The Retail Secret No One Else Will Tell You
Before joining the HAX team to help startups launch products, I was on the other side of the table: I was a buyer for one of the largest retailers in the country. I wrote nearly $500m in checks to companies in order to fill the shelves, across categories ranging from connected hardware to kitchen accessories. It was every bit as fun as it sounds- meeting new companies, testing the latest products, making big decisions with someone else’s money- what’s better than that? Now, working full-time with hardware startups, I help my teams navigate the daunting process of launching a product in a retail setting.
Behind the scenes, retail buyers are constantly chasing trends to stay competitive. New, exciting products are sourced to replace old, low-performing products. As a buyer, I met with hundreds of companies to decide what to include in my assortment. I was often meeting with nervous, jet-lagged people who had spent weeks preparing for our 30-minute meeting. And pitching me was no cake-walk: I wouldn’t hesitate to pick apart the company’s strategy, critique every detail of the product and demand more favorable margins. These meetings were my chance to learn everything possible about a company before making a decision and defending my product choices to my boss.
But guess what? 90% of the time, I was meeting with companies who all sold the same damn thing. Widgets are widgets. Buyers are category-specific, so often there are very few points of differentiation between the products. I once met with over 30 water bottle manufacturers in one week. If you think all water bottles are made equal… you’re right. They are. Regardless of how important the meeting is to you, the buyer is likely meeting with many similar companies on the same day (sales hint: always take the first open slot!), and despite how well the meeting goes, they will have trouble remembering who said what by the end of the day.
You wouldn’t be granted a meeting if you couldn’t hit key specs, such as retail margin, a functioning product, and decent packaging. If you are there, the buyer is already interested. You got the meeting because a low performing product needs to be replaced or the buyer is chasing a new trend- so it’s up to you to win the deal.
So, now you’re probably wondering: what’s the secret to winning the deal?
Simple: be the person the buyer likes the most.
This is a universal truth to the business world. Read all the hits: How to Win Friends and Influence People, 7 Habits of Highly Effective People, my colleague Bill Liao’s recent post on selling for startups, etc… the conclusions are similar. People like people who make them feel good. People are likely to make decisions in your favor if they like you. People like the sound of their own name. People will remember you if they like you. Humans are so simple.
So, you should spend the majority of your energy on your relationship with the buyer. Open your first meeting asking the buyer about herself. Know her business inside and out, compliment her on a recent strategy you observed, tell her some interesting news in her category. Be calm, cheerful, and mega-prepared. Write down what she says, thank her for constructive criticism, don’t interrupt her for any reason. Wrap up your meeting five minutes early, because she’s busy and made a decision in the first five minutes anyway.
Say yes to everything. The best salespeople I have met are alarmingly good at putting on a smile no matter what. Yes, I’ll get back to you tonight. Yes, I’ll fly out for that meeting at 7am in Minneapolis in February. Yes, I’ll fly back next week because you missed the 7am. Yes, I’ll send you 4 samples by tomorrow morning. Yes, I will go back to my design team to re-think our print and color strategy. In fact, I’d be happy to. Thank you for this opportunity.
Want to know what doesn’t work? Here is a short list:
- Being arrogant
- Challenging something the buyer says
- Not being familiar with what the buyer sells currently
- Asking for order confirmation at the end of the meeting
- Showing up to the meeting drunk (yes, I was once pitched by a drunk man who broke his only sample during the meeting)
- Demo’ing your product to the buyer and accidentally displaying a screen full of risque selfies (also happened, on a projection screen)
- Calling the buyer an incorrect or mispronounced name (Katherine, Katie, Kathy, Sarah?)
- Asking about the children/husband she may or may not have
- Asking how a competitor’s meeting went
I once sat through a demo with another buyer and quickly realized that the founder was hitting on my colleague. It felt like a 2-on-1 date from The Bachelor (no sweat if you don’t catch this reference). Needless to say, none of the companies from the aforementioned examples got my business.
Does navigating all of this sound like your worst nightmare? If so, you aren’t alone. The founders we see coming through HAX are good at many things, but selling into retail isn’t usually one of them. Thankfully, sales is a function you can give away, unlike the other core capabilities you have as a founder.
DIY, Agency or VP
If offloading the sales function is something you are evaluating, there are two choices to consider: hiring one or more sales agencies, or hiring an in-house VP of Sales.
