Episode 12
The Future of Manufacturing, Ft. Mike Kinder, CEO & Co-founder of Veryable
Air Date: April 30, 2020
Full Transcript
Chad
Hey everyone, thanks for joining us for another episode of ready, set work. Today I’m talking with Mike Kinder, co founder and CEO of Veryable. Thanks for being here, Mike.
Mike:
Thanks for having me.
Chad:
Yeah, so I wondered if you could start off just by telling us a little bit about Veryable and just how the platform works.
Mike:
Sure. Yeah. We like to think of ourselves as the tip of the spear for next generation manufacturing and we’re tackling the most fundamental problem in manufacturing and that’s labor flexibility. That’s really what constrains most manufacturers. It’s the reason why there’s long lead times, why there’s not enough customization, why it’s really hard to be responsive and competitive. So we’re tackling that with what you’d call a vertical marketplace, geared towards manufacturing labor. And we’re doing it in some unique ways that, that is specifically tailored to this kind of work. So the idea is to fractionate the landscape, usher more people into the manufacturing space, and give businesses a new option – a way to access capacity in a way that they haven’t been able to do in the past.
Chad:
Yeah, that’s great. No, I really like the term fractionalize the landscape. That one, that kind of sticks. I like it, that makes a lot of sense.
Mike:
Yeah, you know it’s a lot like cloud computing, you know, when you think about labor. You know, labor is treated as a variable cost technically, but it doesn’t behave that way. You know, it’s a fixed cost. You, you know, plan your head count, you plan that out indefinitely, and you kind of hope that the needs of the business match what you planned. And you know, when you think of cloud computing, that’s not how that operates. You pay by the bit as you go. And labor should behave a lot like that. And that’s what we’re trying to mimic.
Chad:
Cool. And I’m curious, so I always like to hear founding stories. So what was your inspiration for starting Veryable?
Mike:
Yeah, I’ve lived through it. I’ve done manufacturing my entire career – that first decade or so, front lines manufacturing, shop supervision, things like that. And later got into – call it digital operations, or rather manufacturing technology or industrial technology more broadly. And a lot of great technology out there right now, a lot of exciting technology, but that’s kind of where it is. It’s just technology. There’s a stagnation in adoption and there’s a reason for that. You know, you take some of the more interesting technologies out there that are, you know, machine to machine communication type technologies on the shelf floor. And I’m talking – I’m going to talk primarily by the land of atoms and not the land of bits. But you know, when you’re in the land of atoms, you can have machines talking to one another. You can have real time performance monitoring, you can have a lot of these really cool things in manufacturing. But if labor isn’t flexible, those things don’t have a lot of value. And that’s why you see a stagnation. So founding Veryable was a way to get, or to give those things a reason to exist. Start with what we thought was the most urgent need -the long pole in the tent – and that’s labor. So that’s where we’re at.
Chad:
Yeah. And I would imagine, I mean, I don’t know a lot about manufacturing, but I would, I would think the industry has just struggled quite a bit to predict the level of demand at any given time. I mean, there’s some seasonality to some products, but probably no time is more prescient than now, like predicting demand for certain products. And I would imagine that flexibility is a huge help giving that to organizations. And I’m curious, what do you see is kind of the biggest need you’re feeling for those companies? And then also maybe the second question is for the, for the workers.
Mike:
Yeah. You named it Chad. So it’s all about flexibility. So when you think about what are the ways to win going forward for manufacturers? They have to be fast. They have to be fast and responsive. And you can kind of translate that towards a customer centric or ‘delight the customer,’ if you will. You know, the days of waiting 12 weeks for a pump, that’s just ridiculous. You know, if you’ve got a job site and you’re a contractor, you don’t want to wait 12 weeks for a pump. And if you’ve got a lot of people making pumps, whoever can get the pump there, fastest wins. That’s the name of the game. And then the other one is how do you do that efficiently? So how do you compress lead times? How do you get things out to the market faster? How do you maintain a high on time delivery? All these things are impossible to do when you’re forecasting, and that’s the problem. So there’s always been this kind of tense relationship between forecasting and flexibility.
So lean manufacturing is all about flexibility, and you know, you can do things to, I guess, position yourself to take better advantage of flexibility. So things like production smoothing, lean technique. But you see these things kind of go back and forth over the years. Like recently analytics has been a big push: “if I can just get better point of use information about my customers, then I’ll be able to better forecast and then I’ll be able to have a more accurate plan.” But the fact of the matter is you just can’t predict what’s going to happen. So flexibility is your best opportunity to have the most control over the situation, if you get that right. So that’s what we think: the only way to really win in the future is to be really flexible and find a way to do that.
