Matt Konkle from FifthGear – Podcast Transcript

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Shaun Ryan:  [00:04] Hi, I’m Shaun Ryan from SLI Systems, and this is the Ecommerce Podcast. Today I’m talking to Matt Konkle, the President of Fifth Gear. Welcome, Matt.

Matt Konkle:  [00:12] Thanks, Shaun, glad to be here.

Shaun:  [00:14] Great to have you. And a traditional question to get us started, what was the first thing you ever bought online?

Matt:  [00:21] You know, it seems like so long ago now, but, I don’t know if I recall the exact first thing I ever purchased, but I’ve always been a heavy reader, a heavy Kindle user for Amazon, so my guess is somewhat early on, it was purchasing music either for iTunes or purchasing a book for Amazon, but it’s been a while.

Shaun:  [00:37] Yep. And the Amazon book purchase is a common answer to this question. How about the most recent thing? What was the last thing you bought online?

Matt:  [00:47] Not so long ago I finally did buy an iPad 2, and I did actually buy it online directly from Apple.

Shaun:  [00:53] Oh. And I bet that experience was fairly smooth.

Matt:  [00:57] It was. They have a great site, and their customer service is always excellent. It was a good experience overall.

Shaun:  [01:02] Great. You like the iPad 2?

Matt:  [01:04] I do. I was skeptical of whether or not I really needed it, and I’m sure I don’t, but now that I have it, I’ve grown to keep it with me at all times.

Shaun:  [01:12] Yep, I know what that’s like. So, Matt, can you give me some background on yourself? How did you come to be where you are today?

Matt:  [01:19] Sure. I’ve grown up in central Indiana most of my life, most of my family’s life. I started out school here at Indiana University and went to graduate school up in Chicago, but my career began in Indianapolis.

[01:31] I actually began in the finance and accounting world. I served in a consulting firm, Ernst & Young, serving entrepreneurial businesses, and as part of that, my whole client base was based of, you know, entrepreneurial technology companies, venture capital firms, fairly progressive businesses that all… they all had the common theme of being growth‑oriented startup companies or growth‑oriented ventures.

[01:55] And I quickly jumped ship out of that business model into one of my clients’, it’s a business by the name of Aprimo, it’s enterprise marketing management software, it’s a pretty large software company these days, a successful company in Indianapolis, Indiana. And that began my career in the technology industry.

[02:11] I worked in a number of different software companies over the past 15 years kind of climbing up through the ranks, first in maybe traditional financial management. I came to the group of companies that are today Fifth Gear as the CFO of a holding company. You know, about eight years ago, I joined these companies leading the portfolio of different technology businesses under common ownership. And I served that capacity in each of those different businesses.

[02:35] Over the years, we bought some businesses, sold some businesses. At the end of the day, the one business that’s held true through all these years for us has always served what we call the direct‑to‑consumer industry, really North America’s specialty merchants covering any and every hobbier or common interest that you could think of, selling direct to the public, direct to consumers through ecommerce businesses, catalogers, multichannel merchants.

[03:00] Fifth Gear is the combination of two businesses ‑ Sigma Micro, an enterprise software company, and Stark Brothers Fulfillment. We bought those… we bought Stark Brothers Fulfillment in 2007, merged these businesses together in 2009 to create Fifth Gear. I’ve come up through these different companies, first running Sigma Micro, the technology business, and now as president of Fifth Gear.

Shaun:  [03:22] Fantastic. So tell me a little bit about Fifth Gear. What exactly do you guys do? There’s obviously some fulfillment there.

Matt:  [03:30] We really aspire first and foremost to be the growth platform for a direct‑to‑consumer merchant. And what that really consists of is the full operational and technology infrastructure behind the retail business where our clients specialize in the marketing and merchandising activities, and we specialize in the operations and technology.

[03:50] The technology arm, we have two proprietary order management platforms, those are fully commercialized software applications, one of which we’ve developed now over three decades, that the latter one that is our newest investment over the last five to seven years.

[04:03] Previous to forming Fifth Gear, we had those applications commercialized as software in the industry. In essence, we decided to become our biggest client, and instead of selling the technology to the end user or retailer, instead we’re providing the outsourced service to that end retailer.

