Distributor Pubcast Episode 2: Digital Transformation
by Matt Johnson, on May 5, 2021 10:01:00 AM
Paddy, co-founder of ES Tech Group and EvolutionX joins us in the Pub to discuss the early days of ES Tech Group and the ever-changing sales climate.
On this episode of the Distributor Pubcast, you’ll learn about:
- The evolution of Office Products
- Adapting to changing markets
- Replicating the success of the Office Products Industry in other markets
- Effects of COVID-19 on sales
- Practical tips for reaching customers through Ecommerce
Introduction and History of ES Tech Group and EvolutionX
We're working across three different time zones here. So, Paddy's just outside Glasgow, I'm in Florida, and Dave is in Arizona. This is the around-the-world Distributor Pubcast today. We wanted to bring Paddy on because, to us, Paddy's a friend, and he's our partner and co-founder of ES Tech Group and EvolutionX. Of course, we were excited about maybe learning more about your story.
Of course, we know some of it, Paddy, but I don't think the world knows very much. We wanted to get that out there, and we want to talk a little bit about just the beginnings of ES Tech Group, the early days, and how that all happened. Why don't you just kick us off by telling us a little bit about yourself, and then we'll head into the history, and some questions, I think, will be really relevant…
Sure. So, I'm Paddy, I'm co-founder and CEO. I think how deeper, we're now 16 years in, feels like 16 years, actually. It's been a long thing. But long before I was a software guy, I worked in business supplies. Before I came on tonight, I watched the previous podcast with Matt, DDS. It was interesting to listen to his story because we have a very similar background. We both came out of the distribution space. He came out of electrical, I came out of business supplies.
I think it's the same story in the sense that we both got into this to solve our own problem. It was born out of frustration of just not having any good options ourselves. So long before I was a software guy, I spent 10 years running distribution businesses, mostly in business supplies. I know that industry really well. Back then, I was also the guy who had to go and actually present the e-commerce solution to customers.
Back then, there really was only two solutions available to business supplies dealers in the UK and Ireland. So, there was a product called all Opeps, and that was provided by one of the main wholesalers here in the UK, a bunch of guys called VOW. Then there was another product called Oscanet, and that was provided by the other wholesaler called Spaces, sadly, no longer with us. That was the only options business supplies distributors back then. So, I would go to presentations. We had Opeps, and Opeps was cool by the way. Opeps had loads of really cool things. It was a fantastic product. It was super functional. A lot of the inspiration for the early functionality in EvolutionX came from Opeps because it just does things nothing else does.
But you could just never rely on it. So, you'd show up to appointments or presentations, and so I'm like the guy walking in the door and my heart pounding, thinking, "Is it going to come up? Is it going to be fast? Is it going to be slow? Is the demo going to work? Is it going to crash halfway through?" You could kind of bet that maybe one in three times when you'd go to a presentation, the thing would just fail. So great idea, fantastic functionality, bad execution, really bad execution.
Dave has this brilliant thing where he talks about Maslow's Hierarchy of Needs. So, the very bottom pillar of the pyramid as you need something that's fast, reliable, secure, doesn't matter that it's brilliant on SEO, if it falls over every five minutes, who cares? So Opeps set things further up. Maslow's Hierarchy of Needs pretty well dialed in, but the bottom layer was just tossed.
So, I just got fed up walking into these presentations, getting my ass handed to me, and started to think like, "Is there a better way?" I knew the market really well. I had a genuine frustration myself. Then I came to fuse that real life-long passion for software. I was a very unusual kid. I've been obsessed with software since I was 13 years old. I built my first program when I was 14. So, my introduction to software on the internet was... I remember coming off the... I can actually triangulate the exact moment where I decided that I was going to walk on the internet, that was going to be my future. It might take me 15 years to get there, but that was it.
So, I get off the school bus as a 13-year-old kid, and I walk through the front door. At the time, I had very elderly grandparents who lived with us in the house because they were sick, and they came to live with us. My granddad was a sports nut. So, every time I'd come home from school, I'd be fighting for the remote, because he'd be watching Snooker or darts, or some other very British sport. I'd be desperate to watch this program called John Craven's Newsround.
