Economy

Avoid a Distributor Disaster

A cautionary tale of how a small exporter discovered that you can't trust every distributor you meet

Written by John Lorinc

Like many successful exporters, Mark Cahsens, founder of Great Circle Works, a five-person Oakville, Ont., operation that designs and markets toys, spends a lot of time at international trade shows. Having a presence on the trade show circuit was an integral part of the small company’s marketing strategy starting in 2006, the year Cahsens established the business.

It was a smart approach as it provided an obvious entry point into new markets outside Canada’s borders. And while Cahsens learned over time how to perfect his company’s sales pitch and presentation style, he was caught off guard by the distribution challenges he’d run into that would end up costing him a great deal of time and money.

Where things went wrong

It was during one of the first events Great Circle Works attended in Nuremberg, Germany, that a distributor approached Cahsens, voicing enthusiasm for Great Circle’s popular line of mini sleds. After exchanging business cards, says Cahsens, “he came out [to Great Circle’s Oakville office] and we spent three days getting to know each other.” They did a deal on a handshake.

Several months later, Cahsens was stunned to discover, through contacts in Europe, that the same distributor had sent Great Circle’s sleds to China, where manufacturers copied the product and produced it at a deeply discounted price. Soon after, he found out that two other distributors, in Switzerland and Austria, had done likewise.

Cahsens was shocked. “I always thought that in Europe, they had more regard for the business relationship. In North America, it’s so much easier to do business on a handshake.”

Cahsens retained a lawyer to enforce his intellectual property rights, and subsequently broke ties with the distributors after reaching a settlement, but not before seeing his own sales drop in the markets where they had operated due to the influx of cheap knock-offs.

Mastering the trade show

Cahsens had learned a tough lesson, especially after a run of good fortune that was a direct result of attending trade shows to build market share. Today, Great Circle’s products—the mini-sleds and puzzle games—can be found on retailer’s shelves across North America, Europe and Asia. More than 80%, or $2.9 million, of his 2013 revenues came from exports, and the product’s popularity with parents around the world has propelled the firm up the PROFIT 500 growth rankings.

The business had a modest beginning. After hand-selling directly to Canadian retailers, Cahsens in 2008 decided to set up booths at some of the major toy, hardware and sporting goods shows in the U.S., Germany, and Japan.

Cahsens figured he would test the waters by spending three months doing an intensive circuit of more than a dozen shows. He wanted to determine whether he’d break even after accounting for booth fees, sales and marketing materials, and travel expenses for him and his staff. “I’d be at least content with that.” (A typical 10×10 booth costs $10,000 to $20,000, with flights and accommodations adding an extra $3,000 to $6,000 per person.)

However, Cahsens knew that it wasn’t going to be enough just to show up and plant the company flag. Such fairs attract hundreds of firms, all of them strutting their best stuff to the thousands of attendees wandering around cavernous convention centre floors packed with visual noise.

Early on, Cahsens and his staff decided to adopt an exuberant, energetic and aggressive sales style. Cahsens’ policy: no one should wander past the Great Circle booth without getting approached. When they recognized a powerful buyer from a large potential customer, “I would ask my staff to chase them down the aisle and bring them back to the booth.”

Their style did not always work. In North American shows, such as those in New York and Las Vegas, “that approach did pretty well,” Cahsens says. “People receive your excitement well.” But, he continues, “different countries have different cultures. Being boisterous didn’t work in Germany.”

For some trade fairs, in fact, Great Circle hired local freelance sales people who specialized in working trade show booths. They also provided Cahsens with some insights into regional customs. He recalls asking his Austrian distributor to supply a sales rep to work a booth at one European show. “His demeanour was like someone waiting to buy ice cream.”

At a Japanese show, by contrast, Cahsens decided to save on sales staff costs. He speaks some Japanese and figured he could make the pitch himself. But Japanese buyers and distributors seemed to avoid his booth because it didn’t have Japanese sales staff.

As for those shady distributors who tried to take him for a ride, Cahsens is now wary about unsolicited approaches, and has become more selective about the shows he attends. Despite his experience, sales in Austria and Germany have made an impressive rebound since he chased away the rip-off artists and Cahsens has asked his loyal customers to watch out for fakes. “Now,” he says, retailers “are proactively contacting my distributors because they want my product, not the other ones.”

Originally appeared on PROFITguide.com