Interview: Matthew Kemp, former CMO BlueGrace, Part 2

  
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My guest today is Matthew Kemp, principal of SCP&CO, a mid-market private equity firm. Prior to his role at SCP Matthew was CMO of BlueGrace Logistics, and the founder of three very successful companies. This is Part 2 of the interview where we dive into marketing 3rd party logistics in general, and BlueGrace in particular.


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Transcript:

Edward: This is part two of my interview with Matthew Kemp. Today, we’re going to dive into his experience as CMO of BlueGrace. Matthew, can you start by explaining what BlueGrace does?

Matthew: Sure. BlueGrace Logistics is known as a 3PL. 3PL is an acronym for Third Partly Logistics. Think of them effectively as a broker consummating transaction on two sides. They are sitting in between clients, like Procter & Gamble, S.C. Johnson, Coca Cola, who needs to ship their wares around the country from either bringing it overseas into the country and then the distribution centers or from distribution centers to retail. Customers who need to ship things and then the actual carriers—trucks. There are tens of thousands of carriers throughout the country, and we are basically sitting in between those and helping customers interact with the carriers.

Edward: Maybe I’m not aware of this, but trucking is one of the biggest industries in our country that many people don’t even think about. Last I saw was an $800 billion industry with over a million truck drivers in the US alone. These third party carriers, there are actually effectively three different types. Is that right, three different types of carriers?

Matthew: Carriers can fall into our two main components: LTL and then full truck load. LTL is less than truck load. The big carriers are ones that you’re going to know, the familiar names, they’re UPS, they’re FedEx, there’s Saia. You’ve seen these trucks on every highway whenever you’ve ever taken any kind of road trip.

Full truck load is actually very much a mom and pop industry. There are tens and thousands of full truckload carriers. The average owner may own two, three, four trucks. In fact, there’s tens of thousands of single truck operators out there. The difference between the two, full truck load is I go to a place, you have purchased my entire truck. I’m going to go to one location, I’m going to pick it up whether or not you fill up the entire truck is not relative. It’s you own me, you own my truck, I’m going to go from point A to point B, and my time is not going to be distracted.

Less than truckload is got to be much more sophisticated, much more difficult pricing strategy. This is where these major companies like FedEx, UPS, Saia are going and making multiple stops. They’re finding five or six different customers, going and making multiple stops, grabbing things from those locations, taking them from Tampa to Atlanta and then going around (say) the Atlanta Metropolitan Area, stopping another six times to deliver their goods. Funny enough, BlueGrace started as a specialist in LTL. It’s known in the industry as being an expert at LTL shipping.

Truck load is something fairly new to the company. Funny enough, it has a lot to do with the fact that you and I know each other. When Warburg Pincus came on board and became an investor in BlueGrace, one of the things that they decided to do to help grow the company was to bring on some expertise in sales on the truck load side of the business. We have then diversified the company a bit and have two sources of revenue coming from two different distribution channels.

Edward: Talk about those distribution channels. As a marketer, how do you market LTL versus full truck? Is it the same or they’re different marketing channels?

Matthew: They’re very different. Full truck load is something that is in many ways “easier” because the logistics are very simple. It’s point A to point B. That being said, the pricing is a little bit more complicated because it’s based on the market. When a hurricane hits or there’s some natural disaster, there's a snow storm, the pricing for truck loads can change daily if not hourly.

LTL, while the actual logistics are really complicated because you’re going through all these different stops, the driver has a very complex route, the pricing is actually something more like you would find on Orbitz or Expedia. I can go to the software that BlueGrace has developed called the BlueShip and place an LTL order without having to worry about the pricing change. I just tell you where my point A is, point B I can put the zip codes in. I tell you the weight, I can tell you how many pallets. And then I will get a price [...] online and I book that shipment and know that that price is actually going to be valid for the next 24 hours. That’s not available on the full truck load side.

To get back to the original question, there is some difference in marketing. The truck load world is something where we try to go after very, very large entities. I mentioned some of the customers like S.C. Johnson, Procter & Gamble, and Coke. That’s a market where, because they can fill up the entire truck, that must mean they are shipping large quantities. They can afford to make large purchases. The average truck load could cost a customer $3000.

LTL is smaller. You’re going after small- and medium-sized businesses because the amount of items being put on any given truck is much smaller and it’s not uncommon for the price of an LTL shipment to be just a few hundred dollars because you’re only taking some portion of the truck.

