June 11th, 2019
Welcome to Leading Indiana Ambition – a series of leadership stories fueled by Elevate Ventures highlighting entrepreneurship across the Hoosier state. This month, we profiled Alex Smith of 3BG Supply Co. Stay tuned next month for more!

 

Leading IN Ambition - Alex SmithCEO Alex Smith Says a Chance to Be No. 1 Drove 3BG’s Capital Partner Search

For decades, the procurement of industrial MRO (maintenance, repair and operations) products has been tied to in-person counter sales and catalogs — thousands of pages of product descriptions. Fort Wayne-based 3BG Supply Co. is out to use technology and data to shake up this entrenched custom in a bid to vastly improve the customer experience. CEO Alex Smith says no one else is squarely focused on being the largest aggregator of MRO data like 3BG is. To catapult the business, 3BG chose the venture capital route, joining the Elevate Ventures portfolio in 2017.

 

Tell me about the market opportunity in MRO. How big is the industry and what is the problem that you’re solving?

We’re a tech-enabled business, so we are a technology-enabled distributor of industrial MRO products such as bearings, sprockets, chain, electric motors, numerous other product categories. We’ve convinced over 500 vendors to ship our products factory direct in a highly fragmented industry where that traditionally hasn’t been done.

As it currently stands, the market for industrial supply is incredibly fragmented. There exists a plethora of companies operating in this space to the tune of 90,000+ supplying and distributing everything from hoses and pipes to screws and motors, serving customers big and small. No one company, even those generating $10B+ in annual revenues such as Grainger, Motion Industries, etc., holds more than an 8-10 percent stake. This industry-wide fragmentation leaves this age-old sector extremely vulnerable to disruption.

Your background is in financial services. How did you get into the business of MRO?

Alex Smith - 3BG SupplyWhen I partnered up with Shane [Araujo, now president of 3BG], he had been in the industry since he was a teenager working for his family’s power transmission distribution business. They were probably doing $20 million in revenue in their prime and served a smaller geographical region in northeast Indiana. He had vast experience, whether it was field service, like hands-on engineering and belting hose assembly, or inside sales. Shane worked his way up and realized there were opportunities to seriously disrupt MRO.

After I graduated from Indiana University, a lot of my counterparts were going to Chicago and New York. But I was super passionate about Fort Wayne and the direction I thought things were going here, and they’ve proven to go that way. So I came back to Fort Wayne to work for a boutique financial planning and asset management firm.

When Shane brought his idea to me, we had synergistic fits in our backgrounds where I compliment his weak points and vice versa. It’s proven to be a great partnership, becoming a student of not just industrial MRO but also what we’re doing to disrupt this industry. Our earliest conversations were focused more on being an industry leader in terms of data around these products to make the customer’s buying experience much better. We wanted to create a Google- or Amazon-like experience that we all have in the B2C world for this high-touch, high-service industry, and then also create a very lean way to distribute these products using technology. That actually excited me, as boring as it may sound, because of the opportunity to disrupt a big industry that’s highly fragmented.

Because we are focused on streamlining operations, it allows us to focus on becoming the largest aggregator of organized product information. We’re en route to creating a very powerful vertical search engine within the MRO space. It’s a fancy way of saying we are physically extracting data from all the different manufacturers within all the different categories and then organizing that information in a way where we can create tools to improve the customer’s purchasing experience. If we achieve this, we can outpace the competition.

What was your original vision for growth for 3BG and has that vision evolved since the company’s inception?

3BG SupplyBecause of the longer timeline [3BG was founded in 2010], it may seem that we were originally creating a business that we thought we could bootstrap to scale and grow incrementally. But with the possibility of being No. 1 in data in this industry and one of the more lean distribution players in this space, we knew we needed to achieve speed to market. Raising venture capital has always been a focus. Timing wise, we spent a lot of years in our own capital just building a vendor network and proving that we could ship these products factory direct in a scalable way.

Once we got it to north of seven figures in revenue, we created some enterprise value and then we raised against that. So timing wise, unlike a traditional SaaS-based company that’s a little sexier and typically funded either pre-revenue or after a minimum viable product is created, we built a functioning business that had customers and a vendor network, and showed a proof of concept before seeking outside funds. We used that value that was already created to raise against it and did a seed round in 2017, which allowed us to scale up our efforts on the data and ecommerce side and created a more predictable growth model. From there, we raised a Series A. The timeline has been very organic, but from the inception, we’ve always been focused on how to utilize outside capital to grow the business.

For 3BG, what is the difference between bootstrapped growth versus venture capital-funded growth?

Elevate led our seed round, but we also rounded the deal out with some great angel investors, guys who have created incredible businesses regionally and nationally. It took them maybe 40 years to do it, or they inherited their parents’ business, so they were a second- or third-generation entrepreneur. I think the difference between bootstrapped growth and VC growth is speed to market. Do you want to bootstrap and be a traditional business that’s growing incrementally over a long period of time? Or do you want to expedite growth and possibly capture an opportunity in the market? I think that’s the choice that we made and the choice that a lot of people have to make when you come in and try to disrupt an industry.

