If You Build It, They Probably Won’t Come

I probably have met with over 100 start up entrepreneurs this past year and with each of them I asked “how do you plan to solve distribution?”.  I was incredibly fortunate to have built Community Connect Inc. during a time when you built unique and valuable Web properties then people would just come.  There is so much noise out there now that the strategy of getting to your end customer needs to be well thought out and executed.

A common piece of advice that I offer entrepreneurs is to find distribution opportunities where there is much greater supply of accessing your customer versus the demand.  Time and time again, you see businesses that take advantage of a temporal period of such distribution dynamics and build their companies to scale giving them a long term competitive advantage.  Here are some examples:

1. Zynga – there was once a time when Facebook allowed you to build apps on Facebook and basically massively spam your friends who in turn would spam their friends.  They basically built their business on the largest free and legal spam platforms.  Zynga’s massive success was born from taking advantage of that opportunity and growing Farmville to over 80 million Monthly Active Users.  Eventually, Facebook changed their rules of how you can message users and that SPAM opportunity  quickly went away.  However, with that initial large user base, Zynga has been able to replenish their stable of games and maintain their customer reach.  At the same time, other game publishers are locked out from building their own large customer base.  The Facebook spam window closing has created a massive barrier for other social game providers to penetrate the market!

2. LegalZoom – I had the pleasure of meeting with Brian Lee this past summer.  Brian is a very successful serial entrepreneur who founded LegalZoom and most recently founded ShoeDazzle.  Brian told me a story of when LegalZoom first started that they were one of the first to try PPC advertising on Search Engines.  At that time, GoTo.com was the only player in the space and they were able to buy clicks at $.01.  To give you perspective, I am sure the terms they were bidding on are now fetching PPCs that are well north of $1.00.   GoTo.com was hosting a user group meeting of some of their most active customers.  Brian was sitting next to someone who asked him how many different keywords he was buying.  Brian thinking that he was a pro at SEM (Search Engine Marketing) answered that they were buying dozens.  He then asked back how many that person was buying and he answered “Ten Thousand”.  Brian was shocked.  He asked that person to show him what they were doing.  Luckily, they were not in a competitive businesses so the person showed him.  Brian went home that night and started expanding his keyword campaigns.  LegalZoom invested heavily in SEM including building their own bidding and optimization technology.  LegalZoom became the leading player in online legal documents by taking advantage of incredibly cheap SEM allowing it build to a level of scale that other players are able to match.

The marketing opportunities usually don’t last long because eventually demand catches up with supply.  However those that take advantage of these opportunities usually build their businesses to a level of scale where they now have more resources to invest in the product and service making them superior to their competitors.  With an existing large installed base of customers and strong brand recognition and less friendly distribution opportunities for their competitors, they then are in dominant market positions.  So as you think of your business, keep abreast of what is happening with the new marketing channels.  Look for areas where there has been a ton of growth in supply because it usually means demand hasn’t caught up.

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