Are you living on borrowed time? (3)
As I mentioned in my last post, you need to make small bets to find a winner.
And when you find one, you maximise the returns on your bet by really going for it.
What sometimes happens is that when people gain some traction, or find a succesful way of doing things, they all of a sudden think they have a moat.
Which makes them think no one can pass. That they are safe.
You can have a competitive advantage of course, but the question is how long can it be sustainable.
Example: buying in China and selling in Europe / US
This is still common and is still a successful way of doing business. But it is getting harder. Because being able to access a market by putting up a website is no longer enough in the era of marketplaces.
A lot of people in Germany used to have a successful site and business, buying from China, even with a private label and selling their goods in Germany.
But with Amazon, it's so easy for a Chinese company to create their own product, brand it and sell it on Amazon via the FBA program.
At prices that local sellers, that have to comply with a lot of laws, are unable to compete with.
But my own business is not exempt either.
We resell products from brands and most go through resellers and installers, as the products are fairly technical.
But one has had their own store running on their main site. And I was passed an internal presentation, that showed how a specific product would be introduced.
Sure enough, the number 1 priority was given to their own ecom site. The projects (which they do themselves), #3 was ecom like we are, #4 was pro installers.
So, in a way we are all living on borrowed time in these models. As moats and competitive advantages have an expiration date.
That's just how a market works.
So what can you do?
You need to take a wide approach. Which is looking at:
- your direct business - the site
- your overall business - the structure of your companies
- your life - the financial structure for yourself
I'll give you an explanation of this, with my own approach as an example:
1. Your direct business
This is where you maximise the lifetime value of the main operation. By evolving the business, responding to changing environments. Knowing that shit will come, but so will good things.
In practice:
Here, we look at where we can add value to the customer.
We do this by positioning ourselves as the market leader in value. So fast deliveries from stock, lot of information pre and post sale, great support. Market prices.
As we are selling other brands, we use the money we make to invest in our own brand. Which means our own name, identity and product line, which is a little more price oriented. Same quality as main brands, lower price (and excellent marings for us)
By creating our own bundles of different products - from different brands, we also create offerings that are not directly available and require more market knowledge.
2. The overall business structure
The site and people and operations are folded into one company. This entity is owned by another company, which is the holding company.
Monthly payments in the shape of a management fee go to the holding company.
Dividends are also distributed to the holding company on an annual basis.
This means that should something go wrong in operations and we are not able to avoid ruin, I can use the cash reserve to pay myself a salary from the holding company.
We are currently renting, but are looking to buy a building in about 2 years. This will be bought by the holding company and rented to the other one, so that the asset (the building) is safe if I was to lose the ecom business.
3. Your own life
Here, you have to look at how high your cost are and what the income streams are.
Your personal decisions affect yor business. example - I am still driving the same care I bought 6 years ago. It was 4.5K when we bought it.
Needless to say, it's not the car people expect when you say you run a multi-million euro turnover company that's profitable.
Now, I'd love a cool new car and have the cash and profit to buy one, I'd rather have a new asset in 2 years and keep the money in the bank (and holding company) for now.
But by keeping cost like these low, I don't have to pay myself that much and can keep money in the holding company to build more assets that will pay off in the long, mid or short term.
In addition to that, my wife also works, so our family income doesn't depend on just mine.
So look at the things that are beyond the day-to-day business and give yourself, not just the business, the best possible set up for long term survival.
That's it for this Sunday - kids are complaining I am taking too much time already to write this :-)
Very nice food for thought @pekadis!
All 3 points you've covered are gold. The one about business structure especially got my attention. Will be doing more research on my own.
You're just on a roll lately - thanks so much for all the amazing posts and I hope your kids won't hate on STM! 
Amy
thanks Amy - much appreciated!
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