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Avetta: A Case Study in Supplier Networks
Founder and Partner, Tidemark
Former SVP/ GM of Supplier Network and Financial Services, Ariba
CEO of Avetta
Chief Marketing & Strategy Officer of Avetta
Avetta has built a powerful supplier network off the back of a basic need for large corporations to track their suppliers. Because compliance is mission critical (but not always strategic), Avetta’s clients are desirous of a common platform. Each client onboards its supply base, and the more suppliers already on the Avetta network, the more likely the next client’s suppliers are already active with Avetta—and the faster their onboarding. This cross-sided network effect between clients and suppliers has started to become the industry standard in some markets.
Avetta started in qualifications, certifications and insurance coverage, but is expanding their offerings from safety to ESG to IT security. The company has also started to extend further through the value chain into the workers themselves. By bringing multiple stakeholders onto their platform and providing visibility and accountability, Avetta is transforming industries by helping clients reshape their supply chains to be more effective, sustainable, and diverse.
This is actually the second time I’ve worked as a board member with CEO Arshad and CMO Indy; the first time was over a decade ago at a software company called SMT, which we successfully sold to IHS. I think what we’re working on at Avetta is much bigger.
I love this as a case study for the VSKP. Avetta is a great example of:
- Building a multi-level network effect between large clients and suppliers
- Extending to the supplier, and potentially the worker level
- What a Vertical SaaS Vendor (VSV) with multiple participants on its workflow can do to transform a supply chain and industry
This interview took place on January 20, 2022 and has been lightly edited for brevity and clarity.
Dave Yuan: We’re excited to have Arshad Matin, the CEO of Avetta, and Indy Chakrabarti, the Chief Strategy Officer/CMO of Avetta, here with us today. Bob, former SVP of Ariba Supplier Network and Financial Solutions, is also joining us. Arshad, Indy, welcome. It would be great to start with an intro.
Arshad Matin: Sure. It's nice to be here with you. My first big deal was with Dave and his partners from TCV back in 2007. When I got a call from Avetta, the fact that Dave was on the board was a huge plus for me.
This is sort of my third PE deal. I did run a public company before that – a small one - and before that, I was a partner at McKinsey and Co.
Indy Chakrabarti: I’ve had the opportunity to work with Arshad and some of those same PE deals over those last three companies. My primary roles have been around marketing and product strategy.
Dave: Awesome, thank you. For those who are less familiar with Avetta, can you tell us about the products you sell, the customers you serve, and a little about the industry needs?
Arshad: Sure, I'll take a cut at it. Think of us as a platform that sits between corporations, or buyers, on one end, and suppliers—contractors in particular—or sellers, on the other. What we do for them is manage a platform and a network around risks as defined by the corporation, starting with safety and expanding from there. We help suppliers understand the requirements around those risks and compliance to the policies established by the corporation. We play that role in-between. We are a SaaS platform operating a two-sided network around safety and other types of risks.
Indy: Right now, organizations want to be more sustainable, diverse, and safe. And for Western companies, sometimes 90% of the overall footprint of what they do is in their supply chain.
Bob Solomon: Excellent. Tell us how this network got started?
Arshad: We got started working with big clients focused on safety. Clients mandate that their suppliers work with Avetta to manage their certifications and insurance. As we add clients, more and more suppliers join the network. At a certain tipping point in the industry, it’s more compelling for a new client to join the Avetta network because there’s a large pool of their suppliers already on the network that are compliant and pre-qualified. As we scale, we get more data, more best practices, and more insights that are valuable to new clients. It’s a flywheel that just keeps going.
Dave: There's a couple of things that you said there that were powerful. The first is that some clients made your platform mandatory for suppliers. Why do you think clients mandated Avetta?
