Is a Lack of Distribution Channels Stunting Your Business Growth?
Is a Lack of Distribution Channels Stunting Your Business Growth?
Product-Market Fit is Overrated. Focus on Product-Channel Fit Instead.
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I used to think that product-market fit was the only thing that mattered for business success. And once a founder achieved product-market fit, success will naturally follow.
But I read a few articles recently that forever changed the way I think about business growth. I’m curious to see if it changes yours after reading this post.
Brian Balfour is a former VP of Growth at HubSpot and the founder of Reforge, a program for tech professionals to advance their careers. On his website, he presents a framework for how businesses get big.
He categorizes companies into two buckets:
Tugboats - where growth feels like pushing a ball up a hill
Smooth Sailors - where growth feels like a ball rolling down a hill.
And he says that companies often try to become “Smooth Sailors” by obsessing over “product-market fit.” By product-market fit he refers to the degree to which a product or service satisfies the needs of a target market.
You can tell when you’ve achieved product-market fit from the explosive growth that follows from it. As Marc Andreesen says,
“You can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it…Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can…Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.”
A good example of product-market fit is the early days of Facebook when it attracted over 22,000 photo-views and 450 visitors in the first four hours of its launch. Clearly the student directory (the product) satisfied the needs of other Harvard students (the market), hence the surge in traffic. It was the early signs of product-market fit.
But Brian’s central argument in the article is that product-market fit alone isn’t enough to become venture scale.
And that there are a number of other “fits” that a company has to get right in order to grow quickly. The most important one is a term he calls “product-channel fit.”
What is Product-Channel Fit?
Brian argues that all products must find both “product-market fit” and “product-channel fit” to succeed. By channel he means how you will drive traffic to your business. Examples include partnerships, ranking high on Google, or paid ads.
The reason why product-channel fit matters is that distribution channels are like a multiplier on your business. You can have a great product that serves a great market, but if there is no way for the public to find out about your product, then it’s like multiplying your product by zero.
Example: TripAdvisor’s Product-Channel Fit with Google
One example of a company that has found both product-market fit and product-channel fit is TripAdvisor. As a standalone website, TripAdvisor has all the indications of strong product-market fit. Visitors trust their recommendations, travelers write lots of reviews, and travel agencies line up to sell their services on their website. Every stakeholder is happy.
But the real secret sauce to TripAdvisor’s success isn’t their product-market fit but their “product-channel” fit, particularly with how they dominate search results on Google. If you search for any keyword phrase including the name of a location, they always show up near the top of the list. In fact, Google accounts for 52.9% of all of TripAdvisors’ traffic.
If TripAdvisor only focused on product-market fit, they might have a great product that serves a big market. But without product-channel fit, they’d be missing out on over half of their traffic. It’s not just a great product, but their product-channel fit with Google that makes TripAdvisor a success.
The learning here for founders is that founders must treat their business as if it consists of two products:
the product itself and
the distribution channel
And that a great product alone won’t win. Finding product-channel fit ALONG with product-market fit is critical for business success.
The Mistake Founders Make with Product-Channel Fit
Where founders often go wrong is thinking of product-market fit and product-channel fit in terms of silos. This happens particularly when founders say,
“We are focused on product-market fit right now. Once we have that we’ll test a bunch of different channels.”
Brian argues this is a mistake because products and channels don’t exist in isolation of each other. The channel you choose informs your product decisions.
Why Products Must Mold to Fit the Channel
Products are built to fit channels, not the other way around. And each channel has different rules that your product must obey to win that channel. So knowing what channel you want to focus on is important, because the channel you choose affects what features you build into your product.
“You do not define the rules of the channel. The channel defines the rule of the channel.
Facebook defines the rules of what content and feed items appear in people’s feeds. They also define what is allowed via their API’s. They also define which ads get shown and how expensive they are.
Google defines what content appears in the top ten search results. They also control what the top ten search results look like. They determine what ads appear and the rules that govern their cost.
