The Hidden Danger of Cross-Selling

You've likely heard the adage that it is 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 makes sense. 

 

However, all of that sales growth may not do much for the value of your company. If you cross-sell your existing customers too much stuff, it could make your business far less valuable.

 

When you cross-sell a customer so many things that they begin to account for more than 15–30% of your revenue, expect your value to drop. If a 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 the folks over at The Value Builder System™ have discovered drives your business's value in an acquirer's eyes.

 

To summarize in simplistic terms, 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 

 

As an example, let's look at the medical technology firm 3D4Medical. Founded in 2004 by John Moore, the company built 3-D models of the human body, photographed them, and sold or licensed their images to textbook publishers. 

 

By 2010, 3D4Medical was selling images to a handful of large publishers around the world. Then the recession hit, severely impacting the entire publishing business. 

 

To make things 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. 

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 going.

 

But while Moore had relied on too few customers, he still had something no one else had: thousands of 3-D models of the human body. 

 

Then Moore had an idea. 

 

He decided to re-purpose his 3-D images into a mobile app that medical students could use on their phones. Moore expanded the idea to include professors and medical professionals, who could use his 3-D images on an individual basis to learn, teach, and share with patients and students. 

 

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. Their app served 1.2 million paying customers and had 25 million downloads. 

 

Thanks to having a diverse set of customers, Moore sold 3D4Medical in 2019 for $50.6 million. 

 

The takeaway? 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.

Get Free Business Valuation

or

Schedule Free Consultation

Recent articles for you

A Strong Business but a Modest Multiple

By Kim Santos • June 16, 2025
When Sean McAuliffe sold his company, he had a lot going for him. His distribution business was generating nearly $19 million in revenue. Margins were healthy. Growth was solid. And yet, when it came time to sell, his company was valued at around four times EBITDA, a relatively modest value for a $19 million company. The reason? Sean didn’t fully control his supply chain—and buyers noticed. Dependency Makes Buyers Nervous Sean’s model was simple. He bought car key fobs from suppliers in Asia and sold them to locksmiths across the U.S. It was a classic distribution play: source cheap, sell smart, and manage relationships. Sean executed well. He even created his own brand, Keyless to Go, and FCC-registered his products—moves that set him apart from competitors. But despite these efforts, Sean was still reliant on third-party suppliers. He didn’t own the factories. He didn’t control manufacturing. His business was exposed to the decisions of vendors half a world away. In today’s environment—where tariffs and geopolitical tensions can change the cost and availability of overseas goods almost overnight—relying on foreign suppliers feels riskier to acquirers than ever. This kind of dependency is exactly what The Value Builder System™ measures through the Switzerland Structure—one of the eight key drivers of company value. The Switzerland Structure assesses whether your business is overly dependent on any one customer, employee, or supplier. Buyers pay a premium for companies that aren’t beholden to any single relationship. Why Monopoly Control Drives Value Contrast that with businesses that own their brand, control their production, or have proprietary products. Companies with a defendable moat—what we call Monopoly Control—are 40% more likely to have received a written offer to acquire their business, according to analysis of more than 80,000 business owners who have completed their Value Builder Score report. When you control your product and customer experience, you influence your valuation upward—giving buyers fewer reasons to discount your business. The Takeaway for Owners Sean still built a great business. His execution created life-changing wealth. But if he had owned the supply chain or had exclusive manufacturing rights, he likely would have commanded a higher multiple.  The takeaway for business owners: Building a valuable company isn’t just about revenue and profit. It’s about creating a business that can thrive without being dependent on any one customer, employee, or supplier.