Sales agencies, often called rep firms or manufacturer’s reps (rep = representative) are a popular option for companies of all sizes for retail sales. These agencies employ people whose full-time job is to cultivate a relationship with buyers. In addition to taking buyers out for meals and happy hours, often their children attend the same schools and they live in the same neighborhoods as the buyers. See why it’s hard to say no to these people? When I was a retail buyer, my regular reps became good friends. I trusted them. I traveled with them to trade shows and on trend-spotting trips (yes, that’s a real thing). I’m still in touch with many of them. Buyers love reps.
If you go the rep/agency route, it’s important to know that sales agencies are retailer-specific. This gets back to the fact that effective selling is based on relationships; thus, a sales agency needs to be physically located near where the buyers work. Agencies who call on Target and Best Buy tend to be located in Minneapolis, for example. Wal-Mart specific rep firms tend to be in Bentonville, AR. Seattle is packed with reps who call on Amazon. It’s common for companies to work with multiple agencies.
The non-agency route is to find the elusive salesperson who has sold into retail before, and hire him or her as your VP of Sales. Beware: recruiting costs can be high as these people are high-value targets. If you have the funding to go this route, it often pays off in the end. The advantage of this strategy is a fully transparent view of the sales process, as well as more control over your messaging and outreach. Some companies will hire a VP of Sales for 1–2 days per week to keep costs down. My friend Yaroslav Azhnyuk (founder of Petcube, a HAX company) chose to launch his product using agencies, but his business only started booming after they hired a full-time sales leader. Every business is different. Research what works in your product category.
Worried about giving up precious margin to a salesperson in the form of commission? I would worry more about the deals you are missing because you didn’t find a sales solution soon enough, either through an agency or in-house. As the retail landscape changes, traditional brick and mortar retailers (Target, Best Buy, etc.) are cutting back on staff. Buyers are stretched thin. Even more reason to hire someone who has played the retail game before. As a founder, one of your greatest moments of relief will be forwarding your retail inquiries to your new VP of Sales or your agency rep. Sit back and enjoy.
Don’t worry, I didn’t forget. You are wondering how much all this costs. Sales agencies generally charge between 2–7% of net sales, depending on the geographic location and target retailer. Agencies may charge an additional monthly fee if they take a broader sales role in your company. A VP of Sales will be pricey; sales personnel typically command a lead engineer-level salary, plus commission and bonuses. In most cases, your VP of Sales will be less focused on equity than other hires. You might also be wondering where to find a sales agency. Here, let me google that for you.
Sales is just the beginning
Once you have the sales box checked, it’s time to get back to work. A founder once described his Amazon launch to me as “getting hit by a tidal wave”. If you don’t have a carefully planned launch strategy, you are toast. Own the parts of your business that are most critical to launch success.
Marketing is the box you need to check the earliest; your product won’t sell itself, and it takes time to build a brand. You are responsible for generating demand for your product. The good news is, any early progress you make on the marketing and PR front will help expose your brand to end customers and retail buyers. Buyers have Facebook news feeds. Buyers read tech news. Imagine going into a meeting with a buyer and they already love your product? How great does that sound? This is your new goal.
Packaging is the last mile in the marketing journey; you will need descriptive, catchy packaging to lure consumers to check out your product. Some retailers also require you to provide in-store displays to help feature your product. Remember that traditional retail is an unassisted sales environment. The Apple Store is not a typical retail setting. Your product needs to speak for itself!
Your operational capabilities also need to be fully-baked before you receive your first P.O. (purchase order), or you’ll risk late shipments and the accompanying fines that retailers impose. The fine print in your retail contract will include other things you need to consider, including certifications, business insurance and return policies. You will want a logistics partner (often called a 3PL) who can work seamlessly with the retailers you are targeting.
Despite the barriers to entry, retail can be a terrific boon to your business. At the very least, a P.O. from a retailer is an excellent point of market validation for investors. The free marketing and brand clout that retail brings are substantially greater than any hardware company could accomplish on its own. From a revenue standpoint, retail has almost limitless potential. The U.S. consumer electronics retail market is projected to hit $120b* by the end of 2016. This market is showing a shift toward connected devices, like those coming from hardware startups. If you plan it right, retail is a win-win.
In summary, hiring someone to do your bidding is the easy part. The rest is more difficult… but if you’re a hardware startup founder, you’re good at the hard stuff (pun intended)!
Looking for help with all of this? HAX runs an accelerator in San Francisco specifically focused on launching and scaling: HAX Boost. Check it out here. Now accepting applications for our October 3rd cohort.
Image credit: McMillan Digital Art / Getty Images
Originally published at sosv.com on July 30, 2016.