Distribution strategy may not be a priority, but once you've built a successful startup, it's usually the key to growth.
static416 via Flickr
Great start-up stories stem from a David and Goliath battle of the small entrepreneurial team outsmarting the large, established companies. After all, the big guys have huge advantages in most markets. They have deep pockets to invest in marketing campaigns; they have large sales forces with established relationships; and most importantly, they have long-lasting distribution partnerships with retailers and sales channels. Distribution partners are dependent on the big guys for their livelihood, so they'd gladly prioritize their products over the fly-by-night start-up.
The truth is that the start-up might have a superior product, and may be first to market with a new innovation, but without distribution advantages, customers may never find it.
Worse, they might be misguided by an established brand name that has more exposure on retail shelves. It's relatively easy for the established company to counteract any advantage by the start-up, even if their product is inferior.
Nowhere is this more apparent, than with food and beverage brands. In this sector, big companies like Pepsi and Kraft have huge advantages at the point of sale that can overcome any product advantage.
Take two emerging sub-segments, for example--enhanced water and craft beer. There are a number of innovative enhanced water start-ups that have gained traction in specific geographic regions or retail channels. But as these brands grow, they are forced to reinvest their profits into increased marketing and promotional efforts. If Pepsi or Coke sees an opportunity here, they can clearly outspend the start-up brands in terms of media and point-of-sale investment.
Plus, when one of these beverage giants walks into the local gas station, they have the clout to demand that their brand gets the refrigerator space instead of the start-up brand. They can take a brand to national scale in a few weeks instead of a few years. A store manager who makes the majority of his profits on Gatorade sales isn't going to jeopardize that relationship in favor of a fly-by-night start-up.
Craft beer is similar. The beer giants have been able to invest behind their own "craft brands" such as Blue Moon and Goose Island and exploit their distribution advantages.
We have partnered with an investor that has a 70-year history in food and beverage distribution. This is the type of investor that can help high-potential start-ups go toe-to-toe with established food and beverage companies, by connecting exposing the start-ups to existing sales channel partners, years of distribution expertise, and relationships with dominant retailers. The key, as we discussed previously, is finding the right match between the investor and the entrepreneurial management team. The right investor can make a huge difference in the growth prospects of a successful start-up.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark