Product or Distribution: Which One Builds a Company?

Back in 2018, Justin Kan, co-founder of Twitch, tweeted something that got passed around startup circles for years: “First time founders are obsessed with product. Second time founders are obsessed with distribution.”

Most people nodded along. It felt true. Then a few years later, Kan did a full 180 on it.

I’d argue the original take still largely holds. With one important caveat that changes everything depending on what you’re building and who you are.

Why do most founders spend so much time on product?

Because it feels productive. You can always make the product better. There’s always another feature to ship, another edge case to handle, another thing that isn’t quite right yet. Product work is concrete and within your control in a way that customer acquisition rarely feels like it is.

The problem is that for the vast majority of early-stage startups, product quality is not the bottleneck. Getting customers is.

Having too many customers, a waitlist so long you can’t onboard fast enough, inbound emails from people begging for access: that’s a real problem, but it’s an extremely rare one. If you have it, you’ll know it immediately because the signals are impossible to miss. For everyone else, the issue is almost certainly on the distribution side, not the product side.

About 5% of early-stage portfolio companies have a demand problem. The other 95% have a customer acquisition problem. If you’re spending most of your time on product and you’re not in that 5%, you’re optimizing the wrong thing.

What should you be working on instead?

Distribution experiments. And, ideally starting them before your product is even fully ready.

Building an audience, collecting a waitlist, pre-selling to early customers, running ad experiments, figuring out partnerships. These are the activities that most first-time founders deprioritize because they feel less certain than writing code. But they’re what determines whether the company survives.

Starting these early has another benefit: working closely with customers in a pseudo-consulting way, even with a rough or manual product, shapes your product direction faster than building in a vacuum. You learn what people actually need instead of what you assumed they needed. And you have an audience ready to launch when the product is ready, rather than launching into silence.

There’s also a useful benchmark case here: Salesforce. People complain about Salesforce constantly. The product is clunky, bloated, and has been for years. Yet the company is still one of the biggest in enterprise software. The reason is that Salesforce is exceptional at customer acquisition and has been from the beginning. For a lot of software businesses, the customer acquisition engine matters far more than whether the product is elegant.

Are there exceptions?

Of course.

If you’re building a product for an audience with high expectations for craft, the calculus flips. Designers are the clearest example. If your product is for designers and the UX is mediocre, no amount of great distribution fixes that. For those audiences, the product effectively is the distribution. Word of mouth travels fast when something is beautifully built, and it dies just as fast when it isn’t.

The same logic applies to any audience that is particularly sensitive to product quality. Understanding who your customer is and what they actually value is what determines which side of the equation matters more for your specific company.

What does this mean for you personally?

This is where most people stop short of the most useful insight. The product vs distribution question isn’t just about your company, it’s about you.

There’s a real example worth sharing here. Two founders who are excellent at product were backed at a prior firm for a business that relied heavily on customer acquisition. They struggled. The company shut down. They were backed again at Hustle Fund for a completely different business, one that serves an audience that deeply values strong UX and actively chooses them over clunkier, more complex competitors. They’re doing well.

Same founders. Different fit. Completely different outcome.

The takeaway is that knowing what you’re good at is as important as knowing what your market needs. If you’re strong at product, find an opportunity where product is what customers care about most and where great UX is a real differentiator. If you’re strong at customer acquisition and sales, find an opportunity where distribution is the primary moat and the product just needs to work well enough.

Picking the wrong type of opportunity for your skills is a slow way to lose. Picking the right one is where founders find their best results.

So: which are you?

Until next time,

Dunky, the “distribution loving” hippocorn