Distribution-led innovation: Harnessing the most untapped, unfair advantage of big corporations

Big corporations are utterly blind to their biggest competitive advantage over startups.

No, it’s not “being big”, having loads of money, nor having a trusted brand. All of those things can help, but more often than not, they stifle innovation as much as they enable it.

The gold mine that big corporations have – the one thing an agile, fast, tech-savvy, hungry startup can only dream of – is distribution.

Having distribution means being able to reach loads of customers directly, with ease, at low cost. That’s an enormous advantage when it comes to successfully launching new products and services, aka innovation.

But most BigCos don’t leverage their distribution advantage to full effect, because they don’t recognise its immense potential. They don’t use their customer base to harvest insight about new customer problems to solve. They don’t try to sell new or different products or services to existing customers. They don’t test new value propositions continuously to learn what resonates with customers’ needs and wants. It’s like having a magic wand and not bothering to use it!

Enter "distribution-led innovation"

I am here to coin a new term today: distribution-led innovation. This approach to innovation starts with a distribution advantage first and foremost, and then goes searching for ideas and venture cases that depend on said distribution to succeed.

Most ventures will benefit from distribution, but some absolutely require it to succeed. The latter are what the distribution-led innovator is looking for. After all, if you have monopolised the distribution, the opportunity is only available to you.

Distribution-led innovation can be done in any company that has an existing customer base. The more customers you have, the better your odds are to succeed with distribution-led innovation.

Some obvious sectors where distribution-led innovation can lead to enormous value generation are e-commerce, telecommunications (where there is – literally – a direct line to millions of customers), and retail. For example, everyone understands that Wal-Mart or Amazon have huge distribution advantages over competitors when they launch their own products. But it doesn’t stop there – any big company, regardless of industry, can do distribution-led innovation, so long as it has existing customers.

Consider less obvious sectors like banking, insurance, and airlines, for example. Any bank could build useful fintech products based on insights from their existing customers, and then distribute the new products to the customers they know will need them. Any insurance company could move beyond merely insuring against damages towards services that offer proactive protection and maintenance of customers’ assets, and then distribute those services to their existing customers. Airlines could upsell something more valuable than spirits and tobacco to their millions of monthly passengers, for example services that happen on the ground while you are at 10.000 feet.

Distribution is exactly what startups are looking for, and are struggling to get. Buying distribution if you don’t already have it is expensive, and drives customer acquisition cost (CAC) way up. As all founders know, startup business models crack when you reach too high a CAC (yes, that’s a rap verse in the making for y’all).

This leads to a (somewhat sad) iron rule of business: a mediocre product with amazing distribution often beats an amazing product with mediocre distribution.

One company that has understood this at a deep level is Microsoft. Their whole playbook over the last few years has been to make shitty copies of great software products like Notion, Miro, Asana and Slack, and then add those copies to the MS365 suite to be distributed to all 365-customers immediately – seemingly for “free” in the customers’ eyes. All the companies that already pay for MS365 will then cancel their other software subscriptions, because they don’t want to pay double for two similar-ish solutions. Of course, a year or two later, the price of the 365 bundle is increased to “reflect the added value of the new services”, leaving Microsoft the winner, the innovative startups the losers, and millions of corporate employees frustrated with bad software. Distribution like that can beat great competitive products to death, over and over again.

(Ironically, Microsoft itself grew from a scrappy startup into a monster company big by piggybacking on IBM’s distribution power, after signing the most epic deal in the history of computers in 1980. Bill Gates is a master of distribution-led innovation).

New ideas can be bought for money, but distribution is priceless

To sum it all up, big corporations have distribution, but are notoriously bad at identifying, validating and pursuing new business opportunities that can leverage that distribution power.

Startups, per definition, pursue new business opportunities, but notoriously struggle to get the distribution those opportunities deserve.

Unfortunately for the startups of the world, and fortunately for the BigCos, distribution is harder to buy than new business opportunities. New opportunities are readily available for purchase from effective innovation consultants, or from startups ready to exit. Immense distribution power on the other hand, often cannot be bought for money, no matter how much venture cash a startup can raise.

Don’t let your distribution power lay idle. Use it to win.

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