The Ultimate Guide to Retail Success for Startups How to sell your startup products, find a distributor and get into stores
Contents Why Do Startups Struggle with Retail? The Challenges of Big-Box Retail How to Evaluate and Find Product Market Fit
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How to Create a Scalable Retail Strategy 11 How to Pitch to Retailers 16 Why You Should Sell Online and How to Get Started 22 Do I Need a Distributor? 27 Get Selling in Asia 32
The Ultimate Guide to Retail Success for Startups How to sell your startup products, find a distributor and get into stores
Why Do Startups Struggle with Retail? When your startup dominates a Kickstarter or Indiegogo campaign, you feel like you’re ready to take the retail world by storm. But even the most successful crowdfunding endeavor can rapidly derail and crash into the abyss between initial funding and a foray into stores. This guide will take you through the preparatory steps to scale into retail and answers the questions “How do I sell my product?” and “How can I distribute my product?”This guide aims to give you everything you need so that you are confident to move from crowdfunding and into retail, not just in the US market, but across the globe.
Crowdfunding success may not translate to a retail hit Statista examined the nearly 400,000 projects that launched on Kickstarter from its inception through April 2018. Of these, more than 36% were successfully funded – bearing in mind that Kickstarter is “all or nothing.” If you’re short of your goal, you get nothing. By comparison, Indiegogo hosted more than 800,000 campaigns through February 2018. Indiegogo doesn’t publish its success rate as a percentage of attempts but does reveal that they’ve helped startups raise more than $1.3 billion as of early 2018. If you’re one of the lucky ones that hit your goal, found early adopters, fulfilled orders to your backers and brought in money, that’s great. However, that doesn’t mean the initial enthusiasm for your concept will translate into retail success. The hard truth is that 90% of startups fail even after they move successfully beyond post-crowdfunding or series A, B, or even C rounds of funding. Most of these corporate calamities fall to their demise in the “retail chasm” that comes after you fill crowdfunding pre-orders. After the early adopters are satisfied, you must scale and launch yourself into the world of retail. If your team is all innovators rather than business minds, you’ll face challenges. If you don’t have an expert in retail in the management mix, you’ll struggle.
The Ultimate Guide to Retail Success for Startups How to sell your startup products, find a distributor and get into stores
Revenue from early adopters won’t be enough to get you past this hurdle. Retail is not an easy road, and you have to spend money to make money – and if you don’t have much left after you fulfilled your pledge to the crowd that funded you, scaling may be insurmountable.
The challenges of big-box retail Most startups in the US aspire to see themselves on the shelves of the “big five” retailers including big-box stores Target, Walmart, Best Buy, Costco, and online behemoth Amazon. Even the next tier of bricks & mortar retail is attractive. After all, that is where the big profits are. That’s a lofty goal, and even if you can get your foot in the door, you might find yourself crushed by the process. That’s not to say you can’t do it, but you should know what to expect when exploring retail for startups. According to Startup Genome, “the dominant reason for failure is premature scaling” yet scaling is a necessity to play in the big-box retail arena. Meaning that you need the staff and skill sets to be able to handle the challenges of working with larger retailers. At least you will need someone with a solid background in retail and knows not only how to get meetings, but maintain relationships with buyers. | 03
Some of the challenges you’ll face trying to move from crowdfunding success to a big-box hit include: • Less advantageous shelf space You can get on a shelf in a big-box store and still struggle to get seen. Retail planograms show that prime shelf space is at eye level and end caps. As a new brand, you’ll be relegated to lower (or higher) shelves viewed far less frequently. • Long payment terms Common payment terms (that you can’t negotiate as a newly minted supplier) from big-box stores are usually 60 days from receipt of merchandise. For startups with little leverage, this can be extended to 120 days. If your production runway is 30-60 days, you can be out of pocket for three to four months. This is a very tough pill to swallow for newer brands and startups who have already invested a hefty chunk of their early investment into marketing and are dreaming of that funky startup office with pinball machines and ball ponds. You actually need a decent amount of liquidity