Earlier this week there was a post about an entrepreneur losing 4 million dollars in sales due to his reliance upon Google as their primary sales+distribution channel.
The same problem faces Demand Media with their IPO, Zynga with diversifying beyond Facebook, and many other startups that are primarily platform plays dependent upon the mercy of the platform overlords. As an entrepreneur I find it very important to have a large diversified distribution channel for customer acquisition. The goal of this article is to outline the plethora of distribution channels that exist for startups.
Public Relations is a strong distribution channel due to its low cost and repeatable nature. PR certainly has a human capital cost, but can be fairly easy to execute with the right story. It can also be highly segmented ie- verticals, industries, and audiences. It can also help bring forth social proof. As seen on CNN, TechCrunch, and the New York Times will always be a seller.
Organic Search Traffic
Organic search traffic is the gift that keeps on giving. It can go away due to an algorithm tweak by Google or a simple drop in rankings. For the most part, the traffic generated by organic search traffic will stay generally the same. It may increase due to a demand for the product you’re offering, seasonality,etc. Optimizing for organic search is also a smart move as it can benefit future content that is created. Once you’re “trusted” by Google, it can help with new content you produce. Organic search traffic has a “cost” in terms of time, proper optimization, human capital,etc. but the cash outlay is much much smaller than paid search traffic.
I believe content marketing is the future of customer acquisition and a cost effective, scaleable, and brandable way to acquire customers. One method of content marketing might include educational and analytical blog posts on topics related to your market. Another method might include putting together infographics and white papers that also educate your prospective customers. Content marketing can be further enhanced with Organic Search Traffic and Social Media Marketing. Make sure you are capturing as many email addresses as possible when educating your audience for lead prospecting. Here’s why I feel content marketing is important
The content should be: educational, actionable, and full of utility. A reader should learn something and be prompted to do something they could not before.
Affiliate programs can be major drivers of distribution for certain products. Information products tend to do the best here, but they can be effective for all types of commerce. There are hundreds of affiliate networks to sign-up with as well as running your own. The key to many of these networks for larger scale companies is not the software itself, but the affiliates and affiliate managers. In order to attract top tier affiliates also be prepared to be flexible on your terms. Smaller affiliates will be okay with net30 payouts, but top tier affiliates may want direct wire transfers with weekly payments.
Lead Gen Programs
I can’t find the exact link, but I distinctly remember Tony Wright, Founder of RescueTime saying, “The internet was made for lead gen”. The lifeblood of any company is generating new leads and new potential customers. Once you’ve experienced it, you will be a fiend for it. Lead Gen programs allow you to pay for each qualified lead brought your way. A lead can usually be in the form of email addresses and names. If the numbers are calculated right, it can be gold
Events and Conferences
Events and Conferences are great ways to not only generate some auxiliary revenue, but they are a great way to gather + educate your prospective customers. Simple meetups with refreshments that gather your customers is one way to go about things. Another more grandiose way of going about things is throwing your own conference. Alain from Fair Software did this with Founder’s Conference . Other examples include FastCompany article
3rd Party Social Platforms
I find 3rd party social platforms to be different than a basic Twitter or Facebook implementation. 3rd party social platform usage examples include games from Zynga or Geni.com integrating as an app inside Facebook.com. Another example would be HubSpot with TwitterGrader. Integrating social platforms inside your destination is one thing, but making stand alone apps inside of sites such as Facebook is a whole other form of distribution.
Social Media Marketing
Social media marketing examples include personal RFPs and using Twitter for permission based promotions. A personal RFP might look something like “I need good WordPress hosting”. From this message a representative from WpEngine might reach out. Companies such as DELL have done millions of dollars in sales via Twitter with deals. Other companies including local businesses and tech startups use social media marketing as another permission based marketing channel.
Mobile Platform Distribution
Pandora increased it’s usage exponentially after the app store appeared. It almost doubled their growth overnight Don’t just think iPhone either, though that is probably the best place to start. The best companies such as Dropbox or Evernote have mobile applications across all different platforms. Android, blackberry, WinPhone7, iPad, and mobile web are all important. Every user counts and app stores are a chance to reach new users.
