Adding value as a middleman
Sep 28, 2013 / 5:00 am
With the advancement of technology, being a middleman (or woman) has become risky business. When was the last time you rented a movie at a video store or bought a record or CD as opposed to streaming it online or watching it through cable or Apple TV without leaving your home?
I would argue record/CD stores and movie rental businesses are examples of two commodities that have fallen victim to the curse of the middleman. When all you do is move other people’s product, the only value you have is your location or price. But in a world where content can be streamed and containers can be shipped overnight, being the local guy or gal is becoming irrelevant. Even if you have a protected geographic territory, near perfect pricing information available to your customers through the Internet will eventually grind down your margins.
Bill Bishop wrote a book called “Beyond Basketballs”. In his book he suggests identifying an ideal customer type and being a supplier of products and services based on the attributes of that ideal client. If you’re a middleman, the solution is to rethink the value you provide your customers. Instead of assuming it is just your price or location that counts, consider yourself a supplier of great products and services for your customers. Your job is no longer to be the cheapest local supplier but to be the person who sifts through all the noise, tests and evaluates what’s available, and supplies just the very best for customers who value – and are willing to pay for – your products and services. This not only reduces the risk of losing sales and margin to online competitors but also allows you to diversify suppliers so you aren’t reliant on just one supplier. One factor we use to measure supplier risk is the Switzerland Structure, which measures your reliance on any one supplier. Too much reliance on one supplier can drag down the value of your business, especially if you are a middleman without the value-added service.
Natures Fare is an example of a company who has an ideal client type, adds value and has reduced supplier risk so they aren’t compromising sales and margins. They cater to a health conscience clientele who want to save time and be assured they are getting food and health care products that meet their standards. Although Natures Fare has their own line of products, they also supply a variety of other food and healthcare lines. The difference is that they see their job as sifting through all of the suppliers who want to provide products to health conscience clientele and picking only the very best to recommend to their clients. To further add value they offer seminars/information sessions and consultations on a variety of topics that relate to their ideal client’s healthcare and nutritional concerns. The balance of power has been turned on its head because customers would prefer to buy from Natures Fare rather than directly from the end supplier. And that’s the acid test of any middleman: given the choice, would your customers rather buy from you or waist time searching around to save money?
If you’re curious to see how your business would perform on The Switzerland Structure and the other key drivers of the value of your company; click here to take The Sellability Score.
Read more Navigating Your Business articles
- Not all revenue is created equally Nov 25
- What's for sale, you or your business? Oct 21
- Adding value as a middleman Sep 28
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