One of the most important recent trends is the accelerated interest and involvement of private equity investors in wholesale distribution. Stuart Mechlin's blog on mdm.com focuses on thinking differently by using a Private Equity Investor Framework. He recommends distributors think more like investors to add value to their businesses.
One of the great lessons from private equity investors is the portfolio approach to the business and by extension the use and understanding of collaboration. They know that you don't have to own it, control it or manage it (in the traditional sense) to make additional dollars and add value.
Distributor owner-operators who think like private equity investors should plan to collaborate more. In this blog I will explore collaboration, how it works and why you should consider it.
First, what's in it for you? Collaboration allows you to:
- Compete more effectively against powerful, resource-rich competitors;
- Risk less – can try new ideas out without betting the ranch;
- Use resources that otherwise are unavailable or too costly to access;
- Create additional value and growth opportunities;
- Take advantage of the benefits of economies of scale;
- Enter new markets that may be inaccessible with your current resources;
- And further support the portfolio concept.
I have had many years of experience working in collaborative efforts, including international joint ventures and franchisee systems. No matter how the ownership structure was set up – whether it be 50/50, 40/60 or 30/70 – we acted and operated like a collaborator.
Collaboration can be defined as people working together to create value whether you're at the same organization, a complementary one or competitor.
Some folks use the term “win-win.” A good term and if it helps you structure your thinking and approach, great! But here’s how I have seen the best and most successful “collaborators” view the world.
They believe that the best collaboration happen when two entities with selfish motives, get together by aligning those motives. There is nothing wrong with being selfish and aligning with other selfish players. These best practice folks have found that if you can align selfish motives, you'll move mountains – and make a few bucks in the process.
First, you have to be aware of three things:
- You have to know your own selfish motivations.
- You have to know theirs, as best you can.
- Then you have to focus – many voices, one message.
Second, there are some of the critical management skills necessary for successful collaboration. You’ve got to manage this relationship. Not in the traditional sense but in the collaborative sense. Here are some tips:
- Let the less important things go.
- Enhance and protect your brand.
- Know your legal, moral and ethical issues up front.
- Trust but verify.
- Accelerate your decision-making – be nimble. If it doesn't look like it's going to work, don't start. If you do start, and it doesn't look good after 30 days get out. You may hate to admit it but most time it never gets any better. On the flip side if it looks better than it did at first, step it up.
- Give 110 percent every day, with no promise that it will last.
Collaboration may have a limited time frame and may not succeed. Everyone (including you) operates with two motivations: making the collaboration successful as well as selflessly enhancing their company’s resume to help get the next gig.
Examples of collaboration among distributors include using equipment franchisee opportunities; following customers to Mexico or China; working with distributors in other verticals to present “one face” to the end-user; and using eBay and Amazon as supplemental sales channels.
However, there are many examples of what we are not seeing and should be.
Our industry has many distributors who have developed extremely profitable end-user value-add offerings, as well as best-in-class cutting edge operating models. These may include vending or vendor managed inventory programs, mobile power generation, contractor trailers and catalog and web marketing programs, to name just a few.
These competencies lend themselves readily to collaborative efforts with other distributors outside your market area. There are proprietary skills, products or services that could be made available to other companies in a franchise or collaborative growth arrangement.
And yet these and other equally worthy potential money-makers and service offering extenders are conspicuous by their absence in the distribution universe.
If you are still having difficulty in getting your arms around this potential tool, think about the business model that has given all of us great joy, passion, inspiration, ideas and entertainment: films, books, TV, music – the entertainment business. The industry is based on collaboration. A project may involve several companies, and while each of those companies may not own the project, per se, they have to collaborate for everyone to succeed.
They know there are no guarantees, but they work together to produce a result that is better than any one person could produce. Each collaborator has a chance to make additional money that otherwise would be unavailable on their own.
I don’t know about you, but on these pages MSC, Fastenal, Grainger, Ferguson, HD Supply, Motion Industries, Wesco and Sonepar are often featured doing the latest and greatest, and what they are doing is interesting and important, but they are not the only game in town. The industry’s pool of talent, experience and execution is deeper than just those companies.
How can you use collaboration to differentiate and add value to your company, and your current and future markets?
Stuart Mechlin is a partner with Real Results Marketing. After 18 years in the wholesale distribution industry, including the role of senior vice president of Affiliated Distributors’ Industrial Supply Division, Mechlin is actively engaged in working with distributors, suppliers and technology companies on growth, marketing and profitability strategy/tactics. He is a member of several wholesale distribution company boards of directors. He has worked in such varied management roles as sales, finance, international J-Vs, purchasing and distribution for several public and privately held best-practice companies. Mechlin is also a member of MDM's Editorial Advisory Board. Contact him at [email protected] or connect at www.linkedin.com/in/stuartmechlin.