If a recession is coming, what do businesses need now more than ever?

Podcast Transcript

Josh Penfold is founder of Pro Telecom Supply and founder of Goose, and he’s a B2B ecommerce leader. And the topic we’re talking about today is, if a recession is coming, what do buyers or companies need now more than ever? So, thanks for being here, Josh, and tell us a little more about what you do.

Hi, Tom. So, yes, I’m glad to be here on your podcast. So, basically what I do is whether it’s a company that I’m building myself or if I am working for other companies, my experience spans from running self funded startups to working for $18 billion per year companies. So I’ve been across the spectrum pretty much on things and my specialty has always been on ecommerce, cost savings and finding new ways to either decrease costs or find revenue.

And today it definitely has a very challenging economy. Things are changing really quickly. No one really knows if it’s going to go into a full recession or not. A lot of political things are happening, a little bit of a mess on both side of things. So it’s definitely an interesting time. But I think it’s a great opportunity to see what’s out there just because whenever there’s kind of a change, whether it’s becoming a good market or a bad market, it creates opportunities.

So it kind of breaks down people’s processes and operations and more important, their perception on how they look at things.

For example, I’m always very big in the B2B Ecommerce space and the first thing I tell people when I’m going for a consulting gig or starting a new role is that the technology doesn’t really matter so much. It’s about the processes and everything around that. Because all technology does kind of enables the sales process. Especially in B to B, you’re not really selling a product no matter what your product is, you’re selling a way for someone else to use your product service and make their products and more importantly, make money.

So it’s always important to understand where you are in that process, going from the production to the consumption. And that’s kind of where I kind of found my niche is in the B2B space and find the process.

For example, last recession, a little bit of luck, a little bit of planning. I launched an ecommerce store back in 2009 called VoIP moto was original name. We transitioned that to a pro telecom supply name a year or two afterwards just because we had expanded our product lines and we were selling telcom case and equipment which that kind of encompasses voice over IP phone systems.

If you ever worked in an office, those phones you see on your desk plus all the cabling and back ends, server and equipment behind it. So that was kind of idea of a starting point and that failed kind of miserably since people are going towards mobile left doing phone systems and no one really wanted to spend a ton of money on dedicated phones anymore since it was all going towards mobile.

But I did happen to do is have advanced market into security cameras that happen to have voice over IP equipment built into them and carry some of those, created some accessories with them and the security market kind of blew up. It’s going to be a perfect storm for us because we had a recession happening back in 2009 and nobody had money to spend on things.

And when companies don’t have money to spend on things, they try to keep what they have safe and secure and operational. And one way they did it was buying security cameras to watch things and keep them safe and protected. So it was one factor there. And the second factor was that traditionally in security cameras, alarm systems were done by dedicated professional companies.

You probably remember having all those different alarm system and camera companies sending technicians to your door trying to sign on systems, all the yellow page ads back in the day, web lists of by alarm system, pay x amount of money and then pay forever $100 a month, right? That was in order to install.

Well, technology happening and everything going from analog systems with the old cocktail and cameras to IP based, which is basically making them like network equipment. And no one required a specialized training. All required was a power Ethernet network switch, some category five cable and you plug it into a security camera and get the power to the data, it shows up on your network device.

So suddenly what was the specialized equipment with AC wiring and coax and cramping became just as easy as plugging in a router and device on your network. So it opens up to tons and tons of IT departments could do it, networking companies could do it, even business owners could do it themselves with a little bit of running cable and packing some plug and play stuff.

So it was like a perfect timing of us with the recession and the technology point where we were really breaking down channels across the country where these legacy companies are trying to go into bids and charge 15, 20 or $30,000 per project and we’d sell the equipment for three or four and the gauge it themselves.

We shut off a lot of people across the country, but we made a bunch of money and helped a lot of people do it. And that’s kind of like what I’ve been doing in a nutshell for the past 10-15 years is finding ways to take advantage of holes in markets, running my own companies and then working for other companies, finding ways to fill in their holes, identify margin opportunities, use e-commerce to exploit those opportunities, whether it’s on Amazon, ebay, scrap goods or the work. That’s kind of what I’ve been doing.