to be working with bigger retailers and they hold all the cards. • High retail margins One of the hardest things which is most difficult for smaller brands working with bigger name retailers are the excessive retail margins. For well-known physical retailers, expert at least around 40% retail margins to be placed on your products This can rise to up to 85% for items like mobile phone cases. There are also other extra costs that the retailer can additionally add, such as promotion costs, backstock , program costs etc. Startups need to pitch their pricing accordingly to big box retailers if they want to stay competitive. The point of getting into big retailers is pushing large volumes rather than making high profit margins on your products. This also means that you will need sufficient inventory and manufacturing forecasts to meet retailers demands. • Significant promotional costs Retailers expect you to bring in buyers for your product. You can’t ride on the coattails of the stores’ marketing efforts. Only huge brands will benefit from featured space in retailers’ ads and promotional materials. This is the difference between what is known in retail as ‘Sell-in’ and ‘Sell-through. The former refers to getting into retail distribution channels and winning space with buyers. The latter is the promotion and the consumer awareness of your products that retailers expect you to develop in order to generate sales.
To stop yourself from getting kicked out of big named store, you need to have sufficient marketing budget kept aside to create some buzz for your products. Big-box stores are 500-pound gorillas and can set “take it or leave it” terms, particularly with startups that have no leverage to get a better deal. In addition to accepting less than favorable terms to reap what’s an increasingly slimmer payday with tighter margins, they expect you to jump through hoops to attain vendor approval. Some of the criteria big-box retailers want you to meet may include: • Dun & Bradstreet listing • Hefty insurance coverage • Proven cash flow • Sales track record • Detailed promotional plan
Big-box isn’t the only path to success While much of this seems dire, it’s also important to note that big-box isn’t the only path to retail success. If you’re dead set on the large retail route, you’ll need someone in-house with experience pitching to retailers and managing the process. If you lack an internal resource, you can look to a channel marketing company that can work with you to develop your retailer pitch and facilitate the process. Even if you get the retail deal, there’s still the issue of keeping the space for the long-term. Big-box retailers seem like the “holy grail” of retail. But for many startups, they’re not the best launch pad because of the many barriers to entry. Other paths to consider are direct sales to consumers, working with online retailers, specialty stores (depending on your niche) and once you’ve fine-tuned your retail strategy, perhaps then the big-box. If you do land a retail deal, simply getting on the shelf is no guarantee of success. You need to create a demand for your product beyond the early adopters that jumped on your crowdfund bandwagon. Next, we’ll examine Product Market Fit for your startup retail endeavor. The assessment tells you if there’s viable space in the market for your product and whether you’re ready for the jump to retail.
How to Evaluate and Find Product Market Fit Product Market Fit (PMF) is a relatively new turn of phrase, but the concept behind it has been around as long as retail has been in existence. Product market fit is having a product that fulfills a need in the market and that customers will pay for, use, and, and appreciate. AlphaLab Executive Director, Jim Jen, gives a succinct working definition of PMF: “Early product-market fit occurs when you have a group of customers who are actively using your product and are getting great value from using it. Simply speaking, you have a product that your customers love”. PMF is the means for your startup to determine if your product has a place in the market. It is the launchpad of any retail strategy. PMF is not something you can figure out instantly but is something you must sort out before you move into the retail space. To get started, you must understand what is and what is not product market fit. Let’s start with what’s not.
What is not Product Market Fit? • • • •
Positive reaction to a concept Feedback from surveys or polls Good vibes from beta testers or samplers Likes and positive comments on social media
What is Product Market Fit? • • • • •
Customers are buying, using, and loving the product Customers engage with the product You have identified your market You have identified your target customer You know how to reach and sell to your customer
You can have a good team, a good product, but if you don’t master Product Market Fit, you may fail.
