If you have a photonics innovation, how do you persuade a distributor to take on your product? Warren Clark finds out
Being a technology-driven industry, photonics depends on innovation and the development of new products. A fair proportion of this innovation comes not from huge R&D departments at multi-national photonics manufacturers, but rather from engineers toiling away in laboratories and garden sheds up and down the land. So, what do you do when you hit upon an invention that you are certain will revolutionise the photonics industry? For many, the first port of call is to seek out a distributor.
Before embarking on the road to riches, it is important to consider where in the development of your innovation you are. ‘In some cases – and this is a mistake often made by some start-ups – we see something that is still in development, rather than a finished product,’ warns Ian Johnstone of Armstrong Optical, a small distributor in the UK. ‘If the product is only at proof-of-principle stage, then you may struggle to get a distributor interested.’
Inventors, then, should not expect a distributor to take the idea from concept to finished product; one should already be at the latter stage before even approaching a distributor though, as Armstrong adds: ‘In some cases, if the product appears particularly exciting, we may be interested in funding the final stages of development, but this is unusual.’
Douglas Neilson, managing director of Photonic Solutions, one of the largest distributors in the UK, agrees. ‘For example, there is a lot of activity in fibre lasers at the moment,’ he says. ‘Some of these companies may only be interested in developing the technology to a point and then hoping someone will buy the concept/know-how from them.’
What distributors look for
‘There are no general rules when it comes to beginning a relationship between a distributor and a principal,’ says Neilson, of Photonic Solutions. ‘Some larger distributors, for example, will have an individual – or even a department – tasked with trawling all corners of the industry on the lookout for new companies to represent.
‘This is not the way we approach the market, as it may risk “stamp collection” of principals, with products and companies getting lost among a sea of similar looking and sounding products. We strive to continually improve the quality of our portfolio of principals, but to limit their umber to fewer than 25 in total.’
Johnstone echoes this sentiment. ‘We do not want to be perceived as a line-gatherer,’ he says. ‘We want to be sure that any product we take on will be given the opportunity for due time in front of customers. Also, it must have some synergy with the existing products we offer; we’re always happy to extend our range of products, but to do so in a totally new direction would involve considerable investment in market research and so on.
‘We choose to work with smaller companies offering niche products and where price is not the major issue, but are equally happy working with large companies, such as Leister, Swiss Optic and Fisba Optik. If the technology meets the needs of the customer, then – within reason – price should not be the problem.’
‘We are a niche distributor,’ says Judith de Forrest Wilson of German distributor AMS Technologies. ‘We are looking for products that are technically the best in their class and thatprovide a high-performance solution – and often this means that, comparatively speaking – we only serve very few customers. We don’t deal in commodity products, for example.’
‘We select our principals using various criteria,’ says Graham Rothon of Pacer International. ‘We keep ourselves up to date with technology trends by attending appropriate exhibitions and conferences, and then we seek out suppliers able to offer those new technologies. For example, we attended a recent SID event to get up to speed on OLED displays, which is a new display technology that we are moving into more and more.’
Making an approach
‘We have been around since 1982,’ says de Forrest-Wilson. ‘So we are often approached by potential principals. It’s an incestuous industry so it’s often the case that someone we have met before will turn up at a different company and then approach us. In some cases, a customer will come to us looking for a particular technology, so then we go out and hunt down potential suppliers of that particular technology.
‘We are looking for a unique selling point in any product. We don’t want cheap, high-volume products. We’re looking for proven performance and quality, or a true innovation that appears to be worth the risk.’
‘Because of our reputation,’ says Pacer’s Rothon, ‘we are an attractive proposition for anyone seeking a distributor to market their products. We then do the necessary due diligence on them and normally insist on seeing their manufacturing facility before we make our decision. We’ll look into the pedigree of the company and what sort of financial backing it has to ensure that neither of us is wasting time. Sometimes this might mean talking to their parent company, if there is one, for example. We can then make an assessment of whether or not we feel the company and the product would be successful.
‘We also have to consider the fact that any principal or product has to fit in strategically with our own five-year plan and growth strategy, and it also has to fit politically – we never want to upset any of our existing principals.’
‘Photonics is still a relatively small industry,’ says Photonic Solutions’ Neilson. ‘Word of mouth plays a major part in principals and distributors finding each other. For example, forwardthinking start-ups or university spin-outs will look to recruit someone with experience in the industry, and that person will bring with them the necessary contacts within photonics including, ideally, those at a distributor. Should we know an individual at a new company from having dealt with them previously, that can help engender trust early on and shorten the process of setting up a deal between us as a distributor and them as a principal.
