A Product Market Fit Show | Startup Podcast for Founders
00:04:16 · Pablo Srugo, Andrew Butt
[00:04:16] S1: What year was this? [00:04:17] S0: Oh, like 2001 or something like that, 2002 so going back a long time. That was an example of a product. Then we built something which was like a web-based database in those early years as well and several things but we didn't really focus on any particular one because we were driven by customer revenue and customer payments and so we'd have to just build the next thing, whatever the next customer wanted us to build. [00:04:42] S1: Where would you say the story of Enable really begins? [00:04:45] S0: I think what we found is, from those very early years, so as early as 2001, 2002, one of the common requirements that came up where people would come to us and ask us to build software, was to actually manage rebates. My cofounder was running a large distribution company in the UK so he was very well connected with other distributors, manufacturers, buying groups, lots of people in the supply chain. They all had these different forms of rebates and we came to understand this was a huge part of their profitability. We were building, again, custom software which would meet their particular requirements and we did this for quite a few years. I'd say by around, say, 2010 or something like that, it was clear that there was a real need in the market for a rebate management product because we just kept building them on a bespoke basis. [00:05:39] S1: By the way, let's just go layman's terms here, like grade 3 level. Walk me through the world of rebates which is a bit esoteric, not something the average person thinks about much.
00:05:39 · Pablo Srugo, Andrew Butt
[00:05:39] S1: By the way, let's just go layman's terms here, like grade 3 level. Walk me through the world of rebates which is a bit esoteric, not something the average person thinks about much. [00:05:49] S0: Sure. Absolutely. If you imagine how the supply chain works, 80% of global trade goes from a manufacturer through middle parties like distributors, buying groups, retailers, contractors and then eventually to the end customer. That's 80% of trade. There's very, very little that goes direct from a manufacturer to an end customer. Apple and Tesla might be two examples but virtually everything else goes through the supply chain. There are trading agreements between those supply chain partners so a manufacturer will have agreements with distributors, distributors have agreements with retailers and so on. Those agreements have lots of goals and objectives. It says, we want to sell this many products, certain value, certain volume to certain end customers and all sorts of other conditions. Then when those goals are met, the manufacturer will actually pay money to the distributor and the distributor will pay money to the retailer. It's like a pay for performance. It's just like in a software company, you pay the sales team a commission. Rebates are just like sales commissions, really, in the supply chain and they're all about driving behavior.
00:05:49 · Andrew Butt, Pablo Srugo
[00:05:49] S0: Sure. Absolutely. If you imagine how the supply chain works, 80% of global trade goes from a manufacturer through middle parties like distributors, buying groups, retailers, contractors and then eventually to the end customer. That's 80% of trade. There's very, very little that goes direct from a manufacturer to an end customer. Apple and Tesla might be two examples but virtually everything else goes through the supply chain. There are trading agreements between those supply chain partners so a manufacturer will have agreements with distributors, distributors have agreements with retailers and so on. Those agreements have lots of goals and objectives. It says, we want to sell this many products, certain value, certain volume to certain end customers and all sorts of other conditions. Then when those goals are met, the manufacturer will actually pay money to the distributor and the distributor will pay money to the retailer. It's like a pay for performance. It's just like in a software company, you pay the sales team a commission. Rebates are just like sales commissions, really, in the supply chain and they're all about driving behavior. [00:06:56] S1: Money flows both ways because let's just take the example of – we just did an episode last week about selling couches online. Let's take couches. Manufacturer of couches, obviously, gets an order from a distributor, who then gets an order from a retailer. The money flows that way but what you're saying is, when certain objectives are met, money then flows the other way into a form of commissions.
00:06:56 · Pablo Srugo, Andrew Butt
[00:06:56] S1: Money flows both ways because let's just take the example of – we just did an episode last week about selling couches online. Let's take couches. Manufacturer of couches, obviously, gets an order from a distributor, who then gets an order from a retailer. The money flows that way but what you're saying is, when certain objectives are met, money then flows the other way into a form of commissions. [00:07:15] S0: Yes, you're right. The way that we do actually define a rebate, what is a rebate, is, a rebate is any funds that flows back through the supply chain. Like you say, everyone understands that we pay our suppliers but this is where our suppliers actually pay us so anything where our suppliers pay us is a rebate. [00:07:33] S1: What are some of the key problems that you're seeing in the 2010s, 2015 area, right before you start Enable, around managing rebates? What's so hard about it?
00:07:33 · Pablo Srugo, Andrew Butt
[00:07:33] S1: What are some of the key problems that you're seeing in the 2010s, 2015 area, right before you start Enable, around managing rebates? What's so hard about it? [00:07:43] S0: What was hard about it is, if you are a distributor, you will have rebates coming in from many, many different suppliers and they will all be completely different because they're typically created by the manufacturer, although not always and you'll be distributing many types of products. If you are a construction company, you will be distributing bits of lumber and wood. You'll be distributing HVAC systems and boilers. You'll be distributing concrete and powder. There's so many different types of products. Every manufacturer has different rebates with different units of measure. Some of them might be – will pay you $10 per kilogram or $10 per ton or $10 per unit and then there's different tiers. It's really complex. Also, commercial teams get very creative, just like they are today. Buyers come up with all kinds of strange, weird and wonderful mechanisms that say, well, if you are selling to this customer and it's this particular product but you are not selling this other thing, then you can get this but only if – so you can imagine there was no software that could do that and all these companies were using spreadsheets to manage what was becoming all of their profit so that was the problem. [00:08:59] S1: Who in the supply chain is using this? Is it more the manufacturers who are giving out these rebates or is it the distributors and the retailers that are receiving it?
00:08:59 · Pablo Srugo, Andrew Butt
[00:08:59] S1: Who in the supply chain is using this? Is it more the manufacturers who are giving out these rebates or is it the distributors and the retailers that are receiving it? [00:09:06] S0: Where we started was with the distributors so it was distributors receiving this. Then what we quickly learned is distributors belong to buying groups and buying groups negotiate these agreements on behalf of lots of distributors. We then started actually providing software to buying groups as well. Then we actually found the manufacturers were equally struggling to manage it from the other way around so then we started supplying manufacturers. We now supply the entire supply chain but it started from the distributor perspective. [00:09:37] S1: Got it. Okay. Give me a bit of a timeline here. When do you start really moving from consulting and how do you do that transition from consulting to effectively a single-product SaaS, the classic model? [00:09:50] S0: It was very, very slow at first and the services business was, like I said, profitable. We hadn't raised any investment and it was providing a fairly nice lifestyle. [00:10:01] S1: Just so I understand, that services business, was that also strictly focused on rebates at that point or you were doing everything?