It’s like being Barnes & Nobel in 1995. We’re trying to say, you can push past this, and you’re going to have to. Because if you don’t, somebody is going to come along and figure it out.
Chad:
Yep. No, that totally makes sense. And I would imagine manufacturing might be a little bit like the insurance industry in a sense that, you know, there are these set-in-stone ways of operating, you know, for those industries that have been around for a long time. And it’s funny, when you said – when you used the word fractional, it reminded me of the insurance industry a little bit in that, you know, policies are sold on an annual basis traditionally, and maybe that’s not the way that businesses need to consume them. And so we started to create more usage based products. And so it’s kind of a similar analog I think to, maybe, what you guys are doing at, Veryable. And I’m curious, in your discussions and kind of in the journey of Veryable, did you find that businesses typically realize that they have an instant need for something like Veryable or was there kind of a period of, you know, socialization or education, particularly since it’s an industry that’s operated maybe the same way for a lot of years?
Mike:
Yeah. Well, first off, I really like your analogy with insurance because at the end of the day we’re talking about pooling. And if you can pool variation up to a level of analysis that kind of optimizes the group, then you have a great solution. And that’s how we look at manufacturing. So imagine, and this used to happen to me all the time, imagine you have an industrial park with 10 businesses and all of those businesses have different cycles. You know, they’ve got different seasonality, they’ve got different day to day variation, and every single one of those businesses is trying to optimize a supply and demand at the local level. If you can elevate that vantage point to the group, if you elevate that vantage point to the industrial park, well then you have kind of a coopetition there where everybody is, kind of, leveraging one another to get productivity benefits. So that’s really how our model works.
When you think of cloud computing, you pay by the bit as you go. And labor should behave a lot like that… I mean, think about if tech startups had to buy servers these days. That would be a nightmare.
So to your point about kind of changing the landscape of manufacturing – it’s old and stubborn, you know? The thing about manufacturing is it’s hard. It’s really hard. It’s like conducting a symphony. You know, you’ve got incoming materials, you’ve got people, you’ve got engineers, you’ve got quality folks, safety, you’ve got inventory, you’ve got a lot of things to optimize all at once. And the challenge with lean – which would be, I think the prevailing methodology you could say – is you’ve got to really optimize that, like in real time and keep it optimized. It’s really hard. It’s really hard to keep that all timed up exactly right – you know, material arriving just when the person needs it, and one person moving material to the next person right when they need it. So it’s very precise, it requires a really high level of precision. So it works though, you know, that’s the thing, it does work. And driving change in manufacturing, there’s a lot at stake. A disruptive event could be catastrophic. So naturally manufacturers are resistant to change. So our point of view is now is the time to play offense. You know, you’ve got a stable operating model. We’re not trying to disrupt it. We’re trying to augment it. We’re trying to say, “you can push past this, and you’re going to have to, because if you don’t, somebody is going to come along and figure it out.” It’s like being Barnes and Noble in 1995. You know, you’ve got great coffee and you’ve got books there, but somebody is bound to have better coffee and somebody is bound to have faster books too. So that’s our point of view. And I think it’s real cause you actually see this happening, you know, you see this happening now.
Chad:
Yeah. No that’s great. And I’m curious like when you have discussions with those clients, part of it is probably that competitive dynamic, right, of like, ‘Hey, you need to do this to, kind of, best support your business, and/or if you don’t do this, your competitors are going to start doing it. And are there other other things that you use – so maybe if I’m a client, and I’m going to use flexible staffing for kind of the first time, are there other things that you highlight to kind of bring their minds to ease or kind of what are their top concerns that you usually hear?
Demand is a curve. It’s always a curve, and it’s an unpredictable curve. And your job as an operations manager in manufacturing is to chase that curve and optimize. But you’re trying to optimize a fixed supply around an unpredictable curvy line.
