The Lean LaunchPad
Class 4: Distribution Channels
Steve Blank
Jon Feiber
John Burke
Ann Miura-KoJerry Engel
Jim HornthalOren Jacob
CHANNELS
how does each customer segment want to be reached? through which interaction points?
Test Hypotheses: Channel
3
Two Critical Channel Questions
4
How do you want to sell your product?1
is subtle, but more important than the first: How does your customer want to buy your product?
2
How Do You Want Your Product to Get to Your Customer?
5
Yourself
Through someone else
Retail
Wholesale
Bundled with other goods or services
üüüüü
How Does Your Customer Want to Buy Your Product from your Channel?
6
• Same day
• Delivered and installed
• Downloaded
• Bundled with other products
• As a service
• …
üüüüüü
Web Channels
7
Physical Channels
8
Types of Channels
9
– OEM– VAR– Reseller– Distributor
Direct Indirect Licensing
The Channel as a Customer
10
– Some products are embedded in others (OEM)
– Some products are resold by others (VARs)
– Some products are distributed by others
– Who’s the customer?
Distribution Complexity
11
Evangelists
ServiceTechnicians
Higher Value Added
Higher Volume
Direct Sales
VARs
Retail
Web, Telesales
Systems Integrators
Mainframes
MinisLANs
PC ServersDesktop PCs
PrintersKeyboards
Toner
WANs
Global Systems
Solution Complexity
Ma
rke
tin
g C
om
ple
xity
How Are Channels Compensated?
12
– Commission
– Percentage of sales price
– Discounted pre-purchase
How Are Channels Motivated or Incented?
13
– Money! – what makes them the most?
– Training
– Marketing to the channel
– SPIF
Channel Economics: “Direct” Sales
14
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isco
un
ts
RevenueList
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain)
Channel Economics: Resellers
15
Cost of Goods(Supply Chain)
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isco
un
ts
Reseller
RevenueList
Price
Source: Mark Leslie, Stanford GSB
Profit + SG&A + R&D
Channel Economics: Distributors/Resellers
16
En
d C
on
sum
er
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
RevenueList
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain)
Channel Economics: OEM or IP Licensing
17
Your Product Becomes Your Customer’s Cost of Goods Source: Mark Leslie, Stanford
GSB
En
d C
on
sum
er
ResellerProfit + SG&A
+ R&D
Cost of Goods
(Supply Chain)
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
Mas
ter
Dis
trib
uto
r
Profit + SG&A + R&D
Cost of Goods(Supply Chain)
Your RevenueList
Price
Example: Book Publishing
18
PublisherNational
DistributorPrinter Wholesaler Retailer Customer
Book Publishing
19
•Percent of
Retail
• You get- 35% of retail- the distributor gets 10%- the wholesaler gets 15% - the retailer gets 40%
- less any discount they offer the customer
PublisherNational
WholesalerDistributor Retailer Customer
35% 15% 10% 40%
$7.00 $3.00 $2.00 $8.00 $20.00
Book Publishing Economics
20
PublisherNational
DistributorWholesaler Retailer Customer
Wholesale costs
Markup
Allowances
Payment guarantees
Payments
Bills
Credit guarantees
Payment guarantees
Return rights
Credits
Book Publishing Delivery
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PublisherNational
DistributorPrinter Wholesaler Retailer
Merchandise titles
Sell magazines
Acknowledge returns
Determine allocations
Dispose of returns
Prepare film (content)
Establish identity
Create demand
Prepare galleys
Receive Schedules Print
orders Bundle
counts Film
Print and ship
magazines
Deliver orders
Nature of Product Impacts Channel: Physical or Virtual?
