Getting To The
Bottom Line On Revenue Generation
A Crash Course On Building Your Distribution Matrix
A Global Future
days are over when the only distribution channels a company had to be concerned
about were those that reached across the United States. This morning’s meeting
was opened by Mario Morino,
Chairman of the Morino Institute, who provided some highlights and lessons
learned from his recent trip to the World Economic Forum in Davos, Switzerland.
The upshot? Global business is here, and it means a lot more than having
a Web site or translating your software into French and Spanish.
Any entrepreneur who hopes, someday, to grow a large, sustainable
business will operate in world markets, with a growing list of international
competitors and significant cultural challenges. Markets and demographics are
shifting dramatically, and the Internet is no longer just a playground for
Americans. People and businesses in other countries have their own visions,
objectives and demands, and won’t buy cultural blindness or the kind of
provincial arrogance many technology entrepreneurs have displayed in recent
years. There’s a world of opportunity expanding in which the currently
estimated 40% of Internet usage by Americans will shrink, according to some
projections, to less than 20% in the next five years. Seizing the growing global
opportunity will require entrepreneurs to use the kind of thorough, quantitative
analysis of distribution strategy discussed by John Burton, and performed by
people who know and understand the wide variety within global markets.
As Morino said, “Fundamentals still rule the day. You can talk
about intellectual property assets, but they’re not really assets until you
find the advantage that translates them into sales and revenue and market share."
MD -- February 22, 2001)
In today’s tech business climate, the companies getting venture
funding are the ones that can convincingly demonstrate where the
profits are (or will be) coming from.
It doesn’t take an MBA to know that before you can show
profit, you need revenues, and to get revenues you need distribution
channels. At this
morning’s Coffee & DoughNets meeting, netpreneurs got a crash
course in Sales and Distribution 101 from John Burton, a successful
technology entrepreneur, marketing guru and now Managing Director of Updata
told the crowd that most of his VC colleagues want entrepreneurs to
explain their revenue potential, market dynamics, how they will
capture customers and the distribution mix they plan to use.
It’s all part of a general “back-to-basics” theme that
netpreneurs have been hearing about a lot lately.
Even if you’re not on the funding hunt, there’s nothing
more important to success than planning and executing the right mix of
channels. After all,
generating revenues is what makes it a business instead of a hobby.
companies that have been the most successful,” said Burton, “are
not the ones that have made technological breakthroughs, they are the
ones that made those breakthroughs coupled with unique marketing and
distribution capabilities to promulgate their concepts and ideas.”
and executing upon a sound distribution strategy involves many
factors, and the first, perhaps the most important, is understanding
your market objectives. For
companies that make software and other products that means: Who
are your clients? What
are their budgets? On
what platforms will your product operate?
Do you have revenue breakdowns by partner, rep and channel? Do
you know SG&A as a percentage of revenue?
What about market share, contract size,
turns and sell through? Service companies should be able to describe who their new
clients will be; the engagement size, length and control; average
billing rates; gross margins; and utilization rate.
Only by first having a reasonable picture of these quantitative
factors can you start planning a mix of distribution channels to
achieve your goals.
when it comes to distribution, “mix” is the key word.
Burton provided an overview of the value and usefulness of
channel alternatives, and stressed the importance of a balanced
distribution matrix. He
said, “Every organization, regardless of what they sell, should have
multiple paths and means over distribution.
It doesn’t have to be put together all at once, but, if you
have only one means of sales, you have much too high a risk quotient
to be able to sustain success and have the economic return that you
Matrix Of Distribution Channels
Highest cost; High value product; Long sales cycle;
High complexity; Secure customers long term
High volumes; Training & incentives; Marketing &
leads key; Great competition
for attention; Channel conflict possible
Good alternative or parallel to others; Lower cost; High
margin; More “contacts”
sales; Little control; Little customer contact
Lead generators; Endorsement; Little control; More
marketing than sales
effective for cost management; Marketing cost could be high; Strong
equalizer and disintermediator; Used in concert with other methods
discussion included specific tips and examples on these and other
topics, such as analyzing your client capture techniques, pre-selling
for customer input, laying a distribution groundwork, the relative use
and effectiveness of partnerships and more, all of which can be found
in the session transcript.
the highest level, however, it all comes down to knowing and
understanding your market. On
one side that means understanding the business costs, economics and
return. Are you creating
a market or servicing one? Do
you have people on your team who understand the specific market and
how to best reach it? But,
most of all, it means understanding your clients.
Why do they need your product?
Is there a budget for it?
How will you build an ongoing relationship with them?
The need to understand your customers and their goals is
becoming increasingly important in a world of technological change,
diversity and globalization, a theme Burton picked up from Mario
Morino’s opening presentation on his recent trip to the World
Economic Forum in Davos, Switzerland (see sidebar).
it is every bit as important to understand the “nots” of
distribution strategy. According to Burton, for example, “The Internet is not a
market, it’s a channel.” Misunderstanding
that may have been one of the causes for some of the more quizzical
startups during the dot.com craze.
Consider the Internet as one of the factors in your matrix for
sales, marketing and customer support, not as an end point.
Similarly, said Burton, sales and distribution are not the same
as marketing, though he added, “You cannot do sales and distribution
without marketing.” Finding
the right mix for customer capture and retention at different stages
of growth is what it’s all about for your company, and what VCs will
expect to hear about more consistently, clearly, and with more
Copyright © 2002 Morino Institute. All rights reserved.