The Downside of Selling Someone
Else’s Product
Are you tempted to re-sell someone
else’s product to boost your topline revenue?
On the surface, becoming a distributor for a popular product can
appear to be a simple way to grow your sales—simply find something that is
already proven to be successful elsewhere and negotiate the rights to sell it
in your local market.
While distributing someone else’s product may be a relatively
easy way to grow your topline, all that revenue growth may do little for your
company’s value. A typical distribution company will be lucky to sell for 50%
of one year’s revenue, whereas if you control your product or service—and the
brand that embodies them—you should be able to do much better.
How Nike Became One of the World’s
Most Valuable Companies
For an example of the dangers of not owning your own products,
take a look at the evolution of Blue Ribbon Sports into Nike Inc. As Nike
co-founder Phil Knight describes in his recent autobiography Shoe Dog,
the company started off by negotiating the exclusive rights to sell Tiger
running shoes in the United States. Knight’s company was called Blue Ribbon
Sports and he imported the shoes from Onitsuka, a Japanese company.
Despite their exclusive agreement with Blue Ribbon, Onitsuka
started to court other American dealers. When Knight protested the obvious
breach of their contract, Onitsuka threatened a hostile takeover of Knight’s
business or to shut him down outright. Knight’s company was tiny at the time
and so deeply reliant on Onitsuka for supply, he could do virtually nothing to
enforce their agreement.
Given its dependence on Onitsuka, Knight’s company would have
scored close to zero out of a possible 100 on what we call The Switzerland
Structure, a measure of your company’s reliance on a supplier, employee or
customer. The Switzerland Structure is only one of eight value drivers we
measure, but abysmal performance on any one factor can be a significant drag on
the value of your business.
Onitsuka’s snub became Knight’s impetus to start Nike, which gave
him control of his marketing, supply and product development. Instead of simply
re-selling someone else’s shoes, Nike developed their own designs and
contracted the manufacturing of their products to other factories. By owning
its own products and brands, Nike has become one of the world’s most valuable
companies and regularly trades north of 20 times earnings.
To see how your business performs on The Switzerland Structure
and the other seven factors that drive your company’s value, take 13 minutes
and complete the Value Builder questionnaire now.
*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq
