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, Maxime Huzar, Co-Founder & CEO of SpaceFill, answers some of our questions. You can read all of the posts in our series by going here.
Can you tell us a little bit about SpaceFill and what inspired you to launch the marketplace?
With SpaceFill, my co-founders and I have spent the past five years building out a connected network of professional warehouses across Europe and we are currently the leading B2B warehousing solution in the region. The inspiration to launch SpaceFill ties into my personal history, as my grandfather started a third-party logistics provider in France about 50 years ago; my father later took over this business and grew it to around 25 warehouses across Western Europe. There is no financial link between these businesses and SpaceFill, but being around the industry gave me the initial idea. My background was also helpful because the warehouse sector is a very hard industry to build something in if you haven not been active in it for years and learned all the tiny details that make the difference in whether your product will actually be adopted by operators.
Were you able to use your family's warehouses as beta testers for SpaceFill? We have seen a few examples where people were able to leverage a family business when they wanted to build a software company or marketplace in a given sector - this can offer founders a low risk way to experiment without alienating customers.
When we were getting started, we wanted beta users for our first piece of software and we really wanted to have it live within a few warehouses in the early days so we tried it in the family business. It was really the only way we could get warehouse users to try out our first piece of software, and it allowed us to get comments and feedback free from any pressure from outside customers or even partners.
As you were getting started, was there a particular side of the market (supply vs. demand) that you initially went after when you were trying to build out liquidity?
Yes - we went directly for the most difficult part which was getting customers on the demand side - in our case, shippers. In this industry, shippers include retail companies, industrial companies, mom-and-pop SMBs - these guys have a need and you need to grasp that need and to really understand really what are the pain points they are facing. Once we had demand, we could contact professional warehouses directly. Once we had the shippers and 3PL’s, it was quite easy for us to go and build out our supply side because we could bring them potential new business. Our long-term vision is creating the largest connected network in Europe but in the early days you only have so much manpower, and you need to focus it on the right things. We knew if we found the customers then the supply would follow.
In the US, many warehouses are at capacity and companies like Amazon are constantly breaking ground on new mega-warehouse facilities. Is there a similar dynamic in Europe where warehouses seem to be largely at capacity?
It is a similar dynamic in Europe - the market is less mature than the US in terms of software enablement and quality of operations, but there is still definitely a lack of warehousing capacity. I think about the European warehouse market as having two segments. There is the B2C warehousing market, which is e-commerce driven, and then there is the B2B warehousing market which is really driven by flows of pallets, full truckloads, that kind of stuff. The B2C warehousing market is really booming and there are new warehouses being created every week. However, the B2B segment of the market is much larger and makes up about 80% of the warehouse capacity in Europe and about 70% of the warehouse market worldwide. The real issue is not accessing warehousing capacity, it is accessing software-equipped and truly connected warehousing capacity. If you are just moving pallets in and out of a warehouse or doing simple picking-and-packing for B2B orders there you do not face the same complexity as in e-commerce orders. In B2B, you need to differentiate on other things like the quality of your technology, your capacity to integrate with existing systems on the market, and your ability to be one piece in a much larger connected network of providers when it comes to working with big distributors or industrial companies.
Were there any levers that were particularly useful for onboarding the warehouse side (i.e., the supply side) of the market in the early days of the platform? And were there any particularly effective ways you were able to onboard these warehouses at scale?
We really had two different phases in the way we dealt with the supply part of our business. The first one was to bring a massive number of providers into our system. We had built a very simple platform to enable them to pre-qualify as a company and then to enter information about how they were managing their warehouses. There are a lot of actors in the warehouse space and by creating this big database it really helped us to understand the structure of the market even in the early days. So that was the first phase, and we were able to get thousands of providers from different countries into the database.
