Distribution considerations for your business
In this a16z talk, General Partner Alex Rampell looks at the various ways a product or service can go to market. The key lessons from this talk include being aware of the type of routes you have to go to market and to expand the channels by which you can reach your end consumer. Whilst this might be a talk aimed at small business/startups it's actually important for firms of any size to realise how hugely important channel partnerships can be and how they can help you focus on the key elements of what you deliver to consumers whilst gaining economies of scale efficiency.
What is a channel?
In your vertical it's important to understand the various routes your product could take to get to a customer. Below we see the example for the Hilton Hotel group and the options they have for reaching customers who could potentially utilise their services. Partnerships with firms in these channels is important to understand.
Alex' experience came from his company TrialPay and in this section he looks at their routes to market.
Whilst every channel represents a potential route to market, partnering with a company in one part of the channel might cannibalise opportunities to reach other parts of that market. In this case it's important to find the most effective way of reaching customers so a strong understanding of the channel partners is important.
When taking into account which clients are relevant, a 2x2 matrix is feasible to use for analysis. In this case they looked at the feasibility of a partnership and the potential benefits.
Looking at channel partners who are still growing might not be the way to partner because, from their point of view, anything you offer might only be incremental. Instead, potential partners who are reaching peaks of their growth or at least seeing things slow down are likely the best ones to look at partnerships as incremental growth represents more value to them at that stage of their life-cycle.
In the example for TrialPay, they partnered with Download.com which had at the time 64k products on their website and offered defensability by sending traffic to TrialPay's existing clients. Importantly, a partnership represented something of value to both companies.
They chose Download.com over PayPal at the time as the latter was still in a growth stage and the relevance to their customers wasn't as strong.
What about Pricing?
In this example, Alex talks about the Hilton and how it would be unfathomable to offer different prices on different channels. It wouldn't be great for consumers so setting non-competing prices on channel networks only works when you can offer different economics to channel partners behind the scenes.
Once you've sorted out your channel distribution it is now time that you can look at expansion and the key around that was to look at some of the smaller potential partners. The reason for that is that you get to protect yourself from a large well-known failure than if you partner with larger channel distributors and you also learn lessons along the way. According to Alex, if TrialPay had partnered with PayPal at the time, it would have been a disaster for them. Instead they signed onto more smaller distributors and success for them came from being bought out by Visa.
In summary, channel deals are important for all types of companies to look at. If you've got something brand new then it makes a lot of sense to find the poaching grounds that relate to your product but the education of what you do still needs to come directly from you. Channel partners can help but to them it's not their main business so you cannot expect they'll necessarily sell your products correctly.
A lot of stuff to consider here for partnerships and business growth, check out the video and more from a16z here: https://a16z.com/