Arshad: A good example is wireless operators. Much of the work done for erecting, maintaining, and upgrading wireless towers is done by contractors, but the operators carry all the liability. So from a safety point of view, the operators want to make sure these contractors are properly vetted, qualified, drug and alcohol free, and certified in their trades. They want to track how much time they spend on the towers because that affects their insurance rates. While you could conceptually do this on your own, it would require an army of people. Also, individual operators will never have the data that we have because these contractors go from one operator to another; operators lose visibility once the contractor leaves. Clients have to mandate us because stakes are so high and individually, they just cannot do it as well as we can. It’s not an option.
Dave: I think what I'm hearing from you is that there's an element of mission criticality, where this is truly a matter of life or death. It seems like that's a huge value proposition to drive you to a mandatory status. That dovetails with the issue of persistence, which requires a third party like Avetta so that the supplier data persists over time. How have companies that compete in the marketplace become comfortable using the same platform to manage their suppliers?
Arshad: They see the benefit of shared best practices and eliminating redundancies. As I mentioned, a contractor typically works with multiple clients in an industry. What our model allows this contractor to do is to upload their documentation—the qualifications and so on—once, instead of five times for five different clients.
We also are able to track performance across all of these plans. Performance management benchmarking is very valuable, and in areas like safety there's actually been a long tradition of companies sharing information because they believe they will never have all information on a standalone basis. Pooling that industry-wide expertise, knowledge, and data is so important. That's why the bigger the network gets, the more valuable it gets for everybody involved.
Bob: Let’s drill a little deeper into that, Arshad. I think that's fascinating because there's this tension between shared information and proprietary information. How much do you think of yourself as providing a standard, a metric by which companies can compare their performance, either on the client side or on the supplier side?
Arshad: More and more, we are becoming the standard in industries where we have hit a tipping point in market share. And even though we certainly have best practices that we recommend to our clients, a lot of times these standards are mandated by trade associations or safety organizations. Indy talked about sustainability, and there are multiple standards around that as well. We tend to bring industry standards where they exist, and where they don't exist, we have experts and data that guides us to say what good vs great looks like.
Indy: We get requests for customers’ quarterly business reviews all the time. For example, when you have an injury rate—TRIR is commonplace in the United States for injury rates—that appears to be high, but the type of job is one that's more prone to injuries, you don't want to say those contractors in your supply base are doing poorly. You want to benchmark, based on the risk of that specific job or category. Our analysis provides our clients with averages for suppliers that do specific kinds of work in our network. This is why depth and scope of data in the network matters and why sharing across clients is critical.
Dave: I really love that. It's rare that competitors will actually cooperate, and it feels like there's a multi-party value proposition around benchmarking persistence. Some sort of standardization in and of itself has its own value proposition, and then the other piece that you’ve really tapped into is offline traditional practices around industry standards.
Shifting gears, you’ve mentioned a tipping point a couple times, Arshad. We've seen in other vertical SaaS and local market-based companies that as soon as you reach about a 10% share, your conversion cycle changes. It improves as you get local market awareness and as there’s social proof and more market acceptance. Where do you start seeing network effects?
Arshad: We look at the market in three ways. There is an industry view; gas, telecom, facilities management, data centers—all of these categories share some common traits and common suppliers in terms of what they do and who they hire to do that work. The next piece of the view is geographical. A lot of these contractors are local. On our platform, you can search by zip code and look at who's in the network. The third view is by trade. The cube is by industry, by region, and by trade.
Because of this, the tipping point for us typically is a little bit higher than 10%, though every bit of share makes it better for everyone. Where we see the tipping point is about 30 to 40%. That’s when it will really change. Here's why it's huge: one of the main challenges of our industry is making searching and hiring contractors easy because this is extra work for the suppliers, particularly in the initial onboarding. However, once we reach that tipping point, a significant percentage of suppliers will already be in the Avetta platform. In some cases, as many as 70% of a client’s suppliers are already pre-qualified in Avetta, and that's massive. That's why we're so focused on growing the network and the density of our network.
Dave: A lot of marketplaces tend to be supply driven. There’s scarce supply, with well-branded or highly sought supply that you absolutely need to have on your network, and then on the flipside there’s the ability of the marketplace, at times, to be a demand driver – you can actually beneficially foster certain types of supply. Do those dynamics exist within the Avetta marketplace? And, in addition to supplier onboarding-cost savings you just described, are there any other value propositions as it relates to high supplier density?
