Startups need dual theories on distribution and product/market fit. One is not enough
It’s hard to be a product without a strong theory of distribution
Here’s a common startup situation. A team busts their ass for months building the first version of their product. It’s almost done. Now a big question emerges — how do you get the first people to use your product? Hmm…
If you find yourself at this moment, then you are already in a bad place.
99% of startups are not differentiated on their underlying technology, and there is very little engineering risk involved. (I’m ignoring deep tech and foundational AI research companies, for the sake of this conversation). Because technology differentiation is no longer a real factor today start ups, it turns out that most products are succeeding or failing due to core product/market fit followed by the distribution strategy. There are over 9 million mobile apps. There are a billion websites. Figuring out distribution is key.
Dual insights needed
This is why I think startups end up needing both:
1) an insight about customers that gives them product/market fit
2) an insight about distribution that creates traction
People building products often have an easier time product/market fit because they are building for themselves, or a customer that they already know well. But the latter, about distribution, is often super difficult because once you onboard your friends and family, and look to expand the next set of hundreds of customers, you then dive into the world of growth marketing strategies and tactics which are its own very particular learned skill set.
The role of disruptive platforms
Sometimes when there’s a new breakthrough technology, as with what is happening in AI, or the Apple vision Pro, or Web3, it’s simply enough that the product has a “it works” feature. By simply being there on the scene when adoption of a new platform is happening, distribution happens automatically. I think that’s why we see that so many new great startups are launched right at the beginning of the platform.
But what happens when you are trying to launch the 9,000,001th mobile app? The first thing you do, naturally, is to try to read what’s out there. The other counterintuitive thing, is that although most of the knowledge in writing out there pertains to channels like SEO or paid marketing or influencer campaigns, many of these tactics best fit already successful products that have money and aim to accelerate growth. Many of these tactics simply won’t apply to you because they’ll be too expensive, or they will use mature marketing channels that just won’t be that effective. I often joke that by the time there’s a case study about a new marketing tactic or channel, the advantage has already been arbitrage away, and probably no longer works.
So what should you do instead?
Examples of products with natural distribution
Ideally the product and the distribution hypotheses happen at the same time, and reinforce each other. The Dropbox founders describe to me at the inception of their product, that sharing folders was part of the vision and was built in quite quickly. And later years this drove a significant amount of growth. Uber has natural virality because you often ride in a car with other people, or you ride a car to see somebody, and naturally you’ll mention the service. A product for creators, like Substack, will naturally encourage people on the platform to write and share content, attracting an audience who ultimately may also be writers themselves. Zoom, and other apps that help collaboration in the workplace, have natural features that cause you to bring in your coworkers as you use the product experience.
These are all examples of the best form of distribution, which are baked in to the product idea itself, rather than bolted on at the end.
The first set of users
Even once you have a basic theory for how your product will naturally distribute itself, you’ll still need to identify the first generation of users to help iron out all the issues, and give you feedback on whether your hypotheses were correct. In my years of studying new product launches, I can confidently say that the early years are often very idiosyncratic, and constantly changing. The reason for this of course is that marketing channels change all the time, but subscale ones that help you get your first couple thousand users, change even more so.
A few years ago you saw a trend were products would launch a huge conferences like SXSW. These days you see more effort on getting influencers involved early. Or “building in public” which makes yourself into an influencer. Several years ago many consumer products (like dating sites, new photo apps, etc) would launch on college campuses via the Greek system, because they were organized ways to reach thousands of undergraduate students. These days the organizations are often inundated with start up requests, and it’s become less effective. As a result all of these initial channels change all the time, and it’s up to the founders to figure out how to take advantage of what might work today.
The problem with these initial channels is that they eventually tap out.
The journey from channel to channel
Thus starts the journey of startups to grow and expand their portfolio of distribution channels, beginning with small and highly relevant ones, into the biggest channels.
I sometimes imagine a X Y axis, where X is volume of the channel, and Y is responsiveness. Early channels are often very low volume. But you want that. The reason is that they are highly relevant and they are small enough that larger companies do not focus on them. As I mentioned influencers are often an example of this, but so are niche newsletters, or or event marketing. However if you find this channel to be successful, you’ll also eventually one more scale. This involves you jumping onto the next set of channels, which will provide more volume but be much more competitive as a result.
Often times this is a period where you have one channel that kind of works, and you’re testing a few other channels simultaneously. Your efforts here should be experimental and iterative. You can often look at direct competitors as well as adjacent products and see what they’re doing, to inspire you on the right channel. The natural cadence of products will indicate to you the channels that are most likely to work. If you have episodic usage, you’ll probably need to do SEO/SEM, affiliate, or referral — something that helps you target high intent users. If you’re product is social or helps with workplace collaboration, then you might lean into referral programs and viral growth. Products in commerce naturally lead you towards paid ads, contact creators, etc. You can often learn a lot by talking to other people in your industry or an adjacent industries to see what works.
This is where sometimes I’ll see people working on episodic usage apps, like travel/health/etc asking the question, how do I make my product virally? I want free users! Of course the problem is, there’s a natural fit between a product and it’s distribution channels. Even though you might want free distribution, only very specific niches of networked products are able to grow freely. Generally everybody else must pay for their distribution, whether via referral or advertising.
Moving to volume-driven channels
Eventually you want to move on the XY axis towards volume. There are only about a dozen large scale distribution channels that can propel a product to scale. Advertising is on that list, SEO too, and so is viral growth. But these larger channels, by their nature, are both highly scaled but also have low responsiveness. As a result, you end up competing with some of the most famous brands in the industry as a result. Who wants to buy ads against the same audiences as major credit card or airlines? They have insanely high payback periods, and huge marketing budget, and are not that cost sensitive.
Ironically, this is where great products become to dominate. I started this discussion with the dual requirement of product/market fit, and distribution. But in the end, product/market fit actually dominates.
The reason is the following — the ability for a company to operate out in these most expensive and highly scaled channels comes from having a great product that generates a ton of word of mouth. More natural usage, the less marketing that has to be done. And the marketing costs that do exist end up being blended in with the large number of organic users.
The journey of a new product is to move, from unscaled and relevant, to highly scaled. And at the end, great products win.
PS. Get new updates/analysis on tech and startupsI write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.
Views expressed in âcontentâ (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, âcontent distribution outletsâ) are my own and are not the views of AH Capital Management, L.L.C. (âa16zâ) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.
The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.
Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16zâs investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitzâs investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.