Two businesses, competing interests

[Nikki]

I own two businesses which most often are beneficial to each other. One is brick and mortar, and we serve people from about an hour away in all directions. It's a niche industry, and while it's gaining popularity, most cities only have a few. Larger cities have 5 to 6 at most. We're in a medium sized city, and we are one of 2.

Our second business gained steam from the first. We produce a custom product that we sell as an add on to clients in our first business. It's an ecommerce business that now sells both retail and to other business owners in the industry from our first business for resale to their clients. It's brand new at just a month old. It obviously has more room to grow as our market is national and possibly international. We already have 15 resellers, so it's seems it may do well. It's just too early to tell.

We just had an potential reseller approach us. We had no clue they even existed, but they are just an hour south of our brick and mortar business. They will almost definitely cut into our business for our b&m, so I'm debating on how to approach it from our second business. I feel the second business has more room to grow. We are the first of our kind in this business with this business model to resell. The item is just an add on to the service of the first business, so for the majority of clients, it won't be a make or break if they choose our new competitor or our b&m business. I am leaning towards accepting this new business as a reseller, but wanted to get some feedback on case to see if there are any considerations I am missing.

Sorry for all the first business second business talk. It really is such a niche, so I'm trying to leave the exact industry out of it for now.

[vangogh]

No need to apologize. I think I understand the issue without the specifics of the business. I'm guessing some people might ask for a few details and I might at some point as well, but I think we can manage without. Ok, just thinking out loud here.

It's probably going to be impossible to know in advance what's the best thing to do. If I understood right this reseller has a brick and mortar so having them as a reseller will take some business from you. I guess if they also serve people within an hour then you have a slice of your region that overlaps. Based on what you said about this being a growing market, some kind of overlap is probably inevitable.

I suppose the question to ask yourself is will you get more business through them as a reseller than you'll lose to them by sending some customers their way.

It sounded like you also think the second business could ultimately be better than the first. I don't know if you're thinking down the road all of your effort is in business two. If so then it certainly makes sense to accept this reseller.

Is there a way to give yourself an out? Like after a year or some length of time you can remove them as a reseller without causing any problems?

I'm struggling to come up with anything else. I don't see any horrible downside of accepting them. Your businesses share an service area so it's inevitable you'll each lose potential customers to the other. As long as there are enough customers to support both of you, it's not exactly a problem.

Hope something in there helps.

[tallen]

I know that some distributors of specialized products will establish exclusive territories for resellers. Even the online resellers may be restricted in where they are authorized to ship the products.

So if you want to protect the B&M resellers of your add-on product, including your own B&M business, you could establish a radius around each one (say, for example, two hours or 100 miles) within which you will not accept any other resellers -- thus giving exclusive rights to the resellers you already have, within their territories.

Another approach, if you are worried about your resellers in competition with one another trying to undercut each other, you could set a Minimum Advertised Price policy, which I see some manufacturers do. Thus none of your resellers could advertise your product at a price lower than the MAP (they could potentially still sell the product for less, they just can't advertise that...).