updated 9/9/2012 7:17:09 AM ET 2012-09-09T11:17:09

Q: How do you find a distributor for your product?

A: Let's consider the sage counsel offered by Robert Nadeau, who has spent 25 years figuring out how to improve the efficiency of distribution channels. Nadeau, managing principal of Industrial Performance Group in Highland Park, Ill., says the first thing entrepreneurs should determine is whether their companies even need distributors. These days, more and more do not. Anyone ever heard of Amazon?

Nadeau counsels his clients--mainly midsize to large manufacturers--to follow a simple rule: Listen to your customers. He says it helps to think backward through the distribution channel. "You have to think about how the customers want to search for your product, learn about your product and acquire your product," he says. "You may not need a traditional distributor. You may need a logistical specialist. That's what UPS is. That's what FedEx is. Those are people who say, ‘I don't know what's in the box, and I don't know how to sell it to you. But I can get it to where it's supposed to go better than anyone in the world.'"

If you do need a distributor, Nadeau suggests joining an industry association and attending trade shows to find out how similar companies--the competition--move their products. ("Distributors gather in herds," he says.) The website for the National Association of Wholesaler-Distributors lists more than 100 member associations. It's a good place to start.

But Nadeau warns that finding a distributor is only the beginning. From that point on, entrepreneurs need to recognize that their business is now interdependent with that of the distributor. While they may have different operating philosophies, the entrepreneur and distributor serve the same customer--whoever pays for the product at the end of the line. "The distributor is not your customer," Nadeau says. "That's the hardest thing for entrepreneurs to get their minds around."

Too often, he says, entrepreneurs hire a distributor without any real strategy. You have to figure out precisely what you need, then spell it out in unambiguous terms. Do you need the distributor to prepare point-of-sale reports and other information gleaned from customers' buying habits? Do you need the distributor to help sell your product?

If so, Nadeau says, be prepared to invest in training the company's salespeople. Otherwise? "Distributors can ruin a product," he says.

As an entrepreneur, you also must ensure that your contract is structured to suit not only the distributor's needs, but also your own. That's not always easy when you're moving $5 million worth of product through a company with annual revenue of $500 million. Nadeau's suggestion: "You have to have a compensation system that rewards distributors for doing the things you want them to do."

Copyright © 2013, Inc.


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