Traditional ERPs Are FAILING Mid-Market Ecommerce

Transcript: 

Jared Ward: 0:00

All right, welcome to Ops Unfiltered. I'm your host, jared. This week we're going to do one of our building in public series. I have co-founder CTO Brendan Beebe here. Welcome, brendan. So yeah, we're just going to give you guys a look behind the curtain and talk about building in public, everything that's gone well, it's gone bad and everything in between. So my first question is Brennan what have been our main wins of 2024 so far?

Brendon Beebe: 0:38

I think our biggest win is just the number of logos we brought on. It's really easy to fudge finances and average contract value and whatnot. I feel you can make it whatever you want in a lot of different ways, but since August September, when we officially kind of launched, we've 6x the number of customers we have. We currently have 60 customers live using the software and that's easily the biggest win. If you compare that with where we were last year where it took us, you know, three to four months to onboard customers, the product's finally to a place where we're able to onboard customers, they get a value and we can sell them consistently.

Jared Ward: 1:14

And then something I'd add as well is we've been able to sell relatively big logos in Utah. That was always our focus. We wanted to really take over the utah e-commerce scene. So brands like thread wallets, uh, mountain ops, barbelletto, I'm sorry, borbaletta, obvi. We just recently brought on any other big logos from mid market that I'm missing. I can't you say mountain ops, yeah mountain ops lit joy crate.

Brendon Beebe: 1:41

Yeah, literally, there's a bunch of them, like I think I Did. You say Mountain Ops yeah, mountain.

Jared Ward: 1:44

Ops Lit Joy Crate. Yeah, lit Joy Crate, there's a bunch of them.

Brendon Beebe: 1:46

I think one of the keys to this win is that it wasn't just, hey, we went down market, gave the product away for free. We kind of stood our ground, looked for quality customers with higher contracts where we could deliver way more value, and so that 6X in customers was actually upping the quality of our customers as well. So so far this year, how has sales and marketing evolved? What would be one of the big wins you guys have accomplished?

Jared Ward: 2:12

So the beginning of the year we were going from nothing, no processes, we didn't even have a CRM, and we've gone from that to a true motion for sales and marketing. So from zero to about 70 demos booked a month through inbound marketing. We've gone from closing about 6K a month in MRR to now 15K, to now 15k overall. We've just raised the bar and we've started a motion that has us on collision with a three, three million dollar ar run right next year, which that that was the goal. It was like we knew it was inevitable to get to a million, but I think this year especially, we wanted to not just like struggle our way to a million dollars in revenue, but start a motion, start a flywheel that's going to continue us on to 3 million, and I would say we're doing that right now. It's very much happened.

Brendon Beebe: 3:15

Yeah, I agree. At the beginning of the year it was a stretch to hit 6,000 a month. We were just starting out and now 6,000 is easy and 15,000 is what we're crossing.

Jared Ward: 3:25

Well more than just a stretch.

Brendon Beebe: 3:28

It was like— Well, from my perspective, it felt impossible.

Jared Ward: 3:31

It was like Jared has to go network or Logan has to find everything. We actually have channels that are bringing in leads. We understand what prospecting takes for an SDR, how much sits they can bring in that will convert to a close. We understand how much money we need to put into meta ads or PPC or SEO and what that's going to bring out. We're starting to get real data behind, like what our sales cycle is, and the dust is starting to settle around like CAC and LTV.

Brendon Beebe: 4:04

And the dust is starting to settle around like CAC and LTV Still not like 100% clear, but like from where we were, though I remember it wasn't like March or April when we got our first like submission on the website and it was like a party, it was one submission a week.

Jared Ward: 4:19

I don't think people understand the stress of starting inbound, like because I've started inbound before for other companies and like there's always like that two-month period where things are ramping up and you're sweating bullets Even though you've set expectations proper. Like, oh, this is going to take a couple months for it to come in. But I was sweating bullets because we spend a lot of money on the Creatively ad, yeah, and I don't know. Just like the beginning of inbound starting, you're just like I'm going to be fired from my own company in a year. This doesn't work. So luckily it ended up working. And like we're on a great path.

Brendon Beebe: 5:03

The fun comparison from somebody who's outside of sales and marketing is we have a channel on Slack that it just notifies people whenever somebody submits a contact info on the website. Everybody's a part of it, and in March it was like we were celebrating yes, we got one, and once a week maybe, and now it's like over the weekend we'll get like 15.

