This document discusses distribution channels. It addresses two critical channel questions: how companies want to sell their products and how customers want to buy them. Various channel types are covered, including direct, indirect, licensing, web channels, and physical channels. The document also discusses how channels are compensated and motivated, channel economics, and how the nature of a product impacts suitable channels depending on if it is physical or virtual.

1. The Lean LaunchPad
Class 4: Distribution Channels
Steve Blank
Jon Feiber
John Burke
Ann Miura-Ko
Jerry Engel
Jim Hornthal
Oren Jacob

2. CHANNELS
how does each customer segment want to be reached?
through which interaction points?

3. Test Hypotheses: Channel
2

4. Two Critical Channel Questions
How do you want to sell your product?
1
is subtle, but more important than the
2 first: How does your customer want to
buy your product?
3

5. How Do You Want Your Product to
Get to Your Customer?
 Yourself
 Through someone else
 Retail
 Wholesale
 Bundled with other goods or services
4

6. How Does Your Customer Want to
Buy Your Product from your Channel?
 • Same day
 • Delivered and installed
 • Downloaded
 • Bundled with other
 products
• As a service
 • …
5

7. Web Channels
6

8. Physical Channels
7

9. Types of Channels
Direct Indirect Licensing
– OEM
– VAR
– Reseller
– Distributor
8

10. The Channel as a Customer
– Some products are embedded in others
(OEM)
– Some products are resold by others (VARs)
– Some products are distributed by others
– Who’s the customer?
9

11. Distribution Complexity
Global Systems
Evangelists Systems Integrators
WANs
Mainframes
Marketing Complexity
Direct Sales
Minis
LANs
VARs
PC Servers
Desktop PCs
Retail
Printers
Keyboards
Web, Telesales Service
Technicians
Toner
Solution Complexity
10

12. How Are Channels Compensated?
– Commission
– Percentage of sales price
– Discounted pre-purchase
11

13. How Are Channels Motivated or Incented?
– Money! – what makes them the most?
– Training
– Marketing to the channel
– SPIF
12

14. Channel Economics: “Direct” Sales
List
Revenue Price
End Consumer
Discounts
Cost of Goods
EU
Profit + SG&A + R&D
(Supply Chain)
Source: Mark Leslie, Stanford GSB
13

15. Channel Economics: Resellers
List
Revenue Price
End Consumer
Discounts
Cost of Goods
EU
Profit + SG&A + R&D Reseller
(Supply Chain)
Source: Mark Leslie, Stanford GSB
14

16. Channel Economics: Distributors/Resellers
List
Revenue Price
End Consumer
Distributor
Discounts
Cost of Goods Profit + SG&A +
EU
Reseller
(Supply Chain) R&D
Source: Mark Leslie, Stanford GSB
15

17. Channel Economics: OEM or IP Licensing
List
Your Revenue Price
End Consumer
Cost of
Distributor
Distributor
Discounts
Master
Goods Profit + SG&A +
EU
Reseller
(Supply R&D
Chain)
Cost of
Goods Profit + SG&A
Reseller
(Supply + R&D
Chain)
Your Product Becomes Your
Customer’s Cost of Goods Source: Mark Leslie, Stanford GSB
16

18. Example: Book Publishing
National
Publisher Printer Wholesaler Retailer Customer
Distributor
17

19. Book Publishing
National
Publisher Distributor Retailer Customer
Wholesaler
•Percent of 35% 15% 10% 40%
Retail
$7.00 $3.00 $2.00 $8.00 $20.00
• You get
-35% of retail
- the distributor gets 10%
- the wholesaler gets 15%
- the retailer gets 40%
-less any discount they offer the customer
18

20. Book Publishing Economics
National
Publisher Wholesaler Retailer Customer
Distributor
Allowances
Wholesale costs
Bills
Markup
Credit
guarantees
Payment
guarantees
Payment
guarantees
Return rights
Credits
Payments
19

21. Book Publishing Delivery
National
Publisher Printer Wholesaler Retailer
Distributor
Prepare film Receive
(content)  Schedules
 Print
Determine Merchandise
orders
allocations titles
 Bundle
counts
 Film
Deliver Sell
orders magazines
 Establish Prepare Print and
identity galleys ship
 Create magazines
demand
Dispose of Acknowledge
returns returns
20

