This blog post will give you a fundamental understanding of the key concepts of distribution and marketing for any startup.
Time to read: 4 mins.
I just got done reading Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist – Jason Mendelson and Brad Feld’s definitive guide to venture financing. This is a very useful read for any entrepreneur. What I particularly liked about it is how they distilled the key concepts to a venture deal into two key concepts: economics and control, and branched components from there. As a general overview:
- Liquidation preferences
- Pay to play
- Employee Pool
- Board of Directors
- Protective provisions
- Drag along agreements
I recommend you pick up the book and get an understanding of each component yourself. You can find the link here.
Economics and Velocity: The Key Concepts of Distribution and Marketing for a Startup
Jason and Brad’s service to the entrepreneurial community through their book is tremendous. I wanted to repay them and honor their service by providing my own distillation on the key concepts of distribution and marketing for a startup. In general, there are only two things that you need to know about conducting proper marketing and distribution: economics and velocity. A lack of understanding of these fundamentals gets you down a slippery slope (see yesterday’s post on Startup Coordination for the consequences of ignorance), including getting duped by a duplicitous marketing/distribution partner; but the good news is, these concepts are simple to get.
Economics refers to the profitability of your marketing efforts. Velocity refers to the scalability of the marketing efforts. You have to have both to be successful. Good economics without velocity is a fail. Good velocity without economics is a fail. Achieving a proper balance of economics and scalability that best improves your business metrics is the critical competence here.
The Key Components of Economics
There are three (3) key components of economics: (i) Revenue (ii) Cost (iii) Revenue Realization. More on each:
- Revenue – this is how much revenue you make for acquiring a customer across its (i) revenue cycle, and (ii) lifetime.
- Cost – this is how much it costs to acquire that customer for the first time. Always know this number.
- Revenue Realization – this is the time period you get the revenue in. If you get paid monthly as in a typical SaaS product, your revenue realization is one month.
The Key Components of Velocity
There are two (2) key components of velocity: (i) Time Period, and (ii) Inventory. More on each:
- Time Period – this is how long it takes to run through your ad budget. A typical rookie mistake is to think only in terms of months. If you can spend a budget in 17 days and that provides economically sound returns, and you have cash to do it again, then your time period is 17 days. The implication of only thinking of months is limiting yourself to 12 iterations in a year. If I can double those iterations (roughly from 17 day time periods), then my marketing will likely be better than yours.
- Inventory – this is how often and how much you can use that marketing channel/source. A simple illustration here is that the inventory for billboards is going to be less than media buys.
Economics and velocity are two concepts you should focus on as a startup seeking marketing and distribution. Zone in on those and you build (i) a scalable marketing plan and (ii) give yourself the most leverage in investment.
I’ll leave you with my sketch of the logic trees of both venture deals and distribution and marketing.