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, Agapitos Diakogiannis, Founder & CEO of Seafair, 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 Seafair? Who are the typical marketplace participants and what is the core problem you guys are trying to tackle?
Seafair is a labor marketplace connecting companies that own or manage ships with seafarers - these are the contractors who work on commercial vessels. On the demand side of our marketplace, we have ship owning and ship managing companies who are concentrated in hubs like Greece, Germany, Singapore, and the Nordics, while our supply side is concentrated in countries like Ukraine, Russia, the Philippines.
At Seafair, we offer a hiring marketplace, as well as a SaaS tool for shipping companies to manage everything seafarer-related. This tool allows them to manage, assess, and vet their crew lists and enables them to manage things like rest hours, lists, payments, insurance, and much more. This SaaS tool has been one of our main growth hacks. We are one of the first companies, and actually the first one in the shipping world, to employ this RigUp-style playbook of offering a software tool in order to onboard the ‘tougher’ side of the market - which in our case is demand. This is a common B2B labor marketplace tactic, and by building software you can unlock the side that has the highest CAC.
Many shipping companies rely on staffing agencies to provide them with crew members - when you are working with shippers to get their boats crewed, are you working alongside staffing agencies, or are you going direct to the ultimate employers?
When we work with ship owners/managers, Seafair is actually replacing the traditional staffing agencies, and we do that because we want to control the supply on our platform. At one point, we thought it might be more scalable for us to go and partner with the 3,000 or 4,000 staffing agencies that already exist out there in the world and digitize their processes. But we went the hard way - the heavy, more operational one - because we saw an opportunity around quality assurance. Many people on the supply side will alter their CV’s to make them more attractive to the demand side, but shipping companies need to hire people who have a set of experiences on specific types of vessels depending on the assignment. Both seafarers and manning agencies are trained to trick the system - they may take a guy and change their CV to inflate their experiences to get them crewed on a given job. It is extremely difficult for the ship owners to know if you actually worked where you claim you did on your CV, because there are around 60,000 vessels in the world, and it is difficult to know who owned the vessel at which point. So if I come and tell you that so-and-so worked on a given boat in 2013 or 2014, it is very hard to verify.
Given that there is this risk, we decided that it's better for us to not concentrate the risk with a manning agency that will have a high negotiation power over us. We prefer having 100,000 seafarers to whom we can actually tell ‘Hey, we have a mechanism to vet your previous sea experiences, so please don’t lie; if you lie, you don't get access to our marketplace,’ rather than us going to 10 or 20 manning agencies and telling them to change the way they do business.
How do you guys run this kind of quality assurance on the supply side, given that it's so fragmented and you are dealing with people from all over the globe? How can you effectively assess whether they really have the experience they claim?
That is a great question and we believe this is our main competitive advantage. We have a few approaches to this. First, we give our seafarers a series of online assessments, English tests, technical assessments, etc. They take these tests - sometimes they fail, sometimes they don’t - but we get a better picture of their career. Then - and this is interesting and completely new to this world - we get a CV of sea experiences from these people and we use data to understand if they are telling the truth or not.
Everytime we get a CV and the sea service of someone looking to join Seafair, our algorithm goes and checks whether the start date and the end date of the particular vessel they claimed to have served on was in the correct port on those dates - if it wasn't, it's impossible for those people to actually have been on that vessel. This is information that you can only get by building APIs linked to huge databases. So we cross-check these dates, and whenever they are off, we go back to the seafarer and ask them to please re-review their dates and service as it doesn’t add up.
Another thing we do is, we have this cool data network effect - we have so many people in our system who claim they were serving on the same vessel at the same point in time. So we can actually use the data from people that we've already verified - and then we go and ask the new seafarer that is being onboarded “have you ever worked with any of these five folks?” Now, four of them will be fake but one of them will be real, and they will have to choose the correct one fairly quickly. And this can help add another layer of vetting.
In terms of when you were first building up liquidity, did you prioritize going after the demand side or the supply side? I am curious how you decided which one to prioritize.
We initially launched experiments in terms of how we could acquire both sides and then compared their customer acquisition costs. In our case, it is extremely cheap to acquire seafarers online so this was an obvious answer for us. If we spent on ads, we could quickly get more supply than we even needed, and it became obvious we should prioritize figuring out a way to crack the demand side.
Then we tried to identify the pain points that these people have - how do they manage their seafarer data? How is crewing related to their whole operation? Because we knew this was viewed as a cost center, and it's not always great business to be selling into a cost center. One of the key insights we unlocked is that even today crewing expenses are close to 60% of many shippers’ operating costs. But what is really important to these shipping companies is to be able to get the contracts from the great charters - if you're a tanker company, you want to be working with Shell, BP, Exxon, Total, etc. But for a Shell to be convinced to give you their cargo, they need to check your crewing operations. This means they come, they assess you, they run an audit, and then they give you a score. And based on that score, they are going to price your services and they are going to decide whether they want to work with you.