You’re marketing really to two different constituencies. Truck load is you’re going after the Fortune 1000 or even the top 5000, 10,000 companies in the country. On the LTL side, we were going after much smaller companies, and you try to strike a balance between the two.

Edward: Why do both? What’s the synergy between doing both LTL and full truck for different customers entirely?

Matthew: Selfishly, you want to diversify your revenues. Truck load can be wildly profitable. You would like to be in that business. The gross margins are much higher. That being said, it is so much more variable. When the good times are great, if you’re making tons of money when there’s capacity restraints, then it can go really badly for you. BlueGrace has really benefited from having the two revenue streams.

On the marketing side, you could actually do business with more companies if you can service both their needs. There are some companies in the midmarket. They’ve got needs on both the LTL and the full truckload side. Being able to do only one or the other limits how many companies you can talk to. Having both has really benefited BlueGrace and have been able to expand the universe of companies that they can market to.

Edward: When you acquire a mid market company as a customer, you can then turn around it and sell two products to them. Whereas if you only had one of those products, you could only presumably sell one product to them, so your monetization per customer is significantly lower if you don’t have both products.

Matthew: Correct. You and I have spoken in the past about this enterprise type of customer where in the 3PL world, some customers are transactional. They’re not committed, they don’t have a relationship where they sign a contract, but they are just regular customers where you have a good relationship.

We actually attempt to try to sell two- and three-year agreements to have companies outsource all of their logistics to BlueGrace. In that market, you have to have diversified types of distribution channels because then you’re dealing with complex types of distribution or logistics transportation apartments. If you don’t have all of the various distribution modes covered, you’re going to lose a business.

We don’t have all of them in-house. For the ones like intermodal, which basically includes rail and Air Express, we would then supplement our capabilities internally with third party partners so that we could come as a package to a customer and say we do offer all the distribution channels that you could possibly be looking for.

Edward: Are most of BlueGrace’s competitors doing all three as well? Or is BlueGrace more unique in that they do all three?

Matthew: They’re very unique. I would tell you that most people do truckload. A lot of transportation companies only want to do truck load and when you get into the business, that’s the one that is juicy because the margins are so much higher. A lot of the press that you’re seeing in the industry with Uber freight and all the competitors, what they call digital freight matching, those are all centered around the truck load market. There aren’t people who are trying to break in and disrupt the LTL market. It’s much more difficult to do and there’s very few companies that have the sophistication that BlueGrace has. We have limited competitors on that side, but we have hundreds of competitors on the full truck load side.

Edward: But meanwhile, your LTL competitors are companies like FedEx and UPS. There are few competitors, but giant competitors that are going after you.

Matthew: Those probably aren’t competitors as much as partners. Those are the people we are bringing loads to. We are helping people get on to those trucks for FedEx and UPS. That BlueShip technology I was telling you about, we get pricing from FedEx, UPS, and Saia in all dominion and upload those prices into our database. Those are the prices being displayed to the customer when they’re booking an LTL shipment.

Edward: Got it. You’re almost like an Expedia for LTL shipments.

Matthew: Correct. That’s a very good analogy. If you saw the website BlueShip, it will look and feel like almost every booking website that you’ve seen. You have the hotels.com, Expedia, Orbitz, or even on Amazon, we take a set of inputs, you hit submit, you get results. Just like you’re booking a car. It’s nice because, like when you’re booking a car, the names are familiar. I have Hertz, I have Atoz. You got that comfort when you’re booking LTL with BlueGrace. I’ve heard of the companies that are being given the options. I’ve seen all their trucks. We’re very similar to that on the LTL side.

Edward: BlueGrace’s growth was primarily driven by sales. In terms of marketing spend. It’s a very small percentage of your overall revenue. What role did marketing play? How did you grow the business with marketing?

Matthew: Indeed, what you described is something that the CEO himself would admit a few years back, which is it was very much a sales organization, almost all of the outreach to prospective customers was via the phone, via email from a sales organization trying to hammer the phonebook in the old days. What we wanted to try to do was transition to a situation where companies were calling us. That’s so much an easier sale when the phone is ringing and you’re not having to make phone calls.

We took a very small marketing budget and we started deploying it against [...] leadership in content ideas. We did not have a webinar series before I got there. We created a webinar series. We had no such things as white papers with very few case studies. We started building this inventory of assets collecting information about what we do and presenting it to customers in a really user-friendly way through video on LinkedIn and other places, and started drawing people’s attention.

