When I was a young student engineer I took a summer job working for the MOD in Portsmouth at a Submarine testing facility. Lots of fluid dynamics and testing models in massive water tanks! I stayed in a house with some European students including a Swiss guy, who invited me to stay with his family in Geneva as part of a trip to France I was planning.
Switzerland Is A Bit Different…
I made it, by train, to Geneva and stayed a few days. It was a great summer of meeting interesting folk and socialising. For a young lad from Belfast, when the Troubles were still affecting life, Switzerland made a bit of an impact.
All the family that I was staying with spoke several languages which was quite impressive in comparison to my schoolboy French. Geneva is a rich, sophisticated European city – very clean and well organised – maybe too organised for some!
One thing that came out when staying with the family was that they were very European yet they had a strong sense of independence from the rest of Europe.
So, when I learnt about the Switzerland Structure, one of the 8 drivers of business value, I could relate the message back to my student visit.
So, what is the Switzerland Structure?
Putting it simply, the value of a business will be enhanced when the business is not excessively reliant on a customer, supplier or employee.
Let’s delve into each one in more detail…
Big Customer Dilemma
In a previous job I was responsible for managing the company’s relationships with it’s B2B customers – making sure excellent service was delivered, looking for more sales and protecting margins.
We had one very big customer, much bigger than all the others, who always gave us a dilemma. We needed the income and margin, and we always felt the customer was exploiting that need. They always pushed for price reductions, freebie support, etc. We felt stuck.
The answer was a long-term strategy to increase sales to other customers. My patience was tested many times – resisting the temptation to give in to the big customer’s demands whilst working on getting more customers. But we got there!
I regularly talk to business owners who face the same dilemma. They almost exhibit a split personality about the “big customer”: loving the income yet constantly worried that it could all be lost. I felt the same – build the relationship but hope there isn’t a shock around the corner. Losing a big customer can spell the end of a business or at least cause major problems like redundancies, stress and a less valuable business.
What’s The Answer?
Of course, the ideal answer is never to have a big customer dilemma – work to keep your biggest customers individually less than 15% of turnover. Maybe the best piece of advice is “sell less stuff to more people”. Have a smaller product offering, of things you are really good at, but focus on getting as many customers as possible. Don’t get sucked into selling ancillary products to a small number of customers and then find they have suddenly grown big in your world.
Suppliers Can Be A Risk Too
Just as a big customer can present a dilemma, being overly reliant on a supplier can create the same tension and risk.
I was lucky to attend the Value Builder Summit in Dallas this year. On one social break-out I had a few beers with George Bandarian, who sold his document management business last year.
George prepared his business for sale by deliberately improving his Value Builder Score, especially as he was a reseller of document management technology from a single supplier. George bought most of his products from a single supplier but to improve the value of his business he deliberately engaged a secondary supplier. He directed some contracts through that secondary supplier so that he had a Plan B should the main supplier ever cause problems.
You can listen to George’s story when he was interviewed by John Warrillow here.
Employees – The Constant Risk For SME’s
The final part of the Switzerland Structure is about reducing reliance on one or more employees. In all my experience with business owners of SME’s this situation is probably the most common.
When I was running a small trading business, I found myself with a senior manager who was good at his job, bringing in good sales, but had a negative impact on the rest of the team – in fact people were threatening to leave. It was a really stressful time, I had to do something or else I’d lose some good people. I won’t bother you with the full story but it ended with an agreed departure for the manager – all very difficult at the time, sleepless nights, but afterwards things felt much better.
The Essential Employee…
I suspect you have been there yourself. You have an essential employee. Maybe not displaying bad behaviour. Maybe they are the font of knowledge about some customers or technology critical to the business. Whatever it is, you feel they are holding you hostage – if they leave, you are stuck. You may have to take on their job – not ideal!
The first task to escape this problem is to recognise it. Over reliance on an employee can creep up on you over time – extra responsibilities they take on, the gradual accumulation of knowledge. I see this problem a bit like a reverse Hub and Spoke (check out the blog on this value driver). You have allowed an employee to become essential to the business.
But what’s the solution? Here’s a few bullet points you might like to consider:
- Reallocating job responsibilities;
- Training other staff in those critical skills or knowledge – often that critical employee is keen to teach;
- Having standard operating procedures that allow other employees to do the same job.
Whatever the solution, you must take action and make your business more Swiss!
Could You Be A Bit More Swiss In Your Business?
If you are concerned that you could be overly reliant on a customer, supplier or employee take the Value Builder Assessment to see how you compare to SME’s just like you. With over 40,00 completed assessments you are in good company and can truly see how Swiss your business is.
The assessment offers you a free business valuation and a 27 page report on how you could make your business more valuable and only takes a few minutes of your valuable time. Take the Value Builder Assessment now.