I remember that time frame, that recession, and I absolutely remember when businesses the recession was over. But as a marketer, I wasn’t getting any new clients because they were spending their money on other things, like they were trying to pay down loans and things like that at the time. But, yeah, I see what you did there is you took advantage of security camera issues.

When you found out about the security camera thing, it sounded like you had a platform of some kind where you could test out different products to see what was hot.

We were running an ecommerce site and we had built it ourselves on Magento open source, low costs hosting. And at the time it was very easy to get leads because Google Shopping was free back then. So basically you could submit a feed to google of your products for free.

So you can do things like oh, I’m creating three or four different stores, so I show up three or four times in the listings all of the products and with all the drop shipping and stuff plan, you could easily find and list 20,000 or 30,000 products in a category, put it online and just hit a shotgun approach.

Once it started becoming paid approach to Google, it became a little more challenging, major focus, a bit more content, but it really became to the point where we had to use the mass suppliers of products that were drop shipping to find out what the market was doing and then try to find suppliers that didn’t offer data feeds and drop shipping traditionally to your products.

And we had to convince them to say hey, you’re a technical B2B company, you traditionally sell to installers and dealers, you ship them to the job sites. Why don’t you ship for us to the customer, we’ll give you a whole lot more business, I can give you 20,000 a month starting off and they jumped on it.

So they created dropship programs for us which allowed us to get a little more market size and fluctuate products. And then we worked with manufacturers and got certified in some product lines to a point where we became like the number one dealer for some of the product lines we’re selling in North America, running a small one, full time club of part time people, running an ecommerce website based out of a storage in Buffalo, New York.

Just because we were able to hit on those niche products, provided those services for providing free services. Like we pull Google map up and say OK, you can put cameras here, here and here and cover up all your entrances and free of charge market products up 10% instead of 100%. Most viewers did and we just able to take the market by storm.

We did it for a couple of years up until our suppliers started to see what we were doing it and others and they started selling direct to our customers and kind of moved up channel. Then you’ve seen it too in the whole direct to consumer.

Growth in the past five years where companies were once afraid to sell to consumers to piss off their retail partners or the distributors, now I don’t think there’s a problem selling to their customers customers, and vice versa, which then pushes the distributors to launch their own products. Being a manufacturer, it becomes a very stricter and complicated value chain.

Yes, I’m not sure if D to C has kind of run its course yet, or if there’s still a lot more of that coming. I know there’s still a lot of B to B e commerce opportunities out there as well, but I don’t know about D to C.

I think it’s a mixture there because there’s a lot of opportunity for growth in B to B and it’s been very attractive. A lot of investors and startups see B to B as untapped wealth of transactions and growth. But in reality, B to B is very transactional in a lot of cases where there might be billions and billions of dollars of transaction value. But some of these companies have had 20 or 30 customers for the past 50 years, and they’ve had a new one, maybe five. So there’s a lot of transaction volume, but they don’t go out there and try to find new customers and new product lines.

It’s more of a transactional, almost like a strict EDI or I have five things out of this month, I ordered five things next month, and the quantity is going to change based on my demand, and it can’t really influence the marketing or sales. So yes, there is some opportunity for growth, but a lot of that transaction volumes attracts to investors has been really unattainable.

And I guess the same thing kind of applies DTC, but in a different sense because every company has been launching DTC the past five years and trying to capitalize on that direct consumer I want the whole margin bucket for myself approach, but I think there’s getting pushback now where consumers don’t want to visit 20 or 30 different websites to buy Hersey Kisses or Pledge cleaner or whatnot. They want to go to one place like Amazon or Walmart or Target, get everything at once, reorder from the shopping carts and just pick it up or the quickest, unless you’re a very big brand fishyando like Columbia apparel and shoes like I do, or some specialty food with not only available at other places affordably, then you might go to direct consumer.

But I think the habits of people are so ingrained and almost like a laziness approach where they don’t want to visit 30 sites, they want to visit two or three, get to live the next day, even cost them one dollar, $2 or more.

