You’ve probably heard the adage, “It’s far easier to cross-sell an existing customer a new product than it is to find a new customer.”
And if your goal is to grow at all costs, then cross-selling always makes sense.
However, that kind of sales growth may not have a positive impact on the value of your company. If you cross-sell your existing customers too much, it could actually make your business far less valuable.
When you cross-sell a customer so many “extras” that a customer begins to account for more than 15–30% of your revenue, expect your business value to drop. And, if any single customer represents more than 30% of your sales, expect an even deeper discount.
Customer concentration is one factor that makes up your score on The Switzerland Structure — one of eight drivers that determine your business’s value.
In reality, the least valuable companies focus on selling lots of stuff to a few people. The most valuable businesses do precisely the opposite by selling less stuff to more people.
How 3D4Medical Made the Switch
In 2004, John Moore started 3D4Medical.com, a company that created three-dimensional models of the human body, photographed them, and licensed the images to textbook publishers. By 2010, 3D4Medical was selling images to a handful of large publishers around the world.
Moore had built a successful company on a handful of customers, but when that segment began to dry up, so did his business. Despite working harder than ever, Moore’s revenue plateaued for four straight years. Instead of punching through to the next level, Moore had his hands full just keeping his company afloat.
Then an economic recession hit, severely impacting the publishing business. To make matters worse, new generations of students increasingly wanted to learn online rather than through textbooks. The advent of inexpensive digital photography and the resulting increase in competition for the same customers also didn’t help Moore. But while Moore had relied on too few customers, he still had something no one else had: thousands of 3D models of the human body.
As Moore’s business took a downward turn during the midst of the Great Recession (2007- 2009), he realized he needed to reinvent the company and decided to offer an online way that students could learn about anatomy. Moore decided to repurpose his 3D images into a mobile app that medical students could use on their phones.
He expanded the idea to include professors and medical professionals, who could use his 3D images on an individual basis to learn, teach, and share with patients and students. The company started selling the app directly to students, teachers, and medical professionals. The business began to hum as more universities – including Stanford and Cambridge – signed up.
By 2019, 3D4Medical had become the biggest producer of medical apps on every app store. The company boasted over 300 of the top universities in the world as clients. Its app served 1.2 million paying customers and reported 25 million downloads.
3D4Medical had expanded to a team of 75 employees, including a reliable management group. Moore was making plans to continue to grow the business when Elsevier PLC, one of the biggest textbook publishers in the world, made an offer to buy 3D4 Medical for $50.6 million. The offer was made in full recognition of the company’s diverse set of customers.
What’s the lesson from Moore’s journey? Customer concentration is seen as a significant risk when a potential buyer determines the value of your business. That’s why the most valuable companies are the ones that sell less stuff to more people.
Wealthpreneur Spotlight
John Moore, A “Rebel Entrepreneur”
John Moore is a serial entrepreneur who has built several multimillion-dollar businesses. Moore has become known as a “rebel entrepreneur” because of his unique style in building his businesses.
3D4Medical, which Moore built from scratch on a shoestring budget, single- handedly revolutionized how anatomy is studied throughout the world with disruptive proprietary 3D technology.
By the time Moore sold 3D4Medical to Elsevier PLC, his company had replaced traditional textbooks and medical learning in over 300 of the world’s top universities, with more than 25 million downloads and over 1.2 million subscribers.
3D4Medical’s award-winning medical platform Complete Anatomy dominated the top spot on every single app store in over 160 countries.
John Moore is now CEO of Moorezey Holdings Ltd. which owns companies committed to having a positive impact on the world using technology, innovation, health and wellbeing, and investments that allow people to help themselves.
Based upon Moore’s experience, critical insights for aspiring Wealthpreneurs include:
Keep Your Partners Close: Elsevier, a book publisher, enjoyed a great relationship with 3D4Medcial and Moore for years leading up to the acquisition. The idea of an acquisition came up during a friendly business meeting. Sometimes your best acquirer is an existing partner with a bank of trust built up on both sides.
Create Automatic Customers: 3D4Medical’s growth stalled for a few years leading up to the decision to move to a subscription model. Moore believes the single decision to introduce a subscription service transformed his business into a growth company again.
Know and Protect Your Crown Jewels: Moore created the most extensive library of stock medical images in the world using some of the most sophisticated 3D technology available. Elsevier could have created a bank of images for their textbooks. But they knew Moore had a 15-year head start and the technology would be hard to replicate, which is why they decided to buy Moore’s company rather than compete with it.
What Makes Your Business Tough to Compete With?
Moore’s library of images is difficult to replicate, which made 3D4Medical an attractive acquisition candidate. What makes your business unique?
