The downside of being local.
Published: November 26, 2021

In the BBC comedy, League of Gentlemen, there featured a ‘local shop, for local people.’ 

There was a time when there was value in being the local provider. It made good business sense to have a loyal customer base, and the support of your community. 

But those days are coming to an end. The likes of Amazon and other big players have changed classic distribution models forever.  

In a world where anything is available at the click of a mouse, the fact you’re local means very little indeed. To build a valuable company, you need to go beyond your physical location as a point of differentiation and cultivate a new value proposition. This process is know as improving your “Monopoly Control.” The name is inspired by Warren Buffett, who likes to invest in companies with a wide “competitive moat” — essentially a defendable point of differentiation.  

While being a local provider may have gotten you  into  business, it’s not going to be enough to get you out for a decent multiple. To build a valuable company that someone may want to buy one day, you need a fresh sales angle.  

Take a look at the journey of Mehul Sheth, who went from a middleman to the owner of an eight-figure business. Sheth started VMS Aircraft in 1995 as a distributor of airline parts. He offered a “one-stop shop” for airlines and their maintenance crews to find parts and accessories. 

VMS was the local distributor and survived on gross margins of 22–23%. It was a subsistence living, and Sheth was determined to build a more valuable company. He decided to evolve his proposition from just being the local warehouse for distributing other people’s items to a sophisticated provider of advanced materials.  

Sheth chose to focus on those materials that airlines need to be stored and handled meticulously. If the safety of an aeroplane flying hundreds of people 40,000 feet in the air is determined by the quality of a seam of metal, you want that steel to be handled carefully. You also want the sealant that joins the sheet of metal kept at a temperature that maximizes its adhesiveness. You may also want your rivets stored with the same care a surgeon uses to put away their scalpel after performing life-saving surgery.  

Sheth invested in a clean room that minimized dust at his facility. He bought dry ice containers so certain materials could be stored in a cold environment, maximizing their effectiveness. He also repackaged materials into smaller containers so that an airline only needing a small amount of a particular material didn’t need to buy an entire tub.  

Sheth’s evolution from simple reseller to value-added provider fueled his gross margins to 60–70%. Along the way, Sheth attracted a French company that wanted to enter the U.S. market. Rather than set up shop to compete with Sheth, they realized VMS had created a unique offering with a layer of value-added services that would be difficult to imitate. They decided to acquire VMS for 7.4 times EBITDA. 

The moral of the story. 

If you want to grow value, you don’t want to be the ‘local shop, for local people’, you need to consider evolving to something that truly differentiates you in a world where Amazon, and its various e-tailing competitors, will ship you just about anything, anywhere, overnight. 

To be outstanding, you need to stand out.