Re: Should I look for a distributor?
NC
On Dec 30 2008, 9:23 am, Frai <maybetooparan...@gmail.com> wrote:
>
> I'm running a business dealing with patents and products
> in the field of software and machinery security. After a
> year of extensive research and development, we are ready
> to launch our products to the market. However we lack
> commercial or marketing experience.
Then how do you know that you should even bother introducing the
product? What exactly have you been researching for a year, if you
didn't manage to do any market research?
> I would like to know what is the key to decide whether I
> should run sales directly or associate with a distributor
> to do so.
Why don't you ask your customers? If you find that the customers
appreciate the consultative aspect of sales and feel the need for post-
sale support, you have a good chance of succeeding with direct sales
(after all, who can support your product better than you?) If,
however, you find that the customers are extremely price-sensitive,
know exactly what they need and don't care about the brand they buy
and support they get (or the product is such that support is not an
issue), time to go looking for distributors (and ways to cut costs)...
> What could be a reasonable margin for a distributor of
> specialized electronics (i.e. electronics not intended
> for the general consumer market)?
There are various levels of distributorship. Quite a few distributors
have long since graduated to value-added reselling, whereby the
distributor provides pre-sale technical consultation and post-sale
support. Others are simply in the business of ensuring availability
of the product in geographic proximity to the customer...
> What do you think?
I think you either neglected to mention what you know about the target
market or (a much more troubling, but unfortunately not so rare,
possibility) you don't know much about it.
Cheers,
NC
Frai
> On Dec 30 2008, 9:23 am, Frai <maybetooparan...@gmail.com> wrote:
> > I'm running a business dealing with patents and products
> > in the field of software and machinery security. After a
> > year of extensive research and development, we are ready
> > to launch our products to the market. However we lack
> > commercial or marketing experience.
>
> Then how do you know that you should even bother introducing the
> you didn't manage to do any market research?
We actually did a market research. It was not as extensive as we would
have liked, but approximate enough in my opinion. We studied the main
actors in the market, analyzed their business models, their products
and patents, as well as all the finantial information we could find.
Our products and patents are superior to any publicly available, and
our production costs allow us to offer the products in the same price
range as our competitors, although our gross margin will be half of
theirs at least at the beginning. We need to sell 10K units per year
of our products to reach stability, where our competitors are selling
millions. I'm a new entrepreneur but I think we have a reasonable
chance to get into the market, as long as we are able to transmit our
added value to the potential clients.
> > I would like to know what is the key to decide whether I
> > should run sales directly or associate with a distributor
> > to do so.
>
> Why don't you ask your customers? =A0If you find that the customers
> appreciate the consultative aspect of sales and feel the need for post-
> sale support, you have a good chance of succeeding with direct sales
> (after all, who can support your product better than you?) =A0If,
> however, you find that the customers are extremely price-sensitive,
> know exactly what they need and don't care about the brand they buy
> and support they get (or the product is such that support is not an
> issue), time to go looking for distributors (and ways to cut costs)...
We just finished our products. We didn't launch them yet. As a result,
we don't have a customer pool that we can consult. I guess at some
moment all businesses face this problem.
> > What could be a reasonable margin for a distributor of
> > specialized electronics (i.e. electronics not intended
> > for the general consumer market)?
>
> There are various levels of distributorship. =A0Quite a few distributors
> have long since graduated to value-added reselling, whereby the
> distributor provides pre-sale technical consultation and post-sale
> support. =A0Others are simply in the business of ensuring availability
> of the product in geographic proximity to the customer...
After reading Harold Star's excellent webpage, and taking into account
the complexity of our products, we will offer detailed information
only in our web. The distributor, if any, would be used only for
geographical convenience. Do you know if 20% of gross margin is
reasonable for this kind of distributor?
> > What do you think?
>
> I think you either neglected to mention what you know about the target
> market or (a much more troubling, but unfortunately not so rare,
> possibility) you don't know much about it.
We know less than we would like about the market. We are not
executives from one big player that suddenly decided to launch their
own start-up. We are rather people with good engineering background
and technical experience in the field. We are also the owners of what
we and some others consider best patent and products in the field.
Regards.
NC
On Jan 3, 9:55 am, Frai <maybetooparan...@gmail.com> wrote:
>
> We actually did a market research. It was not as extensive
> as we would have liked, but approximate enough in my opinion.
> We studied the main actors in the market, analyzed their
> business models, their products and patents, as well as all
> the finantial information we could find.
So you actually didn't do any market research at all, thinking that
competitive intelligence alone would do? Ouch...
> Our products and patents are superior to any publicly
> available,
That's what you think, but will the customers agree?
> We just finished our products. We didn't launch them yet.
> As a result, we don't have a customer pool that we can
> consult. I guess at some moment all businesses face this
> problem.
Having a customer pool has NOTHING to do with involving customers in
product development. If you don't have a paying customer, get someone
in a position to become one to assist you. Pay them for participation
in your focus groups if you have to, but make sure you are building a
product that is relevant to your customers' needs and is PERCEIVED as
superior (whether it IS in fact superior is of secondary importance,
as people pay for what they perceive, not for objective truth).
