Innovation tends to create sales and distribution problems. New products often cannot find retailers or they violate accepted distribution cycles. I experienced this problem at Atari, when I started our consumer division. We had come up with a way to put Pong onto a single chip, which allowed us to release a version for home computers. All our friends wanted one. We got the prototype working, built a model, and took it to the Toy Fair in New York in the winter of 1975. We felt that the price was perfect, yet at the Toy Fair we sold zero. Turns out, Toy retailers were uncomfortable with electronics and thought that the game was more like a consumer appliance.
So then we tried going after TV retailers. But many of them had previously been burned by disappointing sales and high returns of a game system from Magnavox called Odyssey.
My innovative sales manager, not to be daunted, called Sears. He started with a buyer from the TV department and ended with a buyer in the sporting-goods department The buyer was excited and said he would fly out the next day.
He showed up we gave him a demo and sat down in the conference room to cut a deal. Suddenly, we were in the sporting-goods business. Creating a new retail category is one of the most difficult aspects of bringing an innovation to market. Of course, once you solve a distribution problem, you suddenly have a meaningful competitive advantage.