And then we started entering the second phase of this supply buildout, which was choosing the best warehouses to go live with - we had built a very big database of providers of supply, and then we focused on bringing on the best ones to make sure that we could provide our demand side the highest quality of service so that customers would stay for the long term. By being selective in which warehouses we launched, this helped us be able to fulfill the promises that we had made to our supply-side. It can also be better not to go live with a warehouse until you really have the demand to give them consistent supply, otherwise it can create frustration on both sides. We decided to initially work with only 5% of the warehouse suppliers that we had been able to enter into our database. For the other 95%, we decided we were going to keep improving our product and nurture them and build a stronger relationship with them over the long term.
How long does it take to onboard a typical warehouse onto SpaceFill?
We have a few different tiers of onboarding for warehouses which range from a lighter touch to something more in-depth which can take longer but can create a stronger partnership. If we just focus on the lightest touch model we have, this would typically involve an initial 15 minute call just to get to know each other and then a follow-up call with an account executive from our network development team which is a 30-45 minute call where they explain the value proposition of SpaceFill and what we can do. These initial conversations also help us to qualify whether they are a good fit for SpaceFill.
If we decide to move forward with that warehouse, we would next walk them through the first parts of the onboarding together and from there on out our platform is self-serve, so the warehouse manager or the 3PL sales director can complete the rest of the onboarding on their own. Once that is done, we hold a follow-up call just to make sure that the onboarding was completed correctly. We will also do some additional diligence around the quality of service and connectivity of the warehouses as we bring it onto our marketplace. This onboarding workflow can help us onboard a new 3PL user fairly efficiently, and a given 3PL might represent anywhere between a single warehouse to 30-40 different facilities across Europe.
How do you vet the warehouses you onboard? And how do you monitor the performance and quality of a given warehouse once it is live on SpaceFill?
That was one of the reasons we only worked with 5% of the database of warehouses that we initially gathered. Once we created that supplier database, we could analyze data on the quality of each supplier’s warehouse assets and compare them. We had data on thousands of different warehouses across Europe in terms of size, in terms of equipment, number of employees, the industries they can serve, their certifications, etc. We developed a scoring system internally that enables us to assess a supplier and then suggest improvements they could make - like saying “Hey, this is the first scan we made of your asset portfolio, and this is what we would advise you to do if you want to be competitive with the average warehouse provider in your region.” For the best warehouses, the ones where we could see potential for future collaboration, then we would dedicate some time even before signing our first contract; we would send someone inside the warehouses just to observe and ensure that we would not be setting customers up to fail.
How does SpaceFill monetize? Did you always have the same monetization strategy or has it kind of evolved over the last few years?
It has for sure evolved - the company is five years old and had to go through lots of different phases of the market and different phases as a company. In the early days, you just want to prove that you have some sort of product market fit and you want to find customers who will pay for your service and to make sure they are happy with the experience. This was also when we were operating on a pure commission model. Since then, we have begun to take on more and more responsibility within the platform and now we are billing 100% of the warehouse services like a contract or contract aggregator - it is not the same as just getting a commission back from the warehouse provider for finding them a customer. In the end, where we are now is a very different model in terms of responsibility, insurance, financial flows, etc. This is much more complex to build and it took us quite some time to get there. And then on top of this, you can develop software products that are recurring over time and can add value for your customers and suppliers. Today, we are much more software focused than when we first began as a pure marketplace.
What are some steps that SpaceFill has taken to make the product sticky and limit the potential for disintermediation?
There will always be disintermediation, but there is a difference between good disintermediation and bad disintermediation. In my mind, what I call good disintermediation is something that helps you refine your ideal customer profile and your ideal supplier profile. In the early days we wanted to work with everyone on the warehousing side - the very big guys, the medium sized guys, and even the very small ones. It quickly became clear that many of the larger scale warehouse operators wanted to market themselves as innovative companies, but it could be difficult to keep them involved and we would sometimes end up losing the contract. In the early days, there can be a mismatch between the limited complexity of the product and the sophistication of the market, the suppliers, and the customers you are working with. So then you need to adapt your product so they are willing to stay. When customers leave, it is usually not just for financial reasons, so you need to understand why they are leaving and that helps you see what you need to improve. This could mean developing new software products, offering better customer service, integrating financial / insurance products, and so on.