Yeah, you’re talking about the marketplaces there that have been created and that are kind of taking the place of probably a lot of the B to B companies that hadn’t got into ecommerce yet.

I think Marketplaces would also brave and trying to launch your own direct consumer approach, especially the CPG space where there isn’t a lot of demand, where someone like Columbia, which I’m a fan, like I said, or any other apparel company or specialty sports company, if you know exactly what you’re looking for and the brand owner has the most selection and availability, they have the direct fulfillment, it may make sense to buy them directly as opposed to buying it from Amazon or Walmart just because you know what you’re getting for.

You have the trust factor. And again, one of the things I would say to consult with customers I work with is that people buy for a variety of reasons and those are always price, availability and trust.

So unless you’re selling on one of those three things and what value are you offering? So the manufacturer provides the best price because they want to keep the channels going, but they have the trust factor. You’re going to trust the manufacturer to be accurate, you might find some no name site out there selling it for 50% off retail, but you may not trust them because they’re not Amazon and you never heard of them before and you don’t want getting your credit card information or even your PayPal ideas. So it comes down to one of those three things and companies we have to realize what is the value prop we’re offering these customers to drive them to visit a separate website every week or every month they make a purchase instead of going to Amazon, clicking one button and having it there in two days.

All right, now, I want to shift gears just a little bit, because in your post you were talking about figuring out what companies and buyers want right now, and if you can figure that out, you’re going to make money. You gave the example of the security cameras. So how do you figure that out? What kind of data do you need to be looking at to kind of give a little clue there that you are keeping track of certain things and you still do?

Yeah, so I think we’re talking about is I go on LinkedIn and I post a lot about ecommerce, about marketing, and I try to create interest and drive education in the space, because a lot of people get a little scared, confused about ecommerce, not really understanding what it is, especially going into the B2B space past what they think you may go to create a store in Amazon or Shopify. So we try to go a little bit deeper into the operations, the supply chain or marketing side. I think we’re talking about is that the tax?

I kind of stumbled in a security camera because I was selling a bunch of adjacent products, had these products listed. I saw a trend, I just met a list on it and did some testing and AB stuff. And yes, this is what the market wants, and kind of went full bore into it. Right now, with things changing so much, it can come down to, if you’re running a storefront, expand your product selection in different areas and seeing what’s hitting and asking yourself as an operator going, why are these people buying from me? If all of a sudden started selling a couple of tools? Is it because there’s demand for it? Is it because nobody else has it? Do I have a good pricing? Am I making money on this? Is it a bad pricing on listing? Are these fraudulent purchases? Someone trying to scam me based on this stuff, and maybe they’re trying to get one product because they can sell it.

So you have to really drive down into some granular data and think, why are people buying certain products from you if you’re doing it? And if you’re not selling stuff, you can just look around you and talk to colleagues and friends and family, working stuff your own life.

For example, I’ve also composed on LinkedIn talking about how I’m remodeling my house right now, where it start off as, hey, I want to move this TV from one wall over the mantle to the side wall in my living room and trust it’s not going to sit there.

So we did some other things and end up building a console and a bookshelf. And next to know, I’m spending a whole bunch of money revamping three rooms in my house and molding and built and new pillars and whole laundry list of things are changing. And it kind of spiraled. And as I’m doing this, I kind of do it myself, save money. I’ve always been kind of a builder, and you find ways to say, okay, how could I not spend $10,000 for built in bookcases where instead I could spend 1500 on these parts myself?

And that’s looking at, oh, I can buy some pre-made kitchen cabinets that are mostly hung on the wall. I can repurpose those as a base and add some components to it. I find some pictures of my wife and I liked, we found some blog talking about people building similar things. And then we look at some tools we have and look at the tools that are out there and find ways to save money.

