From The Front Lines: Tyler Ellison (ChemDirect)

From The Front Lines: Tyler Ellison (ChemDirect)

January 7, 2022

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, Tyler Ellison, Founder & CEO of ChemDirect, answers some of our questions. You can read all of the posts in our series by going here.

Can you tell us a little about ChemDirect and who the typical buyers and sellers are that you see engaging with the platform?

ChemDirect is a digital B2B marketplace built for the chemical industry. And I want to note that our definition of a marketplace is a place where you can actually transact. ChemDirect is not quote-based, it is not email-based, it is real digital inventory. We have about 450,000 SKUs and we continue to grow verticals, and we have three primary user journeys as it sits today.

One journey is the highly technical user (this is analytical labs, university labs, etc.), the second would be industrial procurement - this is where people need chemicals for whatever chemical company or whatever manufacturing facility they work at. And the third user journey we see is the broadest and most random, this is the long tail buyer who typically can’t access chemicals easily or affordably and that is a big underserved market. Those are the three primary paths we see for our buyers.

On the supply-side, it is almost exclusively producers and manufacturers ranging from SMBs to very large chemical companies who are now starting to crack the digital strategy with us.

What inspired you to start ChemDirect in the first place?

Before starting ChemDirect, I had some background in logistics which has similar characteristics in some sense to the chemical sector, but it was really my experience as a director and CEO of a chemical company that got me thinking about launching a marketplace. When I was helping run a chemical company, the lack of bi-directional data we could receive and how this impacted forecasting, as well as the impact of distributors on the ability to build a brand, were both very challenging. When I was running that company, everything was going through traditional distribution channels. This can lead to very long lead times, and different middlemen touch the chemistry multiple times as it moves towards the end user - this leads to huge margin arbitrage (80-90% margin) in a very clunky, slow supply chain. When you have these ~70-year-old business practices, it makes you think how do you start digitizing the value chain and eliminating some of the unnecessary steps in order to return some of the leverage and power to the manufacturer.

And ultimately when you use these distributors, you don't get end-market insights: you don't understand how your chemical is being used, what processes are involved, what companion products are being bought, and so on. Through ChemDirect, we provide all of those end market insights, as well as access to that market, directly to the manufacturer.

Many of today’s marketplaces are building out BI/reporting tools to make their products stickier and to provide additional value to buyers/sellers - is this something ChemDirect is exploring?

We're building it constantly, but a lot of our manufacturers have been completely kept in the dark to date by their distributor partners. So, any information that they get they absolutely love, and we have some important insights we can offer.

For example, we can help them with questions around where they should forward position inventory. This is because we can geo-fence where the demand is coming from, where the searches are coming from. This can help them to predict things like price elasticity in the market - there are a lot of insights we can highlight from our data for market participants. This is all accessible through ChemDirect’s supplier portal - each seller gets a unique identifier, and they can see search data and things like which products were searched alongside theirs.

How clear or opaque do you ask the supply side to be around price?

With the exception of highly volatile priced chemicals where they can't keep up with the pricing, we require complete transparency on price, specification, and quantity. That's just sort of an ethic that we started with and continue on. And really, we have not had pushback. I expected people would say “Hey, this is going to be a channel conflict,” but everyone recognizes it's a free market and this level of transparency is coming so they might as well be on the forefront of it.

When you were kickstarting the ChemDirect marketplace, what were some of the effective methods you were able to use to onboard that initial supply and demand?

It is the proverbial chicken and the egg problem of marketplaces. We found the supply side was far less friction than we expected - so they were willing to get on and most of them have no digital strategy to speak of, so it was not a super hard pitch to manufacturers. It was really about getting enough liquidity to be relevant to the buyer. We wanted enough liquidity and relevance in the vertical that we started in. And once we had that, then the buyers came, and they could buy and search and discover multiple different products and have choice.