For example, we realized we needed to create our own insurance product and ended up partnering with AXA to offer insurance for our European customer base. In Europe, there are many different laws and regulations around insurance which can differ from country to country. We built out a very complex product so if you are operating in 10 different countries in Europe, you can have the same insurance coverage and that brought a lot of value to us. This also allowed us to be more than just a matchmaker in the warehouse transaction; we tried to take on more and more responsibility within a transaction each quarter and find more ways to offer value.
What are some of the industries on the shipper side of the market that have really taken to using SpaceFill as a storage and logistics partner?
Obviously, you have the big retailers - these guys gather so much inventory that they need that flexibility within their business. Large retailers have also suffered from everything that happened in the markets these past few years, and they have had to find innovative ways of adapting their supply chains and resolving their supply chain challenges, so we worked a lot with them. There is also a lot happening at the moment around how to digitize your business network so you have full, real-time visibility over the different parts of your operation; supply chain is a very big part of that transformation.
At the moment, SpaceFill is also supporting a lot of industrial companies - these can be companies that are in sectors ranging from automotive, to paper and packaging, to food. Today’s industrial and manufacturing companies now work in a connected way with all the 3PL’s. This has really changed the game for them and people with roles like VP of Supply Chain are among those who face the most pressure from CEOs to use data in order to optimize their operations and reduce costs. This can already be hard when you have one internal ERP system with 10 or 15 different versions. But, when you are working with external providers like 3PL’s - who are operating in 15 different countries across 50 different warehouse management systems that are not connected to your ERP, that can be a really big challenge. This was something we really tried to develop and to promote to our customers - to explain to them how we can be the trusted partner for all your external warehousing challenges.
What is SpaceFill’s value prop to warehouses? Are there any common objections you face when you try to onboard them? If so, how do you overcome them?
The average entrepreneur in the logistics industry in Europe is a 50 year old guy who has been working in this sector for entire life. This typical logistics executive has often built the company on his own, he has taken out a lot of loans to finance the company’s buildings, it may be a family business, etc. That is the usual way these businesses are managed in Europe. It is also a very tough business - most of these warehouses operate at around an 8% gross margin, so they look really hard at every cost, every penny and are always trying to find ways to save.
The main value proposition SpaceFill offers warehouses, and how we built trust with them early on, was being able to bring them new customers. Many of them do not have time to do proper sales development, proper customer management, proper customer support, proper financing support, etc. We would help them with that and for the 3PLs, we became their best customer by bringing them all these shippers - but we would also help them standardize all their communications, all their outstanding bills, etc. Streamlining and providing clarity about running their business means they make more margin when they work with us. This is because we have the best tools and we allow them to connect directly with our systems; and this has helped us create a system of interoperability. Once we are connected to their systems, we become their API to any customer they might have in the future. We become a software provider for them that enables these 3PL’s to compete against the big guys who are increasingly software-powered, while some local 3PL’s are still using pen and paper, emails, Excel spreadsheets, even fax machines. SpaceFill has enabled these smaller 3PL’s to work at a different level and to equip them with tools to compete - that is something I am quite proud of.
After SpaceFill began growing liquidity and finding product market fit, you entered this second act where you are building partner software for shippers and warehouses. What are some of the challenges you faced in the second phase of SpaceFill and how have you been able to overcome them?
As we have evolved, there have been many challenges but there are two that I can share with you that are quite interesting. The first is internationalization - in Europe, we have to become international quite fast because the different geographic markets are much smaller than in the US. For example, after launching in France, we were entering the German market only 18 months later. And we had to quickly find ways to operate in the Spanish market, the Italian market, the Dutch market, and the British market. In each country, there are also different rules and different cultures - this can be really challenging, because in the early days when you are focusing on product market fit, you do not realize that product market fit and what works can vary slightly in each country. This means that you need to keep finding product market fit again and again every time you enter a new geography.