Now, what John Craven's Newsround did was they took the news of the day, and they dumbed it down for kids. So, whatever was happening in the wattle that day, they'd do a dumbed down version for kids. I was obsessed with that news show. So back then, I remember them talking about this thing called the information superhighway. This is before we even called it the internet. It was only in America at the time, and the demo they showed was a document being sent from a computer on their side of the country and coming out on the other side exactly the same. The full fidelity, the color, the whole thing, it was identical.
This was in a world where we had fax machines, where everything came out in black and white. I can literally remember my brain exploding and thinking, "Oh, my God, that is the coolest thing I've ever seen. I don't know what that is, but that's... wherever that is, that's what I want to do." I've been obsessed with it ever since. So I got my first computer at 14, Commodore 64. Wrote my first program on a Commodore 128. I had a ZX Sinclair Spectrum, moved up a gear, and I've been obsessed with software ever since. So it's been a side hustle for me, a side project, an enthusiast passion project whilst at the same time running and building businesses.
So, if you think about it, I had the distributor background, had the frustrations, knew the market, knew the problems we were trying to solve, and knew software. So, the logical thing to do was to just make a bet that we could just go and build a business that would build a better product than Opeps. So, the original genesis for the company was, "Can we build something that's better than Opeps that does the same functionality, but looks nice?" At the time, it was actually tesco.com that we tried to model the design on. Tesco was like a version of Walmart. They were one of the first guys with a really pretty-looking e-commerce platform.
So, the original genesis of the business was to make it do all the things Opeps does, but make it reliable, fast, and consistent, and make it work and feel like tesco.com. So, we did. That was the genesis of the company, and that's how I got into B2B e-commerce.
Evolution of Office Products
That's awesome. So, Paddy, I imagine that when you started that, obviously you had all these connections in the office products industry there in the UK. I'm guessing that it wasn't too hard to pitch the first few sites, seeing as there was a real frustration with the current product that was the market leader. So, tell me a little bit about that. Let's talk a little bit about the evolution of the office products industry at the time, because this is what? 15 years ago?
Yeah, 16 years ago. Yeah, that would be right. So we got our first few customers like most people do when they do a startup. You had a lot of friends and mates in the industry. So, we went and reached out to our pals and said, "Hey, listen, we've got this thing we think is good. We'll give it to you for free for three months, check out. If you like it, pay for it. If you don't, tell us and we'll make it better." So that's how we got our first few customers.
At the time, I was pretty well-connected in the industry. So, I sat on some of the steering committees on some of the governing bodies in the industry. So, I had good connections with business supplies distributors, and was able to leverage that possession. So that's how we got our start, but the dealers have changed a lot since then.
So, if you really want to get into the evolution of the office products dealer in the UK... If you go back, like if you go way back, if you go back 25, 30 years ago, what you really had was a ton of small, mostly family businesses, actually... It's actually shocking the amount of family-run business supplies distributors there are. I think that tends to be a trend in distribution. There's a ton of family-owned businesses. What those guys looked like was small operations, orders coming in on the telephone, a small range of traditional business supplies products. So, things like pens, paper, envelopes, ink cartridges. When we say small, in this context, we are kind of talking eight to 10,000 SKUs, which we would all consider to be very small. Sourcing from a single wholesaler. None of that's like 10 suppliers, 20 suppliers. Check it, mate, who's the cheapest, who's got stock, bring the product in. They had like one supplier. It was one of the big wholesalers who had a duopoly over this market in the UK and Ireland.
Delivery was the next time the van's in that area. That's what delivery looked like late back then. There was no next day 48 hours, 72 hours. You had the vans up there a week on Tuesday. That's when you'll get the stuff. It's a pretty high margin business, because there were a ton of people selling stuff at less price. You're talking like 50%, 55%, 60% gross margins back then, and very low competition. You work the guy in that area, and then there was a different guy in that area and everybody came and bought locally.
So as far back as I can remember... I have a similar story to you, Matt, my family owned a business supplies distributor back in the day. So that's why I've got such a good understanding of the business. Literally, I've just described to you a business called Arena and another business called WGAP. That's just what I've described to you there.
