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When is the right time to seek retail partnerships as a hardware startup?

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Retail distribution for hardware startups can be a make it or break it deal for the company. At the same time it takes so much time and energy to get it done and time is your most valuable resource. So how do you know you're ready? Would love to hear from those who have already gone through this process or chose to forego retail partnership.

10 Replies

Damion Hänkejh
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Damion Hänkejh Advisor
Chief Strategy Officer, Director at BOHH Labs
What is the nature of your hardware/product?
Lawrence I Lerner
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Lawrence I Lerner Entrepreneur • Advisor
Digitalization and Transformation Coach
It would be helpful to know more about the product or at least your price point. Will the product take up shelf space (E.g., the size of a Nest thermostat?) or will it require showroom space (e.g., a lawn mower)? Planning and planograms (how Retailers plan the space in the stores) dictates much of the way your product will be showcased. Will you sell eight or eight thousand into each store?

If you have something that they feel really captures consumer attention/wallet share, then it may be placed on end-caps (the front part of an aisle) which is the most desirable space. Does the product require special consideration (like a cell phone or PC that people may explain/play with). Those are all going to require a lot of attention from you to the buyer.

Hope this helps.
Alan Clayton
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Alan Clayton Advisor
Roaming Mentor @ SOSV
Have a read of "Traction" http://www.amazon.com/Traction-Startup-Guide-Getting-Customers/dp/[removed to protect privacy] - nice book about launching a startup. Suggests very clearly that you need to start building partnerships from the outset, in parallel to product development.
My experience (25 years - 1st at WalMart UK, now with SOSventures funding startups) suggests this is a productive approach.
Also you might enjoy this cartoon sequence all about retail distribution for startups herehttp://www.slideshare.net/SOSv/10-hard-hardware-distribution-lessons-deck
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X
Entrepreneur
We are working on a smart home product.
Alan Clayton
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Alan Clayton Advisor
Roaming Mentor @ SOSV
My best advice is - if you apply for a program like our SOSventures HAXLR8R and get accepted, that's a good sign, and that's when you start developing your customers. Don't wait til you have a product to find out there isn't a market !
Brian Hult
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Brian Hult Entrepreneur
New Product Development Chemist, Entrepreneur & Board Member
My last company we initially started to sell automotive performance parts direct via web sales to auto enthusiasts. When we found wholesale distributors for our products we saw sales jump significantly which then allowed us to focus more on the product and building the business. It certainly took time to build the relationships with the distributors, but having some early direct sales helped to shorten our R&D turnaround time to validate the products and also aided in solidifying the distributors confidence in selling the product in their catalogs.
Vanessa Ting
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Vanessa Ting Advisor
Consumer Goods & Retail Consultant. Tech Startup Co-Founder/CEO. Women's Venture Development Leader.
Vanessa Ting
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Vanessa Ting Advisor
Consumer Goods & Retail Consultant. Tech Startup Co-Founder/CEO. Women's Venture Development Leader.
So if I'm reading your question already, you're asking how to identify when your product (hardware) is ready for retail distribution?

Here are some resources for you. Full disclosure, I'm a former retail buyer for Target and product developer from Neutrogena, and now consult on this topic.

Free advice on selling to retailers: RetailTable.com
Free video on selling to national retailers: youtube.com/watch?feature=player_embedded&v=URy3j9DHj2I
Take a quiz on your retail readiness:http://www.retail-path.com/pitchstrengthtool
Submit your product for critique/review by a panel of retail buyers to identify your readiness: Buyerly.com
Chip Royce
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Chip Royce Advisor
Sales / Marketing Leader, Generating revenue / profits / scale for technology ventures
My business with Flywheel Advisors is based around helping companies secure indirect distribution partnerships like retailers.

One of the biggest things that determine your success is being what I call "partner-ready".

