On the surface, it seems like a great idea to become a distributor of a popular product. After all, if it’s already proven to be a popular product elsewhere, why not bring it in as another offering? As the case study below demonstrates, the danger is that in the long-term, re-selling may not increase your company’s value. In fact, it may even put your entire business at risk.
How Nike Went from Near-Destruction to One of the World’s Most Valuable Companies
As Nike co-founder Phil Knight described in his recent autobiography, Shoe Dog, he originally started a shoe business called Blue Ribbon Sports. The majority of his business depended on his exclusive rights to sell Tiger running shoes in the United States. Blue Ribbon Sports would import the shoes from Onitsuka, a Japanese company and re-sell them in the United States.
As business owners, we’d imagine that exclusivity to a product would keep us safe from the competition. However, in this case, Onitsuka went behind Knight’s back and started to court other American dealers. When Knight confronted Onitsuka on the obvious breach of contract, Onitsuka threatened to shut him down outright. Because Knight’s company was so deeply reliant on Onitsuka for supply, Knight had no power to enforce the exclusivity agreement.
Knight’s Entire Business was at Risk…
Because of its full dependence on Onitsuka, Knight’s company would have scored close to zero out of 100 on “The Switzerland Structure” Value Driver, 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 poor performance on just one Value Driver can be a significant drag on your company’s overall value.
Thankfully, Knight took the opportunity to rethink his entire re-seller strategy. Ultimately, he decided to start his own shoe company, called Nike. This gave him control of his marketing, supply and product development. Instead of re-selling someone else’s shoes, Nike developed its own designs and contracted the manufacturing of its products to other factories.
By producing its own designs, Nike has become one of the world’s most valuable companies. This is a fantastic example of how obstacles can be our greatest opportunities when we approach them strategically.
How Dependent is Your Business on Suppliers, Customers or Employees?
To see how your business performs on The Switzerland Structure and the other seven factors that drive your company’s value, and to learn how you can improve your results, you can email one of our Business Advisors to set up a complimentary RFB® Value Acceleration Session.