Mail order changed everything. So, Viking showed up. So, Viking directed a big mail-order operation in the US. The UK was their first international expansion point. So, they show up in the UK sometime around about 1990, and they just carpet-bombed the entire country with these 50, 60-page brochures, flyers, mailers, whatever you want to call them. The big innovation that Viking brought to the market was that these things were street priced. That sounds obvious, right? But back then, it was like a total innovation, because distributors were just sending less-priced catalogs, and then each customer negotiated the discount off list percentage.
It's like, "Here's the catalog. You get 30% off list. You're a really good customer, here's a catalog, you get 35% off list." Whereas Viking was just like, "Here, you can have paper and 10 quid a box." So back then, that was unbelievably disruptive. But having said that, the industry did a fantastic job of reacting to that. So very quickly, the wholesalers and the buying group scrambled, and they developed their version of the Viking mailer. Printed hundreds of thousands of them. Then each distributor would buy a couple of thousand of these, stamp their logo and their contact information on them, and send them out to their customers. And bang, all of a sudden, they're effectively going toe to toe with Viking.
The only reason I tell that story is because business supplies distributors are incredibly versatile, way, way more than they get credit for. Maybe resilient is a better word, actually. They're incredibly resilient, right? Don't forget the demise of these guys has been predicted for as long as I've been in the game. So, Viking was going to take them out, then it was going to be Lyreco and Corporate Express. They were a class of distributor that we call contract stationers back in the day.
What they did is flooded the market with field sales reps. They just put thousands of guys on the road in Ford Fiestas, and just flooded every industrial site, industrial park in the country. So they were going to be the end of these guys. Of course, the modern-day instantiation of that is the internet. So, the internet was going to take them out, and of course, Amazon being the chief protagonist of that class. But guess what? It never happened, because these guys have managed these transitions, navigated them incredibly well.
Tardigrades of the Business World
Do you know what a Tardigrade is?
It's the world's most resilient microorganism. So, it's like a micron bug. If you put it under a microscope, it looks like a little gummy bear, and these things are literally indestructible. You can fry them, you can boil them, you can microwave them, you can irradiate them, you can blast them into outer space for a week, bring them back, give them a little tickle, and they'll just wake up and go again. So I always think about the business supplies guys as the tardigrades of the distribution world.
Listen, they've proved it again. They've proved it again during COVID. So that brings us right up to the present. So what does the modern business supplies distributor look like compared to that guy or gal from 25, 30 years ago? So, in a lot of ways, it's similar. So, you still have a ton of family businesses, but now we've got the emergence of regional super deal of trend that we're starting to see. I think that's largely due to what I would call a mega-trend and consolidation. So, we're seeing tremendous consolidation in the business supplies industry. It's an ultra-competitive business. Distributors are not competing against each other, regional super dealers, contract stationers, Amazon, the wholesaler. Two of the three wholesalers now have substantial direct operations.
What we're seeing is massive product expansion. So, we talked about the eight to 10,000 SKUs. These guys need to sell everything. They're selling everything from traditional ERP, through to furniture, janitorial work, promotional gifts, coffee services, masks, sanitizer, face shields. So, you've gone from eight to 10,000 SKUs to 80,000 to 100,000 SKUs. Delivery is next day at the latest. Next day is now considered a poor result. If you're in a built-up urban area, then a lot of guys are offering same day delivery services. Of course, we've got Amazon to thank for that because they changed the expectations for everybody related to delivery.
I think it's not what you would call a low-margin business. I think business supplies distributors are typically making somewhere in the late 20s to early 30s gross margins. There are some guys doing better, there are some guys doing less, but as an average, it's somewhere in that range. That's a big drop from that 40, 50, 60% gross margin business we used to see in the past. But a substantial percentage of that turnover is now being transacted online.
If you think about it, business supplies distributors have actually been at the forefront of this online trend for at least the last 15 to 20 years. They actually leave every other distribution market dead in their tracks in terms of adoption. You guys know we've got visibility into safety, electrical distribution, welding and gas, industrial, medical, and yet we don't see anything in those industries in terms of online adoption that we see in office supplies. It's a completely different ball game. So, they've done a fantastic job leveraging the online opportunity. When we send an office supplies guy, usually 40, 50% of the turnover going online is coming from one system to us. So, we expect to get them up and running and have a million pounds, euros, dollars, whatever currency you like going through that website in a set time. But we just don't see that in electrical, and we don't see it in welding and gas. We don't see it in medical and the other industries we're involved in. So, they've been leaders in that space.