Jared Ward: 5:22

And nobody would think it's actually. Over the weekend we'll get like 15 and nobody will even think it's actually incredible. Like we truly did go from like zero to hero. It feels like yeah, and we had 78 forum submissions in June and 13 in April.

Brendon Beebe: 5:35

Is that what it was?

Jared Ward: 5:36

Yeah, and this month, like Logan, has done next to no prospecting and we're still on track to hit 15K. It's honestly incredible. That's awesome. So what's been some of our biggest failures this year? What have we learned?

Brendon Beebe: 5:52

Early on in the year we made the choice to kind of go down market. We had this idea, this hypothesis, that if we built an OMS we could give it away for free as kind of a PLG product-led movement. And we did that. From what? April May, we started the year that way actually.

Jared Ward: 6:11

No, it was like June of last year until like February, yeah yeah.

Brendon Beebe: 6:15

So we really thought the idea of going PLG like this is a great way to go viral. Let's go this. And what ended up happening is we got a lot more customers really quick, but then come April and May, a lot of those same customers churned and it was completely outside of our control. These were customers going under. They didn't have enough revenue in the first place, their cash flow is poor, they couldn't afford to use us in the first place and the needs they needed were just as great as a lot of the bigger customers, and so I think that'd be the biggest like kind of failure or misdirection we made this year, but I think we corrected quickly.

Jared Ward: 6:51

So coming off of Sastr last year, you look at companies like mondaycom or just incredible companies that started down market. Um, they do what's called product-led growth. So after saster we were thinking man luminous needs a product-led growth motion, we need to give away something for free, start down market and then slowly go up market as we evolve as a business. And it actually ended up not being true and honestly I would say if we would have stayed down market on that path and not pivoted really quickly in February, I think we'd be having a very different conversation right now.

Brendon Beebe: 7:26

It would have killed our company. I think we see a hundred other ERPs that did exactly that and they have kind of a mediocre product making zero dollars making zero dollars.

Jared Ward: 7:43

That was also encouraging to having these learnings and then having a conversation with, like a founder in the space who did that thing and it like confirms some of the. It reinforces the decisions that we made so that was.

Brendon Beebe: 7:52

That's been really good. What trends are you seeing in the industry right now?

Jared Ward: 7:56

right now, when, when so I started selling Luminous about four years ago, so I've sort of had a pulse amongst brands doing like three to a hundred million dollars in revenue give or take. I've noticed the consensus has slowly changed. So back four years ago, I mean, people wouldn't even have a conversation. It was very binary. So we need NetSuite, like we want to go big, therefore we're going to go to NetSuite. We need all these features. We need NetSuite.

Jared Ward: 8:24

Netsuite was generally the consensus of if you want to scale and if you're in that revenue range, you need to go to NetSuite. So what we've noticed in the past year or so, as we've talked to these same customers a lot of time people on NetSuite they've the the dust has settled with a lot of mid-market e-commerce and their experience at NetSuite, and what you see is a lot of mid-market e-commerce companies. They're trying to right size their tech stack. So I think this is actually a broader trend in e-commerce, though From 2015 to like 2022, e-commerce was thought to be a great vehicle for venture money. So you'd like really inflated valuations and this would cause a lot of mid-market brand owners in that revenue range to hire a 300K COO or to get a big, massive ERP like NetSuite, because they needed it, because they're going to nine figures in revenue, and it just didn't end up happening.

Jared Ward: 9:26

I think the dust is settling and, like you know, there's a lot of brands that are just sitting at 20 million dollars a year and they need to get profitable and they need to have a right size tech stack. And why are they getting off NetSuite? Normally it's because it's too big, it's too clunky, their business has shrunk, they didn't get as big as they thought and it's you know. You're talking about like $10,000 a month contracts for a behemoth of a system, and so think of it this way Like they were buying the shoes that they thought they were growing into, and then two years later they figure out like oh, actually we're just like like a five person team. Really, we don't have a 10 person purchasing team.

Brendon Beebe: 10:11

Do you feel like they notice it purely because of the pain of running it, or is it? They hit the renewal and their annual contract just doubled.

Jared Ward: 10:19

Yeah, I think it's a combination of both those things. They didn't grow as well as they thought they did. But also renewals are coming up and what we see is really common with NetSuite, which they might be digging their own grave for mid-market is they're just raising prices every single renewal, like I've seen some companies they go from like a you know an $80,000 a year contract to like 140, like significant increases, and that's they just don't care.

