Distribution and Engagement Frameworks
Last week we talked about the importance of having a cogent distribution strategy even in the early stages of a startup. Investors want to know that you are thinking through sales and marketing because this is plays heavily into their view of your ability to scale. While building a great product is no easy task, many startups make the mistake of assuming that acquiring customers is easier.
The reality however is that distribution is significantly harder than building product. Think I’m full of it? Let’s take the mobile apps market, where Apple and Google have roughly 700K apps each in their respective app stores. A recent study found that just 25 developers in total account for 50% of the revenues. And here is this study on how the developer masses are doing in the iOS world:
…numerous developers that we spoke to agree that the results—59 percent of apps don’t break even, and 80 percent of developers can’t sustain a business on their apps alone—are close to accurate.
Not very promising for mobile developers (and the reason one outspoken fellow is switching back to the web). We can intuit this result even if we simply recognize how many startups fail every year. Why are they failing? It has nothing to do with the ability to build a product and everything to do with the fact that customers do not love your product.
Therefore, let’s start to lay down a framework for thinking about distribution. Part of the decision on strategy is largely based on whether your engagement model with customers is transactional, relational, peer-to-peer, or hybrid.
- Transactional – Consumer apps tend to fall in this bucket, where there are large numbers of users and there is no one-on-one direct sales model.
- Relational – Enterprise apps are the typical example where app are sold directly to a smaller number of customers but for a much higher purchase price.
- Peer-to-Peer – Networks and community-oriented apps are peer-to-peer based, where you provide platform where two sides of the market meet to transact or exchange value.
- Hybrid – Sometimes apps cover a couple of different combinations from above such as apps for small businesses that need large numbers yet often engage one-to-one, or consumer apps that have an enterprise channel.
Once you know where you sit from a customer engagement model, you can map out acquisition methods. Consumer apps tend to use SEO and viral marketing techniques. Enterprise apps tend to use large direct salesforces. Hybrids like SMB tech apps straddle the two and lean on partners to either resell or drive traffic. Peer-to-Peer apps are largely based on the type of market as they can be a wide and open market or a much smaller niche market. In a later post, I will drill down deeper into these frameworks and how one might begin to create a more detailed distribution strategy.
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