[04:20] So today, most of our clients utilize our services to handle all of their order fulfillment, call center, managed ecommerce, and in some cases, even interactive marketing services. So we really try to serve as an end‑to‑end provider of the full operational and technology suite of activities that a direct‑to‑consumer merchant would have to take care of to grow their business.

Shaun:  [04:42] Great. So tell me a little bit more about your customers. What sort of size are they? Are they all based in the U.S.?

Matt:  [04:49] We have a decent range, but more often than not, we tend to enter strategically maybe around a $5 to $10‑million revenue size, and order volumes will differ depending on the type of product, but most of our clients tend to be in maybe the $5 to $10‑million, all the way up to maybe $100‑million retailer. That is the slice of the market that we have most traditionally served, but that’s changing over time. That’s certainly a segment that we love and keep dear to our hearts, but we’re seeing a lot of trends in the industry right now.

[05:20] I can speak to that in a moment, but our typical client is someone that has selected a niche specialty interest for which they have a very unique, intimate relationship with their customer base. Anything from specialty apparel to specialty gifts to automotive to sporting goods, these are owner‑operators or direct‑to‑consumer retail companies where in many ways, they exemplify the customer themselves.

[05:45] They intimately understand what that market’s all about, who buys those products, what products are of interest, they’re experts in marketing and merchandising. They’re experts in the direct marketing strategy. We really serve as the kind of operational structure behind them. It’s our warehouses, it’s our call centers, our technology platforms that they’re leveraging to conduct those marketing and merchandising activities.

Shaun:  [06:07] Hey, that’s pretty cool. I suppose it allows them to do what they’re expert at, and you do what you’re expert at, and together, you’re both quite stronger.

Matt:  [06:17] That is certainly the strategy. And what we’ve seen as the biggest evolution in our industry over these last several decades are it’s just too competitive with too many things that we have to all be focused on to be experts at everything. As Fifth Gear, we’re not spending our time and energy trying to become experts in marketing and merchandising. We’re really leaving that to our clients.

[06:37] It’s not that our clients couldn’t conduct their own fulfillment or call center or technology activities, it’s just that they recognize the quickest way for them to grow, the best way for them to use their time, is to leverage that expertise in marketing and merchandising and find a trusted partner to help them with the other elements of the business.

[06:54] It’s very much trust‑based, but once we establish that relationship with our clients, they tend to be very long‑term in nature. We pride ourselves on taking a very active role in our clients’ businesses. In many ways, we become part of their company.

Shaun:  [07:08] Great. And can you share like how many clients do you have, or sort of details about how you’re growing as a company?

Matt:  [07:14] Yeah, absolutely. Because we’ve combined these two businesses a few years ago, and that these businesses have both been in this industry for quite some time, we have a pretty robust client list. We have about 80 or 90 active clients today, probably 50 to 60 of which are technology‑only clients that are utilizing one of our two technology platforms in their own businesses.

[07:36] Then we have about 25 that actively outsource some or all of their business to Fifth Gear to provide those operational services on their behalf. Most of our clients that outsource to us, outsource both the call center… I’m sorry, both the warehouse fulfillment and call center activities. We have some that only outsource fulfillment.

[07:56] What we really try to do more than anything else with our partners is we attempt to really understand what model works best, where can we step into the operations and provide them the greatest lift, where can we be the infrastructure, what parts of the business do they really hold near and dear to their heart that they want to continue to do in‑house, what parts are they interested in outsourcing, and how can we make that model work unique to each of our clients?

Shaun:  [08:19] Yeah. OK, now, that makes sense. And how about the geographics, where are your customers?

Matt:  [08:25] We really are today serving North America. Most if not all of our clients are serving Canada as well.

[08:32] Some of our clients are beginning to explore international markets. Today, all of our distribution and call center facilities are in North America. We certainly have the capability of shipping internationally, but as our clients look to expand internationally, we’ll be looking at partnerships in other parts of the world to help them with on‑the‑ground distribution capability. But today, we truly do serve North America’s specialty retail community.

Shaun:  [08:56] Right. And I suppose that’s sort of touching on one of these trends that we want to get on to, is it’s something I’ve seen in the industry, is a broader push towards internationalization of sort of identifying that there’s a huge market outside of the U.S., and many retailers, or a lot of retailers, are starting to take advantage of that market and sell into those non‑American markets. Are you seeing that with your customers?

