"The Navigator" News Blog

Do Your Customers Like Your Business Model?

“Do your customers like your business model?” is the most important question of 2024.  It’s always been the most important question, really, but too many business owners ignore it.  The reality is that many companies – and indeed, some entire industries – are built around sales models that their customers either grudgingly tolerate or actively dislike.  I’m going to tell you a story about an industry where this question was actively ignored, which led to that industry literally no longer existing in the 21st century.  It’s long but worth the read, and then I’ll give you some guidelines to analyze your own sales model.

In 1993, I had a job as the Sales Director for a regional magazine and book wholesale distributor.  I got this job – which I probably was too young and inexperienced to deserve – because I was the newly minted son-in-law of the president of the company.  My business experience to that point had been in the hypercompetitive world of car sales. A more dog-eat-dog business is hard to find.  That’s why the dynamics of this industry were so foreign to me.

In 1993, when you picked up a magazine from the rack at your local grocery or mass merchandise store, it had been delivered on a route truck from a regional distributor like the one that employed me.  In the larger stores, the route driver had done the “put up,” meaning that he had taken down last month’s issue and put up this month’s issue, and removed the returned magazines for credit.  Smaller stores just received tote boxes of magazines, and a store employee did the put up.

There were over 300 of these regional distributors.  Here’s what got me.  There was no competition.  This industry worked on a huge network of informal “gentlemen’s agreements” to not intrude on each other’s territories. The only way to expand your reach was by buying another adjacent distributor – which we did twice in the three years I was employed.  Nearly all of these businesses were multi-generational family businesses, and by 1993, were run by people who had never experienced a highly competitive market.

We also grew by “fighting the shelf wars,” or working to expand publication space in stores.  That’s what I did.  And I was good at it.  I had a lot of fun, met some great people, and gained some experiences that stick with me to this day.

The regional distributors bought through national distributors who rarely distributed any physical product.  Most of the publications were shipped direct from the publisher.  But the national distributors took their cut.

There were a couple of other small national distributors who worked outside this system, but they distributed small-circulation magazines to bookstores.  They were also the primary book vendors to bookstores, and they just shipped direct to the bookstores.  They didn’t service mass merchandise retail.

In late 1993, I went to my first industry convention.  I met other distributors.  I met people from the largest retailers.  And I met people from the publishers.  There were a number of presentations, but the one that stands out to me was from a representative of a major publisher who excoriated the industry for its business model because it was inefficient, and didn’t meet the needs of either publishers or customers.  This, of course, just made people angry.  It should have been a warning shot.

Also, the largest retailers didn’t like our model and were talking about vendor consolidation for efficiency (it cost them quite a bit to manage 300 vendors).  This was pretty much ignored.

Most of the regional distribution people were very genteel and very content.  I did notice that there were two who seemed to be taking a different look at the industry. Not coincidentally, they controlled two of the largest regional distributors and had a lot of power in the marketplace.  I spent quite a bit of time talking to them. I was mildly reprimanded for this – these guys were somewhat considered outcasts in the business, and my father-in-law didn’t want me to get a bad reputation.

When we got home, my father-in-law asked me to create a white paper on my observations of the industry and its future.  I wrote a two-page report which can be summarized thusly:

“You are all nuts. This industry is ripe for the picking.  All it’s going to take is one person (and I predicted the two most likely) who’s ready to be a complete pariah in the business. He can go to one of three large retailers and offer to take over their whole national business, maybe giving them an extra percentage point or two.  They’ll jump on it.  Then, he’ll have trucks running into everyone’s back yard with one of the top customers as an anchor.  He can send out salespeople to take more accounts.  The distributors won’t be able to fight him off, because they don’t know how to compete anymore.  They’ll be forced to either close or sell, because their business models only work if they have all the accounts in their territories.  He’ll roll up the industry like a cheap window shade.”

“Alternatively – WE can be that pariah.  We’re already one of the top 20 distributors in the country. Put me on the road.  I can win one of the big three accounts, and then I’ll be the guy going and selling the regionals.  Yeah, people will be mad at us, but we will survive and thrive.  Others won’t.  And all this will happen in the next 3-5 years, guaranteed.”

Well, my father-in-law, and other family members, patted me on the head and told me that I just didn’t “get” their business quite yet, but I’d learn.  Two years later, I was divorced and out of there (no regrets).

At about the same time that I left that business, the distributor in Dallas – one of the two I had highlighted – signed a national contract with Wal-Mart.  The rest played out exactly like I had forecast.  Two years after that, my former in-laws sold the company to him for a small fraction of what it had been worth.  They still did well financially, but not nearly as well as if they’d sold in 1994.

So, the guy in Dallas is fat and happy today, right?  Wrong. He addressed the vendor consolidation issue on the part of the main retailers, but there were still inefficiencies in the supply chain.  You still had national distributors taking a cut without really adding value, the cost of all those trucks and employees sucked up margin dollars, and the publishers and customers still didn’t love the system – even with one main vendor.

Remember those small specialty distributors that shipped direct to bookstores?  One of them figured out that he could do the same thing, only with mass market retailers, and split the margin savings three ways – some to the publisher, some to the distributor, and some to the retailer.  Ten years after dominating the industry, the guy in Dallas found himself out of business.  And to this day, that’s how magazines get to the mass market.  An entire industry of regional wholesalers is GONE.

So what happened?

A bunch of people ignored their customers and now they’re out of business.

Every day, I talk to business owners who extol the virtues of their “business models” and their “sales processes” in terms of the benefit to the business.  However, many of them find it much harder to articulate the benefits of their business model to their CUSTOMERS.  I think they just assume that the customers don’t have a choice – that their customers will continue to have to buy from them.

I’m here to tell you that this isn’t so.  Remember that everything in my story happened before the Internet and before information became so readily accessible.

All it took was one disruptor – and then another.  Someone with the guts to step outside “the way we do it” and instead focus on “the way my customers want it to be done.”

As we roll into 2024, here are five questions that you should be asking yourself.

  1. Do my customers enjoy the way I do business with them?
  2. Does my sales process mirror and match my customers’ Buyer’s Journey?
  3. Are my people communicating with my customers in the technological platforms that they need to?
  4. What parts of my business model would my customers eliminate, if they could?
  5. How is my business and/or industry ripe for disruption – and can I be the disruptor?

The pace of change is such that you should be periodically reviewing these questions at least every six months.

Do your customers like your business model?  If the answer is “no,” or “I’m not sure,” it’s time to make some changes.  Don’t be like the people who ran the magazine distribution industry.

If I can help, let’s talk.