How do you get to Product Market Fit? Finding your PMF is a process and taking shortcuts puts the success of your startup at risk of failure at the retail stage. Done right, realizing product market fit ensures you know what you will sell, who you will sell it to, and how to sell it. Miss any of these marks, and you won’t do well in retail.
Some steps to figuring out your startup’s PMF include: • Find the product, then the market Rather than starting with the market and trying to figure out what it wants, start with the product. If your startup has a product, it’s a matter of finding where and how to sell it to achieve product market fit. Starting at the other end with a market you want to sell to, but no product doesn’t make sense. • Develop a value hypothesis Silicon Valley entrepreneur Steve Blank recommends you approach finding and perfecting your PMF like a science project. You start with a theory of why your customer would buy and use your product, what they want from that product, and how to get them to buy it. Then you should test and refine the hypothesis. • Develop your UVP and USP The hypothesis you develop is expressed, in part, by your UVP and USP. The unique value proposition (UVP) is what your product does for the customer and the results they get from buying/using it. Unique selling proposition (USP) is what you do differently or better than the competition. • Build, measure, and learn Stanford’s Lean Startup methodology recommends the build-measure-learn feedback loop. In this step, you consider the problem your product solves and the minimum product features to solve it. From there, you measure how that product performs with users, and learn how to improve it. • Take your time and get your PMF right Startups feel the pressure to achieve success. It’s natural to want to get from crowdfunded to on store shelves as soon as possible. But there is not a set moment when you can say conclusively that you achieved product market fit. In fact, you should never consider it complete. • Continually improve PMF Even after you move into the retail phase of your startup, you shouldn’t set your product market fit in stone. After you hit the mark initially, you must maintain, and continually groom PMF. Customer needs evolve and so too must your product and product market fit. | 08
What happens when you miss the mark with PMF? Before you’re ready to move from crowdfunding and early adopters to full retail, you must find product market fit. When you move into retail, you must be prepared to scale your company. Steve Blank cautions against premature scaling, which is what can happen when you don’t have PMF. According to the Startup Genome, 70% of startups scaled too soon which contributed to the overall 90% failure rate of startups. Premature scaling can be tied back to inadequate product market fit. A big part of the process is validating your market – and it often takes longer than you’d expect.
Right is better than fast One concern for startups is beating others to market. As an innovator, you want to innovate, and you want to get there first. But if you take shortcuts when it comes to product market fit to try and race to retail, you may regret it if your startup crashes and burns because you rushed. If your customers don’t understand your product or features, you do not see word of mouth, reviews aren’t enthusiastic, and your sales aren’t escalating as projected, the problem may be a misalignment of PMF. It’s better to take your time, perfect your initial product market fit, and then move into the retail phase. Wealthfront CEO Andy Rechleff said, “First to market seldom matters. Rather, first to product/market fit is almost always the long-term winner.” Rechleff compared bringing a good product to market as delivering “the food the dogs want to eat.” He added that if your startup finds its product market fit “it is extremely difficult to dislodge it” even when competitors come along with an enhanced or cheaper version.
Where does Product Market Fit figure into your startup lifecycle? PMF is critical to the success of your startup, but it’s just part of the roadmap. The three phases of your startup should include: • • •
Figure out Product Market Fit Develop a scalable and profitable model for growth Put both into action and scale your business
Once you’ve mastered the first of your startup lessons and your initial PMF is ready to roll, it’s time for phase two. Next in this guide is a look at creating your scalable retail strategy including the retail markets to target, how to gain access, and how to thrive once you’re there.
