Tag : opportunity cost

Everything has an opportunity cost. For those not familiar with the concept of opportunity cost, it basically means the cost of not making a given decision (see a more detailed explanation on Investopedia). While a simple concept, the frequency with which it is ignored is often a huge inhibitor on small companies. Small companies, which may lack professional, well-rounded business personnel, often fail to see the costs of inaction. Allow me to lead with an example of one area which is frequently plagued by opportunity cost: distribution.

I was working with a small company who developed products for life science researchers and sold through international distributors where the company had established relationships with distributors, but sold directly to countries where local distribution was not present. This setup created many inefficiencies. Additionally, the company did not actively or effectively market to an international audience, which caused very low sales volume in countries without a distributor present. Distribution was lacking in 6 of the largest 10 economies, and there were entire continents with no distributor present. This was largely due to their approach to the establishment of a distribution network. The company had been waiting for distributors to approach them – a slow and inefficient approach with a high opportunity cost – rather than actively seek out distributors. This policy had the additional side effect of removing any screening process for distributors since the company was effectively not actively choosing who it was working with and the quality of the marketing effort by some of the distributors was very poor, leading to sub-par sales. In other words, their opportunity cost for not creating a well developed distribution network was high – there were a lot of sales that they could have been getting had their distribution network been more complete, however they were not doing so. I had estimated this opportunity cost at about 100% of the company’s then-current revenues – a huge sum for any company.

Taking advantage of international distribution opportunities is a relatively low-cost way of achieving sales. International distributors will often create or translate marketing materials, perform outside and inside sales, and perform other valuable functions, and the process of selecting and signing a distribution partner may take as little as a few hours of work for a well-connected and experienced professional. When considering the massive increase in market access and resulting increase in sales, the few hours or even a few dozen hours of work to find and secure a distribution partner seems a very small cost. It is not quite that simple, however. There are many considerations to selecting a distribution partner and the approach must be carefully considered.

Considerations in Selecting Distribution Partners

The first thing to do when expanding your distribution network is prioritize. Ask yourself: Where is my company experiencing the largest opportunity costs? What countries or regions present the largest revenue opportunities? While just going down the list of countries by GDP can be used as a reasonable general guideline for where the most opportunity lies, it’s a far from perfect method. Some countries, such as Switzerland and Singapore, have far larger life science markets than would be indicated by looking at their GDP relative to to other countries. Others, such as Russia, have relatively small life science markets. There are other more specialized considerations as well. Brazil, for example, has a huge agricultural research market but relatively small pharma research market, so products that are useful in agricultural research may find a large market here while other products may not.

Secondly, make sure you find a distribution partner who’s capabilities and expertise meets your needs. Start off by ensuring that the potential distributor’s focus matches your product offering. For example, if you have a primarily imaging-focused offering, you will likely be best with a distributor that has a strong portfolio of imaging products (unless it presents too much competition within the portfolio) since the company will have a strong competency in this area. If you sell equipment, you’ll be better off with a distributor that sells equipment, etc. Also, be sensitive to how the potential distributors sell products. What is their balance between inside and outside sales and does this balance fit with how your products are best sold? You’ll also likely have to choose between large distributors with many reps, a sizable marketing department, and very complete coverage, or small distributors who will have a smaller product portfolio and therefore will likely be able to give more attention to your products. Many factors weigh into this decision, such as the nature of the products, the competitive landscape, branding, the culture of the distributor, the distributor’s product portfolio, and many others too numerous to discuss in depth.

[td_titled_box title=”Food for Thought”]Do you have business partners or friends in other companies who do not compete with your company but serve a similar market? They may be able to offer great recommendations for distributors and even introduce you to the right person. Don’t be afraid to ask![/td_titled_box]

Of course this is just a brief overview and there are many other considerations not discussed here. Feel free to call or e-mail us if you would like to discuss other issues or potential concerns.

How to approach a distribution partner

Before you even consider approaching a distribution partner, perfect your pitch. You need to be able to convey some introductory information about your company, some info on your product portfolio, why your products are of high value to researchers (and differentiated from competing products), and a least a teaser of what the distributor stands to benefit by working with you. All of this needs to be conveyed with enough brevity that the person on the other end will actually read it / listen to it and also be compelling enough to lead them through the pitch and not lose interest in your company or products. That’s not always easy to do. Also, always remember to point back to your website or other easily accessible information about your company and products, and keep in mind your target audience and be sensitive to cultural considerations in the wording and feel of your message.

Next is your approach. Once you select the company you want to work with you can often find the name and contact info of an appropriate individual to contact online. If you end up with a non-personal e-mail address (an “info@…” or “sales@…”, etc.) don’t have high expectations of receiving a reply, especially when dealing with larger companies. I generally recommend e-mailing or physical mailing your pitch so the target has time to read and process the information contained in your pitch and look at your products. If you don’t hear back in a reasonable amount of time, then it is more appropriate to call so long as there is no language barrier. Remember that Google Translate can be a great tool when dealing with just about anyone internationally and in most cases works very well, even if it requires occasional tweaking of your message to translate properly and restricts you to written communication.

Think about and act on the issues raised above and you’ll be on the right track to growing your distribution network, improving your market access, and increasing revenues and profits. Don’t forget that your distribution networks don’t just require establishment, but require some degree of maintenance as well. Relationship management is very important and you may even want to occasionally replace an underperforming distributor. Not having a complete and effective distribution network, however, imposes a large opportunity cost and can inhibit the growth of any small life science company. A little business development can go a long way…

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