Mike:
Yeah, well, it’s all about value creation. So, one of the beauties about doing something evangelical – and I think what we’re doing is evangelical, it’s new, you know – so we’re creating the space that we’re trying to occupy in real time. So we don’t have the luxury of pointing to a, you know, next closest solution and saying, ‘we’re better than that or we’re cheaper than that, or we have higher quality than that.’ We can’t do that. So we have to explain, how do you create value? So more like, maybe, a consultant would explain that. And what we’re competing against is the status quo. And most manufacturers understand the status quo. I mean, they live through it, it doesn’t take a lot to explain where the opportunity might be. So you can kind of think of it like demand is a curve. It’s always a curve, and it’s an unpredictable curve. And your job as an operations manager in manufacturing is to chase that curve and optimize. But you’re trying to optimize a fixed supply around a curvy line, an unpredictable curvy line. And best case, usually, I find, is that the top manufacturers do that in 13 week increments. But if you have a one week lead time, 13 week planning doesn’t do you a lot of good, you don’t know what’s going to happen over those next 12 weeks. Especially if you’re trying to get really competitive and you get a one day lead time. I mean 99% of that horizon is useless. So if you can shrink – if you can shrink your planning horizon to where it isn’t even really a planning horizon, and you can get it aligned with the demand curve, then you can create maximum value and you can grow your business that way.
So mostly what happens – I used to have clients like this in manufacturing that would say, “Mike, I can’t grow. Every year I grow like one or two percent, how do I grow?” And you know, we’d explore a whole bunch of different avenues. We’d explore how they’re doing on the commercial side. We’d explore how they’re doing on the quality side, on the engineering side, on the product side. But often you get down to the nuts and bolts of the operations and you say, okay, so you’re publishing, let’s say, a two week lead time and the market seems to like that. And then you get six weeks worth of orders at that lead time. And what do you do? You push a lead time out to eight weeks and then the market balks at that, and the market says, Nope, I’m no good with eight weeks; I’m good with two weeks. So then you spend the next six weeks whittling that down back to two weeks, and no orders are coming in, and then you get down to two weeks and you get six weeks worth of orders again. So it’s a self fulfilling prophecy, right? You’re signaling to the market how much you’re willing to produce. And that’s not a way to grow. If you’re actually listening to the market, the market’s telling you, at two weeks you can really grow your business, but not at eight weeks. So get it down and hold it at two weeks. But then the conversation goes, but I can’t do that. I can’t hold it. I can’t hold that commitment static when I have a static supply. You know, when my capacity is static. And we’re going, well, don’t leave your capacity static anymore. That’s the answer. And if no opportunities exist to flex capacity, I’m going to give you one. Here’s one, here’s one good way to do it.
Chad:
Yeah, no, that makes sense. And I’m curious, kind of piggybacking on that, I mean, I feel like the world is obviously quickly changing and so one way that the world has changed is just the rise in e-commerce and drop ship business models that, I’m certain, have brought new challenges to the manufacturing industry and opportunity for that matter. And so I’m curious from your perspective, what are maybe some of the biggest changes in the industry relating to that and biggest opportunities relating to that? It’s gotta be significant.
Mike:
Yeah, that’s one. I mean, that’s a big one. Now, there are beneficiaries to that of course. You know, if you’re a 3PL (Third Party Logistics) man, there’s a lot of business to be won. With all the e-commerce going around, you should be absolutely opportunistic – it’s a boon, It’s an economic boon for those guys. But what’s also happening though is, you know, imagine – I call this the Amazon effect – you know, so in your personal life, you can go in and buy whatever you want and it’s on your doorstep in a day or two days. You know, the other day I was buying a pair of sneakers and I go there and there’s like 50 different variants, you know, different colors, different shoelaces, different sizes, but all on my doorstep in a day or two days. So what’s happening is those people that are getting used to that in their personal lives, they’re now walking into their jobs as buyers, you know, back to the pump example. So now I’m the buyer on behalf of the contractor and I’m buying pumps and it’s going to take 12 weeks. No. No, I’m used to getting the things I want in my personal life – you can get, you’re getting toilet paper and things like that – well maybe not now – but you can get that on your doorstep in a day. So why does it take 12 weeks to get a $500 pump right on my doorstep? No, I’m not going to settle for that. That’s unacceptable.
At the end of the day, you’ve got to rise to the challenge, because I don’t see the public sentiment, the market itself, saying, ‘okay, you can’t do it, we’ll revert back to the old expectations.’
