Post 6: The Warehouse That Was Secretly Another Business

Years ago I worked with a friend who had a successful online business. He was in the e-commerce industry and sold products online. He shipped thousands of packages every day, yet his warehouse was using only roughly 25-30% of its available space.

I suggested offering fulfillment services to smaller, non-competing online retailers.

His employees were already receiving inventory, they were walking aisles, picking orders, packing boxes and preparing shipments 5-6 days a week. Third-party inventory could occupy unused space and flow through much of the same infrastructure with very little impact to his operation. In fact, his existing operation would have greatly benefitted.

New revenue could reduce old costs

While he did a significant shipping of his own products, addition shipping volume with UPS, FED-EX, USPS could have likely improved carrier rates. He could increase his bulk purchasing of packing material, boxes and tape to reduce supply costs. Essentially, greater warehouse utilization could lower effective cost per shipment on each and every item he sold. Labor could become more productive by redirecting staffing and eliminating any “down time”. With enough scale, he may have even been able to justify integrating producing packaging, inserts and other materials internally for additional revenue.

New customers would have likely reduced operating expenses while providing an additional and diversified income source. This became evident one day when the servers were down and no orders were being processed. Staff in the warehouse was idle while had there been fulfillments from partnering companies, the losses, if any, may have been mitigated a bit.

But, the warehouse was not the important discovery

The owner thought he had an online retail business.

But he had accidentally assembled receiving, storage, inventory systems, employees, picking, packing, carrier relationships, shipping volume, purchasing power and loading infrastructure.

He had accidentally built much of another business.

That produced one of the most useful questions in this project:

What companies have accidentally built businesses they do not know they are in?

A business builds infrastructure for purpose A. But A requires capabilities B, C, D, E and F. Perhaps C + E + F can perform an entirely different economic function.

This is emergent capability.

The warehouse story matters because it demonstrates the difference between asking:

What does this company do?

and

What could this company do with what it already has?