Deep Dive: Collaboration nation

Can distributors find common cause with the tech sector and work to turbocharge innovation in our economy, solving the big problems for the greater good of customers and society?

IDEO’s CEO, Sandy Speicher, speaks of disequilibrium as an idea or event that challenges our mental model of how things work, and by doing so, creates the opportunity for fresh thinking and radical innovations. In this Deep Dive edition, I share something real that is happening in the venture-funded world of startups and wonder if distributors might find a common cause, and perhaps a collaboration. I propose an out-of-the-box initiative, one that may take root with only a few leaders. Last week’s edition, Deep Dive: Embracing the future of distribution, was more in-the-box, but still a call for bold innovations. In it, I shared my work from Innovate to Dominate and Distribution Leans In. The NAW 2022 Executive Summit is happening as I publish this week’s edition, and I offer my ideas as an NAW Fellow working to help distributors achieve game-changing innovations to define the future of distribution.

The tech sector aims to solve big problems via innovation

Andreesen Horowitz is a venture capital firm known for heralding the future as driven by “software eating the world” and connecting entrepreneurs, investors, executives, engineers, academics, industry experts, and others in the technology ecosystem. Andreesen Horowitz fosters ideas and action through podcast episodes, Clubhouse events, and newsletter articles. I listen to all as an essential tool for gathering insights around B2B innovation and the future of distribution. Distributors are seldom on the agenda, but insights around the culture and practice of technology-led innovation are acutely relevant for distribution and all B2B innovators.

I am especially interested in Andreesen Horowitz’s efforts to solve the most critical problems facing our nation, and by doing so, reinvigorate our willingness to pursue big ideas and dynamic innovations. As members of a $7 trillion industry, U.S. distributors are essential to our economy, filling a vital infrastructure role in the supply chain. But modern distributors are much more than intermediaries. By building state-of-the-art experiences for business customers, distributors apply digital technologies to solve critical problems that impact how we all live our lives and do our work. Distributors are real-world entrepreneurs, setting the standard for doing business as humans for humans in the digital age.

I have long wondered if the distribution industry might find common cause with the community of tech founders, startup companies, and venture investors. And so, I was intrigued when  Andreesen Horowitz launched a practice to solve critical problems and rebuild American dynamism, with goals explained in its investment thesis:

The American Dynamism practice invests in founders and companies that support the national interest, including but not limited to aerospace, defense, public safety, education, housing, supply chain, industrials, and manufacturing. We believe that mission-driven and civic-minded founders often build companies that transcend verticals and business models in their quest to solve critical national problems. These companies view government as a customer, competitor, or key stakeholder—and the success of these companies supports the flourishing of all Americans. Dynamic companies exist in all 50 states, as there is no center of gravity for solving America’s biggest problems.

My interest turned to excitement as Katherine Boyle joined Andreesen Horowitz’s practice and better defined the firm’s goals in this article. In it, Boyle describes why our government is not up to the task of reinvigorating our economy and how venture-backed startup companies can step in to drive progress. She writes:

I believe the only way to reverse the course of stagnation and kickstart nationwide renewal post-Covid is through technologists building companies that support the national interest. I call this American dynamism: it’s the recognition that seemingly insurmountable problems in our society—from national security and public safety to housing and education—demand solutions that aren’t simply incremental changes that perpetuate the status quo. These problems demand solutions from builders—and it’s never been more vital that startups tackle these serious American problems.

Importantly, Boyle acknowledges criticism directed at the tech industry, explaining that software alone is not enough to achieve game-changing innovations, providing a long list of startups driving change as a movement in the “physical sector:”

Some critics of the tech industry believe that software only touches the digital world and that we’re wasting valuable talent ignoring the physical. But these critics are missing this current movement to the physical sector and the interplay between hardware and software: some of the most disruptive companies are remaking the physical world with software at their core. And these companies are often entrenched in the work and mission of government, such as in aerospace (Blue Origin, SpaceX), intelligence (Palantir), and defense (Anduril, Shield, Skydio). These categories feature fast followers powered by software that depend on selling to government. In public safety, Citizen, Flock Safety, and Mark43 are innovative competitors to the legacy incumbents, which have benefitted from traditional government contracting models that don’t prioritize innovation. And in transportation, companies such as Applied Intuition and Samsara are taking on the OEMs and Honeywells of the world by putting software and cheap sensors inside the industrial sector to improve safety and efficiency simultaneously. Though these sectors may seem disparate, the most striking element of these businesses is that they’re so regulated that the government is either a customer or competitor—and at times both.

To be sure, Boyle writes from the perspective of an outside disruptor, as she explains how startups are “taking on” established manufacturers and OEMs. I would not be surprised to find that this attitude extends to distribution, especially if distributors are viewed as go-to-market extensions of incumbent businesses. But I also sense shared values, especially when Boyle explains that social movements pursuing bureaucratic solutions cannot match progress driven by builders and, therefore, business:

When discussing how technology can solve America’s biggest problems, I’ve seen a language problem that leads many well-meaning people to ineffectual results. Many mission-driven founders are eager to innovate in govtech, i.e., companies that sell to government to make the bureaucratic operations slightly more efficient. They’re also eager to innovate in “ESG,” or “Environment, Social and Governance,” a term defined for and by bureaucrats, not builders [emphasis added.] Dynamism is neither govtech nor ESG. I don’t believe those categories will solve the biggest problems most Americans face.