So that’s one of the big mega trends that’s hitting manufacturers, and manufacturers are going, “I’m not set up to do that.” I mean, Henry Ford said the only way to do mass production is with a standard product. That’s the only way to do it. So if you’re mass producing – or, I’m sorry he was talking about assembly line – but if you’re doing mass production on assembly line, the standard product is the only way to do that. Lean tries to address it with, you know, ways that you can kind of flex people in a cell, but it’s really hard to do. So at the end of the day, you’ve got to rise to the challenge, because I don’t see the public sentiment, the market itself, saying, okay, you can’t do it, we’ll revert back to the old expectations, right? No way.
So there’s that going on, but there’s a lot more, I mean, there’s – and some of these are really old challenges – so, we talk about the supply demand balancing problem in real time. That’s really hard to do. The changing customer expectations, that’s really hard to adapt to. Changing demographics – this is a big one, you know, so the average age in manufacturing is 50 right now. So what’s going to happen in the next couple of decades? Are we doing a one in one out like the bars in downtown Dallas? You know, no! We’re not getting lines down the street for people to replace the aging workforce. It’s just not an attractive field for millennials, so we’ve got to figure out a way to replace it. The technology itself is a challenge. So you’re looking at the landscape of all these things that you could do for your business, the first thing that comes to mind is where do I start? You know, and how do I assemble, how do I architect a solution that actually makes sense for my business when there’s no roadmap out there to do it?
All the while you’re wondering what your competitors are doing. You have no idea. So you don’t know if this is being adopted. You don’t know how you should adopt it. You don’t know if what you adopt is going to be compatible with your infrastructure or the future infrastructure. Geopolitical uncertainty – I mean, this is a huge one – I mean take right now, you know, you had two decades of Chinese outsourcing and that was the best game in town. That was the easiest way to take cost down. That doesn’t look so hot right now. You know, that’s not a great option and those that did it over the last 10 years are regretting it. So there’s a lot of mega trends all converging right now that are really putting manufacturers in a pinch.
What’s happening is we’re exposing a lot of myths about the space, and people are going to have to be honest about it. One of which is the automation myth.
Chad:
Yeah. And I’d love to hear more of your insight on that topic, and we can’t really talk about supply chain or workforce structure or e-commerce without talking about, kind of, the real point in time and COVID-19, and I’m just curious, could you touch on kind of how the pandemic has impacted the manufacturing and supply chain industry, and maybe what kind of challenges and opportunities it’s created, for them and for you?
Mike:
Yeah, well, there’s a number of ways to have this discussion. I think there’s a forward-looking conversation that’s positive and a backwards looking conversation that’s a negative. Maybe I’ll allude to the positive side, and then come back to that. But I think there’s going to be a windfall. I think we understand what went wrong. I think people are going to have to own up to those mistakes, but there’s no – there’s going to be no way around it, The US is going to be the beneficiary of a lot of new manufacturing volume, whether it’s new or returning. That’s just going to happen. And it’s going to be partially policy-driven, but I think majority operationally driven. And so that leads to the negative. You know, what have we done? So take just the base statistics.
We had over 20 million manufacturing jobs in 1979, at peak. Now we’ve got, I think, something like 12 million. So more or less, we have half the jobs, but manufacturing GDP has never been higher. It’s never been higher. So what have we done? Well, we’ve outsourced a lot of the supply chain that goes into these OEMs, you know, like take a Boeing aircraft for example. You know, the final aircraft is assembled in Everett or the Seattle area, but most of the components come from elsewhere. We’ve outsourced that, and we’ve outsourced what some people would call low value activity – I don’t call it that. But we’ve outsourced that, and we’ve outsourced it mostly to China. But all the while China’s gained about 50 million manufacturing jobs over that time. So what’s happening is we’re exposing a lot of myths about the space and it’s just – people are going to have to be honest about it. One of which is the automation myth. So, where’s the automation if we’ve taken 10 million jobs out of the US economy and replaced them with 50 million jobs in China? And some in India, some in Mexico. Where’s the automation?
Chad:
Right. The math doesn’t seem to work.
Mike:
No, it doesn’t. It doesn’t. And where was the automation to save us on masks and ventilators? You know, wouldn’t the robots have just popped those things out? Wheel a robot right into every hospital and it’s pumping out ventilators and masks? No, it’s not happening. Where are the 3D printers printing the masks? So it’s exposing a lot of these myths, these myths that have been perpetuated because they’re politically palatable myths. They’re myths like, “Hey, what are you going to do man? It’s just automation. It’s technology. What are you a Luddite? You know, it’s the way of the future, man. Sorry about your job. But here we go, on to the future.” But no, that’s not what happened. Just the job got replaced. It got replaced somewhere else for cheaper. It was a labor arbitrage play. So we’re learning that.