Arshad: Absolutely. In the last year or so, because of the growing focus on diversity, equity and inclusion, there is a great desire by clients to hire more minority-owned and women-owned businesses. We have the ability to showcase suppliers based on what clients are looking for. For example, you can go on our network and look for electricians in East Texas who use minority-owned suppliers. You could also add another criteria, that they should have at least X rating in our performance rating.
In the past, new suppliers typically only joined a network because they were asked to by a client. The value proposition we're offering to our new suppliers is that they can join without a client for the benefits of 1) access, where they can be found in a search; 2) pre-qualification, so they’ll show up at the top of a list; and 3) perks we give for network memberships. For example, insurance rates go down, like in a AAA model, because we have negotiated rates. That is something that is going to fundamentally redefine our relationship with suppliers over time.
Dave: We've hit on this a couple times. You've now created this connection between the suppliers and clients, where the initial value prop or application was around safety and compliance. What else can you do for your clients?
Bob: Maybe to put an even finer point on it, what other ways do your clients want to evaluate suppliers? What attributes are they considering besides safety?
Arshad: Great questions. This goes back to what's driving a lot of this stuff. It was safety-driven in the past because of what happened in the past—for instance, the gas spill in the Gulf of Mexico. Now, three things are happening at the macro level to drive the market: supply chain availability & reconfiguration, the pandemic, and a focus on ESG. We’re seeing big changes in the supply chain especially; people are bringing supply chains back home for trade war and geopolitical reasons, as well as pandemic risk. And there’s also a focus on ESG.
Our clients already have a platform like Avetta for safety, for workflows, for relationships – the whole network between clients and their suppliers. However, now they’re not just looking for safety; they have redefined risk in a much more expansive way. In fact, we just announced Avetta One. This new framework includes safety and health, our traditional focus, and adds workforce management. Here’s why that's important: what people are realizing is that the smallest unit of compliance in the supply chain is not the entity, it’s the individual worker. Companies can’t be complete in assessing risk and measuring compliance until they take it down to the individual worker in a contract. That's where the drug and alcohol testing and all that stuff comes in. We bought a company called Pegasus last year which is squarely in that area.
The third aspect is ESG and sustainability. Within that, we’re tracking things like greenhouse gases, and we want to know what suppliers are doing around diversity, child labor, human trafficking—a whole bunch of things that fall in that big bucket.
Extending to Suppliers
Dave: That’s really impressive. Once suppliers are on the Avetta platform, what can you do for them?
Arshad: Our suppliers range from very large Fortune 500 companies—who are a supplier by contracting with somebody else—to mom-and-pop shops. The value proposition for the big guys is they should be using us as a client and to manage their subcontractors, because these big companies tend to have their own subcontractors. They may be a single force, but they have a secondary and tertiary set of contractors that they could use our platform and our methodology to manage. It’s a very different value proposition for the small guys. We may be the only SaaS platform they actually use other than Gmail and maybe Outlook.
Bob: Or Quickbooks Online, maybe.
Arshad: Exactly. So we see ourselves as a ramp or gateway into the digital world. We have a very precious relationship with these smaller businesses, and they do come to us, especially for certain applications. If you're using a workforce management product, you're interacting with us multiple times a day. So what else can be provisioned? Think about when you go to a platform, when you log in or you're in the mobile app—what else can we add? Could we be a channel to other apps who want to sell to that demographic (low tech savvy, don't have any other SaaS platform, don't have CRM)? These suppliers don't even have websites. Most of them are found through Google search. We are trying to provide them with a custom web homepage; for example, if you're an electrician who has no digital presence, we will help you get set up.
