Among the eight factors influencing the value of your company, “The Switzerland Structure” is a crucial concept highlighted by The Value Builder SystemÔ team. This structure underscores the significance of maintaining business independence and warns against excessive dependence on any single entity, be it suppliers, employees, or customers. While many business owners recognize the risks associated with relying too heavily on high-profile customers or key employees, the dangers of being anchored to a single supplier are often overlooked.
Supplier dependency can manifest in various forms, with the most insidious being reliance on a single marketing supplier for sales leads, such as a dominant e-commerce site or social media platform.
Six Ways Marketing Supplier Dependency Diminishes Your Company’s Value:
- Increased Risk Exposure: Sole reliance on one platform exposes a business to the risks of sudden policy, fee, or algorithm changes. Negative alterations by the platform could significantly impact sales and profitability.
- Lack of Diversification: Over-dependence on a single channel is perceived as a vulnerability, while a diversified sales approach suggests resilience and adaptability—attributes appealing to both investors and acquirers.
- Limited Growth Potential: Exclusive reliance on one platform can restrict a company’s growth opportunities. Investors typically favor businesses with multiple channels for growth, and being bound to one platform can limit expansion.
- Brand and Customer Relationship Limitations: Operating primarily through a third-party platform may lead to limited customer interaction, hindering the development of a strong brand identity and customer loyalty, both highly valued by investors.
- Negotiating Power and Autonomy: Dependence on a platform like Amazon can reduce control over crucial business aspects, such as pricing and customer service, which investors may view as a strategic weakness.
- Perception of Innovation and Independence: Businesses demonstrating innovation and independence are more attractive to investors. Over-reliance on a single platform can create an impression of a lack of these qualities.
How Chad Maghielse Improved His Score on the Switzerland Structure:
Chad Maghielse’s company, Pets Are Kids Too, initially relied heavily on Amazon, achieving over $2 million in sales with a 35% profit margin within three years. Recognizing the risks of this dependency, Maghielse diversified his suppliers by expanding to Chewy.com and launching his own online store. This strategic shift significantly reduced platform risk, making his business more appealing to potential buyers. As a result, Pets Are Kids Too was acquired at three times its EBITDA, with a substantial upfront payment.
Embracing the Mentality of the Swiss:
Reducing reliance on a single marketing supplier not only strengthens a company’s market resilience but also substantially increases its value. Adopting a Swiss-style mindset, emphasizing independence and strategic autonomy, is not just a tactical move but a key strategy for achieving sustainable growth and enhancing the long-term value of your business.