Proprietary Relationships = High Margin Business

I recently posted a recipe for starting a high-margin business. Here is a another one:
  • Find suppliers that give you some competitive advantage, comparative to competitors. Develop proprietary relationships with these suppliers, so only you can access them.
  • Obtain access to customers in a way that is proprietary. By 'proprietary', this means it is almost impossible for competitors to get to customers as easily as you can.

Proprietary relationships reduce buyer and supplier power - leading to higher prices, lower costs and thicker margins.

Businesses that exploit network effects are classic examples of this 'recipe'. An auction site such as eBay has so many buyers and sellers, the relationships that eBay has with each party is almost proprietary. Neither side is going to find better business anywhere else.

However, I think businesses such as Apple also make use of this 'recipe'. Apple is notorious for bringing together hardware components from suppliers in a bespoke way, rather than building the components itself. Apple has also developed fairly proprietary relationships with customers through its Apple Stores and cult-like marketing of its brand. It is difficult for other computer vendors to compete with the experience and presence of these stores in major shopping areas, as well as the consumer culture for Apple products.

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