How to Create a Scalable Retail Strategy You’ve defined your working Product Market Fit, you had a solid crowdfunding experience, and are handling your pre-orders ably. That means you’re ready for retail, right? Not so fast. As mentioned previously, scaling too fast is the leading cause of the 90% startup failure rate. You don’t want to become part of that grim statistic. That means making a solid plan to scale sustainable into retail. Many startups think that jumping into retail means breaking into big-box stores. Walmart, Target, Best Buy, and Costco are the big four brick and mortar stores that seem like the retail brass ring. But jumping into those outlets is akin to hopping on the Autobahn when you’ve only had your driver’s license for a week. It’s bound to cause a crash.
Barriers to sustainable retail scaling Before you target your strategy at large retailers, consider these barriers to entry into the brick and mortar market of the big-box retail arena. • Cash-flow In the early startup phase during your Kickstarter or Indiegogo campaign, you were collecting money without delivering products. Next, you delivered products to fulfill pre-orders as soon as you could. It is one of the few times you will have cash in hand up-front to operate this way. Retail doesn’t work like that. You must have the cash flow to finance inventory production knowing that brick and mortar retailers offer net 60 (at best) payment terms. Tack that onto the lead time to produce and distribute your product to the retailer, and you’re looking at being out of pocket for months. That can be a startup killer. • Economies of scale You know about economies of scale in theory, but how about in practice? It’s impractical to think you can come in on a large scale, compete effectively with large suppliers for shelf space, offer competitive pricing, and see advantageous supply chain and distribution rates. | 11
That means your startup must enter the retail playing field at a small scale. That puts you at a cost disadvantage. You’re not likely to have the buying power as a startup to produce at the lowest price and with high retail margins, that means you’re at a cost disadvantage from the get-go. • Infrastructure Lean is the way to go with a startup, but once you move beyond the crowdfunding campaign into your next phase, you’ll have to build a team to support the effort. You need a sturdier production pipeline and someone that knows how to establish and manage it. You need legal help and a retail advisor with insight and expertise into pitching and getting you into stores. You must build (or outsource) a marketing team since big boxes expect you to bring in traffic to buy your product and not ride their coattails. You’ll struggle as you step into retail without apt staffing. • Distribution Sending out beta versions and products to early adopters and pre-orders is one thing. Setting up distribution channels to large retailers is another. They’ll set expectations and limits on how and when you can ship and deliver to meet their needs, not yours. • Supply chain issues As a startup, you’ve likely produced a few hundred or few thousand of your product. But is your current supply chain scalable to the level you need? If you have a small-scale supplier that can’t ramp up with you (or that themselves face challenges trying to scale alongside you), it can break you. • Competition It’s a different competitive arena at big-box stores versus crowdfunding. Even with a 100% unique offering, you’ll face competitive pressure. Plus, when you step onto the retail stage, you create product awareness not just in buyers, but in manufacturers that may develop a version of your product.
Things that fall in the gap Even knowing all the common potential pitfalls and equipping yourself to bridge those gaps, there are some blind spots you may not have considered. Benjamin Ertl, an expert in retail channel management, listed four common blind spots that creep up and plague young companies transitioning from early adopters to full retail. These include: • Not understanding marketing expectations If you and your co-founders are operating under the “build it and they will come” mentality, you may be in for a rude awakening. Getting on the shelf is just one small aspect. It’s your responsibility to market your product effectively and bring buyers into the store. The store won’t do it for you, and if you’re not moving product off the shelves, you won’t hold that space for long. • Underestimating timeframe to get on the shelf Establishing your startup and achieving crowdfunding is agile and can move fast. Retail, by comparison, is like turning a barge – slow and unwieldy. It takes time to pitch, be approved for shelf space, obtain a purchase order for the first shipment, and getting it into the store. It will take months (maybe even a year) before you’ll realize your first retail sale. • Overestimating the contribution of partners Delving into retail means you’ll need to bring on external resources. You’ll need a retail advisor, a marketing firm, sales agencies, distributors, suppliers, and more. Your internal team has a personal stake in the success of your startup. External forces don’t have that visceral attachment and will do what they’re paid to do (and likely little else) and adjust your expectations. • Misjudging time commitments From an internal perspective, the time required by you, your co-founders, and your team to operate the startup will shift significantly once you broach retail. You’ll need infrastructure and outside resources and managing all those additional factors plus enhanced inventory management, supply chain, and distribution management will tax the time of your team.