22
– Access to customers changes dramatically
– Logistics related to product complexity
– People as products
Bits vs. Atoms
23
Bits
Physical
Product
Web Physical
Channel
Product and Channel Are Bits
24
Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Web 2.0 - Product/Channel Are Bits
25
Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Product Is Bits, but Channel Is People
26
Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
Traditional Enterprise Software
27
Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
Physical Products Sold Over the Web
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Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
Killing Traditional Storefronts
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Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
Zappos Amazon Cafepress Netflix Consumer electronics
The Factories May Be in China
30
Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Longer customer feedback cycle
May require large capital requirements for scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
We Still Make Things that Need Salespeople
31
Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Cars Solar panels Wind turbines Bookstores Consumer electronics
Microsoft SAP Oracle
Zappos Amazon Cafepress Netflix Consumer electronics
Team Deliverable by Tomorrow• Talk to 10-15 potential channel partners
• (Salesmen, OEM’s distributors, etc.) • What were your hypotheses about who/what your channel
would be? Did you learn anything different?• Did anything change about Value Proposition? • Update your Lean LaunchLab & Canvas• Draw your channel diagram
• Summarized in a 5 Minute PowerPoint Presentation
Examples
implantable drug infusion pumpswith remote physician control
for chronic pain patients at home
“the right dose at the right time and place”
Christian Gutierrez (EL), Ellis Meng (PI), Carol Christopher (IM), Tuan Hoang (FE)
PatientsTraining
Hospitals
Unit sales
Trade shows
Clinicians
Institutions
Support Services
Pain clinics
Clinical dataKOLs Formulary Acceptance
FDA
IP
Advocacy Groups
Foundations
OEMs
Wireless Developers
Manufacturing Costs
Product Dev Costs
FDA/Clinical Trials
Chronic Pain v4 FS Team
Payors/ICA
Marketing Costs
Faster relief
Efficient patient management and Dosing flexibility
Access to high-value therapies and pharmacoeconomics
pharmacoeconomics
Support
Proprietary knowledge
Human Resources
Electronic records
Electronic health record providers
Bundled kits
CMS (Medicare)
Getting out • Dr. Stan Louie, Drug Formulation Expert (USC Pharmacy)• Dr. Giovanni Cucchiaro, Anesthesiologist (CHLA)
• Dr. Diana Hull, Physician (Group Health in Washington state, formerly at Kaiser California)
• Thomas Hsu, Insurance Specialist (Network Medical Management; a California ICA)
• Two chronic pain patients – Pump user and creator of support forum– User of oral narcotics and patches
• Dr. Frances Richmond (Director Regulatory Science Program, USC)
• Richard Hull (formerly at company selling Lapband)
Clinicians
Institutions/patients
Regulatory
Entrepreneurs/Industry
Patients
Product flow/Channel
Fluid SynchronyElectronic
Health Records
.Partners/
OEMS
Hospitals(AnesthesiologistsNeurosurgeons)
Pain Clinic(AnesthesiologistsNeurosurgeons)
Pump + Controller
Support Services
Bundled Kits
Electronic Records
Channels (Direct)
• Direct to institutions• Some formularies involved in purchase decisions• Some doctors make purchase decision directly
• Device company/Doctor relationship is key • Heavily influenced by :
• Clinical study results • Regulatory approval• Reimbursement
Hospitals
Pain Clinics
Patient Care Flow (Now)
Fluid Synchrony
Hospitals(AnesthesiologistsNeurosurgeons)
Pain Clinic(AnesthesiologistsNeurosurgeons)
Scheduled follow-up
Patient Discharged
Surgery/Rx/reprogramming
Trial period/ Home setting
Weeks/monthsKey factors: Reimbursement , state regulations
Pump + Controller
Support Services
Bundled Kits
Partners/OEMS
Patient Care Flow (Proposed)
Fluid SynchronyElectronic
Health Records
.
Hospitals(AnesthesiologistsNeurosurgeons)
Pain Clinic(AnesthesiologistsNeurosurgeons)
Pump + Controller
Support Services
Bundled Kits
Electronic Records
Scheduled follow-up
Patient Discharged
Surgery/Rx/reprogramming
Trial period/ Home setting
Partners/OEMS
Weeks/months
Actionable feedbackto doctors/institutions
E-prescription / closing loop
Key factors: Reimbursement , state regulationsDays
Regulatory considerations
PMA 510K
Trial size 100’s of patients 20-100
Costs Up to $100,000 per patient
$10-50 MM $1-10 MM
Time ~ 3-4 yrs + post approval follow-on
~ 2-3 yrs
• PMA approval with grouping of FDA approved drugs.• Clinical trials results used to obtain CMS (Medicare) approval• 510K restricts technology to predicate devices
• Can be more difficult to market against incumbents• European CE mark is easier to attain (safety and performance only)
Take-aways• Channel is direct in this existing market
• Channel for e-health is more complex and evolving• State-to-state regulations can impact incentives
• Can pose problems as electronic records systems vary across the country
Next Steps• Understand costs associated with reaching
doctors/institutions directly• Understand structure of e-health channel• Develop regulatory pathway (timelines and cost profile)
Ground Fluor Pharmaceuticals
Advanced Chemistry for Pharmaceutical Progress
Team: Kiel Neumann (EL)
Stephen DiMagno (PI)
Allan Green (Mentor)
45
PET is a non-invasive medical diagnostic technique for cardiac, brain, and tumor imaging
GFP technology makes new (unknown) and known (but clinically inaccessible) [18F]-labeled radiotracers readily available
Fast, multiplatform, high efficiency synthesis of these fleeting, precious agents.