What's the summary? The summary is that the market's got harder, it's got more competitive, but the distributors have done a fantastic job adapting and keeping up with the ever-changing landscape. So that's how I see the evolution of the business supplies distributor.
Yeah, Paddy, I think this... because it's a very similar industry model, as you know, over here. Actually, it doesn't matter where you go around the world, to the rest of Europe, Australia, the model's the same. I think one of the interesting things is that the online piece in a way was enabled by the wholesalers who provided the logistics and called it fast delivery. Kind of two-day, next day, and now same day. They kind of provide-
And the e-commerce platforms, Dave, as well. So, if you take the UK guys, they provided the first e-commerce platform where nobody could bankroll that type of investment.
Right. Because we're in different industries, and anybody listening in from a different industry, the wholesalers actually had a major impact, and still do today. It's a supply chain that enables the distributor to compete with Amazon, actually, which is pretty phenomenal.
Replicating Success in Other Markets
All right, so let's jump into the next question, which is... I mean, Paddy, you just set it up really well. We learned about the history of the office products industry. What do you see happening, or what do you think are some of the things that need to happen for less mature distributors in different verticals in order to replicate the kind of success that those office dealers have had?
Yeah. I don't think they can do it on their own. Dave kind of alluded to this, the business supplies guys had a lot going for them. So, I guess the big difference between business supplies and the other verticals that we're in is business supplies is a wholesale led industry versus a manufacturer led industry. So that means a wholesaler, a $600 million, billion-dollar wholesaler has shored up, corralled a whole bunch of manufacturers into a pot, solved big problems like standardizing content from each of these guys.
So, they've managed two, three, four, 500 manufacturers on your behalf, got the content, the buying terms, the infrastructure, the logistics, and then just fed you a price file and a set of content for your website. Today, 15, 20 years later, that is incredibly elusive to us, these manufacturer-led industries like electrical, plumbing, welding, and gas, and all the other ones that we've talked about. So, I think that's the key distinction.
I think where the industry is wholesale-led, it's actually easier to see e-commerce adoption than where it's manufactured-led because the distributor's trying to corral these manufacturers, find a set of content that can be watched from the website, and have it standardized. Obviously, Matt at DDS is solving a lot of those problems. Then you need that to come together. I think you had a lot of consolidation, and business supplies, and ERP platforms. There's only three or four that really matter.
You guys know distributors want the e-commerce site to just be an extension of their ERP system, without the technical debt and legacy stuff that ERP brings. But they want the customer to be able to go in there and see their AR balances, to see their offline orders, to print invoices, to self-serve, to pay invoices. So they want to be able to do all of these things, but if you've got 10, 15, 20 ERP systems in a given space, that's hard to spread that effort across a bunch of guys, where if it's just two or three, and maybe if you do one of the two, you get 60, 70% of the marketplace, then it becomes much easier to get a good result there.
So, I think business supplies were well-positioned to be successful online because of how organized the supply chain is, all the way from manufacturers through wholesalers, through content, through ERP. It kind of takes all those things to line up to get that result. Do you see it the same way, Dave, or would you say it's different?
No, I think it is. The supply chain is there, which is really differentiating. Gosh, I know Ascendant here in the US was doing next-day delivery, certainly the 16 years ago that you're talking about, Paddy, which is mind blowing. Anywhere in the US. You ordered it in the afternoon, and you got it first thing in the morning.
I think even office products distributors, dealers, business supplies, to some extent, were in denial that Viking was winning orders. I think we see that actually in industrial, electrical, plumbing, and so on, the verticals that are further behind. I actually think there's a very easy question for a distributor to ask their customer. The question is really simple. Where else are you buying product?
I think what happens with the internet, and I think it happens with office products, some of the sales just bled away very slowly. They were able to go online and find the product somewhere else, and get it delivered. It's happening too in these other industry verticals that are somewhat behind, and it's like, okay, you don't see it immediately, but you're losing share of spend from an end customer because they found it easier to get a better supply chain. I think that's the eye-opener, because it's like a slow, horrible phrase, but slowly bleeding to death, terrible. But it's happening.
