Distribution is Diamond.
Distribution. Distribution. Distribution.
I read a tweet on twitter, as I often do, written by some wise person who I do not know or remember:
“First time founders obsess over product, second time founders obsess over distribution.”
It stuck in my head, and it has been knocking around in there for months. Something about it was so wise, I pictured Yoda saying it like:
“Over product first time founders obsess, you do, over distribution second time founders obsess.”
And yes I used the “Yoda to English” translator located here.
“Distribution”. It’s a word that means nothing and everything. In the startup world it can be grouped together with words like ‘scale,’ 'network effects’ and 'zero to one’. It’s one of those words that people who understand it say, and then people who don’t understand it, also say.
I collect comic books. I always have. In college I spent so much time in “The Secret Stash” which sounds like an XXX shop, but is actually just a comic book store, started by Silent Bob… well I spent so much time in the store that they offered me a job. Instead, the following year I took a job as an intern at Boom Comics, now called Boom Studios which is a comic book company that makes comics. My internship was geared towards calling stores to see how the comic books were selling. I learned a lot. Telemarketing gets you ready for all sorts of rejection.
What I didn’t understand at the time though was that in order to get one Boom! Comic into a store, it had to go through a distributor. And the craziest thing about the comic book industry is… there’s only one!
It’s a widely known secret in the industry. There’s a monopoly on comic book distribution. This means, no competition. One company - Diamond Distribution - controls all the rails for physical comic books to be distributed to stores. They control the pricing, they control whether or not they will distribute a comic. They control the market.
To be fair, I’m a capitalist and monopolies are great businesses. CocaCola and Pepsi are a duopoly for sugar water distribution. Panini Brothers in the trading card market own 100% of the NBA trading card distribution and rights. You could argue that Google is a Monopoly depending how you slice up the “ownership” of indexing content.Monopolies. Monopolies. Monopolies.
You know, John D. Rockefeller, the Oil Titan who built Standard Oil to be the most powerful company on the planet believe that Monopolies were the best model for the American people to live their best lives. I mean… I would believe that too if I controlled the oil market.
At one point, Rockefeller had to figure out how to distribute his oil across the country, and the only rails that were in existence were real rails… the train companies. So he negotiated a deal with all of them, where he got a ridiculously low rate because he would be sending an incredible amount of oil through the train all the time… the only thing was that he didn’t have the supply side of the deal covered yet… So what he did was he sold his super low deal to his competition at a premium.
He was able to cover the supply, while controlling the deal that competition had… however at the same time that this deal was in place, he began to build his own oil pipelines to make his deal with the trains irrelevant… he wanted control.
Your company is either an interface for someone else’s rails or you are trying to own an interface and the rails.
I think an important thing to think about, when considering the difference between a first time founder and a second time founder, is that a first time founder normally just obsesses over their product interface to solve the problem that is in front of them for their customer.
e.g. If I am a comic book retail shop, I’m focused on selling comic books to consumers. I don’t think about how the creators of the comic books need to work with the distributors in order to get the comic book to me to sell the comic books to consumer. I just want to make consumers happy.
Second time founders, they realize that their first comic book shop failed because of a flaw in the supply chain of getting the comic books to the retail store. They realize that they were a victim of someone else’ system that was in place before them, and they realize in order to establish control, they need a wider grasp on the market.
I’m sure there’s more to discuss on the topic of distribution. I’m going to try and think about it more deeply and come to more firm conclusions. I would love any thoughts on this, I think that there’s a lot for a startup founder to learn when thinking about distribution, rails and the end customer.
Reply to this email with thoughts or feedback.
By Adam Draper
I ponder as a VC.
It's a quick one minute read to make you think, smile, or laugh.
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