Doing the deal
‘For the most part, we try to meet potential principals face to face,’ says Neilson of Photonic Solutions. ‘Given the convenience of all being under one roof, this happens at major exhibitions such as Laser Munich or Photonics West.
‘When approached by a potential principal,’ says Armstrong’s Johnstone, ‘we’ll look to get together to look at the product, such as it is. Depending on the point at which we get involved, we would help out with matters such as end-user promotional material, marketing campaigns and so on. We’ll ask about existing routes to market, production capabilities etc, before discussing the finer points of margins.’
‘Details of individual deals with principals vary according to a number of factors,’ says de Forrest- Wilson of AMS, ‘including the needs of the customer themselves. For example, some Government organisations insist on dealing direct with principals, so something would have to be worked out there. Whatever happens, it is important that both parties are up front about any arrangement.’
‘If and when we do take on a new principal,’ says Pacer’s Rothon, ‘we would normally seek exclusivity in a territory, and also project protection. By that we mean that if we make an initial contact with a customer, we would expect to complete the design-in and have the security that the production orders will be placed with us. Equally, we would not have a problem if a customer had approached our supplier directly – but we would insist that the business is ours.
‘We invest heavily in promotion and PR around new products, for example, so we need to be sure that the supplier will be around to support our investment in the future. We may also seek financial assistance from the supplier for some marketing campaigns to show their commitment. We also insist our suppliers are able to offer us in-depth technical training, as detailed product knowledge makes us better able to sell to our customers.
‘Lastly, we are now in a global business. For that reason, we will often insist that we have the ability to satisfy our customers globally, say, China, even though we may not have the distribution rights in that region. In such cases, if the product is being designed in the UK by Pacer and our customer decides to manufacture off shore, then we will support this from either our UK or Far East warehouse.’
A relationship of trust
Trust between the two parties in a distribution deal is perhaps the most common requirement expressed by those involved. ‘It should be about finding a trusted partner,’ says Neilson of Photonic Solutions. ‘Though a contract is always important, realistically it should only ever come out of the filing cabinet if one or the other company has an ownership change.’
‘Much of a relationship between distributor and principal is about personality,’ says AMS’ de Forrest. ‘The personnel from each party simply have to click. If they don’t get on with each other, it is unlikely that the relationship will be successful.
‘Some principals make the mistake of having a competing relationship with a distributor. If we find a customer, we expect to share the revenue generated from that customer with the appropriate principals. We would not want the principal to steal that customer from us, as we are then unlikely to ever do business on their behalf again. It should be about a partnership.
‘Lastly, the watchword of any distributorprincipal relationship is “communication”. This can mean any number of things, such as defending the distributor’s position in the chain, to visiting a potential customer if necessary. These actions only serve to strengthen the partnership, which will benefit both parties all round.’
‘Although contracts can be important,’ says Armstrong’s Johnstone, ‘developing trust is the greatest step one can take in a relationship between distributor and principal. Many of our deals are done just on the basis of a handshake, because we have that level of trust. It is also about a two-way relationship – we would expect to be able to refer technical queries back to the principal and so on. Our goal is for all parties to work together to achieve a successful sale for the end customer.’
Sage advice for start-ups
‘For us,’ says Neilson of Photonic Solutions, ‘new companies represent a very high risk, and for that reason we tend to steer clear of them. The mortality rate among start-up companies is fairly high, while in other cases, some only want to grow themselves to a certain size and then offer themselves up for sale. Neither of those outcomes is particularly good for a distributor, as in both cases we would be left with a loss of a principal.
We feel that around three years or so is a reasonable time for a company to prove whether or not it can be profitable, and at which time one can reasonably gauge the ambitions of the business owners.
‘Essentially, we look for a company that is really set on becoming a true global supplier, rather than those with short-term aspirations. The products offered must be truly unique and defendable in the actual marketplace.’ Pacer’s Rothon adds: ‘Typical errors from start-ups usually revolve around poor business planning, or unfounded projections within a business plan with unrealistic ambitions. It’s a very tough decision for us to take as we have to make a judgement without being a part of that company.’
The way forward
If you are fortunate enough to complete a deal with a distributor successfully, it is important to understand that you should not just sit back and wait for growth to happen around you.
‘Small companies need to realise that they need to adapt their management structures as they grow,’ says Neilson of Photonic Solutions. ‘The management needs of a company at start-up are very different from those a couple of years down the line, and it is very rarely the case that the same individual is the right person to be directly at the helm throughout the evolution of the company.’
Finally, Neilson has some very good advice for any company serious about international growth. ‘Employ someone with experience in international contract negotiation,’ he says. ‘This will be essential in negotiating with distributors around the world.’