Identifying the right investment is like buying a home. A home with “great bones” is considered to have tremendous potential, but most likely requires work. Similarly, finding the right manufacturer to invest in requires you to check off the right boxes: Great product, steady customer base, strong margins, solid cash flow, and high IRRs. Is this too much to ask? Not at all.
After years of helping manufacturers digitize their operations, two major themes are apparent: First, many companies have “great bones” and hold solid investment potential. And second, investors will most likely need to digitize the sales process. Think “fixer-upper.”
My advice? Consider scooping up a group of small manufacturers who have good bones and are candidates for a sales turn-around investment strategy.
The Case for Complacency
Manufacturers lag a good 15 years behind in their sales processes. They’ve continued to sell their products the way they’re comfortable with—through their dealers and distributors. They have not caught up to their buyers when it comes to a digital storefront—despite the fact that 9 out of 10 buyers prefer to source, vet, and buy online.
Why is it so hard for manufacturers to digitize their sales processes? Sure, change is hard, but manufacturers never shied away from investing in the quality of their products. Fear of change, losing revenue, and not wanting to potentially jeopardize relationships with dealers/distributors tends to paralyze people. While there are other options to list their products on third party vendors’ sites like Amazon, this often removes pricing controls and dilutes the brand, while forcing manufacturers to meet tight delivery deadlines.
E-Commerce Can Define a Manufacturer’s Sales Strategy
Having a robust e-commerce platform can be a game-changer—especially where there is room to sell direct to the consumer. In 2019 U.S manufacturers’ B2B ecommerce sales grew by nearly 21% to $430.0 billion. That growth rate is nearly 20 times faster than the growth in total U.S. manufacturing sales. Meanwhile, B2B ecommerce only accounted for about 7.1% of all U.S. manufacturing sales.
Online sales continue to be a primary driver of growth for our clients: small-to-medium-sized U.S. based manufacturers. With many manufacturers not adapting their sales processes to meet new growth drivers, their valuations remain stifled. In these cases, the “house” goes off the market.
COVID-19 has exposed US manufacturing’s supply chain problems. Lack of transparency and inability to keep up with demand for many areas including PPE and medical equipment, has created serious problems.
Those companies with digitized operations rose to the top and are experiencing record growth. This reinforces that e-commerce is here to stay. Add to this the fact that in-person sales calls, demos, trade shows, and conferences are indefinitely on hold. This means that e-commerce will be moving up a manufacturer’s priority list.
Case Study: VersaTube
Self-serve models are the future of manufacturing. VersaTube, a DIY steel building kit supplier in Tennessee, knew they needed to build a digital strategy but didn’t know where to begin.
The first thing my team did was to map VersaTube’s customer buying journey. We then developed an e-commerce platform with an online configurator that connected sales and engineering while giving customers real-time pricing. This shortened customer lead times, decreased staff workload, and increased cash flows and sales for VersaTube.
A critical aspect of their digital sales success was helping staff become comfortable with the new way of doing business. We showed staff how technology augmented their jobs, listened to their concerns, and helped them understand and buy into the change.
And then the pandemic hit. DIY steel building kits may not seem like a good fit for e-commerce—but with COVID-19, we targeted buyers rushing to tackle those home projects that had been at the bottom of their to-do list. Thanks to the e-commerce channel and online configurator, VersaTube’s sales increased to the point where products are back ordered at all their facilities.
The results speak for themselves. VersaTube’s revenue increased 1,000% by establishing a direct-to-consumer sales strategy. Direct online sales went from 5% to more than 60% of annual revenue. They are capturing higher margins than ever and getting paid upfront. We transformed how the company targets and processes leads, created world-class lead generation and ecommerce platforms, and used innovative digital marketing strategies to lower customer acquisition costs.
VersaTube’s story is a powerful reminder that you can create an alternative sales channel without jeopardizing traditional sales processes. VersaTube’s owners now have a great exit strategy when they choose to sell.
Investors willing to buy these companies, digitize their sales processes, and scale their operations have the potential for high IRRs and can sell them for a profit.
Add to that, a growing trend for major brands, like Nike, leading an exodus from Amazon paving the way for more manufacturers to sell direct from their own websites.
The bottom line? Start “house-hunting” today and consider manufacturers in your investment strategy.