Distributors also aim to solve big problems

After taking stock of distributor innovations to help customers survive the pandemic, I wrote: “every distributor can continue working to help customers, maintain momentum, and perhaps start a movement. Leaders may move beyond ‘doing the right thing’ in a time of crisis, to adopting a shared purpose around strengthening our economy and society through innovation. Such a movement requires a new mindset, one that views digital transformation not just as a tool for improving a company’s internal operations and financial results, but as a platform for reinventing how business is done.” 

I have also reported on a growing wave of founders launching B2B startups based on digital-age technologies. Their operating models take many forms, including platform marketplaces and networks, software solutions, social media, connectivity solutions, data aggregation, and more. But many seem to share a common characteristic—they seek to work collaboratively with established, real-world B2B businesses. They seek not to disrupt but to create change from within B2B markets by leveraging all that digital technology and business models can deliver. Inevitably, as they reach out to leaders and owners of incumbent companies, they hit a wall. Conversations break down because each party fails to understand the other. The willingness of B2B startups to work with, not against, established companies is a bright spot on the horizon. It may lead to a new era of collaboration for the betterment of customers and the entire B2B ecosystem.

The bottom line: Distributors may lead because distribution is how business is done. The role of distribution includes every activity required to do business with customers. Newly emerging marketplaces, fintech startups, data aggregators, and more are stepping up to provide customers with the immutable support they need from distribution. This is both a challenge and an opportunity for distributors, and not all startups will seek a collaborative relationship. But distributors have customers, and customers are what startups need most to survive. By leading with respected and long-standing customer relationships, distributors may turn the tables on would-be disruptors by helping new startups address their cold-start problem and then defining value chain partnerships from a position of strength, much as manufacturers do today. In business, there are always products, but products need not be the principle organizing frame for the value chain. The value chain begins with customer experiences in the digital age, and distributors are leading the way.

Find common cause by viewing opportunities through technology’s lens

I am not naïve, and I understand that collaboration between sectors—technology and distribution—is an unprecedented task. But if the threat of disruption is real, and defeating digital technology is not feasible (or desired!), it is worth imagining an alignment created around a shared purpose and methods. The shared purpose is obvious—Andreesen Horowitz and distributors are both working to adopt innovations that may reinvigorate our economy and serve our society.

Boyle offers three arguments for why technology-focused startups are the best mechanism for restoring American dynamism. Below, I relay these arguments (in bold) and examine them from a distribution perspective.

• It’s now easier to solve critical national problems through startups. Boyle aims at government, suggesting that venture capitalists are better at taking risks, allocating capital, and monitoring outcomes than the government. I agree that startups, enabled by technology and venture guidance, may address our national issues. The tech sector can do this job better than government. But tech cannot do the job alone, and distributors are a potential partner. More than that, distributors can lead. By identifying problems, distributors may suggest priorities for the tech sector. By reworking B2B partnerships with suppliers and customers, distributors may help tech solutions take root and flourish.

• The U.S. government has had a growing talent problem. Distributors have the same problem. Just as young people and future leaders may prefer startups over the government to solve thorny issues, many avoid distribution as well. By collaborating with the tech community of founders and venture capitalists, distribution may enhance its opportunity to hire the best and brightest. Pushing further, distributors may offer an exchange of leaders—giving founders the chance to spend time in distribution, and the opposite. Leading industry associations, like NAW, may prompt this collaboration by establishing a joint executive/founder-in-residence program. Such a program could provide an opportunity to step away from day-to-day business management to work on identifying problems and the best technologies to solve them, as well as find new value chain or ecosystem business partnerships with win/win outcomes.

• The customer [government] is changing—albeit reluctantly—because it knows it must innovate. The private sector, represented by the traditional value chain of manufacturers and distributors, is far ahead of government in recognizing the need for change. As sectors, manufacturing and distribution may both partner with the tech sector, but distributors have an advantage. Manufacturers are wedded to their products and brands in ways that distributors are not. Distributors are pragmatic, assembling the best portfolio of products and brands, known as a line card, to meet customer needs. Moreover, as distributors shift away from warehouse-centric business models and toward front-end businesses offering state-of-the-art customer experiences, suppliers’ products and brands become less and less critical. To be sure, distributors will always provide manufacturers' products to customers because those products create value in the physical world. The pivotal shift for distributors is to partner with technology companies, not manufacturers, to meet customer needs. Manufacturer and distributor partnerships define the value chain enabled by digital technologies. In the future, distributor and technology partnerships may dominate. In a sense, distributors will no longer exist to add value to suppliers’ products. Instead, manufacturers will exist to add products to distributor customer experiences.

Join our community by asking questions

Thank you if you’ve made it this far in my deep dive into the potential for collaboration between the technology and distribution sectors. I hope my ideas and suggestions are not too tortured and that you see opportunities and, perhaps, inspiration. Please let me know what you think. Am I crazy? Is there an opportunity? Have you seen any evidence? What would it take to get started? What are the benefits for distribution and technology startups or venture firms? Can distribution, as an industry, stand up to the power and momentum of technology companies? Why or why not? How should we explore this opportunity? What value may I add?

As always, please share your comments, ideas, experiences, and direction below. Don’t be a stranger. Click here to schedule a call or send me a note at mark.dancer@n4bi.com