Why Being a “One-Stop Shop” Might be Bad for You.
Richard Vetter
We help owners to Plan, Build and Secure their wealth with a focus on building massive value in their businesses.
Being a local product retailer used to have some appeal. But if you want to make it big in this world, thumbing your nose at tradition and going headlong towards Amazon-style disruption might be just what you need!
You can’t just be local anymore. To build a valuable company, you need to go beyond your physical location as the only differentiator. You must cultivate an improved Monopoly Control by improving what makes YOU special for others to want your goods and services! Take a lesson from Warren Buffett: he likes companies whose points-of difference give them defendable market positions. As Buffett describes, such companies have a large "moat" around them.
Having a strong local presence may have established your?business, but it won’t be enough to get you out for a decent multiple.?To build a valuable company someone will one day write a big cheque for, you need a fresh approach.?
Mehul Sheth went from a middleman to the owner of an eight-figure business. He started VMS Aircraft in 1995 distributing airline parts. He offered a parts and accessories “one-stop shop” for airlines and their maintenance crews.
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VMS was a local distributor and got by on gross margins of 22–23%. Sheth wanted to build a more valuable company. He evolved his value proposition from just being the local warehouse for distributing other people’s stuff to a sophisticated provider of advanced materials. Sheth focused on the materials that airlines need to be stored and handled meticulously. If the safety of 300 people flying 40,000 feet in the air is determined by the quality of a metal seam, you want that steel to be handled carefully. You also want the sealant that joins the sheet of metal kept at a temperature that maximizes its adhesiveness. You may also want your rivets stored with the same care as a set of surgical instruments.?
The first priority was a clean room that minimized dust at his facility. Some materials had to be kept in dry ice containers to maximize their effectiveness. Materials were repackaged into smaller containers so that airlines didn’t need to buy an entire tub.?
By evolving from a simple reseller to a value-added provider, Sheth boosted gross margins to 60–70%. This redesigned business attracted a French company wanting to enter the U.S. market. Rather than trying to compete with Sheth, they realized that VMS’s unique offering and value-added services would be difficult to imitate. They decided to acquire VMS for 7.4 times EBITDA.
If you are clinging to the “one-stop shop” idea, consider evolving to something that truly differentiates you in a world where companies like Amazon will ship you just about anything, anywhere, overnight.?