Who Owns the Customers

Implications: What are you really getting when you buy a company? You may buy my hands and my feet, but it's my head and my heart that are important.


Analysis: As more and more investors (private equity investors or larger organizations trying to grow revenue) seek to roll up or consolidate entities, are they forgetting the most important things that a company has to sell? The most important assets, in my opinion, are the customer relationships vendor relationships and the people which make up the organizations. To thrive, the acquirer must nurture the relationships, internally and externally. They can "buy the hands and feet, but they cannot buy the mind and heart. However, if they treat the relationship correctly, the relationship will give their heart and mind."

As a former senior officer with Integrated Electrical Services, the contractor rollup which reorganized earlier this year, I saw first hand the effect of not recognizing who owns the relationships. As the original owners left the companies, either at the time their agreements ended, or sometimes by other means, it became painfully aware as to who really owned the relationships. The former founders and owners easily re-established themselves as the real asset of the businesses and in many cases won back the customers very quickly.

As companies such as Home Depot, Rexel, United Electric and others acquire independents, they would do well to understand that the really important things they are acquiring are those long lasting, personal relationships which have helped to build the successful distributorship they are buying. Customers are not buying conduit and fittings or wire and cable and switchgear, they are buying an advantage (either real or perceived) from someone that they trust and believe cares about their success. Why else would the local independent almost always be the dominant player in the market? GE Supply was never number one in the markets I am familiar with because they couldn't leave a successful manager in the market long enough to build those relationships or get an unsuccessful manager out of the market quick enough to keep relationships from being ruined.

As XYZ buys distributors, the first things that go down the drain are those relationships. (All those that believe that XYZ cares about those local relationships and wants to maintain them raise your hand.) You see, that's the problem with relationships, when you care about yourself first, you destroy the relationship. Hence, they loose key people who value relationships and they become their competitors.

As more and more consolidation takes place, you will see more and more opportunities for really strong independents. You see, it's their money, their community, and their friends that they care about, and are willing to work twenty hours a day to help them be successful.