:
“The value we provide through our free tier is on a different scale and we get a huge profit from that as well. Content marketing is simple. Give people enough value that you don’t have to tell them to buy your courses. If they like it, eventually they will. So our goal is simple. We don’t want to sell our courses. We want to give our users enough value through free content to keep them coming back.
Two ideas emerge from the 10 Minute School experience. First, you need to choose your channels and what works in those channels, i.e. incentives for channel participants and following. And second, you need to find a way to do this for a long time.
What are your thoughts on building a solid distribution? How to approach the challenge? Tell me what you think.
Cover photo by Jack B on Unsplash