And you can buy jigsaw where you can make from the shelves yourself and cut the holes for sporting shelves instead of trying to do it manually. So if it gives a professional look that you normally couldn’t do yourself, and it goes $30 from Craig, manufacturer of parks and pieces for woodworking, and then I find out, oh, I can go to Home Depot and have already added M or Lowe’s, which I love and have been talking to, and they’re a great company. And say, hey, I can get this piece of trim for my doorway for $17 a piece or for the base where it needs. Or I can get a piece of foam and another jig for my saw, and I can buy a whole sheet of MDF that for $50. I can cut 13 pieces of trim out of that for $50. Buying a $35 again, little tool that was attached to my handsaw and allows me to cut straight every lines and I can cut my own for a fraction of the cost. And those type of things, you notice and think, okay, so where does this cost credit sell their products? What’s the supply chain look like? Who’s selling them? Okay, they have a good map program because the price is the same everywhere. You look at who the availability is, where the sellers are, the brick box, are they direct?

You start looking at products you’re using yourself and say, okay, how are they selling this? Are the prices consistent? What’s the availability? Can I walk into a brick and mortar and purchase them? How are they around it? Okay, what if I want to stand the drywall? I can buy a hand sander, okay? I can buy a little palm sander. What if I want to automate and buy a hand sander on a pole to make drywall finishing easier like the pros do?

Well, none of the pros here have them. None of the stores have them. You have to go on Amazon or special orders $140, but they save so much time. But no, I’m curious locally, why is that? I haven’t figured it out yet. But one thing I’m looking at, they go even further and say, oh, now that I’ve done this work, we should replace our front door.

Who carries front door and sidelights? Well, Home Depot, Lowes do, but they start at $4,000 in a special order. Then call a bunch of other local places where they can build them for you. It will be about $3000 to $4,000. Okay? A bunch of money or we find out.

Okay, there is a bargain outlet type company selling second hand close up goods which are really second hand. They’re just imported and bulk purchases. They sell doors, you buy the satellite and door separate. They’ll build it for you for the cost of materials that they have. Or you can buy the components separately and you can build a mahogany door with sidelights the same as that. Four to $5,000 from Home Depot. Lowe’s and for $400-470, depending on the option that you want when thinking about that, saying, oh, I just paid a whole bunch of money as a homeowner.

But most homeowners aren’t super savvy to build door frames out of the components. But how about the builders and contractors around here that are waiting several weeks from Home Depot or from the carpet shops they don’t know about these traditional second hand places that are buying bulk from the factories direct and have compelled the brand new doors and components sitting there in a warehouse and their production soldiers very lightly used because they’re suing homeowners.

Why aren’t they reaching b to b? And the same contractors are waiting six to eight weeks. These doors and components that come into traditional places while other ones are sitting unutilized and the quality is similar and it’s like, okay, there’s a chilling opportunity here. What can you do to capitalize on this? Then? What are the people going to be looking at the next several years if the recession hits? And to save money, are they going to go to the big guys or are they going to try to do it themselves and what tools they need to do themselves?

It’s just one example I just use because I’ve been remodeling. But that’s the type of mindset you have to look at things going, okay, what would I do? What kind of work to do to save money and cut expenses and try to think differently because what worked before is still working, but it’s expensive. And that creates an opportunity for change.

And they need some kind of change management process to say, okay, this process is good, but it’s expensive, but I want to change it. So it’s tough. Yeah, which is better than all this process is bad. I don’t want to change it because I have built my process around it, but we have to because it’s bad. Which happens a lot in business to business where one supplier has a bad process and all their customers incorporate that process in their workloads just because they have to do to work with the company. And they can’t really change even when they hit the process ad for efficiency and cost, but they have to do it.

So if that company changes it then says, hey, if that process is not good, well, it’s good for them, it’s good for the consumers and good for everybody. But in reality it’s bad because it breaks the processes and costs money to change things and everything was built around it. So the change manager becomes important as you’re thinking about where the next opportunity is.

Yeah, that’s an interesting illustration there. I don’t know if you’ve actually done or not, but maybe you’re considering providing the door post product for other homeowners.