Consider growing out versus up Pursuing big-box retail too soon can kill your startup. Why not consider growing out and then slowly up rather than a huge vertical leap into retail? Scaling rapidly into large retail can be insurmountable for many young companies. A scalable retail strategy may be better begun at online specialty retailers and then specialty brick and mortar stores. From there, you can slowly scale up before reaching out to big-box retailers. Starting with a modest retail effort is a slow burn approach preferable to starting a large retail bonfire and burning yourself and your startup out of business. No matter which approach you choose, the next step is learning how to pitch yourself to retailers.
How to Pitch to Retailers Now that you’ve run a successful crowdfunding campaign, defined your initial Product Market Fit, and developed a scalable retail strategy, you’re ready for retail, right? The first thing to know is that you can have the best product in the world and retailers won’t come knocking at your door. That’s not how it works. You must go out and pitch your product to retail outlets, but first, you need a plan. You already know your product and its benefits. You’ve developed your unique value proposition (UVP) and unique selling proposition (USP). All factor into your presentation, but there’s a lot more to it. You must speak the language of retail. To obtain a pitch meeting and once you’re in one, you must be able to demonstrate quickly that you: • Have a great product • Can produce and deliver to meet demand • Have a sales track record • Fulfill a need of the retailer • Bring value to the retailer
Without a Solid Pitch, Even the Best Product May Fail You must be able to speak the language of retail, understand expectations for the meeting, speak knowledgeably, and convey competence. When your presentation isn’t polished, the outcome won’t be what you want even if your product is incredible. Buyers are If the meeting doesn’t go well, the retail buyer may: • End the session, and you’ve likely lost that opportunity now (and maybe forever) • Negotiate tougher terms because they can tell you’re inexperienced • Turn you down because they think you’ll need hand-holding • Put you off and then not answer your follow-up calls or emails
What the Retail Buyer Wants to Know Whether you’re pitching to a large brick and mortar retailer or a smaller specialty store, buyers need pretty much the same information. They want to know: • Description of the target customer for the product • Whether your product has a patent • The roster of your competitors • Details on product packaging (and shelf needs) • How your price compares to similar products • Warranty, returns, and product failure rates • Minimum order quantity and lead time
Securing a Meeting with a Retail Buyer The initial contact, unless you’re using an intermediary with retail pitch expertise to represent you, will be an email. The email should contain: • Brief info on your company, short description of the product, and one image of it • Request for the pitch meeting • Mention your sales record and growth • Include link(s) to a recent press release or article on the product • Tell them how many retailers you’re in or how you’re growing/selling • Entice with an offer of a low initial minimum order • Remind of the benefits, ask again for the meeting, and thank them • Be sure your full contact info is at the bottom (phone, email, website link) The email should be short and to the point. It is not the time or place to tell the story of how you and your co-founders developed the concept, how long you spent in R&D, etc. You need to entice and hook them and give them a reason to say “yes” to the meeting. Once you’re in front of the buyer, you can elaborate on what’s special about you, your company, and your product - but bogging them down with details in the initial contact message isn’t the way to begin. Avoid sounding desperate (even if you are). The style should be that the arrangement would be a win-win.
Preparing for the Retail Buyer Meeting Getting the retail buyer to agree to the meeting is just your foot in the door. Before you start sending out feelers, you should already be building your pitch deck (more on that in a moment), preparing the materials, fleshing out your presentation, and rehearsing and refining it so that you’re well prepared. Also, consider carefully who should be pitching. If you’re a co-founder, you might think it should be you or another key stakeholder. But are you a salesperson or an innovator? Just because you understand the product like no one else doesn’t mean you’re the best choice to make the retail pitch. You may want to use someone in-house or outsource to a rep that’s savvy and experienced with the retail pitch environment. The bottom line is not to let ego get in the way. Choose the person most likely to convince the retail buyer to put you on their shelves. Once chosen, arm that individual with all the information they need to pitch impressively. First, you need a winning pitch deck that’s ready to roll. It should be prepared both digitally and print - and bound in excellent quality materials. You’ll want to leave the buyer a hard copy of the pitch deck.