Brendon Beebe: 10:49

Like yeah, I was reading. I was on a Reddit thread. They're talking about renewals in general and how they'll generally get you on with discounts. So they'll say it's $10,000 a month but you get a $5,000 discount, but when renewals come around, they'll generally get you on with discounts. So they'll say it's $10,000 a month but you get a $5,000 discount, but when renewals come around, they'll never get that discount again, or if they do, it's very rare and your rate will never go down Like it is. The first rate you get is the minimum and it'll only go up from there. And if you don't get the discounts and you're just kind of stuck, you can't do anything. And so there's a big reddit thread I was following that was talking about. It was really interesting yeah I think it's not that.

Jared Ward: 11:25

Oh, net suite sucks. No, actually, I mean there's a reason why net suite kicks our asses and sales and marketing and, um, they're able to sell this really general product to mid-market e-commerce way better than we're doing.

Brendon Beebe: 11:40

Right.

Jared Ward: 11:42

And I think there's something to learn there on the sales and marketing side. But as far as people's real experience right now, I'm pretty confident to tell you that if you're a mid-market e-commerce company, you will not have a good experience with NetSuite in the long run. Maybe if you have a couple million dollars through the implementation, but that's likely not in budget now for e-com companies, so just keep that in mind. So why is Luminous a NetSuite alternative for these brands?

Brendon Beebe: 12:12

So I think a lot of people bought into NetSuite because they felt like it was a SaaS product. It was on the cloud. It's a SaaS product. They can just buy it. Start using it. I think what they misunderstand is whether it's NetSuite or whether it's one of the tier one ERPs like Acumatica or Dynamics. These are platforms that you bring on board and then you spend 1% to 2% revenue to customize. It's not like a standard SaaS product that you just get what you get. It's not like a standard SaaS product that you just you get what you get. It's built for your specific use case. You turn it on and it's working, and so I think that's one of the main issues, and so even pitching ourselves as an alternative is I don't even know if we're in. We sell the same idea that we say solve the same problems, but the difference is that we're a SaaS product, bundled and specialized and built for e-commerce companies, and it's not something you have to spend a million dollars to customize.

Jared Ward: 13:08

Exactly. Yeah, I'd say. We're not trying to just rebuild NetSuite in the cloud Like we're trying to build the first purpose-built ERP for modern omni-channel e-commerce. What that means practically is a lot of features around specialty wholesale, around embedded EDI, purchasing, inventory management across multiple platforms and multiple channels and everything that comes along with that. Also, like you know, outsourcing fulfillment to a 3PL and FBA and maybe doing some in-house fulfillment. We think we're making a big bet that there's enough brands who are struggling with those specific use cases. So instead of rebuilding NetSuite in the cloud and just trying to compete with them like Odoo Odoo is just like NetSuite Lite. It's just like take the cost and divide it by 10. We're not going that route. We're hyper-focusing on a very specific type of company.

Brendon Beebe: 14:12

In fact, we were talking to a company just yesterday that I think highlighted perfectly. They were on NetSuite looking to get off. They had NetSuite, they had a connector between them and Shopify that they were paying for. They had a SPS Commerce to connect to EDI. They had an API connection that they custom built pushing out to their custom portal and really what they've ended up running into is they were paying for NetSuite plus 10 different add-ons to kind of get the functionality they want. All that's kind of built in natively into Luminous, because we've seen the use cases over and over again and it's not something you have to build custom every time you sign on a new customer.

Jared Ward: 14:48

Even just as you're bringing that up. It makes me think why hasn't Shopify solved this problem, even just how you said it? People end up using NetSuite and there's a million add-ons. What Shopify dabbles in backend they do order management, label printing, basic inventory. It just seems like if they solve that, I don't know. I wonder why they haven't spent significant resources because they could own backend and frontend tech. Maybe it's just they're so wildly different. I don't know.

Brendon Beebe: 15:26

Yeah, I'm not sure. That's a really good question.

Jared Ward: 15:31

I bet Shopify will be looking to acquire an ERP one day.

Brendon Beebe: 15:35

So looking now, so January. We were going down market. Now looking now, it's August-ish almost. Who is our ICP and how has that changed since January?

