If you have invented something and you haven’t invented a good way to sell it, you have a bad business, no matter how good is the product. Everyone-underestimates-sales-because-no-one-likes-to-be-sold-and-sales-tries-hard-to-stay-hidden.
Superior sales and distribution can create a monopoly even for a non-differentiated product. A superior differentiated product with bad sales and distribution cannot, and will probably fail. Most common cause of failure for companies is poor sales because of bad distribution, not a bad product.
Customer lifetime value (CLV): total net profit earned on average over the course of your relationship with the customer.
Customer acquisition cost (CAC): amount you spend on average to acquire a new customer.
As a general principle, the higher the value of the product, the more you have to spend to make a sale.
- Complex sales ~ O($10M): Every deal requires close personal attention. It takes months to develop the right relationships. You make sales every couple of years. They are hard. Customers want to talk to the CEO, not VP of sales. They succeed if they achieve 50-100% year-to-year growth over a decade. Example: SpaceX, Palantir.
- Personal sales ~ O($10K - $100K): The challenge lies in establishing a process by which a sales team of modest size can move the product to a wide audience.
- Dead zone ~ O($100 - $10K): Personal sales efforts are not justified, and traditional marketing is not enough. Most small businesses lie in here. They are small because distribution is the hidden bottleneck.
- Marketing & Advertising ~ O($100): Nike, Apple, etc.
- Viral marketing ~ O($1): A product whose core functionality encourages users to invite their friends to become users too. Should be as quick and frictionless as possible. Whoever is the first to dominate the most important segment of a market with viral potential will be the last mover in the whole market for several years (PayPal, social media platforms, messaging platforms).
Like in everywhere else, the power law is true for sales too. One distribution method will be far more powerful than any other for a given business. You need to get one distribution method to work perfectly for your business to survive.
- Zero to One, Peter Thiel
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