22. Nature of Product Impacts Channel:
Physical or Virtual?
– Access to customers changes dramatically
– Logistics related to product complexity
– People as products
21

23. Bits vs. Atoms
Channel
Web Physical
Bits
Product
Physical
22

24. Product and Channel Are Bits
Channel
Web Physical
 Rapid Agile and
Customer
development
Bits  Fastest to acquire early
customers and scale
Product
Physical
23

25. Web 2.0 - Product/Channel Are Bits
Channel
Web Physical
 Google
 Twitter
 Facebook
Bits
 Zynga
 Cloud Services
Product
Physical
24

26. Product Is Bits, but Channel Is People
Channel
Web Physical
 Rapid Agile and  Rapid Agile and
Customer Customer
development development
Bits  Fastest to acquire early  Traditional sales
customers and scale channel
 May require installation
Product
Physical
25

27. Traditional Enterprise Software
Channel
Web Physical
 Google  Microsoft
 Twitter  SAP
 Facebook  Oracle
Bits
 Zynga
 Cloud Services
Product
Physical
26

28. Physical Products Sold Over the Web
Channel
Web Physical
 Rapid Agile and  Rapid Agile and
Customer Customer
development development
Bits  Fastest to acquire early  Traditional sales
customers and scale channel
 May require installation
Product
 Rapid Customer
development
 Logistics, shipping and
Physical manufacturing critical
 Customer service
27

29. Killing Traditional Storefronts
Channel
Web Physical
 Google  Microsoft
 Twitter  SAP
 Facebook  Oracle
Bits
 Zynga
 Cloud Services
Product
 Zappos
 Amazon
Physical  Cafepress
 Netflix
 Consumer electronics
28

30. The Factories May Be in China
Channel
Web Physical
 Rapid Agile and  Rapid Agile and
Customer Customer
development development
Bits  Fastest to acquire early  Traditional sales
customers and scale channel
 May require installation
Product
 Rapid Customer  Longer customer
development feedback cycle
 Logistics, shipping and  May require large
Physical manufacturing critical capital requirements for
 Customer service scale
29

31. We Still Make Things that Need Salespeople
Channel
Web Physical
 Google  Microsoft
 Twitter  SAP
 Facebook  Oracle
Bits
 Zynga
 Cloud Services
Product
 Zappos  Cars
 Amazon  Solar panels
 Wind turbines
Physical  Cafepress
 Netflix  Bookstores
 Consumer electronics  Consumer electronics
30

32. 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

33. Examples

34. implantable drug infusion pumps
with 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)

35. Chronic Pain v4 FS Team
Trade shows
Faster relief Training Patients
Formulary Acceptance
KOLs
Clinical data
Efficient patient
FDA
Foundations management and Clinicians
Dosing flexibility Support
CMS (Medicare)
Advocacy Groups
Access to high-value
OEMs therapies and Institutions
IP pharmacoeconomics Hospitals
Wireless
Developers
Proprietary
pharmacoeconomics Pain clinics Payors/ICA
knowledge
Electronic health
record providers Human
Resources
Product Dev Costs Unit sales
Manufacturing Costs Support Services
Marketing Costs FDA/Clinical Trials
Bundled kits Electronic records

36. Getting out
Clinicians • Dr. Stan Louie, Drug Formulation Expert (USC Pharmacy)
• Dr. Giovanni Cucchiaro, Anesthesiologist (CHLA)
Institutions/patients • 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
Regulatory • Dr. Frances Richmond (Director Regulatory Science
Program, USC)
Entrepreneurs/ • Richard Hull (formerly at company selling Lapband)
Industry

37. Product flow/Channel
Electronic Partners/
Health Fluid Synchrony
OEMS
Records
Electronic Support Pump + Bundled
Records Services Controller Kits
Hospitals
(Anesthesiologists
Patients Neurosurgeons)
Pain Clinic
(Anesthesiologists
Neurosurgeons)