How to Double Your Chances of a Premium Acquisition Offer

By Kim Santos • April 21, 2025
Value Builder Analytics, drawing on proprietary data from over 80,000 business owners, found that companies that can run without the owner for at least three months are twice as likely to receive an acquisition offer above 6x EBITDA. The concept is simple. The execution? Not so much. Take Kristie Shifflette for example. She was an early master franchisee with Orangetheory Fitness, a one-hour, coach-led workout that uses heart rate zones to boost calorie burn during and after exercise. When she opened her first location, she did it all—marketing, hiring, payroll, and even handling construction headaches. It worked but only because she was working constantly. As she expanded, things started to break. With two locations, she was stretched. At three, it became clear: The model only worked when Kristie was the model. She knew she needed to change. Kristie stopped focusing on being in the business and started focusing on building the business. From Operator to Owner Kristie started documenting everything. From pre-sale processes to day-to-day studio operations, Kristie developed detailed playbooks that codified exactly how her Orangetheory locations should run—without her. She created a compensation structure for studio managers that gave them ownership over their results: modest base salaries paired with meaningful bonuses tied to net member growth and total revenue. Top-performing managers could double their pay, and they were treated like mini-CEOs with full responsibility for their studio’s performance. By the time she sold her business, Kristie had built a company with 13 locations generating well north of $10 million in annual revenue. Some of her top-performing studios, like the Chapel Hill location, were bringing in revenue of $2 million a year, with EBITDA margins around 40%.  Kristie’s story includes an important lesson: Make yourself less essential, and your business becomes more valuable. If you’re still the one opening the door in the morning and locking up at night—literally or metaphorically—it’s worth asking: What would break if I stepped away for 90 days? Start there. Whether it’s building a playbook, empowering your team, or simply learning to let go, taking even one step toward reducing your involvement makes your company not just more valuable but more enjoyable to own.

Why Imperfections in Your Business Don’t Make It Unsellable

By Kim Santos • April 14, 2025
For business owners considering their endgame, learning what makes a company valuable can feel overwhelming. Buyers prioritize factors like recurring revenue, a differentiated product or service, and a leadership team that operates independently from the owner. If a business doesn’t check every box, it can seem as though selling is perpetually just out of reach. But perfection is not a prerequisite for a sale. While improving the key drivers of value is important, an imperfect business can still be highly desirable to the right buyer. In fact, some acquirers actively look for businesses with fixable flaws because they see an opportunity to increase value. Blake Hutchison on Why Imperfections Can Be to an Acquirer’s Advantage Blake Hutchison, CEO of Flippa, has witnessed thousands of business acquisitions. Flippa is an online marketplace where business owners can buy and sell companies, particularly small to mid-sized digital businesses. The platform connects sellers with buyers looking for opportunities to grow or optimize an acquisition. In a recent Built to Sell Radio interview, Hutchison explained that many business owners assume their company won’t attract buyers because it has shortcomings. In reality, most acquirers aren’t looking for perfection—they’re looking for potential. Many buyers have a strategic advantage, whether it’s a strong distribution network, operational expertise, or access to capital, that allows them to take an imperfect business and make it more valuable. A prime example of this is the acquisition of PetCoach. How PetCoach Turned an Imperfection into a Selling Point PetCoach, co-founded by Brock Weatherup, was a two-sided marketplace designed to connect pet owners with veterinarians. The challenge for any marketplace business is keeping both sides in balance—generating enough demand from pet owners while ensuring there are enough veterinarians to meet that demand. PetCoach had built a strong product, but it lacked a broad distribution channel to acquire pet owners at scale. Without a solution, growth would remain limited. Instead of seeing this as a dealbreaker, Weatherup positioned it as an opportunity for the right buyer. That buyer was Petco. With more than 1,500 locations across the U.S., Mexico, and Puerto Rico, Petco had access to millions of pet owners. By acquiring PetCoach, Petco could instantly expand its offerings while solving PetCoach’s biggest challenge. Weatherup didn’t need to fix the scalability issue before selling. He needed to find an acquirer for whom the business’s weakness was actually a competitive advantage. Your Business Has Value—Even if It’s Not Perfect This doesn’t mean business owners should ignore the fundamentals of value creation. Strengthening factors like recurring revenue, customer retention, and operational efficiency will always increase a company’s attractiveness. However, not every issue needs to be resolved before an exit.  Instead of viewing imperfections as obstacles, business owners should consider how an acquirer might perceive them: A company struggling with customer acquisition may be a great fit for a buyer with an established customer base. A business with inefficient operations might attract an acquirer with expertise in streamlining processes. A company overly dependent on its owner could be appealing to a buyer with a strong leadership team ready to step in. As Blake Hutchison explains, acquirers are often looking for businesses where they can add value. The key is to position the company in a way that highlights its strengths while framing its imperfections as untapped potential. The right acquirer won’t see weaknesses as dealbreakers—they’ll see them as opportunities.