> We know less than we would like about the market. We are
> not executives from one big player that suddenly decided
> to launch their own start-up. We are rather people with
> good engineering background and technical experience in
> the field.
Which is another way of saying your team is severely deficient in
anything and everything that has to do with sales and marketing...
Not a good position to be in...
> We are also the owners of what we and some others consider
> best patent and products in the field.
Have you considered licensing as an alternative to going into
production?
Cheers,
NC
Frai
> So you actually didn't do any market research at all, thinking that
> competitive intelligence alone would do? Ouch...
No, of course we didn't think it was gonna be that easy. But you will
agree it is a good starting point for a start-up. We are focussed in
marketing and sales right now. We already have a plan since some time
ago, but we are revising it with all the knowledge we gathered and
some more we will build in the following 3 months. Our plan basically
consists on:
1) Build a pool of potencial customers and get relevant contacts.
2) Design a marketing campaign, mostly based on postal mailing and
Internet advertising.
3) Try the marketing campaign on a reduced (or "training") set of
potential customers, all of them close to us, so that we can get the
feedback.
4) Refine the marketing campaign until our "training" set shows
positive feedback.
5) Try the new marketing campaign on another set of potential
customers. Response should be reasonable positive, otherwise the
campaign is revised.
6) Deploy the marketing campaign to all potential customers.
>
> > Our products and patents are superior to any publicly
> > available,
>
> That's what you think, but will the customers agree?
>
So far all the informal feedback we gathered from a few potential
customers went in that direction. However in this informal meetings we
detected that most people don't know much about security. Some
evangelization effort is required before they understand the
advantages of our solution over our competitor's ones. This is the
most difficult part of our marketing. After that, once they have the
perception they understand how security works, and once they don't
come up with any idea on how to defeat our solution, the confidence
relationship is fully established. We have noticed this relationship
becomes quite strong: either they try to buy our products (not in the
market yet) or they reject to implement security measures in their
products (usually for the price or because they don't have piracy
studies or history where they can see how much money they are losing
because of piracy).
> > We just finished our products. We didn't launch them yet.
> > As a result, we don't have a customer pool that we can
> > consult. I guess at some moment all businesses face this
> > problem.
>
> Having a customer pool has NOTHING to do with involving customers in
> product development. If you don't have a paying customer, get someone
> in a position to become one to assist you. Pay them for participation
> in your focus groups if you have to, but make sure you are building a
> product that is relevant to your customers' needs and is PERCEIVED as
> superior (whether it IS in fact superior is of secondary importance,
> as people pay for what they perceive, not for objective truth).
Yes, we can build our focus group with some potential customers, most
of them companies run be some friends. When I said we didn't have a
customer pool I meant that we don't have paying customers whose
opinion for sure will be more representative of the actual market,
since they would be paying for something and would not have any
personal relationship with us.
>
> > We know less than we would like about the market. We are
> > not executives from one big player that suddenly decided
> > to launch their own start-up. We are rather people with
> > good engineering background and technical experience in
> > the field.
>
> Which is another way of saying your team is severely deficient in
> anything and everything that has to do with sales and marketing...
> Not a good position to be in...
>
I agree, this is one weakness we already remarked in our business plan
some time ago. We are in the process to fix it. Most university start-
ups have the same weakness though...
> > We are also the owners of what we and some others consider
> > best patent and products in the field.
>
> Have you considered licensing as an alternative to going into
> production?
>
Yes, this was the idea in our business plan. However, when we built
our prototypes we learnt a lot about electronics manufacturing. Not
only it was great to assess the technical feasibility, but also to
control the production costs and be able to precisely know what
margins we can get depending on our price and the number of units
being manufactured. Production itself is run by an external company,
no investment is required from our side. In this scenario, isn't it
better to manage marketing and sales ourselves? Like this we can get
better profit margins. Other companies in our sector already did this,
and were quite successful.
Another problem for the licensing would be finding a company which can
manage marketing and sales. We thought some of our competitors would
be keen on adding our products to their portfolio. This has the
advantage that they already have a customer pool. However, if we
license them our products, how can we make sure they will be selling
them at their full capacity and not just getting rid of an annoying
competitor and limit our growth?
Regards.
NC
On Jan 5, 10:04 am, Frai <maybetooparan...@gmail.com> wrote:
> But you will agree it is a good starting point for a start-up.
In all honesty, I can't. Basically, you neglected marketing up until
now. If you product turns out to be irrelevant to your target market,
you'll have no one but yourself to blame. (I hope you understand that
I am not trying to shoot you down or diminish your accomplishments;
rather, I an trying to communicate my concerns, which, quite possible,
are misplaced, since I only know what you told me, which is not very
much...)
> We are focussed in marketing and sales right now. We already have
> a plan since some time ago, but we are revising it with all the
> knowledge we gathered and some more we will build in the following
> 3 months.
All of that should have been done before (or in early stages of)
product development.
> Our plan basically consists on:
>
> 1) Build a pool of potencial customers and get relevant contacts.
That should have been solved by hiring a qualified sales team leader
with industry experience.
> 2) Design a marketing campaign, mostly based on postal mailing
> and Internet advertising.
