What's Better Than Product Market Fit (PMF)? It's Product Market Distribution Fit (PMDF) | Tips For Negotiating Valuation With Investors | VC Remote Jobs and More
What's Better Than Product Market Fit (PMF)? It's Product Market Distribution Fit (PMDF) | Tips For Negotiating Valuation With Investors | VC Remote Jobs and More
Product/Market/Channel Fit > Product/Market Fit | Tips For Negotiating Valuation | VC Remote Jobs
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📢 What's Better Than Product/Market Fit? It’s Product / Market /
Channel Fit
As a founder, you always hear everyone talking about achieving product-market fit for a startup, but I think the key is to achieve product-market-channel Fit. But why? Let’s deep dive into it.
The fact is that having a great product is useless unless you also have the right channels to sell it through. This is particularly true with some sorts of businesses — a winery, for example, will never get to scale unless the product is carried by one of the large distributors (with alcohol, the 3-tier distribution system is actually mandated by law). Medical products are also controlled by a few large distributors. Or if you’re a startup selling a mobile app, your distribution relies completely on the iOS and Android app stores. You’ll never make it if you don’t optimize your presence in that sales channel.
Startup with better distribution usually beat a better product so investing early in sales and marketing will help you achieve your business goals.
Today, of course, many companies sell directly online instead of through traditional resellers or retail stores. And yet distribution still matters — putting your product on Amazon will get you 1,000 the distribution you could ever get on your own standalone website. And Amazon charges a toll for that.
So all of this really boils down to the one equation: CAC < LTV (Customer Acquisition Cost < Life Time Value). If you don’t have efficient distribution then your Customer Acquisition Cost will be too high. And if you have to pay a toll in order to get distribution then the Lifetime Value of a customer will be lower. But Distribution ain’t cheap.
If you are aware of this - Apple decided to stop selling through retailers and open their own branded stores instead. It was a dicey move because they were giving up the distribution of Best Buy, Circuit City, and all the rest.
But Steve Jobs said, “We sell a premium product and we need to take control of the customer experience in order to get the premium price”. So in essence he went from a low-cost low-margin distribution model to a high-cost high-margin distribution model. And this decision worked out really well.
Licensing can also be a way to get distribution. A famous case study from history is consumer videotape systems. Betamax, owned by Sony, was the superior product. But VHS, the competitive system owned by JVC, ended up winning because JVC got distribution by licensing VHS to all the other companies making video players. One of the examples is when Google first released the Android operating system, Apple had a big lead with iOS. Google decided to distribute Android by licensing it to other smartphone companies (so that Google would get the search traffic). Today the worldwide market share is 73% Android and 27% iOS. Distribution matters.
The point of all this is that while entrepreneurs are working hard to get Product/Market Fit, they should also be experimenting with various distribution channels. The laws of economics say that your startup will fail if you don’t get to CAC < LTV, and ultimately the driver for that is Product/Market/Channel Fit.
I hope this will help you to get some new ideas and what’s better to focus on - PMF Or PMDF. What do you think?
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📢 Featured Article: Critical Tips For Negotiating Valuation With Investors.
Recently I came across an amazing article on negotiating valuation with investors. I observe that most of the time founders face this problem while negotiating valuation numbers for their startups. So, I am sharing some tips from that article -
Resource: Google Images
Strategic Pricing in Negotiations:
The initial price you propose during negotiations, whether you're a buyer or seller, carries significant weight. It can establish the framework for the entire discussion. Hence, it's crucial to approach this step with a clear understanding of your startup's true value. Setting the bar too low might lead to undervaluing your business while starting too high could create resistance and hinder productive negotiations.
Leveraging Alternatives for Negotiation:
The presence of alternative investors or funding sources provides a powerful bargaining chip when negotiating your startup's valuation. This competitive advantage allows you to explore multiple options, compare offers, and ultimately secure the most favourable terms for your business. However, it's essential to have these alternatives in place before the negotiation process begins to maximize their effectiveness.
Valuations' Real Benefits:
Conducting early valuations for your startup offers a multitude of advantages. It precisely assesses your company's assets, enabling informed decisions about insurance coverage and necessary investments. Moreover, it establishes a realistic understanding of your business's market value, particularly valuable if you plan to sell in the future. Eliminating guesswork, valuations showcase growth over time, attracting potential investors and demonstrating your competence in running the business.
In-depth knowledge is Key:
Deep comprehension of your startup's value serves as the cornerstone of successful negotiations. Being well-prepared with a comprehensive understanding not only prevents you from undervaluing your business but also instils confidence in investors or buyers. However, it's essential to remember that while valuation is pivotal, the terms of the investment can significantly impact the overall deal.
Conclusion
Recognizing the worth of your startup is pivotal in negotiation scenarios. Thorough preparation, backed by comprehensive knowledge, equips you to navigate these discussions effectively. Remember that both valuation and investment terms play crucial roles in shaping the outcome of these negotiations.
If you want to read the full article - here is the link.
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