Initial target indications: pediatric neuroblastoma, Parkinson’s disease.
Ground Fluor Pharmaceuticals
General methodology for adding fluorine
to lead compounds of
interest
The Business Model Canvas
Accessibility (RCY)PuritySpeedPET/SPECTMultiplatformSensitivity (nca)Specific compounds
IPPoP dataRegulatory planUnderstanding of the regulatory process
Contract cGMP precursor manufactureSalary, RentsClinical trials
SOPs for precursors and drugsRecruit clinical sitesIn vivo animal studiesDevelop regulatory plan for pre IND meetingID cGMP CROFund-raising
cGMP manufacturerRadiopharmaciesNuclear Medicine and Radiology departments
Technical Assistance (Image Atlas)FDA regulatory support
Radiopharmacies
Equipment producers
Prescribing physicians
Radiologist who perform studies
Sales of intermediates
Technology license
Product license (royalty)
Drug developers
Pharmaceutical development companies
IPPoP data
Radiologists
Technical assistance
Direct sales of precursor
R&D and clinical studies presented in journals and meetings
Sales of precursor through global finished pharmaceutical distributor
Face to Face meeting with president of small radiopharmaceutical company
Face to face with a clinician at Memorial Sloan-Kettering
Face to face with Global Production Manager of Molecular imaging for one of world’s largest radiopharmaceutical companies
OncoKinib collaboration between Geurbet, OncoDesign, and Ariana pharmaceuticals
Face to face meeting with head of R & D and International Production Manager from Linz, Austria
Eckert and Zeigler – German PET modular synthesis provider
Face to face meeting with Executive Director and CEO of Scott Tech Center in Omaha, NE
Introductory teleconference to CEO of Innovation Accelerator
Out of the Building
50
Significant Interest in our technology Radiopharmacies want GMP product
No interest in GMP reagent preparation
Third-party manufacturers would use our developed synthetic pathways
Internal competition with one world radiopharmaceutical leader Best to approach one of other two world leaders
Scott Tech Center Willing to offer free advice on startup strategy
Provided introduction to Innovation Accelerator
Offered introduction to Director of Venture Technology of one of world’s leading radiopharmaceutical companies
Key Learnings
51
General methodology for adding fluorine
to lead compounds of
interest
The Business Model Canvas
Accessibility (RCY)PuritySpeedPET/SPECTMultiplatformSensitivity (nca)Specific compounds
IPPoP dataRegulatory planUnderstanding of the regulatory process
Contract cGMP precursor manufactureSalary, RentsClinical trials
SOPs for precursors and drugsRecruit clinical sitesIn vivo animal studiesDevelop regulatory plan for pre IND meetingID cGMP CROFund-raising
cGMP manufacturerRadiopharmaciesNuclear Medicine and Radiology departments
Technical Assistance (Image Atlas)FDA regulatory support
Radiopharmacies
Equipment producers
Prescribing physicians
Radiologist who perform studies
Sales of intermediates
Technology license
Product license (royalty)
Drug developers
Pharmaceutical development companies
IPPoP data
Radiologists
Technical assistance
Direct sales of precursor
R&D and clinical studies presented in journals and meetings
Sales of precursor through global finished pharmaceutical distributor
Channels
53
We provide accessibility
Only want GMP precursor in modules without development
Could license precursor synthesis for incorporation in modules
Require GMP precursor (or cassette) to develop our product with their synthesizer