For an industrial product? I think you are deluding yourself. Direct
mail is a distinct possibility, but Internet advertising? Your main
advertising avenue should be trade publications, whether print or
online. If you could get them to write editorial content about you
and your product, that's even better... Trade shows may be worth
exploring as well...
> > Have you considered licensing as an alternative to going into
> > production?
>
> Yes, this was the idea in our business plan. However, when we
> built our prototypes we learnt a lot about electronics
> manufacturing. Not only it was great to assess the technical
> feasibility, but also to control the production costs and be
> able to precisely know what margins we can get depending on
> our price and the number of units being manufactured. Production
> itself is run by an external company, no investment is required
> from our side. In this scenario, isn't it better to manage
> marketing and sales ourselves?
Didn't we just establish that sales and marketing is an area of
relative weakness for your team? :) The question at this point is
not what is better, but what is achievable...
> Another problem for the licensing would be finding a company
> which can manage marketing and sales. We thought some of our
> competitors would be keen on adding our products to their
> portfolio. This has the advantage that they already have a
> customer pool. However, if we license them our products, how
> can we make sure they will be selling them at their full
> capacity and not just getting rid of an annoying competitor
> and limit our growth?
Very simply; by negotiating a fixed component to your licensing fee
and/or reduction of per-unit royalty for units in excess of certain
annual number. If you succeed, the manufacturer will have an
incentive to sell more and pay you less per unit (but still more in
absolute terms).
Cheers,
NC
Mark T.B. Carroll
Also, if it's an exclusive license, make that exclusivity contingent on
reaching and continuing to reach sales/revenue targets.
Mark
Frai
> In all honesty, I can't. Basically, you neglected marketing up until
> now. If you product turns out to be irrelevant to your target market,
> you'll have no one but yourself to blame. (I hope you understand that
> I am not trying to shoot you down or diminish your accomplishments;
> rather, I an trying to communicate my concerns, which, quite possible,
> are misplaced, since I only know what you told me, which is not very
> much...)
>
> product development.
>
> with industry experience.
In an ideal case this would be right. However, we are rising a
business with less resources than many would consider enough. We know
there is a need, because all of our competitor's solutions have been
hacked, and doesn't matter how much CRM they do, their customers
cannot have a strong confidence in technology that has been hacked so
many times. We have the technological advantage. We can provide
roughly the same prices. The risk is there, but not many start-ups are
born without any risk.
> > > For an industrial product? I think you are deluding yourself. Direct
> > > mail is a distinct possibility, but Internet advertising? Your main
> > > advertising avenue should be trade publications, whether print or
> > > online. If you could get them to write editorial content about you
> > > and your product, that's even better... Trade shows may be worth
> > > exploring as well...
I think software developers use internet nearly for everything. If
they need to protect their software, probably they will look in the
internet. In my opinion having a good Google-Yahoo position is a must.
Probably you thought we were planning to spam potential customers, but
we were thinking about positioning and maybe some kind of AdSense
(these ads that appear in many webpages when the text around matches
some words you predefined). Of course, there is also free internet
advertising, like when you participate in specialized forums and your
signature contains the link to your webpage.
These are some trade publications I found. Are these the kind you are
speaking about, or do you mean something else? (BTW I saw some
competitor there...)
http://www.entrepreneur.com/tradepublication/category/infosec/index.html
> > > Have you considered licensing as an alternative to going into
> > > production?
>
> > Yes, this was the idea in our business plan. However, when we
> > built our prototypes we learnt a lot about electronics
> > manufacturing. Not only it was great to assess the technical
> > feasibility, but also to control the production costs and be
> > able to precisely know what margins we can get depending on
> > our price and the number of units being manufactured. Production
> > itself is run by an external company, no investment is required
> > from our side. In this scenario, isn't it better to manage
> > marketing and sales ourselves?
>
> Didn't we just establish that sales and marketing is an area of
> relative weakness for your team? :) The question at this point is
> not what is better, but what is achievable...
>
We will achieve a better understanding of the market, whether we can
cope with it or not. After 3-6 months we will have a much better idea
on what to do next. And licensing the technology could be one good
solution. At this time we will probably have a better judgement on who
could be the best licensee.
> > Another problem for the licensing would be finding a company
> > which can manage marketing and sales. We thought some of our
> > competitors would be keen on adding our products to their
> > portfolio. This has the advantage that they already have a
> > customer pool. However, if we license them our products, how
> > can we make sure they will be selling them at their full
> > capacity and not just getting rid of an annoying competitor
> > and limit our growth?
>
> Very simply; by negotiating a fixed component to your licensing fee
> and/or reduction of per-unit royalty for units in excess of certain
> annual number. If you succeed, the manufacturer will have an
> incentive to sell more and pay you less per unit (but still more in
> absolute terms).
Yes, this is a good idea. What could be a reasonable percentage for
us? We can provide the patent, hardware, software and technical
support. Marketing and sales would be for the licensee. I guess it
would depend on how much money the licensee has to invest in
marketing, sales and our fee, and how long it would take to get it
back. Is 3 years a fair assumption?
Regards.