The Switzerland Structure

The Switzerland Structure

One of the eight factors influencing your company's value is called "The Switzerland Structure". This concept underscores the significance of maintaining business independence and advises against excessive dependence on any singular entity, be it suppliers, employees, or customers. While business owners often acknowledge the risks of relying on high-profile customers or employees, the potential pitfalls of being tethered to a solitary supplier are frequently overlooked.

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Supplier dependency manifests in various forms, with the most insidious being reliance on a sole marketing supplier for sales leads, such as a dominant e-commerce site or social media platform.

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How Dependency on Marketing Suppliers Impacts Your Business Value

For instance, Amazon is a prime illustration of where businesses heavily invest to gain market access and visibility. However, relying solely on a single sales platform like Amazon can diminish a business's perceived value to investors or acquirers for several reasons:

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1. Elevated Risk Exposure: Relying solely on one platform exposes a business to the risks of sudden policy, fee, or algorithm changes, significantly impacting sales and profitability.

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2. Lack of Diversification: Overdependence on a single channel is viewed as a vulnerability, while a diversified sales approach signals resilience and adaptability—qualities appealing to investors and acquirers.

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3. Limited Growth Potential: Exclusively relying on one platform can constrain a company's growth opportunities. Investors prefer businesses with multiple channels for growth, and being tied to one platform can limit expansion potential.

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4. Brand and Customer Relationship Limitations: Operating primarily through a third-party platform may result in limited customer interaction, hindering the development of a strong brand identity and customer loyalty—attributes highly valued by investors.

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5. Negotiating Power and Autonomy: Dependence on a platform like Amazon can diminish control over crucial business aspects, such as pricing and customer service, which investors may see as a strategic weakness.

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6. Perception of Innovation and Independence: Businesses demonstrating innovation and independence are often more attractive to investors. Overreliance on a single platform may create an impression of lacking these qualities.

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How Chad Maghielse Enhanced His Switzerland Structure Score

Chad Maghielse, the founder of Pets Are Kids Too, initially relied solely on Amazon for sales, reaching over $2 million in revenue with a 35% profit margin within three years. Recognizing the risks associated with this dependence, Maghielse strategically diversified his suppliers.

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Maghielse expanded to another e-commerce platform, Chewy.com , and launched his own online store, reducing Amazon’s share of sales to 65%, while Chewy and his store contributed 30% and 5%, respectively. This strategic shift significantly reduced platform risk and increased the business's appeal to potential buyers.

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Thanks to Maghielse’s diversification strategy, Pets Are Kids Too was acquired, valuing the company at three times its EBITDA with a substantial upfront payment. Maghielse's journey underscores the critical insight that diversification safeguards against market volatility and enhances a business’s overall value.

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Embracing the Swiss Mentality

Reducing reliance on a single marketing supplier strengthens your company’s market resilience and significantly boosts its value. Adopting a Swiss-style mindset, which emphasizes independence and strategic autonomy, is more than a tactical manoeuvre; it is a crucial strategy for achieving sustainable growth and enhancing the long-term value of your business.

Find out how you score on the 8 factors that drive your company's value and receive a free action plan for how to improve your score on each by completing the Sellability Score questionnaire.