The Bowery Capital team is embarking on a blog series covering B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. This week, Adam Sandow, Founder & CEO of Material Bank, answers some of our questions. You can read all of the posts in our series by going here.
The Bowery Capital team is embarking on a ten week journey to cover B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. Below is a part of our content series focused on insights from founders in the space. This week, Alexander Reichert, Co-Founder & CEO of AgVend, answers some of our questions. You can read all of the posts by going here.
Alexander Reichert is the Co-Founder and CEO of AgVend, an innovative B2B marketplace that is reshaping how agricultural products are bought and sold. Alexander joins us today to offer up his insights as a founder and to discuss some of the methods AgVend has relied on to build out its market since launching in 2017.
At the outset, what side of the market did AgVend focus its initial adoption efforts towards (supply vs. demand)? Which side was easier to gain initial traction with?
We first focused on the supply side of the market. This was a strategic decision as we knew from our prior work that there would be interest from growers; the value proposition for them was very clear – there really wasn’t a great way for them to make purchases online. While we knew the demand was there, convincing the supply side – particularly these agricultural retailers – that they should introduce e-commerce into their business was more challenging. Initially, sellers were worried that incorporating e-commerce would decrease their margins and increase competition, so we had to do some work to convince them. Eventually, we were able to bring on the supply side by showing them the longer-term value of being able to have an e-commerce channel as part of their go-to-market strategy.
How have you been able to keep repeat purchases on the platform and avoid growers and retailers using AgVend to find each other and then moving ‘offline’? What have been the best drivers of platform retention for AgVend for growers? For suppliers?
From a grower perspective, we could reduce the time it took them to make purchases from multiple days to just a few clicks on their phone, so our value prop was very clear. Even so, we really focused on giving growers a great experience and this has been reflected in our high NPS score. There are also market dynamics in agriculture where different suppliers have different price points at different times of the year, so you don’t have one supplier that is always the cheapest, and our platform gives buyers a lot more visibility across sellers of a given good.
On the supply side, sellers saw it as, “If I can push transactions through this channel for a ‘transactional’ (i.e., price-conscious) segment of growers, this means my sales team isn’t tied up having to guide buyers through these purchases,” which can involve some hand-holding if they are being done offline. And for retailers, our take rate is also much lower than what they effectively pay in commission to their sales team, which means we provide sellers a dramatically lower cost of sale. With AgVend, the supply side can now cost-effectively reach those ‘transactional’ growers who are focused only on finding products at the best price and don’t need all the other value-added services retailers offer.
AgVend also has two different models that we can leverage. We have our marketplace model and for that model the ‘transactional’ grower is the bread and butter customer – someone really focused on finding a lower price than what is being offered by the retailer they have been working with, that doesn’t really care about other add-on services. In addition, we also have a white-labeled version of our platform we call the grower portal which is for retailers that want to put their own brand out there on their website, we essentially power all of that from a technology perspective.
You can think of it as a hybrid model, ie. our Marketplace is similar to Amazon and our Grower Portals are more akin to Shopify. For the Shopify-esque offering, those retailers are targeting customers who don’t fit that ‘transactional’ segment. We led with the marketplace, but we also always planned to expand into a white-labeled offering; being students of history, we knew that eventually the retailers would want their own presence. We rolled out our white-labeled grower portal solution this year. This happened faster than we predicted, and we have seen significant demand from our retail partners wanting to list on our marketplace while also having their own independent online presence.
Many B2B marketplaces do unscalable things in their early days to generate liquidity – was that the case at AgVend? If so, what were some of the ways you had to hustle in the early years to fulfill your role as a market maker?
We did have some interesting ‘sweetheart’ contracts for some early partners in an effort to expedite getting large suppliers onto the platform. All of these favorable contracts had fixed terms which allow us to renegotiate down the road. There was one large supplier that we knew would unlock a huge market segment for us, so we gave them a heck of an initial contract to get them onboard. Looking back on it, it was absolutely necessary, and I wouldn’t change a thing, but I joke with their leadership that we are effectively giving this to them for free; when their contract is up, they know that we will be increasing the pricing on them.
