How to Start a New Business Using the Lean Startup Method (part 3 – channels)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

The third step, after focusing on a target customer and choosing a value proposition, is to decide what channels the potential customer will use to discover your product and research your value proposition, and what channels you will use to get your product to the customer.

Customers can find your product and your company online (virtual channels), or by visiting a retail store or having products and services delivered (physical channels).

The channels you choose will make a big difference to your costs and your chances of success. Remember music stores? They sold physical products (records and CDs) through physical retail channels. Eastman Kodak sold physical film and paper through physical channels. Encyclopedia Brittanica and the Yellow Pages have been replaced by online competitors. The economics of online selling and delivery are driving industries and companies to move everything possible to virtual channels.

For many years computer software was a physical product (a CD or DVD) that the customer purchased from a retail store. Now almost all software is downloaded – no physical product. Netflix made a profit when their customers ordered movies online that were delivered and returned through the mail (physically). But since 2011 their DVD-by-mail business has been eclipsed by their streaming video (virtual) delivery. Amazon sells physical products through virtual channels. So does the shoe company Zappos. Both of them have to deliver the product through physical channels, but they have eliminated the need to have physical retail displays of their product. And by collecting customer product ratings, they add value in a way a physical store can’t.

Books, newspapers and magazines can be purchased and delivered physically, or ordered online and downloaded using services like iTunes  and products like Amazon’s Kindle reader and tablets sold by Apple, Samsung, and now Microsoft. How long will it be before all of these products are sold and delivered exclusively online? And what about education? Do students really need to be in class every day to get their high school diploma or college degree?

When choosing your channels, look for ways to move everything online.Most of the products in your home are still physical, like food, clothing, shoes, and electronic equipment. Electricians, plumbers and carpet cleaners will still be showing up physically. People probably won’t buy engagement rings online. But a startup business may find a competitive advantage by replacing something that competitors do physically with something done online. Or if you’re an existing business, a new competitor may displace you the same way.

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