I think the really innovative dealers, distributors see that, and they're getting ahead of it. Part of getting ahead of it is “how do you?”... Ultimately, where do you get the best customer experience? The customer's going to go where the experience is best and the price is, I'll say, okay.
I don't know, boss. I worked for a guy like 1,000 years ago, and he drew me a graph once. On this axis, it was the degree of spend, and on this axis, it was difficult to buy. The closer your product was to that convergence point, then the more suitable it was to be sold online. So, if you think of a business supplier’s degree of spend as a strategic spend to a company, no, it's completely discretionary spend. So, it's almost at the very bottom point of that access. Then it's difficult to buy, right? You can get it everywhere and anywhere, retail, online, trade counter. So, it's almost the perfect product to sell online. But when you look at these other industry verticals, you see a lot of the same stuff. Degree of spend versus difficult to buy, they're all done in this quarter here.
So, the products lend themselves to being sold online. If you really believe the Amazon hype, you would eventually just say, "Listen, if it has a barcode on it or an EEN number, it's eventually going to be sold online." It's just a question, can distributors line up content, line up ERP? Honestly, I think one of the biggest things distributors and non-business-supplies-based industries need to think about is to try to innovate on your business model, so you don't burden the end-user customer with the internal machinations of your business and how it runs.
That's definitely something I've noticed branching out into these other industries. It is like the ERP is king, and they want to take all the complexity of the ERP and make it the customer's problem, whereas Granger aren't doing that, and now there's Amazon. You just go on, you get a price, you get a delivery cost, and you buy. We're talking to some customers who are like, "Hey, when the guy gets to the checkout, then actually charge his card for more than you're showing them, because we might need to charge fees and taxes, and all this other stuff after he places the order." These are just the things they don't have to deal with when they buy from Granger and Amazon.
So, I get all that stuff, but I think the biggest piece of advice is try and contain that complexity within the walls of the business, and make the experience more frictionless for the customer. Don't make them think, basically. That's it. Don't make them think.
Speaking of experience, that's the big thing. Sounds like in the office products industry, what happened was you were able to rely on these wholesalers to provide the content. Then it was just a matter of... then there was a consolidation on the software side, which allowed, I'm assuming, the integrations to be a lot smoother and easier to maintain. I think what we have here, and what we've been saying is that you really need to have these four fundamental components to your digital channel. That is, you need to have content. So, you've got to have a source of content.
I think it's just too much to ask an independent distributor to go out and manage, like you said, two, 300 manufacturers, 20, 30, 50,000 SKUs. That's just untenable, right? This is not logistically possible for most of these distributors. So, they need to have some source, whether that's a wholesaler, whether that's a content service provider like DDS, we talked about last time. But it's more than that. It's also the commerce portion. You gotta have a great solution, you gotta have a great platform that actually fits your business model, and then you gotta have that to be connected to the ERP. You've got to have some sort of communication strategy where you're actually out there talking to your customers, cross-selling, upselling, communicating with them on a regular basis, and staying in touch online.
So many distributors have maybe one or two of these things, but very few have all four. I think that's really what's heard... At least when I look at distributors over here in these less mature markets, it's like, they can't put them all together for some reason. I think today's point is like, the bleed is slow enough where it's not an urgency. It's not enough of an urgency to go drop everything. We've got to put together this complete solution, and we got to do it now. It's like they're going to wake up one day, and they're going to be anemic because they've been slowly bleeding for years.
EFFECTS of COVID-19 on Sales
Do you think COVID impacted that, Matt? Do you think that's keen to change it on the back of COVID?
Yeah, I do. Dave and I were just coming back from a show where we were talking with a lot of distributors, and there was a noticeable sense of urgency. I think that everybody understands now that you cannot just rely on the traditional sales channels. It takes something like this to make you go, "Wow, if I would have had a online channel, if I would've had the content, if I would've had a great marketing solution to be able to communicate with my customer, stay in touch with them, offer contact-free pickup delivery, that would have been a game changer for me through COVID." So many of them did not have that.
I think they're realizing that the state of distribution, the state of the entire economy has changed forever because of COVID. So yeah, absolutely, it's had a huge impact.
Yeah, we've seen that as a business. COVID has changed everything as it relates to this subject. So, guys who never cared about this at all, now see it as one of the most important things to get done in the company. So, think about how this impacted the business suppliers guys, right? All businesses everywhere on earth shut down. You're in the business supplies. The clue's in the name. It was devastating for these guys, maybe with the exception of weddings and events, or something like that. I mean, it was absolutely devastating.