Building off of that, we would get demand through the platform that we wouldn't have in our catalog, and we could turn around and go to a supplier and they would see we already had that demand and then they would want to join. That is sort of the virtuous cycle that we are in now - any unmet needs we have that flow through the marketplace, we go out and identify a supplier and they get that sale on Day One.

That sounds really compelling for onboarding suppliers where they already have buyers searching for their products, but for those early buyers, how did you get them onboard? It is a very fragmented buyside and it would be great to hear about what levers you pulled to make that work.

SEO was a big factor. We also initially saw interest from the burgeoning cannabis industry, we focused on these new labs that didn't have habits to break; generally speaking, they had higher digital adoption than some of the more traditional industries so that was really what we started with, and it gained a lot of traction. Since that point, it has just been organic - people just find us online.

How does ChemDirect currently monetize and was that monetization something you turned on from Day One or something you ramped up over time?

We monetize via take rate - the existing chemicals value chain is so inefficient, and there is so much lost margin, that we can command a relatively robust take rate relative to other sectors.

Is that something you've experimented with over time or did you kind of just pick a take rate and stick with it?

No. It's a dynamic take rate depending on product type. Commodity chemicals have a lower take rate, whereas life science chemicals tend to be higher. It is use case specific.

There are a couple other chemicals marketplaces that have popped up in the last couple of years; how do you differentiate ChemDirect from the alternative marketplace offerings that are out there?

What is different about ChemDirect is the simplicity and choice, bundled with clear pricing and real digital inventory. A lot of these other chemical marketplaces can facilitate a transaction but fall short of actually doing it. We offer the ability to buy a chemical in less than four clicks, and we have layered in our logistics capability so our average order fulfillment time is only ~3.5 days. We placed a bet that the world has been trained by Amazon, and people have B2C habits, and when they come to work, they want the same B2C experience that they are used to, but in a B2B setting. And so we placed the bet that people want choice and speed and savings. We kept it that simple.

What was the most unexpected challenge about building a vertical B2B marketplace that you've faced now that you are a couple of years into the journey?

We knew that it was a challenge, but just the amount of data involved with curating and adjusting chemical records in an automated format. There are 225 million chemical records, and when you get 40,000 SKUs, everything has to be perfectly matched. If there is a seller listing hydrogen peroxide, and a buyer hyphenates that product, it has to be controlled for. So just curating and ingesting this highly specialized chemical data, and doing so in an automated way, has been a bigger challenge than we first expected.

As a founder, what metrics do you focus on when trying to track the health of ChemDirect?

To me, it starts and ends with the experience - the user experience and the user journey, as well as the supplier insight and value creation. GMV is an outcome of both of those, but I don't focus on GMV - that’s more of an outcome metric. I'm constantly looking at conversion rates, traffic, and unmet needs - if a buyer comes and they search for a product and we don't have it, how can we get it fast for them. For suppliers, it's more coaching them on how to leverage the supplier storefronts and how they can win on the ChemDirect platform.

Looking past the initial chicken-and-egg scenario, what are some other levers that you were able to pull further down the line that were effective in terms of driving marketplace growth?

One unexpected value creation angle we didn't expect is we are utilized even by multinational corporations to source chemicals. Because of our digital outreach and the number of manufacturers we have onboarded, we are in a unique position to help even that section of the market which was not initially a big value stream. We know through our research which chemicals are inaccessible during a market disruption - and there's a lot of supply chain disruption right now - so we can proactively source those chemicals and then once we market them, that drives a lot of interest in traffic into ChemDirect.

What is your advice to any founder starting on the marketplace journey?

Solve a real problem in the hardest way possible - don’t shortcut solving a big problem. The hardest thing for us to solve was digitizing inventory in a highly technical space. But we didn't back away from that challenge. I think when founders start a marketplace, the easy path isn't always the most lucrative path because it's not going to unlock the value creation for both sides of the market.

If you liked “From The Front Lines: Tyler Ellison (ChemDirect)” 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


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