The Strategy of Neutrality

Although numerous business proprietors acknowledge the risks associated with depending on a prominent customer or employee, the dangers of being tethered to a sole supplier are often underestimated.

Supplier reliance takes on diverse forms, yet the most damaging involves depending solely on a single marketing provider to generate sales leads, like heavily relying on a dominant e-commerce site or social media platform.

6 Ways Overdependence on Marketing Suppliers Impacts Your Business's Value

Consider Amazon as a classic case where companies invest significantly to gain market reach and prominence. However, relying solely on a single sales platform like Amazon can diminish a business's worth due to various reasons, potentially dissuading investors or prospective buyers:

1. Increased Vulnerability: Relying solely on one platform exposes a business to sudden policy changes, fees, or algorithmic shifts. These changes can significantly impact the business's sales and profitability, raising its susceptibility to unforeseen challenges.
2. Limited Sales Channel Variation: Depending entirely on a solitary channel leaves a business vulnerable, while a diversified sales strategy portrays adaptability and resilience—qualities highly sought after by investors and buyers.
3. Constrained Path for Growth: Sole reliance on a single platform can limit a company's potential for expansion. Investors typically prefer businesses with diverse avenues for growth. Being tethered to a single platform may restrict a business's capacity for scaling.
4. Constraints on Brand Development and Customer Relations: Operating predominantly through a third-party platform could restrict direct customer interaction, stifling the establishment of a robust brand identity and customer allegiance—both valued by investors.
5. Reduced Control and Autonomy: Depending on a platform like Amazon might curtail control over crucial business facets, such as pricing and customer service, among others. This diminished autonomy could be viewed as a strategic vulnerability by investors.
6. Impression of Innovation and Autonomy: Businesses that exhibit innovation and autonomy tend to attract more investor interest. Excessive reliance on only one platform may give the impression of lacking these fundamental qualities.

How Chad Maghielse Elevated His Position on the Neutrality Strategy

Chad Maghielse's company, Pets Are Kids Too, began with a basic spray meant to freshen his dog’s breath. His company initially focused solely on Amazon, rapidly growing to over $2 million in sales with a 35% profit margin within three years. Realizing the risks inherent in this dependence, Maghielse undertook a journey of diversification in his suppliers.

Maghielse diversified by venturing onto another e-commerce platform, Chewy.com, and by establishing his own online store. This change in strategy decreased Amazon's sales share to 65%, reducing his dependence on a single supplier, with 30% going to Chewy and 5% to his online store. This significant reduction in platform risk heightened the business's appeal to potential buyers.

Thanks to Maghielse's diversification strategy, Pets Are Kids Too was acquired at three times its EBITDA value, with a substantial upfront payment. Maghielse's journey underscores the crucial insight that diversification not only shields against market volatility but also amplifies a business's overall value.

Embracing the Swiss Mindset

Decreasing dependence on a sole marketing provider not only strengthens your company's ability to withstand challenges but also significantly enhances its overall worth. Adopting a mindset reminiscent of Switzerland, valuing independence and strategic autonomy, isn't merely a tactical decision—it's a fundamental approach for achieving enduring growth and enhancing your business's lasting value.

Discover your standing on the 4 key drivers of a fulfilling exit to ensure that when the time arrives, you can exit your business without any remorse.