Email clients such as Gmail determine what is spam, what ends up in the promo box, and what the content format is allowed in emails.
You control your product, you do not control the channel. So you need to change the things within your control to fit with the things that you do not control.”
This is true even for audience-building online.
What a YouTuber Told Me About Audience Growth
A YouTuber with ~100k subs once gave me advice on video platforms where they advised me to “know which channels I wanted to repurpose the content on” before I did any filming.
The reason they emphasized this was because of product-channel fit. In this case, the product is the video content, and the channel is the video platform. And each video platform has its own rules that I can’t change, so I have to mold my product (my videos) to fit each channel.
For example, YouTube has its own content style that is longer form, has higher production value, and covers a wide range of categories.
TikTok is also a video platform, but it has its own style focused on shorter-form, entertainment-focused content. It also caters to a younger audience.
Even though you have the same product on both platforms (video), you can’t just copy-paste videos from YouTube over to TikTok because you have to fit your content to fit the channel. This could affect simple things such as shooting in different aspect-ratios, but also affects how you edit the film as well. On YouTube you can afford to have longer intros, but on TikTok you have to cut to the chase immediately.
So this YouTuber was inadvertently giving me a lesson on “product-channel” fit, and how the product has to mold to the channel I intend to post on.
The Power Law of Distribution Channels
Brian makes a pretty compelling case for founders to focus more on “product-channel” fit and not just “product-market” fit. However, he does make a point later that I’m not sure I fully agree with regarding the strategy for testing different channels out.
He first says that channels follow the “power law.” The power law states that the % of total distribution between channels is not evenly distributed, but that a single channel will dominate most of a companies’ growth.
He quotes Peter Thiel in the book “Zero to One,”
“The kitchen sink approach [to testing channels] doesn’t work. Most companies get zero distribution channels to work. If you get just one channel to work you have a great business. If you try for several but don’t nail one, you’re finished. Distribution follows the power law."
He further cites examples of how TripAdvisor, Yelp, Glassdoor, and Pinterest all got 70% of their growth from user-generated SEO.
Therefore he argues that founders should not take a “shotgun approach” to testing channels because it’s likely that one channel will dominate all of a business’ growth. And so founders should focus more on that one power law channel that will drive the majority of their growth.
Should Founders Test Channels with a Shotgun Approach?
I’ve had conflicting opinions on the conclusion that we should only focus on our one power law channel.
First, when we start off, we have no idea which channel is going to be our main distribution channel. So don’t we have to test many different channels to figure out which one will be our main channel?
Second, there’s significant platform risk in depending on a single channel for growth. The algorithm could change, you might get banned, or they pivot in a totally different direction counter to your interests. Then your business could go to zero overnight.
Third, even if 70% of growth from most companies come from a single distribution channel, missing out on the other 30% of growth is significant too. For example, even for this newsletter, the majority of readers are from people clicking my newsletter links directly.
As my list recently crossed 3,000 subscribers, I noticed that I got about 250 emails from the form at the bottom of my personal website, and another 290 emails through Medium. It’s certainly not 70%, but giving up 540 emails doesn’t seem particularly wise either. As founders we need all the growth we can get.
So although I get the Pareto rule, I still wonder if there is value in a shotgun approach to diversify risk and to figure out what our power law channels are.
What Does This Mean For Your Product?
Brian’s statement on product-channel fit is a call for founders to take a step-back from only focusing on product-market fit and consider whether channel-product fit is the missing key to your business’s success. Some implications of this include:
Consider listing all of the different channels you have to grow, and start testing these channels before you build the product.
Consider early on how the channels you want to grow on will affect the features you build.
The “power law” of distribution channels means once you do find a channel that works, make sure to dedicate proportional resources to continue growing that channel.
As Twitch’s founder Justin Kan once said, “A first-time founder thinks about product. A second-time founder thinks about channels.”
Be the second-time founder the first time by thinking about channels sooner, and you’ll save yourself from a lot of frustration. I’m rooting for you!
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