RL39: The Most Important Business Lesson I Learned in 2022

Hint: it's why I launched this newsletter & post to social media

Jan 31, 2023

Welcome to the 1 new subscriber who has joined the Retained Learnings community over the last week. If you haven’t subscribed, join 955 intelligent, curious people on this journey by subscribing here -

Fan of this work? Click here to buy me a coffee to say thanks only if you can afford it.

The most important lesson I learned in 2022 about business was to think about business from the perspective of distribution channels.

What is a distribution channel and why is it important?

We’ll get there, but first, let’s explore what wrong looks like.

How novice founders think about business

Novice founders typically make the following mistake -

Visualize a cool product or service
Flesh out the features
Set pricing
Target customers
Start selling

I know this method of starting a business first-hand because I made this mistake with my first startup, Paintru.

Paintru takes your favorite photos and has them expertly hand-painted by a professional artist from a network of artists we painstakingly assembled.

Paintru portrait of a child and her horse

They make fantastic gifts for special occasions - weddings, anniversaries, major holidays, graduations, retirement ceremonies - we have painted for each of these special occasions.

We sell one product - a custom painting - that can be applied to a myriad of use cases.

As an amateur founder, I thought this was a strength.

There are so many people and ways we could sell the product - this versatility is a strength, right?

WRONG.

We didn’t have a target customer who was clearly defined and in desperate need of our product.

OK so thinking of the product/service first is a mistake. What’s the right way to launch a business?

Start with the customer

Entrepreneurship books will tell you to start with a specific customer - the more specific, the better.

Rather than trying to sell to everyone, it’s better to sell to only a select group.

Good: Private equity funds
Better: Private equity funds with $50 - $250m in AUM
Best: Healthcare private equity funds with $50 - $250m in AUM

This is counter-intuitive, but an important point - why sell to a niche rather than something with general appeal?

Two reasons -

Easier to target
You can tailor my product to a very specific problem
You can charge more when solving niche problems (more on this in a future post)

Identifying a target customer you enjoy serving will save you from the discomfort of launching a business and retroactively working to find customers for your solution.

Hath anybody seen my customers? Painting courtesy of DALL-E 2.

Where do I find these customers?

OK - here’s where things get interesting.

If we launch a product for a specific customer, we can begin planning how to reach those customers.

Ideally, you already know them.

Which of these two founders do you think will succeed when they go to market?

A used car salesperson launches a company selling software to car dealers. She has worked for 5 different dealers in her career, and has 25 car dealership owners in her phone.
An undergrad student launches a business targeting ultra high net worth individuals with a new financial services product. They do not know any UHNW individuals.

It should be pretty obvious that founder #1 will have an easier time getting ahold of their customers and designing a product that serves that customer well.

What about after founder #1 has talked to all 25 dealers they know?

Distribution channels - how to reach your customers

Distribution channels are how your product reaches a customer.

Here are some examples -

Direct sales
Through a retailer
Direct to consumer

More holistically, I think of a distribution channel in terms of both where you will sell product, but also how you will find more customers.

Where do your customers get their news? How do they make purchase decisions? How will you reach them and attract them to your business?

These are the primary questions I ask early stage founders so that I can confirm they will solve their hardest problem - making their first sales.

How I Think of Distribution Channels

My channels are -

I post to LinkedIn daily to attract transitioning veterans to our events and build credibility/authority with sponsors & clients
I write this newsletter to attract entrepreneurs and future founders to invest in
I post on Instagram for transitioning veterans

Maybe next week, we’ll talk about the how to use these channels effectively. Let me know if that is of interest.

What are your distribution channels?

Who are your customers?

Do you have a business you’re thinking of launching?

Are you thinking about product/features or customer/problem?

Hit reply and let me know your thoughts.

Best,
Brendan

PS - I’ll be in San Francisco all week for our startup conference - let me know if you are joining us or want ot grab coffee.