Strategic suppliers and secondary suppliers
You can only step on the growth accelerator once costs are under control; otherwise you grow losses, not profits. Where do you start? With internal restructuring, and the first job is fixed costs. There are two steps: the supplier review and the staff review. Here I cover the first.
- Costs first, then growth. If costs are out of balance, growing increases losses.
- The only way to raise profit is to cut fixed costs. Variable costs grow with revenue, while fixed costs stay put.
- Strategic suppliers: the ones the end customer perceives as added value. You don't touch them; you work on the margin.
- Secondary suppliers: utilities, no-name products, packaging, glue, varnish. This is where you cut.
- Cairo and RCS: falling revenue, costs cut, profit soaring. And still in profit in 2025.
The key is balanced costs
The key is to have a company that is, first of all, balanced on costs. You can only step on the growth accelerator once costs are under control; otherwise losses go up, not profits and turnover. To reach a high EBITDA and a high sector multiple you need to trim costs, and to do that you start with internal restructuring.
The first job is fixed costs. Picture a chart: on the horizontal axis the twelve months of the year, on the vertical axis euros. There's the revenue line. There are variable costs which, being variable, grow in proportion to sales. And there are fixed costs. Add the two together and you have total costs.
The only way to raise profit is to cut fixed costs. You could think about it every night, but in the end it's the only thing to do, because variable costs rise as revenue rises.
They are not all the same
The first step is the supplier review: the people who provide the goods and services I pay for. They have to be divided into strategic suppliers and secondary suppliers.
Take one of our suppliers, Blum, a company that makes drawer mechanisms. They were clever enough to create the “Blum Motion” brand, the technology that means when you close a drawer you don't get a bang but a soft glide. When a private customer comes in and asks whether we have Blum Motion, we say of course we do, like plenty of others.
Other suppliers come to us who have developed a similar technology and want to replace Blum. They have the same kind of product, they've studied it and copied it, and it costs a lot less. By choosing another supplier we could push our margins even higher. But we don't.
Strategic suppliers
Who are the strategic suppliers? They could be suppliers of technology, or of materials that add value to the finished product, or that the customer perceives as doing so. We don't change Blum because the end customer perceives the Blum Motion brand as added value: that makes it a supplier I cannot touch.
Only if you're Ferrari can you tell yourself “they'll buy it even if I put in something similar”. For us, Blum is a supplier we can't touch. How do you deal with this kind of supplier? The only thing you can do is work on the margin.
How? By negotiating with a business plan in hand: forecast growth, the company's loyalty to them over the years, volumes. In exchange you ask for a few extra points of discount and better terms. You keep the strategic supplier, but you can pay them less than on day one.
Secondary suppliers
Secondary suppliers are the utilities, the no-names, the undifferentiated suppliers: electricity, phones, cleaning, printing, packaging materials, glue and varnish. Products the end customer does not perceive as added value.
Of course, there may be suppliers you won't feel like touching because they're punctual, good, with excellent deliveries. You can keep them even if a competitor costs a little less; that's fine. As a general rule, though, when you're talking about a factory of a few thousand square metres, choosing an electricity supplier that costs less than another starts to matter a great deal. After 2022, with electricity in Italy averaging €304 per megawatt-hour and peaking at €543 in August, even those who had never thought about it got the point.
The master: Urbano Cairo
In Italy we have a master at this: Urbano Cairo, owner of RCS and of Torino football club, who came up under Berlusconi. Cairo succeeded where the best Italian entrepreneurs of the last fifty years had never managed: he brought RCS into profit. And at a time when newspapers were in crisis and turnover was falling.
I kept the press articles from those years: before the acquisition, during the acquisition, with the 55–60 million in cuts. Cairo worked fourteen hours a day in his offices to cut costs and bring the company back into profit. There wasn't much alternative. Then came 30% EBITDA growth, achieved by cutting costs, because revenue had fallen by 5.7%. In the end net profit was €71 million, in a company that had never made money.
And the result lasted. In 2025 RCS closed with €788 million in revenue, still down 3.8%, and €54.8 million in net profit, with digital growing and advertising slowing. Ten years after the restructuring, the accounts are still in order. It proves that fixed costs, once under control, remain a company's real competitive advantage when the market isn't growing.
From my book Direct from Milano and my classroom courses. Figures and examples updated to September 2026.
One live webinar a month.
One topic, questions from the business owners who join, answers without sales slides. It's free and in Italian, and it's the simplest way to get to know us.
See the next webinar →