The earlier you think about distribution, the better

At Startup Launchpad, we help businesses when they’re finally ready for distribution, but it’s not always clear to startup founders and managers when they’ve reached that threshold. We can’t tell you when the time is right for you to seek distribution beyond your shores, but Peter Xie, founder of VentureFace, does have tips in this area.

In an interview with Startup Launchpad, Xie discussed the topic of getting from initial funding to distribution. Xie’s perspective comes from someone who has spent years working with hardware startups and now runs a company that helps startups expand to the Asia Pacific market. Xie has his own views for why startups should be considering APAC for their first international market, but his advice can apply broadly to just about any hardware startup.

First and foremost, startups should be thinking of distribution as early as possible. Early on in a startup’s life, distribution may seem like a remote dream. There are so many other concerns at this stage from research and design to manufacturing and quality control.

It might seem like there’s just no time to think about distribution strategies at this point, but it’s actually very important to consider how distribution will affect your product. When doing market research, try to identify markets that have the most enthusiastic support for your type of product. Consider how the price of the product, which must be marked up three to six times the product cost, will work in different markets and among different distributors and retailers.

Before a startup is ready for international distribution, though, it should be selling in its home market for about a year. This is after initial funding. So after crowdfunding and pre-orders, sell your product directly to consumers through a website and Amazon. Get to know the consumers. Take note of return and defective rates. This data is important for future funding and distributors.

Generating sales also means bringing in revenue that can be invested and it attracts investors who can see that a startup has an attractive product. For a small electronic product, which Xie defines as under $300, a startup should be looking at generating around $500,000 to $1 million in sales before expanding abroad.

This is enough time and money to break into APAC markets, according to Xie, but larger “continental markets” such as North America, Europe and China require two to three times as much time and revenue before expansion makes sense.

Extra resources are important when dealing with traditional retail channels in mature markets like The US. Big-box retailers generally rely on consignment for putting goods in their stores. This means startups need to manufacture tens of thousands of units without seeing revenue from these channels for several months. The terms of these retailers can be burdensome for a young, lean startup.

This is why Xie has focused his attention on APAC. While the countries in this area do not represent a single market, as is the case in Europe, it is much easier to negotiate terms in these markets that are favorable for startups.

VentureFace has spent time building connections in these different markets. It helps with marketing and finding the right distribution channels, as well.

While these markets are certainly much smaller than North America and Europe, it can give a startup more time to build buzz and revenue. If you decide to go this route, you might find you’re much better prepared when it’s finally time to make the leap into the likes of Best Buy or Target.

This is Xie’s reasoning for VentureFace, at least. Some startups may be ready for continental markets earlier than others. For those companies, Xie’s advice offers some realistic guidelines for how to get there.

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