Another challenge has been prioritization; when you are trying to bring more value to your customers, there can be the tendency to say, “Hey, we should do this and this and this.” As you begin to understand more about your customers and your market, you start to see all these opportunities. This can lead to the temptation to drop what you are already doing and focus on something else - but you should be thoughtful in which opportunities you pursue - the right ones can really help strengthen your value proposition and draw you closer to your customers. I would say we made a lot of strong choices over the years by always keeping in mind the same objective, which is creating a connected warehousing network across Europe and becoming the number one player in that field and I think we are on track to do that in the coming years.
How did you think about team development given the context that many of these logistics operators can be a little older and more set in their ways? A lot of times you need to play ball with their current way of doing business or give them some kind of on-ramp as you try to get them on board.
In the really early days (this was when we had fewer than ~10 people), we tried to keep a team of people who knew nothing about logistics, because this meant we had license to ask a lot of stupid questions. I was the only one coming from the logistics industry, and the rest were coming from the scaleup and startup worlds, and were always asking alot of questions just to better understand the market and the pain points that make a difference to our users. As more people with industry experience began joining the team, this also presented a challenge because the industry is so late in terms of digitization.
For example, there was an announcement in a major logistics industry newspaper last year by a company which was bragging about how they finally had all their teammates using Google Calendar, and that was the big news that they wanted to share with the market. It was a double-page advertisement explaining how they would implement it. That was crazy to see. Another example of where the industry is at is reporting - in this industry, at least in France, everything is done via Excel spreadsheet. This is not a very good use of those Excel spreadsheets, but that is how they do the reporting. When we were building out reports for our 3PLs, we had everything connected within our product and in real time, but we found that customers were actually copy-pasting this data into Excel or taking a screenshot of the report and sharing that. At that moment, we realized we can add functionality to our reporting tool that allows users to export the report directly into Excel so they can share it with others. When we rolled this out, we saw great user adoption of this feature.
We have talked a lot internally at Bowery about the market environment around exits in these categories and the question of independence. If you were to one day get acquired, the acquirer could then take this in-house and you lose the value of the independence and some of the accompanying marketplace dynamics. How do you think about the role of independence in your marketplace?
Independence is really key for us to make sure that suppliers will still work with us over the long term and that they will be open to co-creating with us the future of that ecosystem. We work with Tier 1, Tier 2, and Tier 3 companies in the logistics space and the issue of independence comes up often. We have made a few choices around this issue. First, we made the choice not to be an open marketplace and instead chose to aggregate the supply, the demand, and really manage that marketplace.
Second, as I shared with you earlier, we are becoming more and more of a software company rather than a pure marketplace. This is because in our industry what is really important is not only making supply and demand meet, it is also enabling supply and demand to work together without any boundaries. And the IT boundary is the most important one in the logistics industry because today warehouses are really black holes for supply chains. Most warehouses are not connected to anything - I would estimate at least 60% of them are still running on Excel spreadsheets, emails, phone calls - that is how they typically operate. When you are a shipper and you are trying to build your own 3PL ecosystem, it can be really hard. As a shipper you have limited visibility into these 3PL’s and most do not have a system that you can connect to. You cannot really collaborate so you are losing a lot of potential here - that is something we are really focusing on at the moment. Some think of our product as the API for warehouses, others think of it like the universal integration layer for warehouses, and that is really how we see it.
What is your advice to any founders thinking about launching their own B2B marketplace startup?
I do not know if I have any specific advice, but we made some mistakes in the early days. We thought because our offering was not complete, we had to be cheap; in retrospect, I would have done things differently. If I were to start again, I would focus on value creation and not trying to be the lowest priced. If you are viewed as expensive, this means the value you are providing is not in alignment with the price that you are charging your customers. You are better off increasing the value you provide rather than trying to cut your prices to match your offering - that was a mistake we made in the early days and we are not going to make it again.
If you liked “From The Front Lines: Maxime Huzar (SpaceFill)” 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.