And what’s happened also is that’s made our supply chains very vulnerable. You know, so when you’re sole sourced to a supplier halfway across the world, you’re not just beholden to that supplier, you’re beholden to that suppliers regime, right? So, okay, something might go wrong operationally, but something also might go wrong geopolitically. And both of those have happened. So we’re learning these lessons. And the sad thing is, you know, if you do the math on – and I did this a lot as a consultant – but if you do the math on an outsourcing play – you know, take something out of Cleveland and you move it to China – you’re talking maybe $20 an hour, replacing that with 70 cents an hour. So you have a pretty big labor arbitrage there. But labor only represents maybe 15 to 20% of the cost structure. So your total cost out, it’s not really that significant. But then you add back freight, you add back customs, you had back tariffs, you had back holding costs, you had back all of that. The cost of premium freight, for example, it almost washes the benefit away. You’re usually left with single digits of profit benefit. And so that’s the politically unpalatable explanation is, you know, “I outsourced your job, but I didn’t even have the courtesy of getting value from it.” You know, we basically traded a job for air freight. It’s a real shame. So we’re unstable in terms of supply chains, we’re the beholden to corrupt regimes, and we’ve seemingly done it all without a ton of benefit.
Chad:
Yeah, no, it’s really interesting. And I’m curious like if you had a crystal ball and could predict – and maybe you’re already seeing and kind of hearing this from your clients – but does this mean then that, I mean, even now, manufacturers are saying, all right, how do we bring some of our supply, you know, back to the US? Are those things that you’re seeing and hearing like literally today as a result of COVID, and if you had a crystal ball to predict, you know, two years from today, what do you think the biggest changes are in the manufacturing world as a result of all these changes?
Mike:
Yeah, thanks for leading me back to the positive because that’s where I wanted to go or intended to go. But it’s right on a number of levels of analysis. So, you know, imagine that the problem starts off with – you know, ’cause it’s a good strategy, a good supply chain strategy, to have a low cost buy and a high cost buy. So the idea is you’re trying to get a blended cost that makes sense. And so if, let’s say, you’re getting the bulk of your volume from a low cost provider and a portion of your volume from a local higher cost supplier, that blended cost is going to be, you know, tolerable, and you have a backup plan. So if something were to happen, you know, in India or China or something like that, I’ve got my local guy here that can step up and you know, go from 20 or 30% to 50 or maybe even a 100% of production. And that seems to work. But what has happened is, bureaucratic complacency over the last 20 years has just been to milk the same play. So if you arrive at like a 70/30 or 80/20 construct, well, a pretty cheap way to get that next cost reduction is to just go, “well, you know what, 85/15 looks pretty good. 90/10. 95/5. So if you’re at 90/10 or 95/5, you’ve gone way over leveraged on your low cost buy. It’s just not a robust supply chain strategy. So we’re already seeing a lot of businesses looking at this and going, okay, yeah, we’re totally exposed here. We missed the mark, we fell out of calibration. So now, we’re going to get back to that ideal calibration. Now if you think about that as a local supplier though, you know, let’s say you’re a tier two auto supplier or something like that, and you’re going from 5% of wallet to 20% that’s a 4X growth. You know what I mean? That’s huge. That’s a massive opportunity. So our point of view is, go get it guys. Like now’s the time to be opportunistic. Now’s the time to take it back. You know, this has been kind of gradually taken from you over the last 25 years. Now is exactly the time to go play offense, go get it back. Because a lot’s changed since then. You know, the costs are different. Manufacturing technology is different. The value of customization is different – if you want to quantify it that way – so being able to produce locally to the needs of the local market, there’s a huge premium in that. Manufacturers like it when their suppliers are local. It’s a huge advantage to have local suppliers, so the local guys step up and rise to the occasion. So that’s what we’re trying to promote out there, is don’t let this opportunity go by because you’re going to have a once in a lifetime opportunity to get this volume back.
Chad:
Yep. No, that definitely makes sense. And I’m kind of curious, this is probably obvious, but then how does a Veryable kind of fit into that landscape and help solve for that challenge, as manufacturers are thinking about bringing more things back to the US?
