In addition to the principals of distribution one thing that falls under this broad discipline of psychology/marketing is the science of habit.
The absolute best book on this subject is The Power of Habit written by Charles Duhigg. This science applies to both personal habits (smoking, exercise, etc) and habits within products (engagement, usage, retention, etc).
Habits are a series of actions that are converted into an automatic routine. A good simple example of this is brushing your teeth. You automatically put toothpaste on your toothbrush before brushing your teeth. You don’t think individually about what you’re doing throughout the process but chunk the whole process of brushing your teeth into one automatic action.
Habits are made up of three components: cue, routine, and reward.
The cue is the trigger that tells your brain to go into automatic mode and which habit to use. The routine is the mental or emotional actions you do automatically. Finally there is the reward which helps you remember the habit and encode it automatically to your brain.
The biggest secret to changing any habit is you can’t directly change a habit but you can replace it with a new habit.
To change any habit you first have to identify the routine you want to change and components that make up to habit. For example I had the terrible habit of waking up to my morning alarm, then going back to bed, hitting the snooze button on my phone, and completely over sleeping. This was the habit I wanted to change.
The second thing to do is experiment with rewards. My old reward I was the reward of getting back into bed the first time I turned off the alarm. The cue in my example is pretty easy to identify as the alarm. In a general sense a cue can be a location, a time, an emotional state, other person, or a preceding action.
The habit/reward combo I decide to use to replace my old bad habit involved doing two things.
The first was I put my phone far enough away from my bed that I was forced to stand up when the alarm came on. The second was I replaced my habit of going back to my bed with checking my email, facebook, twitter notifications on my phone. I forced myself to stand up when my alarm went off and gave myself a new reward, checking my notifications, while standing up. Because I didn’t go back to bed when my alarm went off and forced myself to stay standing with the reward of checking email, facebook, and twitter my body naturally stayed awake afterwards.
I think it would also be helpful to see one more example but around creating, not changing, a habit in the business context. Here is the story of how Claude Hopkins popularized toothbrushing with his product Pepsodent.
Instead of doing what other toothpastes companies were doing at the time, advertising the long term downsides of not brushing your teeth, he instead created a habit of toothbrushing. Hopkins discovered a thin film that naturally coats your teeth each day and advertised Pepsodent as a promise to remove the tooth film and give you beautiful white teeth if you brushed everyday. On top of that Pepsodent contained in its ingredients citric acid which created a cool tingling sensation after you brushed your teeth. This tingling sensation became the reward people craved and the reason they used Peopsodent every time they brushed their teeth.
When looking at your own habits and your companies habits, look at them in terms of cues, routines, and rewards. I promise it will be an eye opening exercise 🙂
I have been studying distribution & reading over 30 books on distribution and I wanted to outline some broad principles I have learned which I am calling the “principles of distribution”.
The best three books on this topic of them all were three historical books:
- My Life in Advertising & Scientific Advertising written in 1917 by Claude C. Hopkins
- Tested Advertising Methods written in 1961 by John Caples
- The Life of P.T. Barnum written in 1855 by Himself
All three of these guys, especially P.T. Barnum, were quite the characters and they were some of the early pioneers into what we now call marketing, advertising, PR, and the ever-so-fashionable distribution hacking.
Very broadly there were three principal methods these guys used to get distribution for new products.
The first is through gaining access to an already pre-existing widespread pool of customers. A good story of this is how Claude Hopkinks marketed Van Camp’s evaporated milk.
Back in the 1900’s evaporated milk was a completely standard product where: none of the existing products had an advantage over one another, a few brands controlled 90% of the market, that those brands held that share for many years against many competitive attempts.
Given those conditions Claude’s plan for getting distribution in this highly competitive evaporated milk market was this. In an advertisement he inserted a coupon good at any store for a 10 cent can of Van Camp’s evaporated milk. In return he paid the grocer his full retail price and for three weeks the advertisement he ran told the personal story of Van Camp’s evaporated milk with the coupon insert.
He sent copies of this advertisement to all of the grocers and told them that every one of their customers was to receive one of these coupons. It was at that point evident that they must have Van Camp’s evaporated milk on stock because every coupon meant a 10 cent sale and if they missed it (remember this is 1900’s money), it would go to a competitor.
The result was universal distribution at once. They first tested this plan in a few small cities and next rolled it out to New York City. In three weeks, in New York City, Van Camp’s evaporate milk achieved 97% distribution in groceries stories in the entire NYC area. Just through this campaign alone 1,460,000 homes were all trying Van Camp’s evaporated milk all in the same week.
The second is through making an offer so compelling, literally on the verge of being altruistic, that no one could refuse your offer. A good story of this is the 1900’s a coffee vendor who sold coffee by wagon in 500 cities who wanted to increase his sales.
His experiment was instead of trying to sell coffee to each person he would drop by each persons house with a half-pound of coffee and say, “Accept this package and try it. I’ll come back to you in a few days and see how you like it.” When he came back, he came with both a small gift and a if the person liked the coffee an order to charge the person 5 cents on each pound he delivered from that point forward.