I was more looking at it from a business perspective on the wholesale side. Why aren’t companies like this utilizing their opportunities in the B2B space for wholesale or even consumers? A lot of these companies that when I’m looking at don’t even have a website that’s just products. It just has some marketing materials on it because the tradition is to wholesale stuff to the public and it’s just second hand stuff or it’s just the imported goods almost take it like a parking lot with that company.

And they’re very far behind the curve on digital just because they don’t have the infrastructure to support it. They’ve been focused on low cost and keeping those high cost efficiencies. Even the point that most retail locations are in old industrial buildings and some by waters of like Nashville or Chattanooga. So they’re not like really good retail locations. Really like old industrial buildings are repurposed to house 40 to 50,000 square feet of just random couches and furniture and hardware flooring and doors or windows, that kind of stuff.

Yeah, they have the opposite problem that most businesses do right now, which is most business. They say, well, we got supply chain issues and they have supply chain issues. Except it’s just the opposite. They’ve got inventory, can’t sell it because they don’t have a means to get it out there.

I think they’re selling it, and they do have good sell through, but they missed an opportunity to provide extra revenue where if they can source the products and recon factories are imported. And traditionally they see this as kind of like a bargain value chain. If they move the upscale a little bit, then they could capture a lot more margin potential.

I think it’s the same thing if you look in the retail space. If you look at Harbor Freight as an example, they start for many years being very low quality, very few tools. They use them once or twice and they break. And look at them now, they still have some of that, but a lot of tools and accessories have gone upstream a little bit where they offer two or three lines of different tool sets and even one cordless goods that are almost as good or sometimes even better than some of the name brands you find at the big box stores.

There’s a little apprehension for me personally buying them just because I don’t know how long they’re going to keep those type of batteries and tools in stock. So if I pick like, say, five tools and go through batteries for them, if those batteries become unavailable, then you kind of stuck with useless tools. But the quality is becoming much, much better.

Where before five, seven years ago, you tell them, oh, this is a made overseas product, the buttons are going to break up the saw. I don’t know if it’s going to make straight line cuts. If you look at the product now, they’re almost the same price as the name brand stuff, maybe at a ten or 15% discount to attract buyers, but the quality is almost or as good as some of the namebrand stuff.

I don’t know if they found better factories or moved up, but it’s a perfect example of a company that started as a bargain close out place trying to find a niche space in the consumer. And they realized that, oh, by the way, all the auto shops are now using the toolboxes and tools because they can get a toolbox for $500 instead of buying a snap on one for $4,000. Right sockets, that’s a wrenches. And you’d start seeing Harbor Freight tools and all the shops instead of snap on our neighborhoods. And I’m sure those guys are like, what the hell’s be on my huge margins? Because he know it’s the same type of cost structure on a toolbox. Go from a harbor version to a snap on or similar. You’re just paying for name, brand and service.

Well, Auto guys don’t have a ton of money. They’re paying their own tools and boxes. But this holds the tools and locks and does they need. They’ll spend 500 over $5,000. It’s a no brainer. And if the tool breaks, they buy a new one because they can buy ten versions of the tool for the same cost or buy one of the big guys.

I’ve had that exact conversation with my mechanic. He started out at an auto shop and he brought his own tools because he didn’t like theirs. And so he told me a lot of these things that you just said about the difference between Snap on and say a different brand name. But it is interesting the trends that change like that.

Well, thanks so much Josh, for sharing some of your tips and secrets here. Where can people learn more about what you do?

I think the biggest thing is just find me on LinkedIn. That’s where I do most of my posts and content and I’m always glad to talk to people and give them advice on how to do ecommerce better, to look at their value propositions better because again, I do ecommerce but in reality ecommerce is never really about the website or even like checkout or flows. It’s usually about everything around it and that could be operation side with technology or processing the business down to your sales channel and you have to really know your position there and what your customers want and what their customers want up there and be to be and find ways to overcome them.

So you can try to be successful selling a product but if you missed out on some of the stuff around it, then you can really get yourself in a pickle. So I’d be glad to help anybody who wants to reach out to me on LinkedIn to search for Josh Penfield and glad to help with ecommerce and point you guys in my direction.