But again, they did a fabulous job adapting, and they leveraged some really quite potent short-term opportunities. So, we had the shift to work from home, and of course that plays into the office products or the business supplies, industry's hands. You have a whole bunch of people who need desks, and chairs, and monitors, and laptops, and footrests, and all the other health and safety stuff. You need to get people to work from home. So that was going to short term artificial demand created from that.
Then we saw the same thing happen on the COVID supplies fronts, where you had the masks, and the hand sanitizer, and the face shields. So, they're kind of working against COVID. But if you think about it, their traditional sales model just got completely upended. So how do dealers or distributors find business? They knock on doors. They call. Let's examine the two things in a post-COVID world. You might get knocked out for knocking on a door, depending on where you go. We are still in a semi-state lockdown here in the UK? Can you imagine sending a repper to knock on a door? You may get tasered. You might get tasered for knocking on somebody's door.
Is that going to be socially acceptable going forward based on the fact that we may be in some kind of semi-lockdown thing, and that may kick in again at the backend of the year when COVID surges in the winter? So, you've got that going on. So, what's the alternative? Call in on the telephone?
You're calling empty offices where the staff are now tucked away in their residential property that you don't have the number for. So, what does that mean? So, what it means is, the website used to be the vehicle just to transact with a customer. Going forward, it's going to be how you transact with the customer, and how you communicate with them. Because guess what? When the trade counter closed, and the office closed, and the Depot closed, what was the only thing you could make consistent for the customer? It was the website. That's how you'd communicate, and that's how you would transact.
I think companies are even seeing this as a business continuity problem. I need a website like I need a telephone, a truck, and a warehouse. It's one of the things on that list. It's table stakes. It's something you need just to be in the game rather than a luxury or some optional item you can plug in on the side.
One last thing I'll say about that, Matt, I don't know how we're doing for time here, but I will say you think about what's happened recently in the last couple of days with Apple and the new iOS update, guess what? Market is going to become harder overtime. Platforms are now shutting down marketing. So, if you launch Facebook or Instagram, or any of these apps on your iPhone in the last few days, you're going to get a full screen popup that says, "Do you want this company to track you?" You either have to choose, "Yes, I want them to track," or, "Do not track." What are you going to pick? You're going to pick "Do not track me."
So, the only reason I tell that story is, it's going to be more important than ever for dealers and distributors to have a direct relationship with our customers and not go through an intermediary like Facebook, or Google, or some platform whose whole business model could get upended overnight by the whim of the Apple market and the department Apple privacy team.
So, to your point, Paddy, it's shocking how many distributors do not even know their customers' emails, right? Because they're not emailing.
Having email is the simplest thing you can do.
You're right. It's like, what's going to happen if all of your communication channels are completely taken away from you? You don't even have a phone number anymore because they may not be in the office. These other marketing communication channels are now going to be more difficult than ever to get your message across. Hello, you don't even have... A simple email marketing could solve the problem, but you don't have it because you never asked for it. It comes down to some basic, as we like to say, blocking and tackling, right? It's the simple things that every business should really be doing. You should have an email list. You should have some sort of lead generator. You should have a good website that is well-designed, you've got a good experience. Like you said, it’s table stakes.
I think the minute you put somebody in between you and the customer, you're just begging for trouble down the line. The short-term opportunity is to be leveraged. I always tell people... "Oh, I do Amazon and I get orders from Amazon." I'm like, "Great, but understand it's a short-term opportunity that you end up getting starched over overtime when Amazon trades you out for another guy soullessly because he's got a better product, a better service, or a better price on that item." Amazon's a machine designed to starch the margin out of branded items. They will trade you out in a millisecond for somebody else.
For the guys watching this podcast, honestly, if you take one thing, if you've never listened to any of the other stuff, like what beer we're drinking or whiskey, build an email list. It's the most powerful thing you can do. I know it sounds obvious, I know it sounds intuitive, I'll bet 80% aren't doing it. Everybody you meet, say, "Can I get your email? Can I put you on my list? Can I keep in touch with you guys?" Do it overtime consistently, have everybody in the business do it. When you get to 1,000, 2,500, 5,000 homegrown registrations, you've got something powerful there. It's yours, and nobody can take it away from you. It's the most simple thing you could do.
