The Bowery Capital team is continuing our 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, Jamil Rahman, Founder & CEO of Aucto, answers some of our questions. You can read all of the posts in our series by going here.
Can you tell us a bit about what inspired you to launch Aucto, as well as who the typical users are that transact on the Aucto marketplace?
I had been working in the industrial asset recovery space for ~15 years before deciding to launch Aucto. Prior to Aucto, I was a co-founder of another business that was a technology-enabled broker; essentially, we would buy industrial assets and then resell them using digital channels. Part of my job was to walk through industrial facilities, and I have walked through thousands of them, everything from slaughterhouses to aircraft manufacturing plants. What always struck me on these walkthroughs was the amount of industrial machinery, equipment, and parts that were sitting there underutilized - either rusting in the ground or being shipped off to scrapyards and landfills. I always wondered why there was so much friction, because the people that own these assets are some of the most robust supply chain operators around - why is it that this part of the business is so overlooked? The more I dug in, the more I realized that US businesses procure over a trillion dollars of industrial assets on an annual basis and industry experts estimate that about 20% of those assets are underutilized or surplus.
What we do at Aucto is leverage software and technology to make the process of managing those assets easier; and as part of that management process, we also want to make reselling those assets on the open market much more efficient. We define ourselves as a SaaS-enabled marketplace given our focus on both inventory and auction management. On the supply side of Aucto, we have really big enterprise companies that are in capital intensive industries like manufacturing, resource extraction, etc. On the demand side, we have some of those same companies, but we also have this dense group of brokers and equipment refurbishers. This is the secondary industrial asset market which has really bloomed over the course of the last few decades.
On the supply side of the market, you are often selling to large enterprises, and this can be a tricky onboarding process for an early-stage marketplace. What have been some of the more effective methods for getting these big enterprises to embrace Aucto as an asset management/sale option?
As a startup when you are selling to some of the largest companies in the world, you really need to have a strong value proposition. We have had success by finding early adopters within the large organizations we are selling into, and then really building those early adopters into champions that allow us to convince the rest of the enterprise to jump onboard. That is generally how we have initially been able to get our foot in the door with these big corporate users. Once they start using Aucto, then we can expand our wallet share by offering an intuitive product with built in network effects.
On the enterprise side, who are the typical Aucto users within these big organizations? Is it the CFO? Is it a procurement officer? Is it someone further down the chain?
The economic buyer on the supply side of our market is typically a director or VP of supply chain operations, and the day-to-day users are often members of that company’s asset recovery team. These large organizations have dedicated people that are responsible for asset management and asset recovery (i.e., reselling). As you begin to navigate smaller organizations - and when I say smaller, there's air quotes there because these are still $900MM companies, they typically hand that asset management and recovery work off to operational people; at a smaller company, a maintenance manager might be the person handling this type of work for their organization.
When you launched Aucto, was there a side of the market (supply vs. demand) that you leaned more heavily towards as you were trying to build up that early liquidity?
We initially went after the supply side as this is very much a supply constrained market. Even before launching Aucto, we knew that the secondary industrial asset market was already functioning so this was not a net new proposition. The asset recovery and resale market is ~$400B and has plenty of activity so we were not reinventing the wheel there. The demand side of the market was also already fairly digitized -buyers already placed bids online, people already bought used equipment online, there was nothing new there. What was not yet being digitized, was how those assets were being brought to the market – at Aucto, what we did is we focused on digitizing and automating the process to take an asset that exists in your ERP system and bring it onto the secondary market for resale. That is really what our SaaS product does and what we are currently leaning into and will be for the foreseeable future.
Aucto is doing some really interesting stuff around sustainability - can you tell us a little bit about the sustainability angle Aucto has taken, and how sustainability can be a competitive advantage for a marketplace?
