Amazon Business Didn’t Kill Industrial Distributors, Ignoring Data Did

In the next 5, 10 or 15 years, a lot of industrial distributors will be boldly claiming that Amazon ruined their business, but just like Blockbuster and taxis before them, that blame should really be pointed at themselves.

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By now you’re pretty familiar with the old saying, “— didn’t kill —, — did!” right? Netflix didn’t kill Blockbuster, ridiculous late fees did. Uber didn’t kill the taxi business, limited access and fare control did. Apple didn’t kill the music distribution business…well OK, that one might be true.

In the next 5, 10 or 15 years, a lot of industrial distributors will be boldly claiming that Amazon ruined their business, but just like Blockbuster and taxis and Tower Records, before them, that blame should really be pointed at themselves.

So, what’s the real threat for distributors today? Making decisions without data.

New Blood Matters as Much as Your Core Customers

Last October I participated in an e-commerce panel at the International Fasteners Expo where we asked participants how many had a website or ecommerce platform — less than 50 percent of them raised their hand. In my conversations with owners, they cited that they still have plenty of old-school customers calling, faxing and visiting their office which were cornerstones of their business.

Now, as a 20-plus year veteran of this business I know full well that relationships with partners who are stuck in their ways can be paramount, but at the risk of sounding ominous, those relationships only last as long as those partners.

Keeping your business growing for the long haul means finding new blood and not enough owners are really taking the time to ask themselves how they are establishing and nurturing those relationships. To me, trying to succeed in a competitive environment where incremental is not what used to be is a losing proposition. We need to be relying on data to find that new blood.

Customers Are Speaking Clearly

During the expo, a gentleman approached me and asked for ideas on how he could optimize his operation. He told me he was able to serve between 20-30 orders per day running his business in QuickBooks, and using a shopping cart hosted by Hostgator that he had integrated into his system. His question for me was how to take the next step.

So why I am describing this man’s relatively basic IT setup?

Because while most of the people reading this article might have an ERP and/or CRM set up and probably have more infrastructure that this gentleman, I would bet good money that he has more success than most. And that’s because the challenge today is not technology, the challenge is to be open to listening to your customer’s behavior, by using the data you have in your ERP and CRM — which he was eager to do.

By simply seeking out help digging into the data, he has a better chance to survive than many distributors that are running their business with monthly hard copy reports and no presence in the digital world — no matter what their current market share.

We Aren’t Watching the Data

Most of the owners I talked with said they use reports to manage their business, which is better than nothing but is also kind of like driving a car only using the rear-view mirror. Let’s look at an example:

One of my favorite topics is pricing, so I ask owners all the time if they have a pricing strategy. All of them say yes (many of them try to show off and say it’s the secret sauce for their success). Then I ask them how they execute that strategy. I get many answers and most of them are just guidelines about how the sales people follow certain target GM percent and a minimum floor.

Then comes my favorite question: What report do you use to understand how pricing is working for your company? Most often I get: “um, I know my GM percent is good.”  or “well…we have a few reports we check but I suppose we could do better.”

We all know that pricing is one of the most powerful ways to improve your bottom line, and yet for some reason most distributors are simply not watching the data they have that could improve one of the most powerful levers they have to generate value.

Customers are screaming with their dollars and buying behavior and businesses are sitting with their heads in the sand.

The Art of Winning an Unfair Game

For all those sports fans out there, you know statistics are everywhere. Baseball led the way, with quantitative tactics which you’ve probably heard about thanks to Michael Lewis’ book “The Art of Winning an Unfair Game (Moneyball)”. If you haven’t read it, or seen the film adaptation, it focuses on the Oakland Athletics’ analytical, evidence-based approach to assembling a competitive baseball team, despite a disadvantaged financial situation (kind of like your company versus Amazon Business, right?)

During the movie there is a quote that exemplifies the complexity of an industrial distributor trying to manage their pricing and understand what works:

Peter Brand says "It's about getting things down to one number. Using the stats the way we read them, we'll find value in players that no one else can see. People are overlooked for a variety of biased reasons and perceived flaws. Age, appearance, personality. Bill James and mathematics cut straight through that. Of the 20,000 notable players for us to consider, I believe that there is a championship team of 25 people that we can afford because everyone else in baseball undervalues them."

While I don’t think anyone believes that stats will replace coaches or managers in sports, we have seen numerous examples of teams proving that learning from data and using it on the field create competitive advantages. If you need more proof,  just look at how the Golden State Warriors otherworldly second-half comebacks, are actually driven by cold hard data.

Bet Smart With Your Business By Using Real Data

Based on as of Nov. 8, there are 16 teams in the NFL and 21 NBA teams (including Lakers) with less than 1 percent chances to win the title in their respective leagues. If you were to place a bet, wouldn’t you rather have this data before placing your bet?  

When it comes to betting on your business, the data is out there just the same — you just have to know how to find it. Don’t find yourself blaming Amazon or competitors or your people for business decision failures, start driving better ones with the data you already have.

Nelson Valderrama is the CEO of Intuilize , which specializes in helping mid-size distributors transform data into profits.

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