This article is an excerpt from the Shortform summary of "Zero To One" by Peter Thiel. Shortform has the world's best summaries of books you should be reading.
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What are traditional sales? How can you use traditional sales in your startup strategy?
Traditional sales are what they sound like—they are the sales methods that involve sales reps and retail steps. Traditional sales are an important part of your startup. Read about how they can help you launch your company.
How to Sell a Product
Regardless of how great your product is, you still need an effective distribution plan. Furthermore, even if your product is no better than average, it’s possible to create a monopoly with a superb sales and distribution plan. That’s how important distribution is. Most companies rely on traditional selling, but some use complex sales—sales that require the involvement of high level execs.
There are two considerations for planning a sales strategy for your product: customer lifetime value and customer acquisition cost.
- Customer lifetime value or CLV is the profit you earn over the course of your relationship with a customer. For example, if you sell low-priced prescription eyeglasses at about $100 a pair and the typical customer needs only a few pairs over her lifetime, the CLV would be only a few hundred dollars.
- The customer acquisition cost is the amount you spend to get a customer (your marketing cost divided by the number of customers). You want your customer lifetime value to exceed the amount you spend to get a customer.
Generally, the pricier your product is, the more you need to spend on selling it (it makes economic sense to spend the money because you’ll get a big return). In contrast, for a low-priced product like $100 eyeglasses, you’d want an economical method of advertising that wouldn’t eat up the profits from your sales.
Distribution methods can range from viral marketing (the cheapest method) to typical marketing, typical sales, and complex sales (the most costly method).
The power law applies to sales/distribution. One sales method is likely to work far better than any other. Generally, traditional selling works for most startups. Rather than trying a little of everything (which will get you nothing), find and focus on the method that exceeds all others in its returns.
Startups fail more often because of poor distribution than because they have a bad product. Getting the right channel to work is the key to a successful business.
Many companies don’t reach the complex level. Those ranging from $10,000 to $100,000 won’t require the CEO’s involvement. To handle most sales, you need a process for getting your product in front of a wide audience at a reasonable cost. Most companies rely on traditional sales to get it done.
Sometimes a traditional selling approach that starts small with a sales rep is an effective strategy. For example in 2008, Box, a startup selling cloud storage, struggled to sell its storage solution at a time when people didn’t understand cloud storage or realize they needed it. Box’s sales reps started meeting with small groups of users who had storage issues and expanded from there. For instance, they sold a small account to the Stanford University Sleep Clinic. Ultimately, the university started offering a Box account to all students and faculty.
The key to traditional sales success for Box was to start small rather than attempting a complex sales approach with top university officials, where it would have been tough to get a foot in the door.
Sometimes the product itself can be a kind of sales tool. For example, ZocDoc is a platform that allows people to schedule medical appointments online. When doctors subscribe for a monthly fee, their patients can use the service. The company uses an army of sales reps to recruit doctors to join.
However, there’s a network effect that increases sales as well. The greater the number of doctors who join, the more valuable the service is to consumers/patients—and the greater the number of patients who use it, the more valuable it is to doctors in saving them money and time.
Traditional sales should be a part of most startup sales strategies. You can evaluate the effectiveness of traditional sales for you.
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Like what you just read? Read the rest of the world's best summary of Peter Thiel's "Zero To One" at Shortform .
Here's what you'll find in our full Zero To One summary :
- Why some companies genuinely move the world forward when most don't
- How to build a company that becomes a monopoly (and why monopolies aren't bad)
- Silicon Valley secrets to selling products and building rockstar teams