On the demand side, we were betting that 1) we would have a high repeat buyer retention rate because of the quality of the experience we were providing and 2) the second purchase would be larger than the first. Our bet was growers would test us out one season for a relatively small purchase, and then come back the next year and make a purchase that was an order of magnitude larger. So that first year, we gave growers AgVend promotions for certain products that we knew were below market and would drive a sale. So at Year 1, if we had to be 10% lower than the market, by Year 3 we can be equivalent to the market price, because now growers have come on, they have had great experiences, they are increasing the size of their purchases, and they are also sharing their stories – by providing a high-quality experience your customers can become your greatest marketers. At AgVend, we have always tried to deliver a great product and then let our customers do the marketing for us through word of mouth.
We also initially ‘spiffed’ some sales meaning we put promotional dollars towards them to act as a price subsidy. We would look at what products were trending, put in a little subsidy, market them out on Facebook or Twitter, and that would drive the first sale for a customer and then we could bring them back later that growing season or next season for a much larger buy.
Vertical marketplaces require existing buyers/sellers to materially alter their purchasing/sales behaviors – what have you found to be most effective in getting participants to make this shift and move onto your platform?
We provided a number of value-added features on the platform that got people to click on us. For example, it is very easy to look up a label for these products on our site. We are probably the easiest site to look up a product label – it’s almost unmatched, and we are the only one with an app so if you have the app you can easily look up the label on your phone. We already had this information and we needed it for the sales process, but we realized this is a great feature that we were effectively not marketing. So, we started marketing this out to pull in growers – even if they weren’t purchasing from us, they were getting familiar with AgVend because we could help them quickly look up product labels and view product information. That was something we did on the grower side for a value-add beyond the core marketplace model.
On the retailer side, we started building out sales enablement tools and we offered a business intelligence component, allowing sellers to better understand what products are being searched in their geography. Retailers have to pay an annual fee to be on AgVend (as well as a take rate on sales) but we found the value these analytics provided easily equated to the price we were charging them for the annual platform fee. Our churn rate is very low and we have suppliers on the platform who come back just for this BI tool, even if they may not be at the top of the marketplace from a sales perspective, because AgVend is giving them sales analytics they can’t get anywhere else.
What are some of the key metrics you’ve found most insightful for understanding the growth/health of your marketplace?
Similarly to our retailers, our team monitors AgVend search trends to surface market insights. For example, if the price of a certain fertilizer has dropped and a lot of growers are searching for it, this surfaces an insight to our sales team and our marketing team that they can execute on; we view the search behavior on our site as being predictive of future purchasing patterns. Both my co-founder and I are product people, so we also live and die by our NPS scores and we monitor that metric really closely.
Another indicator we monitor on the retailer side is quote-conversion. On AgVend, growers can list out the products they want, submit this list for a quote, and they can get a bundled price back which is typically lower than if they bought these items a la carte. One of the metrics we found predictive of partner success and renewal is the quote-conversion rate; this means looking at out of all the quotes a partner is providing, how many of them are they converting on. If the conversion rate is too low, our partners aren’t going to want to spend time filling these quotes. When we see one of our partner suppliers is struggling to convert quotes into sales, we have our partnership team go out and communicate with them best practices around pricing, bundling, shipping, etc. so we can help them succeed and stay with AgVend.
If you liked “From the Front Lines: Alexander Reichert (AgVend)” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Look out for more content on B2B Marketplaces from us in the coming weeks.
The Bowery Capital team is embarking on a blog series covering B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. This week, Merritt Hummer & Allison Xu of Bain Capital Ventures join us to answer some of our questions. You can read all of the posts in our series by going here.
The Bowery Capital team is embarking on a blog series covering B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. This week, Sarah Tavel, General Partner at Benchmark Capital, answers some of our questions. You can read all of the posts in our series by going here.