How did you go about finding the right capital partners for the type of company you want 3BG to become and the type of growth you want to experience?

Part of the problem with not being a sexy SaaS company is that we had to cast a wide net. We were pretty proactive in getting to know all of the different players in the Midwest that fund early- to growth-stage businesses, and then we backed ourselves into ‘What’s a good fit for our business?’ So we did turn away term sheets we didn’t feel were a good fit for the business.

There are risks when you turn away a term sheet — you may never get another one. But I think at the end of the day, the right capital is better than capital in and of itself. So whether it’s angel investors who put a small amount into this business or more institutional investors such as Elevate or Plymouth Growth Partners out of Ann Arbor, we were very selective to find the best fit. You really do want a value-added partner above and beyond the capital.

You turned away term sheets, so what was it that kind of attracted you to the partners you now have?
“You really have to decide if you want a VC that is a value-added investor that might be in your offices once a month, talking with you about your strategy and being a part of that.”

They are more involved in our business, and some people don’t want that. You really have to decide if you want a VC that is a value-added investor that might be in your offices once a month, talking with you about your strategy and being a part of that. For us, that was a good fit because this is our first company. We’ve scaled to this point, but we’re always looking for help. In the case of Elevate, Plymouth and all of our angels, each one opens their Rolodex, shares experiences they’ve had as entrepreneurs, or tries to help place individuals in positions and board members’ seats to grow our business.

I think a lot of new entrepreneurs or potential entrepreneurs would probably love to know all your secrets and how you did this. So share your secrets. What were the first steps you took when you were trying to find capital partners?

Shane and I were as involved in the community outside of work as we were in our own business, which allowed us to make a lot of organic collisions with people. That’s where relationships start. We already had Chuck Surack [founder and CEO] of Sweetwater Sound as a mentor and friend before we ever asked him for a dollar. Building organic relationships is step No. 1. During the earlier stages, you’re seeking capital from family and friends, and rounding it out with angel investors. Those have to be real organic relationships for anyone to believe in what you’re doing.

And then there are the fundamentals of raising capital: properly building a slide deck, asking your contacts for intros to institutional investors, proactively taking those intros and making the best of them. The core of all of that is organically building relationships.

How has being involved in the Fort Wayne community, particularly in music, made you a better leader?

I was never a business-card-exchange or a networking-event type of individual. Instead I spent a good portion of my twentysomethings heavily involved in creating things outside of the workplace, whether that was a music video with a bunch of different artists that went viral on YouTube or fun things like shutting down a city street to raise money for a nonprofit. The luxury of living and building a business in a tertiary or secondary market like Fort Wayne is the ease of doing those things and having a big impact. In Chicago or New York, the barriers are much higher for creating waves, right? A lot of my longstanding relationships came from those experiences where we weren’t being paid, and they ended up indirectly helping with ideas and things that we have done in our business.

I hear you’re moving. How does that relate to talent acquisition and retention?
“We’re at 22 employees now, slated for 30 by the end of the year.”

We’re at 22 employees now, slated for 30 by the end of the year. The three- to four-year projection takes us north of 70 employees. To get more space, we’re going into a new redevelopment called The Landing on Columbia Street. It will include apartments as well as retail space for bars, restaurants, coffee shops, boutiques, maybe a barber shop. The developers are also working to get exciting companies to occupy other floors, so it was a natural fit as part of our aggressive hiring forecasts. A developed rooftop will allow our team options to work dynamically in an indoor/outdoor environment. The Landing offers a perfect work-life balance, where your 5 p.m. exit on a Friday can just bleed into your personal life. We wanted that type of environment.

You’re a big Tim Ferris fan. What are your big takeaways from him?

I’d say the biggest takeaway that I use even to this day was just a simple post he did called The Not-To-Do List: 9 Habits to Stop Now. These are stressful common habits that entrepreneurs and people in the workplace in general should strive to eliminate. This approach is often more effective than to-do lists for upgrading performance. It includes things like turning your phone on silent, not answering numbers that are unknown — fundamental things like that have allowed me to slowly crawl back and get back 5 minutes here, 6 minutes there throughout a day. It adds up.

Do you have a mentor or guru you look to for guidance?

We have several, many of which are currently creating incredible businesses around here and have chosen to allocate time to our business through either direct investment or just mentorship. People like Chuck Surack, they’re not silent investors in what we do. Sweetwater has been not only a big win for Fort Wayne, but also for Indiana. Chuck has opened up his business to us. We’re there every month, and they’re in here every couple of months. Surprisingly, we share the same values, so we share ideas directly with Chuck or with his executive team.

What’s the story behind your name?

Our original company name was Pansit.com, related to power transit. It didn’t work well in our space. People mistakenly thought we were called Pansy. We quickly started doing business as Three Bald Guys Supply Co., which came pretty organically as Doug [Holt, product engineer], our first employee who made the leap to come work here, had a bald head. And Shane and I are both bald. It’s worked really well with our customer base. In hindsight, we thought we were pretty savvy.

 

Read our previous Leading Indiana Ambition story profiling Codelicious’ Christine McDonnell here.
Back to Top

Access Elevate Portals to