To Distribute or Not To Distribute, That is the Question!
Monday, Jan. 13, 2014
At the Center we provide business model centric training to our social entrepreneurs (SEs). One element of a business model is sales and distribution. Even in Silicon Valley, with companies working in well established markets, I’ve seen companies struggle with this one. Do we sell direct? Indirect? Inside sales? Outside sales? And as a startup you can’t invest in all of them at once. How do you pick which one is first and then the phasing of additional ones? Our SEs struggle with the same questions. We have seen many solar lighting and clean cookstove companies come through GSBI. They wrestle with the question of are we a design/manufacturing only company? Design and distribution? It is easy to quickly think about distribution because how else are you going to get product out? And you have the illusion of being “in control” of the sales situation. But let me tell you, distribution in frontier markets is HARD.
In our recent trip to Kenya and Uganda we visited two GSBI alumni working to solve the distribution issue, Livelyhoods and Solar Sisters. Both organizations are distributing solar lighting and clean cookstoves, some of whom are also GSBI alumni such as Angaza.
Livelyhoods is focused in urban slums using youth they train and Solar Sisters is focused in rural areas using women they train. Both organizations have learned a lot in the years they have been in existence. Some of the lessons are obvious like commission rates, keeping sales agents involved, objection handling, normal sales related things. Others aren’t, e.g. Livelyhoods learned that even though they have a mobile sales force, youth pick up the products they want to sell for the day and walk around their community selling them, they needed to have a physical store to provide credibility. There are a lot of transients in urban slums, if a prospect bought a product and it didn’t work, where would they go with it? How would they know the sales agent would still be around? I’ve seen this in other developing markets, product quality is so bad that everyone expects things not to work and need to return it.
When we went to Kapchorwa, a rural area in northeast Uganda with Solar Sisters, that wasn’t an issue because everyone knew the women selling them product, in fact their customers invited the Solar Sisters microentrepreneur and us into their homes.
For a product design/manufacturing company to learn all these sales and distribution lessons, it would be very expensive. That said, as a former product person, I know the value in “hearing from the customer”. Getting product feedback is paramount to iterating and continuing to build great products.
In our short time of walking around the rural areas of Kapchorwa and going into people’s homes to see the solar products they bought we learned about how the lights were used, and abused by our western standards, but it is the reality on the ground. For instance, I have two bedside lamps, and that is where they stay, by my bed. I also have a desk lamp that stays on my desk. Many of these people had bought one small solar lamp, that was moved around from room to room, being connected and disconnected many times a day.
From this we learned two valuable things. It behooves the product companies to meet with their distributors on a regular basis to get on-the-ground feedback. In this case they would learn that durability of the connectors is very important for the longevity of the lamp. Both Livelyhoods and Solar Sisters said that some companies whose products they sell ask for feedback but it isn’t systematic.
Again, wearing my product hat, getting this kind of feedback is critical to product success and it doesn’t cost nearly the same as having boots on the ground. The other thing we realized is there is an opportunity in the market for service repair and Village Energy, who is currently going through GSBI Online, has identified that.
We take market systems for granted in the US. For instance, cars, there are organizations that manufacture, others that sell, others that service, some that sell and service, some that provide financing for them, others that do after-market adjustments, etc.... The reality is that our SEs, working in developing countries, don’t have the luxury of operating in a well-established market system. Not only do they have the difficult job that every entrepreneur has, creating and building a killer product or service, but they either have to create the market system themselves or find others that are fighting the good fight in frontier markets to partner with.