11 Jul How to thrive as a middleman
Being a middleman (or woman) has become risky business. When was the last time you used a travel agent? Travel agencies have largely become irrelevant for most people given the rise of online travel booking.
How about a record/CD store? iTunes and online music subscription services have gotten rid of the middleman between you and your music.
Think back to the last time you rented a movie – did you get in your car to visit the local movie rental store?
Travel agents, music stores and movie rental businesses have all fallen victim to the curse of the middleman. When all you do is move other people’s product, the only value you have is your location. But in a world where content can be streamed and containers can be shipped overnight, being the local guy or gal is becoming irrelevant. Even if you have a protected geographic territory, near-perfect pricing information available to your customers through the Internet will eventually grind down your margins.
Dragging down your value
Not only do you risk losing sales and margin to online competitors; being a middleman drags down the value of your company. In the IT industry, some managed service providers sell services only and some MSPs also sell hardware and software. There is no “best” business model but when MSPs are valued for an acquisition, every dollar of annual recurring service is worth 10 to 20 times more than every dollar of product revenue.
There is also a risk, if you sell products, of becoming overly reliant on a single supplier. For example, many software companies are migrating from on-premise software sold through a channel to software as a service. They end up selling directly to customers and competing (and often reducing margins) with their own resellers.
Henry Schein: a valuable middleman
If you’re a middleman, the solution is to rethink the value you provide your customers. Instead of assuming it is your location that counts, consider yourself a curator of great products for your customers. Your job is no longer to be the local guy or gal but to be the person who sifts through all the noise, tests and evaluates what’s available, and supplies just the very best for customers who value – and are willing to pay for – your services as a curator.
Take, for example, the case of Henry Schein, Inc., a FORTUNE 500 company and a member of the NASDAQ 100 Index. Henry Schein is the world’s largest provider of health care products and services to medical, dental, and veterinary office-based practitioners. The company is one of Fortune Magazine’s “World’s Most Admired Companies” and all it does is hawk other people’s stuff.
The difference is that they see their job as sifting through all of the suppliers who want to provide products to medical practitioners and picking only the very best to recommend. They are the ultimate gatekeepers. Dentists would prefer to spend their time billing patients rather than meeting with suppliers, so they value the role Henry Schein plays in helping them minimize the number of sales people they need to see. Dentists’ loyalty to Henry Schein means that if a supplier wants to sell to dentists, they need to go through Henry Schein. The balance of power has been turned on its head because customers would prefer to buy from Henry Schein rather than directly from the end supplier. And that’s the acid test of any middleman: given the choice, would your customers rather buy from you or go direct?
If you’re curious to see how your business value is affected by its dependence on suppliers (or customers or employees), we have a free online tool to help you get started. Click here to learn more about The Value Builder and click here to get your score, based on eight key attributes of your business.
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