APIs are the new business development for the 21st century. Integrating with other companies used to require a lot of time, negotiations, and often money. Now? It just requires an API key and some imagination. Not all APIs allow for commercial access and some have a limit, but that’s a problem that can be dealt with. Dropbox just introduced their API and I’ve seen it popping up in almost every work related iPad app. I’m not sure what effect this has had on sales, but I’m almost certain it will be a big one. If I wasn’t already a Dropbox user, I would certainly check their service out.
Paid Online Advertising
Online advertising can come in three flavors: CPM, CPC, and CPA. CPM is your traditional pay per 1,000 impressions on a website. I’m not a huge fan of this and usually think it’s quite a spray+pray approach. It can be very useful when applied to the right niches and audience. CPC ads let you pay per click. This is primarily how Google makes money. You search with an intent, they show sponsored ads, and you end up clicking on one of those ads. The problem with CPC ads on Google and other sites comes in the form of click fraud. Lastly, CPA ads are billed on a Cost Per Acquisition basis. You pay the advertiser everytime a customer acquisition mechanism takes place. That usually includes a purchase, but it could also be a registration of some sort. My advice on online advertising if you are going to do it is this:
* Heavily track the funnel coming from online advertising so you know what does and doesn’t convert.
* Try to put custom landing pages in place.
* Go as niche as possible when buying ads. Find your audience. Buysellads, influads, thedeck, and federated media are great places to find very niche ads.
* Make sure the economics make sense. You can reduce anything down to cost per acquisition. ie- Buying 100,000 impressions at $2 CPM. If the lifetime value of your customer is $10, you will break even at 1 purchase per 5,000 impressions and be profitable at anything under.
A direct sales channel can be very important in B2B plays where the cost of having a direct salesperson exceeds the lifetime value of the aggregate customers they can exceed. To many in the startup world, it might seem absurd to have a direct sales team, but in enterprise and b2b sales, it’s a viable channel when done right.
Business Development + Cross Sales Joint Ventures
Business development deals with similar companies that have the same customer base yet are not competitors are insanely lucrative for both sides, especially you. Find a business development partner that has the same customer base as yourself, but larger in size. By working with you they provide their customers new value and make more money as a super affiliate of sorts. Your benefit? Credibility and increased profits.
Referral Programs are slightly different than affiliate programs. Referral programs are less about traditional affiliate channels and more about using your existing customers to spread word about your product. The reward can be cash, but it often comes in the form of in-app rewards. For example- Dropbox gives you 250MB for every user that signs up from your referrals. They also employ a two sided referral that rewarded the user that signed up with more storage. Gilt also has a referral program, but the reward is in cash when the user you refer makes their first purchase. Think about it like this: User X invites User Y. User Y now makes $75 purchase. User X now receives $25 free, but makes a $75 purchase themselves due to the referral reward. ($75+$75-$25)== Net win of $125 due to the reward loop even while giving away $25. This doesn’t take into account the lifetime value of User Y either.
People still subscribe to cable, read newspapers, and listen to radio. If you’re trying to reach normals, not just early adopters, and establish some credibility, then traditional media is still a huge channel. Honest truth it’s bigger when it comes to PR and even ad dollars. Hard to believe, but it’s true. The problem comes down to the large up front spend that traditional media entails and the lack of true analytics that exist. If possible, I would do unique URL tracking and call tracking by building a simple app with Twilio.
New products and add-ons to existing customers
Once you have a large enough customer base, the goal should be about increasing the Lifetime Value of that customer by offering new products that make sense. Look at 37 Signals, their first products such as Basecamp and Backpack did really well. They used their existing customer base to expand their profit pools with new relevant products such as Highrise and Campfire. Don’t be afraid to look to your own customers as a source of distribution.
One distribution channel will most likely outweigh another – that’s fine. What isn’t fine is being able to answer yes to the question of: “If I lost distribution channel x, would my startup fail?” One last thing to make sure you evaluate as an entrepreneur is the customer acquisition costs and their quarterly increase/decrease. A growing, but cost ineffective distribution channel can be equally fatal. The equivalent of startup gold is a distribution channel that grows with a Customer Acquisition Cost (CAC) that is a very low number or zero (think viral). I will investigate these metrics more in depth in my next post “Metrics Every Startup Should Know”.
How many of these distribution channels can you check off as a startup?
If I forgot anything leave it in the comments below.