Instead of trying to directly sell his coffee he offered a free sample, service, a gift, and found that such an offer was resistless. The result was 9 out of 10 trials leading to reoccurring sales.
The third is through creating a situation or stunt so outrageous that every media channel will want to write about what you are doing. A good story of this is how P.T. Barnum bought a old woman named Aunt Joice who was believed to be 160 years old and believed to be the nurse of George Washington (keep in mind this was in the 1830’s and its probably illegal to purchase somebody now, so please don’t try this).
She was bed stricken, blind, and couldn’t move much but she was really sociable and would talk for hours about her “dear little George”. Everyone who came to see her absolutely believed her age and she even came with a “bill of sale” detailing her life story with a guarantee on the claims and her age.
P.T. Barnum made on average $1,500 a week (~$30,000 in todays value) showing Aunt Joice off and using the press extensively to drive people to his showings across the country. He would invite journalists, doctors, and researchers to come study her and write their accounts and his exhibitions attracted tens of thousands of people in every city he visited.
When the novelty wore off and visitors started falling off he would secretly write articles disproving the age of Aunt Joice and even went so far as to claim she wasn’t a human being but a “constructed automation made up of whalebone, india-rubber, and springs ingeniously put together.” After these reports came out thousands who had previously not seen Aunt Joice came out to inspect for themselves if she was real and if they had been deceived.
The result of all the press was always a larger audience at every show P.T. Barnum put on. This specific story might sound a little ridiculous in 2012 but the principal still stands: do something outrageous and every media channel will want to write about what you are doing.
Conclusion. These are the three broad principals used over and over again by the distribution hackers of the 1800 and 1900’s: gaining access to pre-existing distribution channels, offering no-brainer offers, and gaining press through outrageous stunts.
These principals were sometimes used separately, in conjunction with each other, or on varying degrees but in every case tapped strongly into one of these methods.
My goal is to apply these lessons to the 8 products I am helping out with and report back to you with some case studies and real examples on how you can use these principals too. Stay tuned.. 🙂
Last week I offered distribution help to the readers of the StartupDigest Reading List.
After vetting through a few hundred applications here are the 7 companies I’ll be helping out with over the next week:
- Crowdflower’s Image Moderator
Really looking forward to thinking creatively and helping these awesome products out!
Today I am trying an experiment which is a little different and a little crazy.
I’ve been studying and practicing the art of getting mass initial distribution and I want to help others who are going through the problems of getting mass initial distribution for their product with my time and personal perspective.
Here are my only conditions:
- You have to have a good product that has already been built.
- You have to have a committed team around you (doesn’t matter if its 2 or 100 people).
- You have to have the ability to produce your product on your own, no outsourcing.
That’s it. If you’re interested tell me about what your working on here.
We find it meaningful when an owner cares about whom he sells to. We like to do business with someone who loves his company, not just the money that a sale will bring him (though we certainly understand why he likes that as well). When this emotional attachment exists, it signals that important qualities will likely be found within the business: honest accounting, pride of product, respect for customers, and a loyal group of associates having a strong sense of direction. The reverse is apt to be true, also. When an owner auctions off his business, exhibiting a total lack of interest in what follows, you will frequently find that it has been dressed up for sale, particularly when the seller is a “financial owner.” And if owners behave with little regard for their business and its people, their conduct will often contaminate attitudes and practices throughout the company.
This is a post about secret #4 about startups by Peter Thiel. To see all 4 of the secrets start here.
These views and thoughts are all Peter’s and notes are from Blake Master’s. If you find any of these ideas intriguing I suggest reading through the full notes here.
TLDR: The biggest secret is there are many important secrets left. Tweet this.
Secrets answer the question, what important truth do very few people agree with you on? Secrets are the unpopular or unconventional answers to this question.
In a business context, the key question is: what great company is no one starting? If there are many possible answers, it means that there are many great companies that could be created. If there are no good answers, it’s probably a very bad idea to start a company. From this perspective, the question of how many secrets exist in our world is roughly equivalent to how many startups people should start.
Some secrets are small and incremental. Others are very big. Some secrets—gossip, for instance—are just silly.
The purpose of Peter Thiel’s class is to share some secrets about starting a company: Monopolies, Distribution, and Power Laws.
The biggest secret is there are many important secrets left. Everyone used to believe there was many more things to do but now we no longer believe that, its a secret again.
Why do people disbelieve in secrets?
Four primary things have been driving people’s disbelief in secrets.
- First is the pervasive incrementalism in our society. People seem to think that the right way to go about doing things is to proceed one very small step at a time.
- Second is that people are becoming more risk-averse. People today tend to be scared of secrets. They are scared of being wrong. Of course, secrets are supposed to be true. But in practice, what’s true of all secrets is that there is good chance they’re wrong.