Jared Ward: 15:45

True modern omni-channel brands. Specifically, I started D2C, got product market fit. I expanded to specialty wholesale, so selling to mom-and-pop shops. I've expanded to big box retail. I'm selling at Costco and Rite Aid and Vitamin Shop. I use multiple 3PLs for the fulfillment of these things and everything's a mess. What we hear so common with our ICP is there's no tool out there that will do embedded EDI and costing and push your inventory to all these channels like EDI included. And it does exist. Actually we do it. So I would say that's the gap that we're filling. That's our new ICP In the range revenue range of like 10 to 100 million. What's on the roadmap for Luminous in 2024?

Brendon Beebe: 16:56

So we're really focusing in on that ICP and their use cases around wholesale, and so we're focusing a lot on how those orders come in, whether that's through Shopify or EDI, making sure they're treated identically, but then how those are fulfilled across the gamut of options, and so it might be easiest to walk through a use case with a specific type of customer. As an order comes in, it's a large wholesale order of 100 line items. 50 of those line items can be fulfilled right now and it's sent automatically to the 3PL. 25 of those items are pre-ordered for a purchase order that already exists, and so making sure that those 25 line items count against for a purchase order that already exists, and so making sure that those 25 line items count against the existing purchase order and that the purchaser can identify like these items already allocated towards that existing sales order, and maybe the other 20 are backordered and so a purchase order is yet to be created, and maybe five of these items need an assembly order. And so how do we make sure that entire process for a single sales order is as automated as possible and things are going to the right places at the right time, or even maybe, let's say in this example, it's partially fulfilled by the 3PL.

Brendon Beebe: 18:15

It's partially fulfilled in-house. It's partially fulfilled by the 3PL. It's partially fulfilled in-house. It's partially fulfilled by Dropship. How do we make sure each of those line items goes to the right place, is fulfilled by the right person, and then that information is transmitted back to the order of source, whether that's EDI through ASN, or whether that's Shopify and some tracking number, and so that flow is what we're working on right now, and it'll probably take us up to the rest of the year to kind of nail down everything. What are the key hires for the end of the year that we're looking at?

Jared Ward: 18:45

Number one we need a back-end developer, like a full-time, kick-ass, dedicated back-end developer. Mm-hmm, yeah, that's what we need to really catch the product up to where our sales and marketing motion is. It's just time we also need a CSM. I think we're by the end of this year. I think we're going to really start to understand what Luminous's margin is on our contracts and that will really dictate this concept of how many customers can one CSM handle, how much revenue should their book of business be, and that will sort of dictate how we hire at scale for the CSMs. Higher at scale for the CSMs, then sales and marketing, I think we're. I always just see it as this variable cost that will go up and down, but it should pay for itself. So we're going to hire two SDRs, so one full cycle rep and then one pure SDR, and that should really be the team that takes us to 3 million. Yeah, I agree, I don't think we need anything more than that. We'll slowly scale bad spend.

Brendon Beebe: 20:01

So why do we go to Sastr every year? So I've been to Sastr since the very first one. It was in a hotel, it was cremmed and it was just an absolutely incredible experience. We get so stuck in kind of this Utah bubble of SaaS and where you think your goals are so small. And I think you go to SaaS and you see what SaaS and software outside of Utah looks like and it sets your dreams and your eyes so much higher of what's possible, how fast you can grow, where the future is going to be, and you leave with such like excitement about the business, about what you can do, so many new ideas on implementation and customer success and sales. It's just like the perfect time. I think every time I go at first it's like do I really want to do this again? But the whole team being there at Sastr is just an incredible experience.

Jared Ward: 20:59

I can honestly say that without Sastr, I don't think our shared vision would be as well thought out as it is right now. Like it truly, especially when you're at that pre-seed seed stage where you're just in the weeds. I'm just like I was doing all the implementations and the selling, and like when you go to saster's the first time where you like, pop your head out and you're just like whoa, like I didn't even know that was possible, I didn't even know that was an idea.

Brendon Beebe: 21:28

Um and you've been twice, right, yeah, and the first time, your first uh like talk or speech or whatever was with Mark Roberge. It was Mark.

Jared Ward: 21:38

Roberge. He talks about the different levers that you can pull for a startup and he talks about growth versus product, versus sales and marketing. It was such a good.

Brendon Beebe: 21:51

That's the difference, Mark Roberge he's one of those that speaks every year and he's the first that he breaks down sales into essentially a math equation. And here's how you look at things. Here's the leverage.