Mike:
Yeah, I think there’s a number of analogies you could use here, but you know, think of just like your classic sales and operations tension. So the sales guys will always say, “Oh man, if you could just produce this, I could bring in so many orders,” you know, and then the ops guys are going, “well show me the money,” right? “I’m not going to hire somebody and I’m not going to build it until you bring the order in.” So you have this like, you know, chicken and the egg dynamic there. And our point of view is, don’t let operations be the brakes on this. Just go get the orders! Go get the orders, then figure out a way to build them and produce them. And the only way you can do that is if you have a low friction way to scale. Right? Because if you didn’t, you’re back to that old problem. I mean, think about if tech startups had to buy servers these days. That would be a nightmare, you know? You can’t do that. You’re scaling inch by inch and you’re paying, you know, as a proportion of your growth. That’s our point of view. It’s like, go do that, and then use this as a tool to allow you to scale up with essentially no friction. A zero cost to scale.
Chad:
Yeah, no, that’s really interesting. And I’m curious on this – and I’m kind of naive to the manufacturing process and don’t really, there’s a lot that I don’t understand about it. And so if I’m, let’s say I’m a manufacturer today and I rely on China, right? That’s where all of my manufacturing is done. And all of a sudden, due to this, due to COVID, I’m saying, you know what? I need to really shift this back to the US. And say it is, you know, something that is surmountable from a number of units perspective. So it’s not, you know, we’re not talking like, hundreds of millions of units. And it’s something that’s, you know, maybe easily creatable like some sort of electronic device, or something where supplies are available. How long does that take if you just say, you know what, I’m going to shift that back to the US and start making that product. I mean, is this – how do you measure that? Is that – I would assume it’s not days, but is it weeks? Is it months? Is it – probably not years – but I don’t know, can you put some framing around that?
Mike:
Yeah, a good answer on questions like this is, it depends. On one extreme, there’s not much lead time at all to it. So you can kind of imagine it like a decrepit infrastructure. You know, like imagine old country road that’s just kind of left to rot. You know, you can still drive down the road and with a little bit of repair, a little bit of maintenance, you can get that thing flowing again. So that’s kind of how it’s like, so if you’re building similar products, or the same product, and it’s just a matter of increasing your volume, well you’ve got to pull a couple strings to make that happen, you know, so you’ve got to work with your supply chain to get those volumes up. You’ve got to, kind of, retool from a manpower perspective. There might be equipment needs that you’ve got to address. But it shouldn’t be that long. I mean, top companies can do that very fast. I mean, look at how fast GM repurposed their operations to make ventilators. If you’re committed to it, you can do it pretty fast. Now it’s not free, but you know, often it pays itself back pretty quickly.
The other ones, you know, it’s going to depend on the product. I think a good rule of thumb though to think about is very few companies are actually technically asset constrained. This is another one of the secrets out there that I like to tell. But you know, companies that are claiming that they have capX – you know, I don’t have enough equipment, I don’t have enough floor space – usually that’s just not true. It’s just not true. Never once when I did an operations due diligence, did I think a capX plan was legitimate. I always thought it was a mask. It was a mask for inefficiency. You know, so, the proof is in the pudding. When you look at an operation they tell you, you know, “I’m equipment constrained,” but they’re working one shift. It’s like, no, you’re not. That equipment is sitting in the dark for two thirds of the day, you’re not equipment constrained. Or you know, “I’m floor space constrained.” Well, throughput isn’t necessarily dependent on floor space. If you move the volume through faster, you get more out on the same floor space. You know, so it’s not always – I would say it’s very infrequent that there’s an asset constraint. And so it’s a matter of material and labor. That’s usually what it’s a matter of. So if you can get the materials in, if you can introduce a new supply chain, and if you kind of think of it as everybody operating with the same mentality of kind of striking while the iron is hot and playing offense and getting that up, well, everybody’s kind of cooperating in this environment where you’re now trying to get that new volume. So you might have the new volume, your local suppliers, they’re going to take that new volume and now you’ve got kind of a supply chain building up. And then it’s a matter of labor. So if you’ve got the supply chain set up, where’s all that labor coming from, and how are you doing that in a way that isn’t really costly with high friction and low flexibility?
And that’s where we come in. That’s where we say, “You guys are all working together and you can tap into the same pool. That’s the right way to do it.”