Matt:  [09:20] Absolutely. I think what we’re seeing is a combination of events that are all leading to one another. One, it’s becoming, you know, barriers to entry across the world are obviously falling, but with the proliferation of ecommerce, being an etailer in and of itself is becoming increasingly more competitive every day.

[09:38] What we find, where we end up having lots of conversations with our clients, are there are ways to leverage today’s large carriers, FedEx and UPS and other specialty carriers, to reach some of those international markets. Certainly, the ability to sell in an ecommerce fashion across the globe is getting easier and easier every day. But these are complex businesses, and as they grow they become much more operationally and technically complex. But it’s a very competitive global market where those barriers are so falling, so we certainly see that trend as well.

Shaun:  [10:09] So can you tell me a little bit about other trends that you’re seeing across your customers?

Matt:  [10:14] Yes. One of the things that’s become very evident in our business model since the fourth quarter of 2008 particularly, with the change in the economy, we have seen our clients really move heavily back towards customer service. We think that’s a very important trend, but that’s not at all to suggest that our clients weren’t concerned about treating their consumers, their customers with the highest of importance before. But I think it’s taken on a much higher level of emphasis.

[10:42] In every touch point with that customer, whether it’s the ecommerce experience, whether it’s a phone interaction in a call center environment, whether it’s an email interaction or a live chat interaction, all the way to, how does that customer feel when they open the package on their doorstep? There is tremendous more emphasis on the voice of the consumer in the retailer’s operation, their attention to their brand strategy, their brand promise and how much they’re actually living up to that brand promise.

[11:10] I think that’s definitely a byproduct of how completive the world is getting. I think it’s a byproduct of how many choices consumers have today. I also think it’s the reality of what a tougher economic market does to business in general. But it’s the right trend.

[11:25] We are playing a much heavier role with our clients than ever before in how do we also have to be a participant in that equation? How do we have to listen to feedback of the consumer? All the different ways that we touch the consumer transaction with them, how can we bring that data into the equation, understand what’s happening and make improvements in every part of the business. Not just our part, not just the client’s part, but everything as a whole.

Shaun:  [11:51] Yeah, I think that makes sense to me. I suppose in a tough economic climate, you can’t compete on price. There’s just no… Or if you want to make any margin, you’ve got to have something else apart from piece to compete on. So customer service is a natural thing to be putting resources into. Smart companies will sort of see the long‑term value they’ll get from that…

Matt:  [12:13] Absolutely.

Shaun:  [12:15] … because they’ll get loyal customers who will keep coming back. So that’s interesting. So what do you see coming up in the next year? What are some new things you see coming up?

Matt:  [12:23] Well, you’ve touched on one. Certainly the proliferation of international expansion is a big topic. Customer service is a big topic. Not just basics of customer service, but what role does social media and mobile device play in that interaction point with the customer? So as an expansion on that last comment, it’s certainly a world where, if before we were interacting with our clients, consumer through primarily phone and email, now today we’re interacting through live chat, through social media, Facebook sites, all of the above.

[12:53] So I think the touch points with the customer are expanding rapidly. I think customers want that and they want to be able to choose what channel they communicate through to their retailer. That’s another major trend. And then finally, the world of freight management is absolutely a topic we have with every single customer, every single prospect, every day.

[13:13] It’s a little more unique to our world because we’re handling the operational end of our clients’ business. The world of increasing freight costs, the commanding position that FedEx and UPS have in the marketplace, the pressure this puts on margins. It’s a never‑ending battle that gets a little bit worse each year. There’s a lot that we’re doing with technology that our clients want to do with their marketing programs that allow us to make smarter decisions on behalf of our clients with freight management.

[13:42] Obviously a well‑publicized world since the last few years of free shipping in the big guys such as Amazon and Zappos and others offering unique types of marketing campaigns around freight management with their consumer base. These have all led to this being an extremely active topic for our business.

Shaun:  [13:59] Yeah, that’s interesting. I suppose the fact that the big retailers like Amazon sort of often leading the way than other retailers ‑ it sets the expectations for consumers and other retailers need to follow. We’ve seen that in ecommerce interaction, I suppose, for example with reviews. Amazon led the way there, and now reviews are prolific on almost every site. It’s interesting seeing the same thing happening with freight management.

