A Business can develop certain structural weaknesses that leaves it potentially vulnerable. Structural weaknesses can arise from an over-reliance on certain key players, whether customers, suppliers or employees. The solution lies in diversity.
Paul Dodgshon of Uscita Solutions, in Northwich, comments, “It’s not always obvious that structural weaknesses are dragging down a business’ value, because the business may have developed a whole way of working that has ignored any over-dependancies”.
Areas of Over-reliance
A company may have a solid customer-base for its products or services, but what if this base is actually quite narrow, What if the company loses one, or more, of its key customers?
“Ultimately a buyer wants to know if business will continue after your exit”, Paul observes. “An over-reliance on a limited number of customers, or just one main customer, reduces the value of your company, because if that customer disappears, where’s the money?”
Similarly, in the supply chain, if a company has one supplier that it is over-reliant on, structurally it is left exposed to the potential for disruption if a supplier goes bust, or to the erosion of margins should the supplier’s rates go up.
“Another example is if you’re operating as a middleman with a restricted number of suppliers”, Paul says, “Then, your value is essentially someone else’s, as your ability to build your own value is limited by your dependence on those suppliers”.
Finally there is the question of structural weakness within a company because of an over-reliance on key employees.
“If all your sales rely on one “star” performer then your whole distribution network could disappear should they leave or are absent due to, say, ill-health,” Paul remarks. “The same can apply in terms of marketing or other business activities. You have to ask the question why are people buying from your business. Is it the value you add, or the key people within your company that you cannot control?”
The question is: do you employ staff to operate your systems, or do your staff control your business
Individuals often drive businesses but building true value into a business requires establishing systems and procedures. Business relationships are founded on personalities, but you can better protect the actual workings of these relationships by taking a systematic approach to them. In practical terms, this means taking action to cement your place in the value chain.
“There’s a great deal of strength in maintaining your independence, which means not being over-reliant on customers, suppliers or staff. You build value for your business on scaleable structures that spread your dependence and give you flexibility”
Alternatively, for more information, please contact Uscita Solutions by calling 01605 535020.