This note is a part of a series that presents ideas from the book, Zero To One, where I have shared seven questions that all startups must answer. In this note, we open up the third question in Thiel's list: The Distribution Question.
The Distribution Question - Do you have a way to not just create but deliver your product?
One of the major things that the book explains is that no matter how evolved or advanced your product might be, it cannot be a success till you identify how it will reach your customers. Tech-Geeks often get so mesmerized by technological breakthroughs that they delude themselves into believing that distribution is a minor problem once the product is ready. This however is far from the truth. Thiel makes it clear that this doesn’t lead you to build a strong business and hence one needs to be carefully prepared with the Distribution question.
The Marketing-Sales Axis
The Marketing Sales axis explains that different businesses have different types of customers. On the left end of the axis are the direct consumer products such as books, food items, or household things. These rely on marketing for consumer adoption. These are cheap products that are targeted to be sold to a wider audience to make the profit substantial.
On the other end of the axis is where the buyers of the products are big businesses or government agencies where the distribution channel relies more on sales and rather complex sales strategies. These are expensive products that are sold to a niche audience and each individual sale is hard but huge.
Thiel explains that between the two sides there is a dead zone in the center where you have no easy distribution channels to reach out to your customer. Thiel uses the example, suppose you build something for local store owners to manage their stores, there is no feasible distribution channel for you to target specifically just store owners (Yes, Google Prioritised Ads has changed things to an extent but still not entirely).
The power law of Distribution Channels
Interestingly, in the book in multiple places, Thiel discusses the power-law concept. Often things are not 50-50, they are rather 80-20. Some areas boom much more than many others and explain away economic growth. (More on this in the next section). In this context, Thiel explains that distribution channels also follow a power law. One distribution channel will outdo most others. The task is to identify this distribution channel.
In the next note, we will address the durability question.