We went out to the media, we hired an outside agency to help us with the press, and wrote articles that were published in industry publications. Folks are always looking for those kinds of opportunities. By and large, when you start Googling certain topics, all of a sudden through the years, BlueGrace became more of a relevant result and we started getting some really, really interesting inbound calls. From CEOs and COOs of very, very well-known companies that are commonplace and you would be proud to have as a customer. That wasn’t happening before I got to BlueGrace.

Edward: When you do that top of the funnel–type marketing, how do you know what’s effective and what isn’t? Some of the CEOs reach out later and individual sales are worth lots and lots and lots of money, but how do you know which of your early funnel marketing stuff was worth doing and which parts weren’t?

Matthew: That’s a great question. Tying in the date that’s coming in, the leads to the CRM, and doing reporting downstream is really important to us. We could measure each channel, whether it was coming from Google, LinkedIn, a webinar, or a tradeshow, and continue to watch those activities. We would upload into our CRM the source of every lead, and then as it spit down to the bottom of the funnel, we could see if we were being effective or not.

That was the first project that I took on when I got to BlueGrace. As the CMO, I was the executive sponsor for the company building a proprietary CRM. We got rid of Salesforce. It could do a lot of things, but it wasn’t really suited for what we were trying to accomplish. We built this really saleable little CRM called Bonsai, and it was able to capture (we felt) more of what the logistics sales development cycle looks like. Especially on those enterprise sales where there’s a very, very long sales cycle. Nine months was commonplace, sometimes 18 months from initial contract to sale. We felt like having our own proprietary CRM was the way that we should help manage the touch points for the customer and track each of these sources all the way to the sale.

Edward: You did some sports sponsorships as well. You sponsored the Tampa Bay Lightning. How did that go?

Matthew: We did. When I was there, that was over 50% of the marketing budget, was a partnership with the Lightning. It wasn’t really effective and it took me a little bit of time to convince the folks at BlueGrace. I’m not well liked for making that decision because when you come into the building, you’re surrounded by Lightning apparel and signed jerseys from all the famous players throughout the hallways of the company. We were the official shipping solutions provider of the Lightning. We are no longer that.

The problem with that is that most of the promotions were going on inside that building. When you go to see a Lightning game, sure, there are 15,000 or 18,000 people all screaming and happy that Lightning are doing well and they’re seeing our name. The problem is, our company is national. We are helping people from Miami, Florida to Portland, Maine to Seattle, Washington and San Diego and every [...] in between.

Primarily, shippers, there’s a correlation with manufacturing. You’re shipping something that you’ve made or you’re a wholesaler. That industry just is not really something that has a presence in Tampa, Florida. There’s just not a lot of that distribution going on here. While our name was getting out, it was getting out to people who could not become our customers. It just wasn’t effective.

We took that money and put it into getting in front of decision makers that could use our services and that was more of a happy ending for the company, but for the employees who liked having that relationship, not so much.

Edward: Do you think that it’s helped you attract employees?

Matthew: It certainly did. But I don’t know about retaining them. That part I don’t know, but we did make use of the Lightning logo and the colors when we would go out in the community and do recruiting events. We would do some events that were actually at the Lightning games, drumming up, looking for young people or even at any kind of a heart walk, any kind of 5K. Anything that we participated in, it was nice to have the tie into the Lightning. I will say, from the recruiting perspective, yes, it was a benefit, but in terms of growing and translating into sales for our company, I would say it’s very ineffective.

Edward: Which marketing channels did work very well? I know you did a lot of paid social digital video.

Matthew: Yes. I would say LinkedIn was the place that we were wildly successful over and above all the other places. Here is the hard part about logistics. There is no list. There is no place that I can go and a database will tell me, here is a list of companies who were spending a million dollars a year on shipping. There isn’t such a thing as that list.

A lot of what we have to do is qualifying companies. It’s more of just trying to get people on the phone and learn a little bit more about their business. You could even be spending a million dollars on shipping, but if you’re doing the “wrong” kind of shipping, if you’re doing all Air Express, we can’t help you. If everything that you put is on a freighter, ocean liner, we can’t help you. If you do a lot of warehousing, that’s another kind of distribution model that we don’t participate in.

We needed inbound leads that translated into conversations, where we could quickly qualify and then move through the channel or say, sorry, we really can’t help you. Getting in front of folks on LinkedIn was helpful because we started figuring out not just the decision makers that might be someone who has a title in the transportation department, but there were influencers. The CFO, while they don’t traditionally have the logistics arm or the company reporting to them, they are heavy influencers in decisions where you’re spending a million dollars, $3 million a year on any kind of service.