I've got one other dynamic, just to add in for the folks not in the business supply/office supply industry. What I think is changing is this massive improvement in content, like product information. So, videos and installation guides, and the ability basically to now purchase online more sophisticated products. We see it in electrical, Schneider Electric, which maybe not everybody's heard of, but it's an industry global giant in the electrical space for very sophisticated industrial electrical equipment. Actually, it now has a product configurator. So, you can configure and research pretty sophisticated product. Rockwell Automation is another one, industrial automation equipment.
That would have been gosh, even two, three years ago, not really thought of. So, the improvement in content and the large manufacturers helping provide that is huge. Just the quality of video 3D imaging is a game changer too, where there's industries where the view is you still have to talk to a salesperson. In many cases, that's still true, and you could do it online. Some are doing it online, but the ability to now buy more sophisticated product is just getting going. That's going to be a game changer in the industries that I think have been, to some extent, protected by that challenge.
Practical Tips for Reaching Customers through Ecommerce
So, guys, let's just go around the table, or the virtual table, and talk about, based on what we've just discussed, what are some practical steps? Paddy already mentioned the email list. That's great. If you have one or two suggestions in terms of getting started based on what we've heard, what would you say?
... provocative one, which again, I think we saw in business supplies too, which is, let's just imagine for a minute a pure play online reseller were to show up in your industry, what would it look like? What would it take? Can you start to think that way? Because I think that's what's happening. If I'm competing with Granger, how do I compete with Granger and not just become submissive because you think it's scale. I actually don't think it is scale. I think the tools and the opportunity, the content, exist to transform a business, but you have to embrace the transformation and not succumb to the challenge. So yeah, what would a pure play online reseller look like?
Yeah, you're right, Dave. If I was thinking real practical, again, let's go on off the docs, I would say two things. Number one, for every account you're managing on the telephone or face-to-face, can you really afford to manage that account face-to-face if you were truly adding up the cost? So maybe you do an exercise where you segment your accounts and you say, "Okay, here's the top account, so we can afford to go visit those guys, jump in a car, go and spend time with them, have lunch. There's enough money in those accounts to do that." But then here's a bunch of guys that we love, but we just don't make enough money on them to actually go visit them or stand up people on the telephone to go talk to them.
You can manage those accounts online. You can ring-fence them with content through a website, through a really well-executed email campaign. It's something really worth thinking about. I'll tell you one thing, if anybody out there is thinking about getting a website or some e-commerce platform, whether it's EvolutionX or something else, one of the lowest hanging pieces of fruit that you can just reach up and pick is lapsed accounts. So, here's how this conversation goes every time I ask it. So, when I talk to a distributor, I say, "How many accounts do you have in the ERP system?" The answer is always 1,000, 2,000, 2,500, 3,000. Then I ask them, "How many of those guys bought something in the last 90 days?" The answer's 500.
So how do we take the 2,500 guys who know you, love you, bought something from you in the past... Don't forget, the easiest guys to sell to are guys who've already bought something in the past. You don't have to establish a new relationship. Maybe they left for reasons you don't understand. Somebody else's brochure, or leaflet, or email came in at the right time, and they were just top of mind than you were. Maybe they've got a service problem with the business that they've yet to disclose. But re-engaging those lapsed accounts through a campaign, through a website. It's one of the cheapest, most effective things you can do.
So, here's how it kind of goes. So, you say, "We're going to take the 2,500 guys who used to buy stuff that don't buy stuff anymore. We're going to pre-register them on the website. So the login is already set up ready to go, and we're going to send them a coupon code saying, 'Come back to ABC distributors.'" You can send them an email saying, "We love you, we miss you. Where have you been? Come back, and all orders for first-time buyers on orders above 200 bucks, you're going to get a 15% code if you use 'Welcome back' on the checkout." That is about the cheapest, most effective, most unbelievably effective thing you can do. Stand up for no money, you will get a percentage of those guys re-engaged, and it will be way more effective than just ringing through that list saying, "Hey, have you been? Why haven't we heard from you?" Because nobody wants to take those calls.
