Surviving Amazon over the long term
Not everyone agrees with me that Amazon will buy a bricks-and-mortar industrial supply company in the next 18 months.
One analyst told me the idea was so 2014. Maybe back then Amazon would have purchased a giant B2B distributor such as Grainger. But these days, he told me (on the condition that I not use his name or affiliation), Amazon sees itself more as a marketplace —happy to skim off a portion of other people’s transactions as a third-party seller without the bother of brick-and-mortar stores or other tangible assets.
Yet that should hardly calm today’s B2B distributor. Amazon is coming for your markets whether fueled by a multibillion acquisition, a blockbuster partnership or the same relentless assault the company has been applying as it expands its offering of industrial supplies and other SKUs. “The fear to me is Amazon owns that front-end experience where customers enter,” that analyst explains, “and ends up squeezing you on the other end with unparalleled delivery and unparalleled customer service.”
Surviving Amazon means looking at least 10 years into the future. Where do you imagine your industry in a decade’s time? What might the competition look like and how do you see your place in that distant world? Who will your customer be? I’d suggest really letting your minds go. If I’m manufacturing or distributing earth-moving equipment, for example, I should be thinking about the data my machinery could collect: everything from the nutrients in the soil to precipitation data.
Many businesses across the country are failing to collect great stores of data that may be worth real money, whether through increased sales or as intelligence sold to interested parties. If I’m running such a business, I should be learning everything I can, today, about Big Data and the Internet of Things (embedding products with sensors and software) and the sophisticated analytic tools that help businesses make sense of it all. In 10 years, will I be the head of a company that sells earth-moving equipment or will I be running an analytics business that leases bulldozers and backhoes? Or, if I don’t figure this out, will I be working for someone else?
The best companies are those that can hardly recognize their future selves. Amazon began life as an online bookstore that now seems to sell everything but firearms and livestock. Elon Musk launches Space X and suddenly privately-financed space exploration impacts a hundred other industries. If I’m running a mining company, I’m thinking about making drilling equipment for use on other planetary bodies.
Develop your 10-year vision. And then make a concrete three-year plan that gets you on your way.
The tech side of the B2B commerce
My bias always has been pro-tech. I’ve been on the tech side of the B2B commerce space for more than 15 years. If I were running an industrial supply company, all of my new investment would be in automation and technology. I’d be asking my employees to search for ways to remove friction in the business processes. Any new hires I made would be with both eyes on that goal.
Make that pivot today. Start building the infrastructure that will enable you to find the new revenue that comes with smart data mining. You run the warehouses and distribution centers that help drive your industries. You can understand better than anyone what products are moving and why, and recommend to customers the features that could boost sales. That can mean survival in an era of commodity pricing or at least a nice driver of new revenues.
The Dollar Shave Club can be an inspiration. Gillette never thought of selling its razor blades by subscription. A smart entrepreneur did and five years later Unilver paid $1 billion to acquire the company. Find ways to become a more service- or subscription-based business that creates annuities of recurring income. Maybe provide a three-year repair or service contract on the equipment you sell. Offer training, installation, repairs and replacement. Lease equipment rather than selling it – or lease with an option to buy. Competing with Amazon means fighting back against commodity pricing by finding alternative ways to monetize your customer relationships.
Another advantage to investing in tech: it drives efficiencies. Even if Amazon doesn’t pose the greatest threat, it won’t be long before we see another downturn. It’s the lean operator who can thrive even in hard times.
It might strike some as preposterous that today’s typical distributor can make moves in Big Data and sophisticated analytics. For companies that book under $500 million in sales a year, technology is rarely a strong point. But data science isn’t rocket science. There are a multitude of resources available to you. The right three-year plan can get you to the place you need to be to compete.
Amazon isn’t invincible. It has made missteps. The company used to have an initiative called Amazon Supply before scrapping that in favor of Amazon Business. Industrial suppliers have done an admirable job fighting back. What Amazon does have in plenty is a fail-fast attitude and I urge you to develop that same outlook for your business.
But this eCommerce behemoth is the Borg going after a potentially lucrative market. The one thing you can know for certain is that Amazon is doing everything it can to own an ever-greater share of B2B, just as it wants a greater share of the eCommerce market generally. Leverage your advantages to make sure you’re not prey – a deep knowledge of the product line, hands-on customer service, an innate sense of the market that Amazon lacks.
Build an eCommerce foundation that enables you to track your own business even as you keep close tabs on the competition. And take steps to build out the rest of your vision.
Read Part 1, Bracing for Amazon's next big move, from last month.