Chad:
Yeah, no, that makes sense. And I want to touch on the labor a little bit more, and double click on that. But before we do, I’m curious like if there’s entrepreneurs listening to this, and as you were talking about this, it kind of made me think, like, there are probably opportunities to start companies today where you could find, you know, products that have – or companies that have – like a highly fragmented global supply chain that are having a real challenge filling that need. I’m curious, how would you think about that? I mean, you think that’s an accurate statement to say like you could probably – there’s maybe no better time than right now to find a product and or company that might have this highly fragmented global supply chain, they’re under a lot of pressure, and they’re going to be slow to move. Like you just maybe just generally know, like for whatever reason that company is going to be slow to move. Do you think that’s like a realistic opportunity that entrepreneurs will be capitalizing on?
Mike:
I think it’s a once in a lifetime opportunity. I think you nailed it. Probably the right way to view that is just through the demographics of manufacturing companies. You know, 99 / 100 manufacturing sites are small business, and 60% of manufacturing GDP in the U S comes from small business. So we’re talking about 50 or less head count. And what that means is, contrary to popular belief, in my opinion – this is more of an opinion, but I think it’s going to becoming more true by the day – there aren’t a ton of economies of scale in the manufacturing process. So there’s economies of scale in procurement and sourcing; so if you can buy a lot from somebody, you get a discount, that’s simple. But in the manufacturing process, unless it’s a highly automated process, there’s just not a lot of advantage to consolidation. So manufacturing actually behaves more like a constant startup environment. Like you have a lot of folks that are entering the fray all the time and you’ve got a lot of folks that are kind of happy with being – kind of reaching a certain niche. You know, like I achieve a scale of let’s say $10 to $20 million a year and I’m good with that. You know, it’s a privately owned business, maybe a couple of owners, and there you go. You serve your market. So there are very few that kind of build up and build up and build up anymore. And there’s a lot of room for the taking. A lot of my team members, when they get exposed to this environment, they go, “really?” You know, “there’s a business for that?” Well of course there’s a business for that. Where do you think sprinkler heads come from? You know, for example, where do you think the pipes behind those things come from? You know, they come from somewhere. Like every single thing you use comes from somewhere, and every single one of those things is an opportunity.
And we’re going to see a lot of changing of the guard here. You know, in this space, there are a ton of, let’s say, aging owners who, you know, have equity in the business, they’re kind of getting to the point where they want to retire, and they’re ready to hand it over, and handing that over to their children or other family members. I’m not seeing that a lot right now. I’m seeing a lot of the children wanting to liquidate, or wanting to pass on the opportunity to inherit the business. There’s going to be a lot of opportunities – a lot of opportunity for M&A, a lot of opportunity for startup activity. The problem is, it’s an awkward space. You know, like, it takes a little bit of capital to start up – not a ton – or it takes a little bit of capital to acquire the business, and it’s usually too much for a hobbyist, and it’s usually too little for even your smaller PE shops. So I think it’s a really exciting space.
Chad:
Yep. No, that makes a lot of sense. So we talked a lot about the demand side of the platform, and now I have a couple of questions on the supply side and talk about the labor pool, right? I mean it ultimately all comes back to the labor, and the problem that you guys are solving there. And since you guys offer a much more, kind of, flexible work environment, do the demographics of, you know, the worker on the Veryable platform – like how do they compare and contrast with what you would typically see in a manufacturing facility? Are they very similar? Different?
Mike:
Similar in terms of skills, but very different in terms of interest. So, you know, skills in our space range from things like warehousing or assembly, you know, all the way to things like tooling, or welding, or machining. You find people with those skills everywhere, and there are some that are looking for jobs, others that aren’t. We see a lot of talent that isn’t in the labor force, and we’re trying to bring that into the equation, and we’re trying to level the playing field in the process. See the problem with the manufacturing space, primarily, is that it’s pretty rigid. You know, like if I’m a machine shop and I’m hiring, well I’m hiring for a certain schedule, right? And that schedule just might not fit somebody else’s needs.
