Before Jeff Bezos & Co. blew up traditional distribution channels, there was some value in being the local provider. Being the local product retailer, or one-stop shop, was a good business and being a regional distributor of a popular line could make you a mint.
Those days are almost over.
In a world where anything is available at the click of a mouse, the fact that you’re local means less. To build a valuable company, you need to go beyond your physical location as a point of differentiation and cultivate a new value proposition. We refer to this process as improving your “Monopoly Control.” The name is inspired by Warren Buffett, who likes to invest in companies with a defendable point of differentiation.
Being a local provider may have gotten you into business, but it won’t be enough to get you out for a decent multiple. You need to go beyond your physical location as a point of differentiation and cultivate a new value proposition to build a valuable company.
Taking a One-stop Shop to The Sky
Mehul Sheth’s journey from a middleman to an eight-figure business owner is truly inspiring. Sheth founded VMS Aircraft in 1995 as a distributor of airline parts, offering a one-stop shop for airlines and their maintenance crews. Initially, VMS served as the local distributor, surviving on slim gross margins of 22-23%. However, Sheth was determined to build a more valuable company.
Instead of remaining solely a local distribution warehouse, Sheth decided to evolve into a sophisticated provider of advanced materials. He focused on the materials that airlines need to store and handle meticulously. After all, the safety of a metal tube carrying 300 people 40,000 feet in the air depends on the quality of its seams and sealants. Therefore, these materials require careful handling and storage to ensure maximum performance.
Building From What Was Available
Sheth invested in a clean room to minimize dust at his facility. He also bought dry ice containers so certain materials could be stored in a cold environment, therefore maximizing their effectiveness. Sheth then repackaged materials into smaller containers, which allowed airlines to buy only the amount they needed.
Sheth’s evolution from simple reseller to value-added provider fueled his gross margins to 60–70%. Along the way, Sheth attracted a French company that wanted to enter the U.S. market. Rather than compete with Sheth, they realized VMS had created a unique offering with a layer of value-added services. As a result, they decided to acquire VMS for 7.4 times EBITDA.
If you find yourself clinging to the “one-stop shop” sales message, then consider evolving to something that truly differentiates you in a world where Amazon (and its various e-tailing competitors) will ship you just about anything, anywhere, overnight.
What Does Growth Team Strategies Do For Business Owners?
We help driven, talented entrepreneurs achieve their goals through structured, six-month engagements to maximize growth. Throughout the process, we will guide you to refine your processes to minimize wasted time and resources. We utilize our extensive experience and proven consulting processes to help you turn challenges into opportunities for growth and profitability.
If you own a business, Growth Teams can help you. Our business coaches have all built and sold successful companies and now work to help other business owners do the same.
Click here to connect with a Growth Team’s business coach today.