How to Create a Retail Pitch Deck The pitch deck is a short (roughly 20 or so slides) about why the retail buyer should put you on their shelves. Think of it as a PowerPoint, but you’ll want to present in hard copy with the caveat that it should take no more than 10-15 minutes to get through the deck and product demonstration. Kate Whitcomb, a former buyer for Target, gives a good checklist for creating a pitch deck.
Tips for Pitch Success Your pitch deck must be impressive and your presentation polished. Your product knowledge must be flawless, and you must also know the ins and outs of your product, market, and target customer. But that’s not all! You need to know all about the retailer, including how they buy, sell, and operate – and how your product fits their business model and specific needs. You also need to know about the specific buyer you’re meeting because they can either dismiss you or advocate for you to their bosses. You must pitch them effectively so that if they want to move forward, they are armed to pitch you to higher-ups, depending on the structure of the retailer. Whitcomb offered a top tip for sealing the deal when you’re up against competitors: “be the person the buyer likes most.” Now that you know how to better prepare for the pitch, it’s time to consider where you want to sell. In some cases, you won’t have a sales track record, pipeline, or cash flow to jump into a relationship with a big-box store. If that’s your circumstance, a better retail path may be selling online to establish the foundation to later move into brick and mortar retail.
Why You Should Sell Online and How to Get Started Selling via online marketplaces is scalable and a good retail launchpad for many startups. Dedicated e-commerce marketplaces make it easier to reach the target consumers for your product and build your brand. Plus, selling online is less cash-flow intensive and has lower barriers to entry. It’s the perfect scenario for startups without a stack of cash in the coffers, so they can scale on a slower burn model.
Advantages of e-commerce Even the top brick and mortar establishments sell online. In this era, you must be in the internet marketplace, but you may still like the cachet of being in a big-box store. There’s no reason you can’t do both but starting out in e-commerce is a proven path to building your brand, establishing a track record of sales, and perfecting your marketing before you jump into a physical retail establishment. Some advantages of e-commerce include: • Selling 24/7/36 • Sell to anyone, anywhere • Low barriers to entry • Low risk • Higher margins than brick and mortar • Expansive customer reach • Advertise digitally for less than other marketing efforts Some disadvantages of e-commerce are: • Less personal interaction • Must work harder to establish trust in your brand • Dealing with shipment issues to many separate points
By delving into e-commerce as your initial retail endeavor, you are establishing yourself as an omni-channel seller. More channels of revenue equal greater sales, brand visibility, and profit. You may start selling at an online retail outlet (such as Shopify or Amazon), then through your website, and finally at brick and mortar retailers. Omni-channel lets you reach the most potential buyers. Additionally, there are number of retailers who are especially set up to sell niche and startup products. These sites usually have a committed user-base who are looking for unique startup products and can help you with marketing. These nice online-retailers allow startups to raise some much needed funds in the precarious early stages of their retail journey. You donâ€™t have to sell via your website where it can be costly to implement a retail component. You can sell as many (or as few) products as you want on Shopify or Amazon.
Shopify is a top digital outlet to sell your product because it’s easy to set up a Shopify store. Even if you decide later to move to brick and mortar retail, selling on Shopify is a good barometer of the appeal of your product. It also offers an opportunity to sell, get customer reviews, learn what people like and don’t like about your product, and refine the offering before you attempt a move to specialty or big-box retail.