In this case, the retail partner isn't just looking at your product, but a variety of different business factors as part of their purchasing decision:
1) Is the product end-customer ready? (professional and complete, packaging, reliability testing, etc...)
2) Can you reliably produce product in volumes for best case sales projections
3) Do you have a reliable supply chain that can get the product to them on schedule?
4) Do you have a scalable service and support structure for both the retail partner and the end customers?
5) Do you have the financial resources to handle late payments or significant returns volume?
6) Most of all, do you have the right team resources to handle to sell into prospective retail partners?

When I was with Dell, I had the opportunity to work with some of the most challenging retailers (TV Shopping networks and the large big-box warehouses) and learned how to navigate these processes.

Tip: One of the best ways to prove that you're 'partner-ready', is to start with smaller online or catalog retailers and get some experience before moving up the 'food chain'
Marco Micheletti
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Managing Partner at Pike Product Services LLC
The response from Chip, above, is right on the money and asks essential questions. From being on the product company side, and taking a product development perspective, here is an extreme example and additional considerations exemplifying the power of the retail channel. My supposition in this example is that retail (especially a big box type retailer) has so much power that they can completely drive or overwhelm the development of a product and can sink you in time and effort to comply with all of the necessary planning to support.

1) Quantity - They can order in such great quantities that it completely consumes your ability to support any other channel you may already have in place - this is pretty risky to take on for a small company just coming out. What if you get that big order, then they change their minds right before delivery? They may have this ability in their terms since their agreement with you is so lopsided in their favor. Now you have a pile of product configured for retail, but you may need to re-divert it into another channel. Can your other channels even absorb this? Do you have any place to physically store it. Have you ensured that you have this ability, or is your product for retail different in any way to any other channel configurations?
2) Packaging...where to start? Did you design your packaging to fit attractively and easily on a retail shelf (or peg)? Does it hang askew, does it fit within the space requirements? Can you fit the right number of units on the shelf at a time - big box retailers sometimes have requirement detailing how many they will want on the shelf at a time (like 3 deep) - so does your product fit 3 deep in the space or peg provided? How about that master packaging - is your master pack of a quantity that the retailer will want to order and hold in inventory? From an efficiency standpoint, it may be great to have 200 of your widgets in a master pack coming from the factory, but the retailer doesn't want to sit on 200 units in one store. You'll need to figure out how to create inner packs of smaller quantities that will get broken down (by who?) as your product moves into the channel.
3) Logistics Infrastructure - do you have the capability to support EDI, or other order management tools and IT integration points with your ERP or shipping SW? Can you generate the appropriate master pack labels, bar codes? Do you have your SKU management system worked out? Is your product serialized or date coded in any way for tracking?
4) Regulatory (not just for retail) - do you have your FCC, UL, CSA, ASTM, battery certifications, or other testing passed and documented as needed on the product? Even if your product does not require UL, for example, a retailer may just say that UL is requirement for all products they bring in.
5) Shelf Placement and Fit - how much space are you getting or even buying (that's right, sometimes you have to pay them for space on their shelf - and those isle end caps, they don't come for free)? You are now competing with the likes of P&G, Coke, Pepsi, J&J, Unilever (these companies' copy writing teams have a bigger budget than the total investment in your company). Is your price point so low, that you are places in the space right on the floor of the store where nobody can see, or on the top shelf where it cannot be reached? Given the typical 4-5 shelfs in a given isle, each level will correspond to similar price points. For example L1 (bottom) will be <$10, L2 $10-25, L3 $25-35, L4>$35. Given this pricing structure, the linear width allowed, shelf height, and desired number of boxes on the shelf you can practically reverse engineer your product to fit on the shelf and define the feature set (I've literally have had to do sit in development meetings to determine if we could afford to put a $0.50 feature into a product that was going to sit on particular shelf level - price point target).

We haven't even talked about if your COGS structure can support retail and distribution channels, how else retailers may nickel and dime you (take back allowances, old stock return) or just completely sink you if you put a product out that has a quality or regulatory issue (do you know for certain if your factory in China use paint with hexavalent chromium in it?).

None of these challenges are insurmountable given the proper experience, planning and resources. As a start up, you may have better uses for your time or money before getting into big league retail. Are you ready for it?
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