Startup Tradeoffs – Building Product vs. Building Distribution


I think one of the most difficult challenges in a startup is resource allocation tradeoff between working on your product and working on your distribution channels. Regardless of what we like to believe, it's rare for a product to be plucked from obscurity and amplified all over the blogosphere. Most "viral" success comes as a result of lots of hard PR work. If you are well funded, you can work on both. But if you are resource constrained like most startups, is it a better use of your time to build a better product or to focus on your distribution channels?

For most startups, you can use existing distribution channels once you have a good enough product. It takes some work to build those relationships depending on what kind of product you offer and what type of distribution you need, but in most cases, time is better spent on product development first and distribution second. But what if what you want to build is your own distribution channel?

Owning a distribution channel is a very powerful position. Particularly on the web, which is so search driven, it's very powerful if you can become a destination. But how do you do that? I think you use a "trojan horse" business model. It works like this:

1. Start with a quality product. – This allows you to gain access to distribution channels in the first place. If your product is a distribution channel, initially use it as a part of a larger channel.

2. Leverage your distribution relationships to serve others – Get stuff flowing through your channel.

3. Leverage your increasing role in the distribution process to gain a larger share of the profits.

I've been thinking about this a lot because I am amazed at the number of people who want to launch something online and think it will be easy. My first question is always "how do you get distribution?" The most common response is "we will engage bloggers to talk about us." Yeah, right. I get 30-50 press releases a week. You know how often I blog about those things? Maybe once a month at best.

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For startups, it is just as important that you think about your distribution as you are building your products and services. How much time you devote to each one is a tough decision and depends on the readiness of your product and your ability to sustain a cash burn if you aren't ready for massive distribution. But then again, these kinds of tough decisions are probably why you pursued entrepreneurship in the first place.