How Shopify Works Makers can start selling on Shopify with little effort. Setting up a store takes less than half an hour. You pay a monthly fee to access their suite including web design, product management tools, and e-commerce system. The three standard Shopify tiers run $29-$299 per month. On top of the monthly fee, Shopify charges credit card processing fees.
Setting up a Shopify Store Here are the quick steps to set up a Shopify store: • Go to Shopify.com and click “get started” with your email address and password. • You can choose a free Shopify store name or purchase a custom domain for $13/year. • Choose “online store.” • Provide contact information and data on expected sales and retail history. • Add your first product using the intuitive interface. • Customize your site using the “Visit the Theme store” link. • On the dashboard, choose “Domains” and register a new domain or add one you own. • Choose the monthly payment plan you want. • Click “Payments” and decide on your payment processor preference. • Click “Launch Website,” and you’re done!
Amazon is the second largest company in the US by market value, and you can be part of that engine, selling your product using Amazon FBA. “Fulfillment by Amazon” is what FBA stands for, and it’s about using the mega-online retailer to serve as the fulfillment network for your product. When you choose FBA, Amazon warehouses your product in their fulfillment centers. As your product sells, they pack it, ship it, and take care of customer service. FBA is a readily scalable solution for many startups. Some of the benefits of using Amazon FBA are: • You can be part of the Amazon Prime phenomenon. • You can sell on to customers in Canada and Mexico. • You don’t have to keep a minimum quantity in stock.
Amazon Multi-Channel Fulfillment Amazon also offers Multi-Channel Fulfillment (MCF) which can help should you choose to sell at online sites other than Amazon. They will stock your products and fulfill orders from your website or another e-commerce site. That means you can tap into the trust factor of Amazon with known reliability and a highly scalable solution that is essentially “plug and play.” With MCF, there’s no need to establish a distribution channel to customers, just to Amazon. MCF via Amazon fees are as low as $2.20 up to $13.85 per unit depending on the quantity of items in the order and the size of the package. Oversized and very heavy items also incur a per-pound surcharge over the first two pounds.
Setting up Amazon Selling With Amazon, you can start selling your products for about $40 a month, and if you’re using FBA, they collect shipping fees and charge for processing, packaging, and handling. Plus, Amazon charges storage fees for keeping your inventory on hand. Currently, it’s $.69 per cubic foot, but this Fall goes up to $2.40. Despite these costs, it may be cheaper to tap FBA than handling your own distribution. Even if you don’t stick with Amazon FBA, it can be an interim strategy while you build your brand and sales history to get into brick and mortar retailers. To get started, follow these steps: • Start at the Amazon seller portal and work through the five-stage process. • Read and agree to their seller agreement. • Provide seller information (business name, address, contact number). • Set up a credit card to pay the monthly fee. • Provide your tax information. • Load your product information.
Selling Online Makes Sense Given the lead time to get into retail stores and the many (and significant) barriers to entry, selling online could be the solution to keep your startup moving forward and bridge the retail chasm. You can jump into retail with e-commerce to keep your revenue stream going while pursuing other opportunities including scaling gradually into brick and mortar retail. In the final section of the guide, we’ll look at whether you need a distributor and how to find one. | 26
Do I Need a Distributor? When you’re ready to move your product into the retail space and get it into your target customers hands, there are several paths. Options are: • You can sell directly to customers on your website, Shopify, Amazon (or other online marketplaces). • You can sell to physical retailers who then sell to customers. • You can sell to a distributor who facilitates your product getting to customers. Fortunately, you don’t have to decide on one and reject the others. You can (and probably should) explore a Multi-Channel retail strategy that evolves as you scale. This approach lends itself to sustainable scaling and growth at a pace that ensures the longevity of your product and brand. Starting with online selling has the fewest barriers to entry and lowest risk. Once you have a toehold there, those profits, which are usually higher margin than big-box and other retail solutions, can support your efforts to scale into brick and mortar retail. Let’s look at the role a distributor plays.