This was an amazing opportunity for us, because we can tell ship owners, we will build software that can help you prove compliance to all your charters, so when it's time to get audited by a Shell or an Exxon, you are going to be able to get those great prices and make sure you can work with them. This was an a-ha moment for us, and it took a lot of customer discovery to understand how we can actually transition from a cost center to something that can generate revenues - when you are generating revenues you'll always get to the top of the shipowners’ agenda.
On the demand side, what are the shipping segments where Seafair has seen early adoption and excitement about shifting to this marketplace-style staffing model?
We did not want to go after a concentrated segment - for example, container shipping is the most concentrated segment. Containers make up about ~10% of the total global shipping fleet, but ten shippers effectively control ~80% of this segment. So, we went to the other segments and there's this huge segment, which is called dry bulk, which is like four or five times larger than containers but is also pretty fragmented. In dry bulk, the top ten players control less than ~10% of the cargo so it is a much easier market for us to enter.
Many seafaring staffing agencies have physical offices and often housing for their contractors - have you given thought to having a physical presence in these key seafaring hubs (similar to how Uber has its driver centers)?
We think there can be value to that physical presence and we do have physical locations in Ukraine and the Philippines because we need them for regulatory purposes. As we scale, we plan on building out communities where seafarers can come hang out, network, and learn about our value proposition. We are not sure if it will be a game-changer, but it's an opportunity for us to differentiate our products. For years, all the seafarers had to travel to the big hubs like Manila to get their training, but in 2021 for the first year in history, some of these trainings were allowed to be offered online due to COVID. We think this is a big opportunity because we have already acquired so many seafarers and now we can offer them things like training and content.
In terms of monetization, did you guys monetize from Day One or did you wait to achieve a certain level of scale? How does Seafair monetize today?
We monetized from Day One. When I started my career, I started working at FoodPanda, which is similar to DoorDash for emerging markets, and we never managed to nail the unit economics. I have seen many marketplace startups not being able to monetize and I didn't want to go through that risk. We didn’t always have amazing unit economics from Day One, but we were at least making money on every transaction. We are currently monetizing in two ways, because we have two different products. One is a marketplace where you only pay a fee when you hire someone. The other is a software product where you pay a subscription fee to access our platform’s features.
How do you price out that SaaS component?
On the SaaS component, we have benchmarks from the maritime world so we know what other software providers in the maritime space command in terms of price, and then we have an ROI calculation that we think makes sense. This SaaS component also helps us better serve our marketplace because whenever shipping companies start using it, we can keep enriching our insights about what kinds of seafarers they need. We're monetizing both products, both the SaaS and the marketplace; today it is being done separately because it would be too complex to combine them both and because not all our clients are using both products together.
You guys were incubated at FJ Labs - what made you decide to go the incubation route versus the traditional venture fundraising route?
FJ Labs came much earlier, even before I was thinking about Seafair. At the time, I had this strong interest in marketplaces, specifically B2B ones, and Fabrice Grinda and I had this wonderful discussion about our common passion for marketplaces. And he told me, "come work with me...I'll teach you how to win and then we'll incubate together." I thought working with him, we would have a much higher chance of actually building something pretty valuable. The key value add from FJ was that I started taking deals there and I was focusing on VC for a year and a half before Seafair. So my whole inspiration for Seafair came after I led a number of verticalized labor marketplaces deals at FJ and I understood this model very well by the end. FJ Labs was an amazing experience for me and I'm very grateful to them.
Is there an administrative component that Seafair solves for? This is a characteristic we have seen among a lot of the labor marketplaces that have succeeded.
There are administrative complexities that arise both pre-hiring and post-hiring when you are hiring a seafarer. A good example is that for every seafarer who works on your vessel, you need to track their rest hours, and then calculate whether you were compliant or not with applicable regulations. Many of our clients have been doing this on an Excel basis, and we've built a product that actually solves for that. This product is connected through the vessel to their headquarters and saves them so much admin time. And it's also helping them stay compliant. So yes, definitely - the software that we have is actually mostly focusing on the admin piece.
What has been the most challenging thing about standing up Seafair as a business? And what is your advice for anyone else that's looking to build a modern B2B marketplace and starting on that founding journey?
The most challenging thing - and this applies to B2B in general - is you need to make it scalable. This means you need some techies or start-up people who are going to find this exciting and are going to help out. These tech people then need to work alongside industry experts and the two groups will most likely have a different culture or a different expectation of what agile means, what hierarchy means, and so on. You need to find a way to convince both sides and have a common definition of how we work as a team. This is why we've invested a lot in guiding principles, a set of six principles we use to help everybody understand what ‘good’ means and how we want to work together as a team. My main advice to founders working in B2B would be a) to have a unique insight that has actually been tested by customer discovery and b) just to really love the industry - things are slower in B2B and you need to love the industry you are in - if you don’t enjoy the industry and don’t enjoy the people, it doesn’t make sense to be there.
If you liked “From The Front Lines: Agapitos Diakogiannis (Seafair)” 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.