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How Your Best Partner Can Also Be Your Greatest Risk Factor

March 12, 2021 | By Ryan Abbott

Adii Pienaar developed Conversio, an email marketing platform for retailers. Timed perfectly, the company began around the same time eCommerce started to explode. He saw early success and was experiencing organic growth.

A few years in, Adii found most of his wealth tied up in his company and decided to start looking at exit plans. Conversio’s growth primarily came from one external source, Shopify, an e-commerce platform for online stores and retail point-of-sale systems. Shopify was a great partner for Conversio, connecting them with online stores and retailers that could benefit from using their email marketing platform. However, this partnership eventually became the source of 90% of Conversio’s business.

While in some ways this partnership seemed fantastic for Conversio, having dependence on one source lowers Conversio’s value, according to the Switzerland Structure. The Switzerland Structure is a concept that measures how dependent a business is on a single employee, customer, or partner. When your company becomes too reliant on something or someone you don’t control, risk is incurred and decreases the business’s value. In Adii’s case, his company was far too reliant on Shopify’s platform to connect him with potential customers.

Shopify’s organic traffic continued to grow and Conversio’s sales increased by being a part of that ecosystem. However, there was always a risk when relying on a single platform, which was amplified because Shopify is a closed platform. In a closed platform, the software structure regulates and controls the way users operate within its system. If Shopify had made changes to their platform and their content regulations, it could have negatively impacted Conversio.

After the initial boom and business growth from partnering with Shopify, Conversio started to experience involuntary churn. Some of the retailers they were servicing went out of business or decided to stop selling online. This increased churn rate resulted in slower growth than Conversio had previously experienced.

After years of consistent success, Adii found himself at a turning point. A large portion of his wealth was tied up in a company that was no longer scaling like it once had. Adii ultimately decided that it was time for him to cash out and sell. Adii was aware he hadn’t adopt the Switzerland Structure and understood how risky it was to continue relying on Shopify. Luckily, Adii was able to exit his company after a lucrative sale.