Distributors and the Retail Chain Distributors are instrumental to a well-oiled retail supply chain by getting products from the manufacturer to the market. The distributor functions as a middleman between you and those interested in selling your product to consumers. A distributor may provide your product to retailers or wholesalers. When you hear “distributor,” you may think they are simply a delivery mechanism. That’s not so. Freight and shipping companies deliver. Distributors play a richer and more complex role in the supply chain. They build relationships with wholesalers, retailers, and makers to bridge the retail gap.
Wholesalers vs. Retailers vs. Distributors The retail process begins with you as an innovator and maker. You develop a product and manufacture it (or have it manufactured on your behalf). You can sell directly to your target customer and work towards getting your product into retail store shelves via the retail supply chain. You can go out and try to develop relationships with retailers, which is time-consuming, and usually fraught with rejection, but may be well worth the effort. It’s also worth connecting with a distributor that has preexisting relationships with retailers or wholesalers that you can tap. Here’s the difference between the three and their roles in the retail food chain: • Distributors buy goods and sell to wholesalers and retailers • Wholesalers buy goods in volume and sell them to retailers. • Retailers buy goods from many sources to sell to consumers.
Is a Distributor Necessary? A lean supply chain can eliminate distributors and wholesalers while you interact directly with retailers or your target customers. However, this might not be the most strategic approach as you scale. If you plan to launch multiple products, innovating is is a better time spend. They will also take stock of you and handle returns/ There are distinct advantages and disadvantages to working with distributors.
Factors to Consider When Choosing a Distributor
When evaluating distributors, some aspects to compare and consider are: • Product profiles – What type of products does the distributor promote? Do they routinely work with specialized niche products? Do they solely distribute electronics? Home goods? • Cost – What margins do they expect? How much will you earn with one distributor versus another - both now and as you scale? • Feedback -How much feedback is the distributor giving regarding your products? They should give you a detailed overview of their hopes and concerns regarding your products. • Market size – To whom does the distributor sell? Do they work with big-box retailers? Mom and pop shops? Specialty stores or all the above? • Control – Will you have a say in which retail outlets your product is sold or is it out of your hands once the distributor has your products in hand? • Terms – What length of contract do they demand? How long does it take to ramp up and begin selling? What is the penalty for cancellation?
How to Find a Distributor Googling “find a distributor” is one way to begin the process, but that offers a staggering array of results that may overwhelm. Instead, consider these tactics: • Ask your network of peers You know other innovators and makers, so turn to those that are further down the business pipeline than you. Ask which distributor(s) they work with and any to avoid. Perhaps they screened a distributor that wasn’t right for them but would be just the ticket for your product and brand. • Ask your manufacturer You likely use a factory that you don’t own to make your products. That manufacturer makes other products and could have contacts with distributors in your niche they can recommend or refer you to, so you have a starting point. • Attend industry events Networking at industry events, within industry networking groups, and professional networks can get you face to face in a social setting with distributors in your niche. Go to trade shows at the regional and national level but don’t discount local events that are more intimate. • Sign up for trade publications Hard copy industry magazines, e-newsletters, and online industry sites often have resources galore where distributors openly advertise looking for new products to add to their retail machine. Pore through these to look for potential partners. • Work finish to start Retail distribution expert Robert Nadeau recommends working backward. He suggests starting with your target customer and consider how they will search for and buy your product. Then take steps from where they buy back to where that outlet gets their goods to locate a potential distributor.
Evaluating a Potential Distributor Anyone in business can talk a good game and then fail to deliver as promised. It can happen in any aspect of the supply and retail chain, including with a distributor. You must investigate before you sign on with them taking a â€œtrust but verifyâ€? approach. Talk to others in the industry that have worked with the distributor for word of mouth reviews and consider tapping a third-party service that validates distributor performance, so you can choose with confidence knowing their track record.
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