Sustainability is very much part and parcel of our mission which is to reduce supply chain waste and give these organizations the ability to arrive at better, smarter outcomes for their surplus. We have had some really interesting conversations around the quantification of the impact on sustainability that asset recovery can bring. Asset recovery - by its definition - is creating a circular supply chain; it is taking an asset that you would have otherwise landfilled but putting it back into use within your own organization or putting it back into the secondary economy. Long-term, we would like to build out tools that quantify the environmental impact of redeploying an asset versus landfilling it. This encourages people who are doing this sustainability work to do more of it - what we want to do is continue to build solutions and concepts around that. Another thing that is interesting to us is the voluntary carbon market. Companies are spending hundreds of millions of dollars on voluntary carbon credits because they have made these net zero commitments. We have been exploring, how do we bring some of those net zero concepts into what we are doing at Aucto to help these organizations be more sustainable.
As Aucto began to get initial momentum, were there any levers you were able to pull that really supercharged user growth?
When we first started, we were very much a two-sided marketplace, and we did not fully appreciate the importance of having a repeatable, scalable supply acquisition process. How it had been done historically was through an on-the-ground salesforce; you hired salespeople and had them go out and sell to every company who could be a potential source of inventory. This is what a lot of our predecessors have typically done. What our approach has been from Day One, is to build software that embeds itself within the enterprise. What we found was a rapid acceleration in supply as our SaaS tool got enabled, and this allowed us to essentially sell a SaaS product and then let that tool sell itself within the enterprise, rather than constantly trying to resell the enterprise on the marketplace as an asset recovery option. That was a big unlock for us.
Aucto deals with highly differentiated, pre-owned products, which are located all throughout the country. How have you dealt with two of the biggest challenges that B2B marketplaces typically face - quality assurance and logistics?
The short answer is that we really have not yet, as we are still a Seed stage company. Our theory is that we should do certain things really well, and we should attack things in the order in which we need to attack them, because we believe they are going to unlock some liquidity. We could easily have just called up a third-party logistics provider and said “Hey, slap your logo on our marketplace and become our fulfillment partner,” and we probably get called by some logistics company once a week that wants to do just that, but we are trying to be thoughtful about how we expand the product. Our approach is really to focus for now on solving the core problem, which is connecting buyers and sellers, and then build our auxiliary services on top of that - but in a thoughtful way.
As an industrial asset recovery marketplace, you are asking existing buyers and sellers to meaningfully change their asset disposal/purchase habits. What have you found to be most effective in getting participants to make this shift and move on to Aucto?
This is probably one of our biggest challenges - you go to a company that has been operating a certain way for a hundred years and you say, “Hey, you guys need to be doing this differently - oh and by the way, we are a startup that you've never heard of.” It is tough and so what we have done is we have really focused on aligning the value proposition that Aucto delivers with the other goals that these organizations have, especially on the supply side. I mentioned that many of these companies we target have net zero commitments, and you cannot really be net zero if you are shipping all of your equipment to a landfill. What we have tried to do is to better understand what gets movement at the CXO level. We have tried to cater our message to better align with the overall objectives of the organization, rather than just saying, “Hey, we're this great little platform that can generate a revenue stream for you.” Enterprises have lots of options for who they want to choose to be a selling partner, and Aucto has positioned ourselves as an asset management solution, rather than just another outlet for surplus.
Was positioning yourself as an asset management solution something you knew you wanted to do right away? Or was that something you arrived at after initially starting as a more traditional website-style marketplace before realizing you needed a different angle?
We definitely learned some of this the hard way; after having a lot of conversations with potential customers who were seeking differentiation and talking with investors about how to make this supply process repeatable, I knew that Aucto needed to be something a little more holistic than just a marketplace. It took us a little while to figure this out and then to arrive at our SaaS-enabled approach. It was really a combination of getting external feedback punching us in the face, and a little bit of ingenuity on our end - but the current formula is working well.
What is your advice for a founder thinking of starting their own B2B marketplace?
I do not know if I am qualified to give advice to new founders since I am still one myself, but I guess what I would tell them is to look at the unsexy B2B world when thinking about opportunities. It is necessary, it is durable, and these are the industries and sectors that many of the best marketplaces are built on. As a B2B founder, I would really focus your business strategy, and your monetization strategy, around finding what is important and what is always going to be relevant - and then you can build on top of that.
If you liked “From The Front Lines: Jamil Rahman (Aucto)” 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.