We market heavily to CFOs on LinkedIn talking about have you audited your supply chain? Top five reasons why a CFO should be doing XYZ to their supply chain. That became very effective. We started getting their attention. Lots of those leads would then be filtered down for their organization and then someone at the company gets an email from their CFO, says call this company. They’re probably going to have to call that company. Again, they’re not technically the decision maker, but have a heavy influence.

Funny enough, we don’t compete on “sales.” We’re not offering you the lowest price per se, but with our software and our service, the entire package of going with BlueGrace is probably a better package than some of our competitors, and that was something that a CFO actually responded to quite well.

Edward: How did you support outbound sales? Given that the business was growing primarily with sales, was it marketing supportive and helping accelerate sales?

Matthew: Yeah. We had a couple different arms. Again, the company was broken up into the side that supported the transactional side of the business—the Coca Colas and whatnot of the world—and then this enterprise side of the business. The transactional side was a little more difficult for us because the nature of those companies being small and medium business, the retention wasn’t great. People would use us once but then they may not need to ship again for a month, or three months, or even a year. The LTL side of the business is so SMB that you couldn’t build relationships.

However, we were really effective at supporting the sales organization on the enterprise side. That’s where you have only 9 or 10 senior sales representatives who have got 20 years of experience. They are customers who are making million-dollar decisions about a budget over two or three years, they respond heavily to content that we were providing, the webinars that we were doing, the white papers that we are writing. That side of the business dovetail really nicely. The trade shows that we were going to pay to become speakers at events.

Really showing authority because the decision there is a much bigger one. If I make a mistake buying a $250,000 LTL shipment, I’m not going to get fired. If I pick the wrong 3PL for Florida Tile, they spend $6 million a year on shipping, somebody there could possibly lose their job. The marketing side was really geared more towards those decisions, which is becoming experts in the field and creating really strong brand awareness with the mid market.

Edward: Risk avoidance. No one gets fired from hiring IBM. No one gets fired for hiring BlueGrace.

Matthew: Right. What we aspire to is to have that be the case, yes.

Edward: Matt, this has been fantastic. Thank you for being on the show today. Before we go, tell me about your quake book and how it changed the way you think about the world.

Matthew: The book that I mentioned to you was Nudge. I went to University of Chicago. Nudge was written by two renowned people in their field, but both very interesting University of Chicago personalities. The interesting thing about the book is you have Richard Thaler who actually comes from the economic side of the business and works in the business school. He’s known as the Father of Behavioral Economics and has recently won a Nobel prize.

The upside of the book, something that most people probably do not know. His name is Cass Sunstein. Cass Sunstein was a professor at the law school. I had a really interesting experience at the University of Chicago. When I was attending business school, my wife was in law school at the University of Chicago. I regularly walked across the midway in very frozen temperatures to go and socialize and eat lunch with her.

I got to see and know Cass Sunstein a little bit. He was a Rockstar in his own right at the law school. The two of them combined and wrote the book. I raced out to buy this. I waited for a paperback. The two of them together, obviously, you have two of the smartest guys in the country in their respective fields.

The part of economics and decision-making around our behavior is really fascinating. It gets to the root of everything that happens in microeconomics. Everything can be boiled down to human behavior and how simple ways that we can rephrase someone making decisions get them a changed behavior.

Thaler’s most famous one is that he talks about on and on getting people to contribute to 401(k)s in their companies. Having people opted into that decision without them even asking for it isn’t a harmful thing. He makes the case that if you just simply have people choose to opt out of 401(k)s, they’re not going to do that, like, oh yeah, I want to save. But if you don’t do that, very few people will actually opt in and it ends up being the most well-educated, the highest thing people who will participate in a 401(k).

That’s just one example, but it’s the most concrete one that he has in terms of getting the US and the average person to be better at saving around the country. There’s anecdote after anecdote in there. Each chapter is obviously its own case study. I find it to be an absolutely fascinating book.

Obviously, you can hear when I talk about it because I’ve actually met, not hung out—that’s probably too strong of a word—but gotten to know through association both the authors because I was at the University of Chicago when both of those guys were there, too.

Edward: Thank you, Matt. This has been fantastic. I really appreciate your time today.

Matthew: It was great to talk to you. Thanks for inviting me, bud.