Ken Kaufman's picture

Know your Channel

In an effort to keep entrepreneurs and founders as focused on their customers as their product or service, I have written a lot on the need for founders and entrepreneurs to know their customers intimately. Business models differ by industry and business, and, quite often, knowing your customer is not often enough. Sometimes there are several layers between you and the final user of what you make and/or sell. This is called a sales or distribution channel.

Here are a few of examples of sales/distribution channels:

  • A manufacturer of consumer goods sells their product to retail, big box stores through sales reps who call on those stores. Then those stores resell the products to their customers, the end users of the manufacturer's products.
  • A manufacturer in the United States sells their products to an importer in an international country. The importer then sells the products to dealers using their in-house sales reps, then the sales reps of those dealers sell the products to their customers, the end-users of the products. 
  • A manufacturer "white labels" their product, meaning they put the name of another company or brand on their products, and they sell them to this other company. The other company then sells the products to their customers, usually people loyal to or very aware of the quality and reputation of this brand.
  • You make components that are just a part of a final product. You sell the components to a manufacturer who then sells his finished products to online resellers who then sell to their customers, the end-users of the final product.
  • You manufacture products that you sell directly to your customers, the end-users, who buy from various websites that you own and operate.
So, what is the structure of your sales/distribution channels? How many "layers" are there between you and the final end-users of your products?
 
Here are a few quick observations about channels:
  • The more layers in your channel, the more "hands in the pot". This means that each layer needs to add value to the process and expects to make money in return. The economics of your channel are critical to making sure your goods or services can be priced competitively based on your overall strategy. 
  • If your business model does not clearly flesh-out your sales/distribution channel, then your business model is incomplete. This also applies to your business plan...a weakly defined channel strategy is a weak business plan.
  • You can execute more than one sales/distribution channel, but that adds a lot of complexity to your business. You will likely need to carefully maneuver through the politics of several industries as well as hire leadership to run each channel separately. 
  • For startups, trying to launch more than one channel in the early days is nearly impossible. Analyze all of your channel options, find the one that you think is the best, and put all of your money and focus on that. Unless you have clearly selected the wrong channel strategy, this will afford you the most significant results.

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