So, if you wanted to take two practical things away, it would be segmenting the customer base into those two buckets I talked about, and go and do a campaign on lapsed accounts. It's a penalty kick.
I agree 100%. I mean, that's some basic marketing that you can do that's not going to cost you anything. I guess my last thought on it will be catalogs because I come from a catalogs background. I just think that catalogs are everything. Content is everything. Look at your ERP, or look in your purchase history, and figure out which suppliers, which product categories, which products, which item skew numbers account for the majority of your sales and go and build a catalog that you can use in a variety of ways. Whether it's literally printing out a flyer or a small catalog, or whether it's building an e-commerce website, it really starts with the catalog. You can't do anything online unless you have content.
So going out and organizing your purchases, organizing those product categories into a taxonomy, and then going out and getting that content. Now, if you want to do it the old fashion way and get it from the manufacturers yourself, it's going to take a while. It's going to take some effort. There are companies that offer that as a service. I'd encourage you guys to take a look at that and really spend the time, invest the energy into building a catalog, because it's one of the most valuable assets that you can have beside your e-commerce website, your online channel. So that's really it. If you can do those things, you're going to be off to a great start.
Can I throw in a brucie bonus one for everybody?
So, I think distributors should really consider professional sales trainers for their salespeople. Take the business supplies guys, right? So, the future of that-
Online sales training, like digital?
I think just learning the sales process. You can't be a sales guy just because it stays on your business cards. You have to go learn how to be a sales guy. I did it years ago when I was 21. I went to Los Angeles at a course called Mac Sachs, which absolutely changed my life. They should teach it in school as far as I'm concerned. It's a life skill. It's not just a business skill. You're selling all the time, right? You're selling your way. You really need that new iPad Pro when the one you've got from two years ago works great. So, everybody's selling all the time.
But learning to sell professionally and learning the sales process, personally, for me, I can't think of anything I've done that's been more impactful than that. So, you think about the future of business supplies distributors, they're going to have to be the everything and anything company. I really think that's the future for these guys. By the way, I think services might be the future for these guys as well.
So, if you go from a business where you're walking in and saying, "Hey, here's an ink cartridge, do you want to buy one of these?" That's a direct sale. It's just like, "We've got these [fill in the bank], do you want one?" If you move them from that to, "I need to walk in the front door of a Belden and be able to solve every problem these guys have." From the fruit bowl on the reception desk to swapping out the LED light bulbs in the boardroom, to showing up with the coffee and the sandwiches every time they have a meeting, to sending a cleaning team in every night at 6:00 PM, to clean the desks and hoover the carpets, as well as providing the copier, and the toner, and the paper, and the envelopes.
But here's the problem. You've now gone from a direct sale to a consultative sale. If you're going to walk in the door and talk to a facilities manager and say, "Dude, I'm here to solve every problem, but I need to know where the problems are," now you need to know how to qualify. Qualification, biggest thing in sales. Can you qualify properly? Do you know the right questions to ask? Can you handle objections? Can you pitch yourself? Can you pitch the company? Can you close the sale, cement the deal? I'm back to Mac Sachs there. What is it? Approach qualification agreement on need. Sell the company, sell the need, close the deal, cement the deal.
Seven steps to selling, everybody should learn that. So, if you don't have your people professionally sales-trained, very inexpensively, you could put them through a course. Mac Sachs is one that I would recommend, and maybe Matt will link that in the episodes. There's others, Sandler. There's a whole bunch of different things that I've done, two or three of them. Well, I tend to find about them as they're all much of a muchness. They're pretty much the same thing, just articulated in a different style. But I think as dealers move from a direct sell to a consultative sell, they would do well to have their people properly sales trained.
That's awesome. I couldn't agree more. Just a cherry on top of that, I would just say, not only do they have to have sales processes and sales training, they have to understand how to sell online. They got to understand some basics about maybe how to use a CRM, how to send email, video, LinkedIn. It's a different world that we're in. You can't teach an old dog new tricks, as they say, but I think you can. I think if they're willing, it doesn't matter what generation they're in, they can pick it up, and they can be successful.
You've got to start planning for that next wave. These guys aren't going to be around forever. They have a ton of knowledge, a ton of experience, but you've got to put tools and training into the hands of the next generation that are coming into the sales roles.
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