We’d like to share a true story that you too may have experienced at least once in your life, and if you haven’t then it’s likely that you will. It’s a story that reminds us of the importance of risk management and how utilizing diversification within your business can help to make both your business, and personal, life into an impenetrable fortress of success.
An ounce of prevention is worth a pound of cure
– Benjamin Franklin
Three years ago, Bill received his wake-up call. What he thought was a fortress built upon rock was actually a house of cards in a hurricane. Business was growing and profits were high as an Amazon seller. He was outpacing every milestone he could hope to achieve. Empire planning was in full swing and his Amazon store was allowing him to rapidly expand and reach new customers. Then, one 4th of July, he was sitting on a pier surrounded by friends waiting for the firework show to begin when his phone rang.
On the other end was a panicked voice, “They just suspended our Amazon account. I don’t know what we’re gonna do!” At that moment, Bill’s heart sank knowing that in a flash his entire empire was gone. Although the account would be reinstated a few weeks later after Amazon’s claim was proven unfounded, Bill knew this was a turning point for him. At this moment he decided that his business would require significant changes and more diversification to ensure he would never face another few weeks without income again.
Jump ahead 3 years later and his business has greatly changed and evolved to fit his unique strengths and capabilities. Below are some key takeaways from this experience that can help you and your business prevent a future crisis regardless of what is happening around you.
One of the biggest ways to decrease the risks associated with any business is to add more lines of business. The more customers you have the more sources of income are available to you and your business and the less reliant you become on each individual source. Every business should look at Amazon and any other marketplace as one giant customer.
It is important to remember that each marketplace’s customers belong to that marketplace and not your business. Due to this fact we recommend that your business begin exploring multiple sales channels as well as your own store to diversify your sources of income as well as increase the overall profitability of your business. Expanding sales channels is a great way to prepare for any channel specific challenges you may face moving forward.
When buying stocks, we all know that indexes or large clusters of diverse stocks carry less risk than single stocks or investing in one set industry. The same applies to products. The more products you offer the less effect the sales velocity of one particular offering has on your total business.
It’s also recommended to try and source products across multiple categories and suppliers. A diverse array of product categories will allow you to minimize the effects of seasonality, trends, and uncertainty on your overall product catalog. If you can build up a diverse and dynamic product catalog you will find that challenges with an individual product or line will have a much smaller effect on your business.
One of the most often overlooked ways to reduce risk within your business is to diversify your supply chain. It’s important to have multiple sources for every product you sell. Ideally, these sources should be from various countries. When you purchase exclusively from one country of origin, you expose yourself to the geopolitical risks associated with that country. Purchasing products from various countries allows you to reduce the effects tariffs, embargos, and closures have on your business.
Regardless of the geopolitical risks associated with any suppliers, it is still prudent to find another source or two to insulate yourself from supplier specific risks. Your suppliers run many of the same risks and challenges you face every day; businesses can close, prices can rise, and suppliers can experience supply chain issues of their own. As a business owner you do not want the future of your business to rely on just one or two suppliers. Have a well-diversified supply chain to reduce your business’s exposure to risk.
The last way to reduce risk within your business is to control and reinforce your distribution. When selling online we all rely on various partners to distribute product to customers all over the country and abroad. Many times, this piece of an online seller’s business is overlooked, but can be very important for both meeting performance metrics and ensuring customer satisfaction. About one month ago, Amazon FBA was gated, and all “nonessential” products were barred from the program. This caused countless sellers to lose millions in revenue.
This is just one example of why you need to have control of your own distribution. Have a backup plan for distributing and storing your inventory when your primary distribution channel is unable to do so. Lower volume sellers may be able to turn to self-fulfillment in a pinch to fulfill orders; however, this can be a near impossible task due to the metrics an online seller must achieve.
Utilizing a 3PL (3rd Party Logistics Provider) is a great way to gain more control over your inventory and centralize it in one location. A 3PL leverages multiple carriers and strategic partnerships that can work alongside and enhance your current distribution channels to reinforce your business’ distribution capabilities. It is important to have control of your business’ distribution to reduce risks associated with delivering products to your customers within the required delivery window.
As for Bill, here are some parting words of wisdom for us…
“The events of 2020 have once again proven the importance of reducing your business’s exposure to risk. Reducing risk is one of the most important objectives that a business can strive for and can help your business endure challenges for years to come. Always be forward looking and have a backup plan for when obstacles cannot be avoided. This is important at all levels of your business from what you sell, to where you sell it, to where you source it, and even how you distribute it.” – Bill Carlin, Shipmate Fulfillment
Risk is something we often don’t want to think about but assessing it before a challenge rather than during one, can give your team the upper hand. It is true what they say after all, “an ounce of prevention is worth a pound of cure.”
Discover how Payoneer provides online sellers worldwide with an all-in-one payments solution for their eCommerce businesses.