- Third is complacency. There’s really no need to believe in secrets today. Law school deans at Harvard and Yale give the same speech to incoming first year students every fall: “You’re set. You got into this elite school. Your worries are over.”
- Finally, some pull towards egalitarianism is driving us away from secrets. We find it increasingly hard to believe that some people have important insight into reality that other people do not.
The story of web 2.0 and the information age has been the story that, on some level, many small secrets can add up and change the world. It’s easy to make fun of things like Twitter. You’re limited to 140 characters. No individual tweet is particularly important. Most are probably kind of useless. But in the aggregate, the platform has proven quite powerful. Social media has, the story goes, played a non-trivial role in great political transformation and even governmental overthrow.
The secret force behind this web 2.0 empowerment is the fact that there are far more secrets that people think. If things are very different in the increasingly transparent world, it just means that they were covered up before. To the extent that things are not transparent, they are secretive. And all these small secrets add up to something very big indeed.
How to find secrets
There is no straightforward formula that can be used to find secrets. You can’t make a list of them so the only thing you can do is develop a good method for finding important secrets.
From this there are two types of secret
- Natural secrets, involving science and the world around us.
- Secrets about people (people won’t tell you or can’t express).
There is something to be said for both approaches. But the importance of human secrets is probably underappreciated. These might be political secrets. Or they might be anthropological or psychological secrets. Here, you just ask the questions and see where they lead. What kinds of things are we allowed to talk about? Are there areas that people can’t look into? What is explicitly forbidden? What is implicitly off-limits or taboo?
On one hand natural secrets are hard but politically safe but human secrets are different, there’s usually much more at stake.
This is a post about secret #3 about startups by Peter Thiel. To see all 4 of the secrets start here.
These views and thoughts are all Peter’s and notes are from Blake Master’s. If you find any of these ideas intriguing I suggest reading through the full notes here.
TLDR: Distribution’s importance is understood least in startups. Tweet this.
Distribution is how you get a product out to consumers. More generally it can refer to how you spread the message about your company.
The distribution secret also has two sides to it. Distribution is much more important than people think. That makes it a business secret. But it’s a human secret too, since the people involved in distribution work very hard to hide what’s going on. Salespeople do best when people do not know they’re dealing with salespeople.
Distribution is the single topic who’s importance people understand least. Even if you have an awesome product you still have to get it out to people.
Distribution isn’t the same for every business
One helpful way to think about distribution is to realize that different kinds of customers have very different acquisition costs. You build and scale your operation based on what kinds of things you’re selling.
On one extreme you have inexpensive products such as steak knives where sales are a couple of dollars each. The other extreme your selling to governments or huge companies and sales are $1M-$50M each. As the unit value of each sale goes up, there is necessarily a shift towards more people-intensive processes. Your approach to these kinds of sales must be to utilize salespeople and business development people, who are basically just fancy salespeople who do three martini lunches and work on complex deals.
The truth is that selling things—whether we’re talking about advertising, mass marketing, cookie-cutter sales, or complex sales—is not a purely rational enterprise. It is not just about perfect information sharing, where you simply provide prospective customers with all the relevant information that they then use to make dispassionate, rational decisions. There is much stranger stuff at work here.
To succeed, every business has to have a powerful, effective way to distribute its product. Great distribution can give you a terminal monopoly, even if your product is undifferentiated. The converse is that product differentiation itself doesn’t get you anywhere.
Understanding the critical importance of distribution is only half the battle; a company’s ideal distribution effort depends on many specific things that are unique to its business. Just like every great tech company has a good, unique product, they’ve all found unique and extremely effective distribution angles too.
Different distribution models
- Complex Sales – Deal sizes of $1M-$500M+ per deal – Examples are SpaceX and Palantir. At this scale is relationship intensive and its important the CEO is upper management is involved in all of the sales.
- Large sales – Deal Sizes of $10K-$100K per deal – Examples are Yammer and ZocDoc. Need to have a more cookie cutter sales process that scales and build out a sales team.
- Missing middle sales – There is a large zone in the middle where there’s no good distribution channel to reach customers. If you get the distribution right in this category you may have a terminal monopoly business. Example is inuit which sells tax software. Now they they are the standard, its probably impossible to displace.
- Marketing/Advertising – Low cost consumer items – Examples Coke, Downey, Zynga, etc – Find a differentiated way to target your customer demographic online. Examples would be Zynga who built their distribution off of Facebook and Google’s ad networks.
- Viral Marketing – Create strong network effects that get every 1 customer to pull in more than 1 additional customer. PayPal got their first 100,000’s of customers through referral programs and viral growth.
Note: The hard part of viral marketing is marketing people can’t do viral marketing. You don’t just build a product and then choose viral marketing. There is no viral marketing add-on. But viral marketing requires that the product’s core use case must be inherently viral.
Usually only one distribution model wins
Power law strikes again – you probably won’t have a bunch of equally good distribution strategies. Most businesses actually get zero distribution channels to work. Poor distribution—not product—is the number one cause of failure.
If you can get even a single distribution channel to work, you have great business.