38. Hospitals
Pain Clinics
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

39. Patient Care Flow (Now)
Partners/
Fluid Synchrony
OEMS
Support Pump + Bundled
Services Controller Kits
Hospitals
Surgery/Rx/ (Anesthesiologists
Patient
Discharged reprogramming Neurosurgeons)
Pain Clinic
Trial period/ Scheduled (Anesthesiologists
Home setting follow-up Neurosurgeons)
Weeks/months
Key factors: Reimbursement , state regulations

40. Patient Care Flow (Proposed)
Electronic Partners/
Health Fluid Synchrony
OEMS
Records
Electronic Support Pump + Bundled
Records Services Controller Kits
Actionable feedback
to doctors/institutions
E-prescription / closing loop
Hospitals
Surgery/Rx/ (Anesthesiologists
Patient
Discharged reprogramming Neurosurgeons)
Pain Clinic
Trial period/ Scheduled (Anesthesiologists
Home setting follow-up Neurosurgeons)
Weeks/months
Days Key factors: Reimbursement , state regulations

41. 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 ~ 2-3 yrs
approval follow-on
• 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)

42. 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)

43. Advanced Chemistry for
Pharmaceutical Progress
Team: Kiel Neumann (EL)
Stephen DiMagno (PI)
Allan Green (Mentor)

44.  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.
44

45. The Business Model Canvas
Technical Assistance
cGMP manufacturer SOPs for precursors
(Image Atlas) Radiopharmacies
Radiopharmacies and drugs
Accessibility (RCY) FDA regulatory support
Nuclear Medicine and Recruit clinical sites
Purity Equipment producers
Radiology In vivo animal studies
Develop regulatory Speed
departments PET/SPECT Prescribing physicians
plan for pre IND
meeting Multiplatform Technical assistance
Sensitivity (nca) Radiologist who
ID cGMP CRO
Pharmaceutical Specific compounds perform studies
Fund-raising
development
companies
General Direct sales of
IP methodology for precursor
PoP data adding fluorine to Drug developers
lead compounds of R&D and clinical
IP interest studies presented in
PoP data journals and meetings Radiologists
Regulatory plan
Understanding of Sales of precursor
the regulatory through global finished
process pharmaceutical
distributor
Sales of intermediates
Contract cGMP precursor manufacture
Salary, Rents
Technology license
Clinical trials
Product license (royalty)

46.  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
49

47.  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
50

48. The Business Model Canvas
Technical Assistance
cGMP manufacturer SOPs for precursors
(Image Atlas) Radiopharmacies
Radiopharmacies and drugs
Accessibility (RCY) FDA regulatory support
Nuclear Medicine and Recruit clinical sites
Purity Equipment producers
Radiology In vivo animal studies
Develop regulatory Speed
departments PET/SPECT Prescribing physicians
plan for pre IND
meeting Multiplatform Technical assistance
Sensitivity (nca) Radiologist who
ID cGMP CRO
Pharmaceutical Specific compounds perform studies
Fund-raising
development
companies
General Direct sales of
IP methodology for precursor
PoP data adding fluorine to Drug developers
lead compounds of R&D and clinical
IP interest studies presented in
PoP data journals and meetings Radiologists
Regulatory plan
Understanding of Sales of precursor
the regulatory through global finished
process pharmaceutical
distributor
Sales of intermediates
Contract cGMP precursor manufacture
Salary, Rents
Technology license
Clinical trials
Product license (royalty)

49. • F-dopa iodonium intermediate
• F-dopamine iodonium intermediate We provide accessibility
Reagents
•ABX Could license
•Eckert & Ziegler precursor synthesis
•GE MX module for TracerLab
GMP Cassette or
Components
•Siemens Explora for incorporation in
modules
•TracerLab/ GE
•Eckert & Ziegler
Require GMP precursor
•Siemens Explora (or cassette) to develop
GMP Compliant •Neoprobe
Synthesizer •Synthra our product with their
synthesizer
•Siemens PETNet
•GE Amersham Only want GMP
•Cardinal Health
PET •AAA precursor in modules
Radiopharmacy
distributor •Iason without development
52