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The Four Phases Of A Distributorship

Author: Jason Black

Published: 2012 01 17

Read More In: Industry Shifts Products Technology Tradeshows

Starting a promotional products distributorship is a huge rush—the creative products, the endless number of customer opportunities, the substantial earnings opportunity and the fun of building a rewarding business. In my more than 10 years as an entrepreneur, I’ve had my share of ups and downs. Some of what I’ve learned I share here to help guide you toward building a more sustainable, long-term business.


Introductory Phase

1. Build To Last
The key to the introductory phase is more about what you don’t do versus what you do. For the first 12 months, you are in full learning mode. Dive in and close as much business as humanly possible knowing that these will likely only be your clients for a short period of time because, ultimately, they are net-net. This type of business will quickly leave you frustrated and chasing your tail. Rule: Don’t do favors, even for your mother.

2. Build To Scale
Creating scale is a function of growing your business at an increasing rate over time. Without investment resources to either increase productivity or expand the customer base, scale becomes an ongoing challenge. You have two options:

Option 1—Position your business as a “Product Expert.”
As a product expert, your overall value proposition will continue to be commoditized as buyers move more online.

Option 2—Position your business as a “Marketing Expert.” Rather than being “most creative” or having great customer service, becoming a marketing expert is a valuable asset you can bring to the table; one the competition cannot compete against. Rule: Your vision, plan and strategy will determine your success.

3. Build To Profit
Building a profitable and rewarding business is a function of being passionate, knowing where you make the most money and knowing where and how to best leverage your skills and talents. Rule: Know your Hedgehog (identify what drives your passion, what drives your economic engine and where you can be No. 1.)

4. Build For Success
Like a child who is easily distracted by different shiny objects, many business owners run their business by reacting to their clients. Their efforts end up being highly diluted because they are managing multiple areas that are unprofitable or could be better serviced through outsourcing. Rule: Don’t go chasing the shiny objects.

Growth Phase

The biggest challenge companies face in the Growth Phase of the business model is dealing with the constant range of issues that require more time and money. During this phase, get your running shoes on because it’s fast paced; you will learn a lot by trial and error, there will be many distractions; and your ability to execute (and stay focused) will define your level of long-term success.

1. Build To Last
So, you have a base of customers, which is a good thing. But in my opinion, this is also the easy part. The hard part is having the right customers. The 80/20 rule is nothing new to business; 80 percent of your business should come from 20 percent of your customers. ,i>Rule: Know your 80/20 rule (and stick to it).

Step 1— Define how many customers you want to service

Step 2 — Define the annual spend from each customer

Step 3 — Define the time and execution strategy to capture the spend

2. Build To Scale
To turn a 100-unit order to a 1,000-unit order, or better yet, a 10,000-unit order, you must have two assets in your arsenal:
1. The right type of customers (where purchasing power exists)
2. The right type of technology (where you can move beyond sweat equity)

We live in a technologically advanced world; take advantage of service providers and partners either in the industry or outside the industry to assist your business. Rule: Add another zero to each order.

3. Build To Profit
For starters, you have to know in grave detail how you make money on an hourly basis. Once you have this number, this should impact your decision-making process to increase the profitability of your business. I see more professionals dilute their time by not focusing on tasks that deliver the highest profit for their business. Rule: Pay yourself like a doctor, not a construction worker.

4. Build For Success
To establish long-term success in the promotional products industry, you have to build a business (with customers) that provides repeatable, predictable levels of spend allowing you to grow with a base from prior-year sales.

Here are four strategies to build a predictable, repeatable business:
1. Expand your offering to the executive level
2. Focus on business process vs. promotional products
3. Have a technology platform to “get sticky” with your customer
4. Report your ROI on a regular basis

Maturity Phase

The keys for surviving and thriving in the Mature phase revolve around extending your product lifecycle by adding more products and services that meet the needs of your customers. You do this by throwing out the old playbook and embracing the new.

1. Build To Last
Surviving the Mature phase requires company innovation at the customer level. You must add significant value to the end customer or you will lose to the competition. With more and more customer options (direct players) and younger buyers (20-somethings) entering the game, you have to adapt by leveraging technology to speak to these new consumers. Rule: Continue to innovate or risk extinction.

2. Build To Scale
Social marketing, social commerce and social networking are all new terms within the last five to 10 years. These innovations are completely revolutionizing the way business is done. Mature companies that face the highest risk of extinction tend to have a lack of resources or unwillingness to change. Rule: Redefine your customer offering.

3. Build To Profit
A top priority for any business is to drive a healthy profit. During the Mature phase, the profitability of the business will continue to be challenged as companies lower their selling margins as a defense strategy to maintain market share. There are opportunities for innovative companies to streamline poor processes and/or partner with companies to outsource processes that other entities can do more efficiently. Rule: Maximize business leverage across the entire supply chain.

4. Build For Success
At the Mature phase of a business model, it is even more important to get out and listen to what your customers and suppliers are saying about you, your industry and the competition. Have a goal to identify the market leaders, the new trends in the industry and the changes of the buying practices. Rule: The best ideas could be outside of your office.

Decline Phase

The Decline phase of the business happens when management becomes complacent and fails to adapt to changes in the industry. Getting your business back in shape takes a good amount of effort, but more importantly, it takes a good amount of strategy.

1. Build To Last
By this stage in the promotional products game, you should have a clear understanding of what services earn you the most profit and which ones are actually costing you money. Rule: Rid yourself of all unprofitable business behavior.

2. Build To Scale
Almost every successful company has built its empire based on a flagship product or service—that one differentiator that launches the business and helps maintain brand loyalty throughout the life of the business. Having this kind of value allows you to stay in the mature phase longer, avoiding decline. Rule: Find your niche (and don’t go off the game board).

3. Build To Profit
In the Decline phase, it’s time to get tough and this means making tough decisions. Consider reducing costs by reducing marketing support and the number of services you offer while continuing to promote your existing, more proven services. Rule: Eliminate all services that don’t provide immediate revenue.

4. Build For Success
One strategy that could be implemented in the Decline stage is to increase the price of your best- selling service, but only if there is little to no competition. Your best bet is to find new uses and ways to reposition your service and reinvent your business. Rule: Add some new features, products and services to extend your value.

As you evaluate your business, take each of these four phases into consideration. How will you adapt to your environment and strategically gear up for the future? Listen to your customers and find ways to engage with them for the long term. If you do, you will be highly rewarded.