Matt:  [14:29] There is no doubt that there’s trendsetters in the industry such as Amazon, such as Zappos and others that, to your point, whether it’s advanced search technology, whether it’s special marketing promotions, whether it’s freight management, the industry is following suit over time. I think what’s happened, though, is retailers having to get back to the basics of business fundamentals, of how are you going to make money in this business model at the same time that you offer the highest level of customer service and build the highest level of customer loyalty.

[15:01] Our industry has long, forever, been built on the principle of, the first purchase doesn’t make money. Our clients have to get repeat business and build that brand loyalty with their consumer, or the direct‑to‑consumer business model doesn’t work. But just simply offering free shipping or just simply offering deep discounts ‑ these things don’t work unless the entire model is built around that principle to support it.

Shaun:  [15:25] Yep. What other problems are your customers seeing? What sort of headaches are they having beyond things that you’ve touched on?

Matt:  [15:33] There’s a number of different things. I think one, the world moves so fast and the competition is so strong. It really, honestly, is just a challenge for an entrepreneurial growth retailer, these types of business, just to keep up with everything they have to keep up with. Whether it’s the world of ecommerce in and of itself, the amount of advancement and the amount of change is mind‑boggling. Managing their cost structures, whether it’s, as we talk about, freight manage or the operations in general.

[16:00] I think it’s also just the never‑ending proliferation of new competitors. In the days of catalogers, or in the ’80s and ’90s, you got a strong house list and you got your circulations right, you built your financial model right and you could continue to kind of milk that equation, if you will, continuing to offer high‑value products to those consumers.

[16:22] But the thread of new people targeting your same consumer all day was not what it is today. Our clients deal with the reality that tomorrow there’s going to be two new ecommerce sites trying to sell the same type of product to their consumer. So how do they build that loyalty, how do they get the return purchase, in an ever‑competitive world? I think that just weighs heavily on our client’s minds.

[16:46] And the economy in general, I think, still has people concerned, although I think most of our clients have experience a resurgence and they’re growth mode and they’re happy about that. But I think it’s a recent enough past that everybody’s a little cautious, as they should be. I think, in any technology arena, when there’s new, sexy technologies to bear, it can be confusing. I do think our clients are not sure what to make of mobile technology and social media and what role it needs to play in their business.

[17:16] What we’ve seen thus far is it’s far more about the customer interaction as just a connection point between the brand and the consumer, more so than our clients attempting to offer them a social media‑based shopping experience, or either the customer demanding that. But that’s an area that I think our clients spend a lot of time considering the future. Those are things that come, at least top of mind.

Shaun:  [17:41] I know that’s one thing I kind of struggle with. Should you be offering a Facebook store, for example? Because it’s not technically that difficult to do, but do people really want to… You know, do you want to just replicate your store in Facebook? I mean, to me, you can easily have a link that goes off to your store and people can buy in your regular store. I think if companies are just putting Facebook stores up, they’re not quite leveraging the socialness of Facebook, and not quite getting it. It’s early days, isn’t it?

Matt:  [18:17] It does. I think it’s easy to get caught in certain trends without really establishing the business model around it. What we’ve seen with our clients ‑ the more sales channels they create, the more transaction costs and replication of those costs can occur in the model. To your point, if you have strong ecommerce sites, if you have strong sales channels, racing to establish a Facebook store ‑ is it where your customer wants to purchase? Do they feel safe and secure through that mechanism? Or are they simply wanting to communicate with you through that mechanism?

[18:51] Same with mobile technologies. Is it simply configuring your ecommerce sites to present themselves well on mobile devices, or is it creating a shopping application for a mobile device?

[19:01] I think these are all questions that have to be carefully considered, and they have to offer the business value. They have to come in the right sequence of events for our clients. But, there’s a lot to think about, there’s a lot to consider. I know for our clients, it’s a never‑ending battle to choose what next and weight the realities of prioritization in their business.

Shaun:  [19:20] Yep. Excellent. And I think they’re great questions. That’s also, I think, a good place for us to wrap up there, Matt. So I’d just like to thank you very much for your time today. You’ve given us some really good insights. All the best for your company, it sounds like you’re doing a great job for your customers.

Matt:  [19:37] Well, we really appreciate the opportunity to participate in your program, and thank you very much for your time.

Shaun:  [19:42] Cool. That is another Ecommerce Podcast in the bag. I’m Shaun Ryan from SLI Systems. Tune in next time.