Distribution

Execution is hard, and distribution is one of the hardest (and not surprisingly, least understood) aspects of execution.  Peter Thiel gives the subject of distribution an extremely thorough treatment in CS183 Lecture 9, “If You Build It, Will They Come?”, including mathematics, psychology, and market-specific models.  Rather than trying to summarize the extensive substance of the lecture, I’d like to focus on how you might think of the distribution challenge as an engineer, in the context of the Your Future series.

Thiel begins by addressing the most basic question – what is distribution? Surprisingly, many people can’t give you a coherent answer, and if they can, there’s a very good chance they underestimate its importance.   If we agree to define distribution as how you get a product out to customers, it becomes a bit more concrete why there’s so much misunderstanding around the topic.  It’s especially difficult when you’re creating software or other technologies that require meaningful user engagement.  If you think of distribution as just getting a product into users’ hands, you’ll likely fail – either because you assume that a product will get used just by virtue of being available, or that the product will remain in users’ hands once it’s reached them.

If you look at two of Thiel’s biggest success stories to date, PayPal and Facebook, you’ll find two companies that nailed distribution, and in very different ways.  It’s worth noting that online payments and social networking sites were both extremely noisy spaces when PayPal and Facebook joined the fray, and neither company had first mover advantage (though as Thiel discusses elsewhere, this may not be such an advantage after all).  Also significant is the fact that online payment processing and social networking sites are both fairly easy to prototype and hack away at.  Of course both PayPal and Facebook hired outstanding engineers and eventually encountered (and overcame) serious technical hurdles – security/fraud in the case of PayPal and scale in the case of Facebook – but I’d argue that those problems only emerged because they got distribution right first.  

As Thiel calls out early in the lecture, engineering bias works against you when it comes to distribution.  As engineers, we are conditioned to think that great products will just reach consumers by virtue of being great (and there’s a dangerous tendency to assume that your idea of “great” is representative).  The concept of a product being “so good it sells itself” is universally appealing - and universally incorrect.  It just doesn’t happen.  It is possible to create an environment where the best idea wins within the confines of your own company, and I urge you to retain this form of idealism, but any market is a fundamentally irrational place, and you need to make peace with that fact.  

Another major difficulty is that so many young engineers in Silicon Valley have been spoon-fed a massive user base, either because they joined a company that already had one, or they piggybacked on one.  Of course, this is a valid distribution channel – the path of least resistance is by no means the wrong approach.  The problem is that it skews the way you think about design and innovation.  Most engineers in non-entrepreneurial roles haven’t had to think about distribution at all.  And that’s fine, as long as you realize that you started on 3rd base and didn’t hit a home run—not for the sake of your ego, but for the sake of your next venture.  You have to approach the might distribution challenge with the humility it deserves, so suffer at her hands.

Whether distribution can really be “engineered” is a topic for another day, but it worth thinking about what makes engineering different from sales, and for the aspiring founder, this is one of the biggest takeaways from the lecture.  I’m not so much concerned with the merits of different distribution approaches as with recognizing the how the skill of distribution (to include sales) lines up with your and your team’s strengths and weaknesses.  It’s no secret that I’m a huge fan of engineering-driven companies, but it’s not enough to focus on your strengths – you also have to even out the competencies you lack, and chances are sales/distribution is among these.  

Why is this? As Thiel notes, sales is a fundamentally irrational enterprise, and engineers are concerned with rationality and truth-telling.  However, their general discomfort with and lack of aptitude for sales isn’t just about purity of spirit, but also about knowing what to look for.  In many cases, it’s not clear what quantifiable skills are actually involved in “sales.” (hint: this ain’t it: Crazy Ernie).  If you convince yourself that these skills aren’t important, or don’t have a place in the kind of utopian company you want to create, you not only ignore one of the central aspects of distribution, but also create a huge talent gap, because you need at least a few folks with these skills.  Think of it as a special sort of project management skill—the ability to get a distribution project across the finish line.  A crude model, but useful in framing the challenge for us engineers.

There are many risks inherent in the worthy goal of starting a company: team risk, innovation risk, technical execution risk, and business execution/distribution risk.  In addition to the first three, distribution is something you need to be thinking about in the foundational stage, not something to be revisited at an undefined point in the future.  Importantly and subtly, distribution risk affects innovation and technical risk in turn - and every form of risk is ultimately a team risk.  Feedback from the field/your customers becomes the fuel (to your creative mind’s spark) for iterating and conquering – you will be on an empty tank without distribution.  If you’re trying to start something, it’s almost more important to ask who on your team is credible in each of these areas than how you’ll specifically get there.