A good example is this guy down in Houston, 26 year old guy, he’s a skilled machinists. He can do everything, he can bend, cut, weld, you know, all things that it takes a pretty long time to learn. It’s a great skill. But $40 an hour is his opportunity cost probably. You know, that’s how much a good machinist can make. And he doesn’t want a job because he’s got a YouTube channel, right? So Monday, Wednesday morning he does his YouTube channel and I’m going, “Man, you realize you’re passing up on a lot of income, right?” And he’s going, “well, I use that skill to sponsor my main passion, and that’s my YouTube channel.” And I’m thinking, you know, good for you. That’s exactly how it should be, right? I mean, I think that’s an honorable thing to do. So that’s the kind of capacity that we’re trying to tap into and serve back into the market. And at the same time, leveling the playing field. You know, one of the things about hiring in the blue collar space is, I think interviews are pretty much worthless. You know, like, resumes, interviews, they’re pretty much worthless. You’ve got to just see how somebody acts and watch their talent, you know? Like the proof is in the pudding. When you hire a welder, it could say 30 years of welding experience on a resume, but the first thing you do is you make them do a welding test, because you just can’t fake being a welder. You know, it’s not like a white collar job where you can just sit around and nod and fake it, you know? Within 20 seconds, you know, if somebody is a welder or not. So that’s really how, you know, companies adjudicate whether or not somebody is appropriate for their environment is you watch how they work. And so we’re trying to level the playing field. So rather than create more barriers or more tools to reduce the friction, we’re just saying get people to the point of use as quickly as possible. Like try them out and let them prove it. Because if you give people the incentive to do good work and remove barriers, that’s a hell of a motivation.
Chad:
Yep, no, that makes a lot of sense. And I really like your example of the worker who has a YouTube channel, because I think at the end of the day, like you’re just giving that worker a lot of freedom. And I’m curious like, so all the workers that are on your platform today, I would imagine that you have a decent number of them that are doing multiple things, right? They don’t do the eight to five, kind of, normal; they’re working on the Veryable platform and they have, you know, kind of other things that they’re doing. Maybe related, maybe unrelated. Is that true?
Mike
Oh yeah. Yeah. And it’s probably not what you’d think. We don’t tend to see a lot of, kind of, composite gig economy type arrangements. You know, as it turns out, people have preferences, you know? And the people that like to drive, for example, for Uber, Lyft or something – it’s not the same set of interests as somebody that wants to work in a warehouse or on the production line. You know, people are interesting man. You know, they’ve got preferences and, it turns out, they’re not opportunists like people think. You know, you’re not just, you’re not just taking whatever you can, you have a preference and you want to go do that work. So we tend to see folks that have real constraints, and it’s a big portion of the population where, you know, let’s say you’re a single parent and your schedule is just a little crazy. Your priority is getting your kids to school or wherever they need to be. But you’ve got time, it’s just irregular. They’re just in weird pockets. But guess what, manufacturing companies are running all the time. You know, there is a time slot that works and if we have enough scale – kind of back to the pooling concept – if we have enough scale, we can make those matches in fractions. And that’s what we’re trying to do. Because you know, I think this current pandemic is illustrating to people – I think in real time – priorities. I think we’re seeing that. I think being at home makes things clear on what your priorities are. And I respect people that have constraints, that are saying, “I don’t care how bad things are going to get, this is one thing I’m not going to sacrifice.” You know, it might be your community service. It might be your family. It might be a hobby. It might be military service. It might be school, you know, whatever it happens to be. And that precludes you from working every day from eight to five for the next 30 years. Okay, fine. Well let’s offer you something where you don’t have to make that trade off.
Chad:
Yep, that’s great. And so if I’m maybe a listener right now and I’m interested in engaging with a Veryable, what do I do?
Mike:
You visit our website, visit our social media pages, call me, send me an email – many ways to get in touch with us, if you go on online www.veryableops.com
Chad:
That’s awesome. Well, thank you so much for being here, Mike. It’s definitely been great to kind of get an inside look of an industry that’s going through this massive change, especially now. Um, and before we sign off here, are there any last thoughts you wanted to share with our listeners?
Mike:
No – maybe other than support your local manufacturer. You know, we’re realizing, I think it’s clear, that these are important, right? And there’s dignity in this work. And we’re seeing that, we’re seeing that with, you know, healthcare workers, with medical supplies workers, with distribution, food production, all of these things. You know, we’re reliant on this space. And no matter what anybody says, it’s not unskilled. It’s skilled and there’s dignity in it, and it’s worth bringing back.
Chad:
Yeah. No, I couldn’t agree more, and hopefully that’s one of the things that’s coming out of this that’s positive, where into the, you know, kind of forever future, we don’t take some of these things for granted anymore, because there’s people out there today that are doing really hard work that is 100% critical for people to live and get by. So I definitely echo that. Well thanks again for taking the time to talk with us today and to everyone listening, stay safe, healthy, and thanks for tuning in to another episode of ready, set work.
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