Jared Ward: 22:02

It just levels you up because like there's sort of a what you find with all the really smart companies that have scaled, there's like a baseline of knowledge and understanding that like it's just part of the culture of sastra. It's like oh yeah, this is around the time you should hire a vp of sales and here's what you should look for and like like it's just, it's common knowledge and they just throw it out there, but like I didn't know any of that stuff and I don't come from a sass background, so it's like like all the stuff that is just common knowledge amongst really smart people.

Jared Ward: 22:35

You get to like sort of absorb it and you just become so much smarter and more competent as a SaaS business owner.

Brendon Beebe: 22:42

I think I'm excited. This year we decided our team's still small enough. We wanted to bring enough people. We just decided we'd bring everybody and we'd turn it into kind of our annual planning event. So take that inspiration that you get and then solidify it and just annual planning and goals. I think it'll be good for the entire team to see what real successful SaaS companies are doing.

Jared Ward: 23:04

Yeah, something frustrating last year, though, was I think we'll be able to come out with a lot more tangible lessons than last year, because last year, year mondaycom was like the star child, and a lot of it was focused on the learnings of mondaycom, and I think we went away from it thinking like oh, we should, we should do plg like them and like oh, that's the secret, and it's like well, we only had, I guess we only had six customers, yeah, yeah.

Jared Ward: 23:36

Yeah, we didn't have many customers back then. We were still pivoting every month. No, yeah, sorry. My point is like we're pretty solidified on who we are right now, but I think this is just going to be like excellent ideas and inspiration.

Brendon Beebe: 23:51

Why are we on an open book right now with all our employees?

Jared Ward: 23:54

So we I can give you my reason for being an open book right now, with all our employees. So we I can give you my reason for being an open book. I come from.

Jared Ward: 24:02

I've worked at a bunch of small businesses and businesses with like less than 10 employees and I noticed that there's always horrible culture at these tiny businesses and there's almost always came around like how much somebody was making and um the decisions that the ceo was doing, how much he was taking home and um, like it all it all came from, or how much equity this person had. And what I, what I've always wanted to do at Luminous was just be totally open. Like there, there's nothing to gossip about. Like it's here's everything you can see, our bank balances, you, you generally know, like about how much equity somebody has and um, it just doesn't leave any room for like gossiping and making up the details. Um, I'm curious how that's going to change as we grow. It's obviously going to change in some way, but I think that's why we have such amazing culture here is we, we're just open. There's no secrets.

Jared Ward: 25:06

Um, most, I'm surprised to hear that, like most sas companies that are like series a or even even less than series a. If they go out of business like that, they don't even know what their business, they don't even know what their burn is. They don't even know what their ARR is. They don't know if they were close or far away from the company quota. I don't know. I was always so confused Like why? Why, you have like 10 people.

Brendon Beebe: 25:34

I know for me, I hate working in companies when I don't understand what's going on at the higher level. It just it's hard to feel any amount of ownership towards the success of the company if this. You have no idea what's going on and I feel like sharing it all, putting it out there, even using those moments as teaching moments. A lot of people don't know what LTV or CAC means, or what's AR and what's revenue. They don't understand these pieces, even to the point of equity. Some people, most people, in the equity at a startup it's like, hey, you got 1,000 chairs. And it's like, well, what's the fully diluted cap table? Look like what percent of a job are you receiving it?

Jared Ward: 26:14

it's like every one of. If there is a misunderstanding and somebody feels a certain way, a lot of times it's just a teach. It's either great feedback and you might have done the wrong decision, or it's just a really good teaching moment. I honestly believe that, like if if you made a decision and everybody's like what the fuck was that? Yeah right, you've got some good feedback. Like that's something that maybe you made a really dumb decision. Or if you're doing something that's very standard, like the amount of equity you're awarding to somebody or bonusing to somebody and you know everybody else sees it and like he or she is like really mad and you're like, oh wait, hold on, like let's let's dive into this. It's actually really standard.

Brendon Beebe: 26:53

And like it might be something that he or she just doesn't, they didn't know yeah, and I think, at the end of the day, when four up exits or whatever happens, and we're successful in luminous six, what did I say four? I said four up, all right, no matter what, I think a big part is like when luminous exits, when we finally finish whatever we're doing here and we're all successful. It needs to be a party with all finally finish whatever we're doing here and we are all successful. It needs to be a party with all the employees because we're all on board. We all kind of took sacrifices to join early on and it should just be something we celebrate. It shouldn't be something that you know, as founders, we get together and secretly celebrate what happened. Yes, I want it to be something we can all get together and really enjoy.

Jared Ward: 27:32

Yeah, okay, I have.