Franne McNeal explains the Switzerland Structure: a business should avoid over-reliance on any single customer, employee, or supplier, just as Switzerland maintains independence from political alliances. Buyers discount valuations when one customer, key person, or supplier represents too much risk.
Hi, I'm Franne McNeal. There are 8 key drivers that drive the scalability of a company, and the 3rd one is called the Switzerland Structure. The Switzerland Structure gets its name from the country of Switzerland. So if you don't know about the history of Switzerland, it's amazing. They've taken this obsession with being independent so far that they didn't join either of the 2 world wars, and they didn't send troops to Iraq. They didn't even join the United Nations until they held a referendum for the entire country to decide whether or not to join. Ultimately, they did, but that really goes to the idea that as a country, they're obsessed with this sense of independence, not being overly dependent on one faction or regime, so to speak. That's essential for building a sellable company. The sense of independence that no one constituency helps you be as independent as possible. So for businesses, the number one customer is critical, but you can't have an overly concentrated customer set. You've got to have good diversification. Number 2, think about your employees. You don't want to be over-relying on any one employee. And number 3, although this one is not so intuitive as the others, you can't be overly dependent on one supplier either. So customers, employees, and suppliers— you've got to be independent of all of those 3. Because for a buyer coming in, they're going to look at your business, and if they see that you're overly dependent on any one of those constituencies, they're going to discount the business because it's too risky for them. So to improve your score, you've really got to make sure you have good diversification in your customers. Make sure you're not overly reliant on any one employee, and you've got to have diversification in your suppliers as well.
