A Must for Entrepreneurs: Know the Buyer’s Food Chain

Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

RESEARCH TRIANGLE PARK - Knowing that you have, or will have, a winning product does not give you time to rest. You have to grease the skids by making your buyers aware that you have a product that solves an important problem that they have.

Founded upon your in-depth understanding of your buyers, you need to structure the appropriate marketing campaigns that raise buyer awareness of the product’s value and availability.

Know how the buyer buys

Almost always, it is not obvious how the buyer actually buys. Knowing this is the subject of millions of dollars that some companies spend in order to introduce products to the consumer retail industries. Advertising agencies and research firms get rich figuring this stuff out. The best way, and a lot cheaper, is to ask them yourself. Approach representative examples of your buyers and ask them how they purchase products in your market segment. Answer these questions:

• Who do they buy from
• Where do they learn about new products
• What are the payment requirements
• What incentives are offered
• What are the terms and conditions for the purchase
• Is credit required
• What are the price ranges
• How is the delivered

There will be many additional questions, depending on the market segment and product, but the idea is to thoroughly understand what will influence the buyer’s decision.

Who does the buyer’s seller buy from?

If you followed the heading for this paragraph you realize that there is a food chain of buyers and sellers that extends from your back door all the way to the consumer of your product. This food chain is made up of the likes of:

• Manufacturers representatives
• Wholesalers
• Distributors
• Integrators
• Valued added resellers
• Remarketers

Each of these points in your food chain offers some additional value and takes a cut of the sale. In order to get your product to market, you will have to understand the entire food chain that exists between you and your buyer.

As you did with the ultimate buyer, you will have to understand each of the points in the food chain for your business. They are buyers too. You will need to know many of the same things, plus:

• Discounts expected
• The value added they provide
• The incentives that will have to be offered
• The training requirements and costs
• Basically how the flow of goods through these channels works

This can be mind numbing work, but is very necessary in order to not have surprises that could stop your business later. Many hours spent on understanding the distribution channel can save you from a whole lot of costly mistakes later when you are trying to get the revenue for your hard work.

About the author: Bill Warner is the managing partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.