Indy: Especially for the small suppliers, we’ve helped them demonstrate their superior qualifications. It means we can put them on an equal footing. If you're a large multinational company and you want a supplier, it's really easy to trust a company that has 10,000 guys. You know that their qualifications are going to be appropriate for your business. But if you have a situation where because of the pandemic, you need to provide local suppliers, how do you know if that seven-man company is someone that can do business for you as a multinational? Our platform says that that seven-man provider is the equal of a 10,000 person company because we've assessed it.
Dave: I love the democratization concept. The way you describe it, Indy, your small suppliers’ verified identities and qualifications compete with national players.
Arshad: That’s right. One of the big things we do for our clients is make sure that these contractors have the right insurance coverage. Workers’ Comp is a big part of that because of safety regulations, and it's very expensive for a small business of ten employees. They may be spending tens of thousands of dollars a year. Well, we talked about the value of data. We actually analyzed, for each of our suppliers, their safety rating and their performance over the years, and showed that analysis to five of the top Workers’ Comp insurance companies. Based on that work, we found that the insurance company should be able to save us a third of their premium costs. We have over a billion dollars of Workers' Comp premiums flowing through our supplier network, just in the US. There are hundreds of millions of dollars of savings in insurance premiums that are possible because we have the data and metrics, and we are an independent body that they trust. When we talk about the ecosystem, we talk about how it creates opportunities for us like this, in the form of new revenue streams and ideas.
Extending to Workers
Dave: Let's go to the next level—let’s talk about the individual worker. I love that there's multiple layers to this. In some ways, the supplier is just an aggregation of workers. What value propositions do you see yourself providing workers over time?
Arshad: The most important thing we provide is the portability of credentials and qualifications, because a lot of these workers are contractors. They move around a lot. In any industry you pick, you'll see that happening a lot, especially in the gig economy. For a lot of jobs, drug and alcohol testing is required. Imagine carrying your credentials and ratings with you as you move from one contractor to another. Once you upload those results into our system, they’re available to any other client, so you don't have to resubmit it every time, or repeat testing unnecessarily. That's very powerful, and it simplifies things.
Dave: The concept of a persistent Avetta employee identity is a powerful one. We’re seeing that as a key landing wedge for the employee (see the VSKP Extend framework). If you have a persistent ID, it opens up all sorts of magical employee experiences like one-click onboarding, portable reputation, etc. You also have an opportunity to help them access their wages faster, access cheaper, better insurance—a whole range of great offerings.
Arshad: This is a point that you often make, Dave: that if you follow the workflow you’ll sometimes unexpectedly discover things. When we got into workforce management, we were not thinking about workforce management inside the corporation. But we had a number of clients saying, “Hey, I have this warehouse. 80% of my people are contractors, but 20% of them are my employees. I want to use the same workforce management system that you have for contractors for my employees. Can I use that?”
Dave: I love the idea that you're starting to move into an operating context where, not too far from now, you can think about task management communications, training, and incident management.
Arshad: Exactly. We have the platform and we have the data; this platform is where we are becoming the single source of truth for a class of suppliers. The data is generated by us or by the client, or even by a third party, but the clients want this data to sit in one place. You ask the biggest companies we work with—who are the most well known companies in the world—and they'll tell you the single biggest unknown for them is the group of contractors who are sending people into their facility. They don't even know who those people are. To give an example, there was a tornado that hit a warehouse and four people died. They were all contractors, and the company didn't know who was onsite. If they were using our system, they would have known who was there.
The network we have functions as a single source of truth. The network effects drive these incremental values which allow us to then follow a lot of growth paths, both on the client side and the supplier side, and ultimately to subcontractors, all the way down to the individual.
Dave: I think that's a really powerful concept.
Maybe we should end with this idea of industry transformation. Avetta is a monitoring framework for all sorts of data—you can start to measure and monitor safety, sustainability, ESG, DEI, etc. If we go back to the security metaphor, can Avetta go from monitoring to remediation? You have this monitoring platform; do clients ask for greater expansion? And if so, can you expand that way?
Arshad: Absolutely. The way to think about the value added is in both growth and upgrade. Clients want to grow and upgrade their supply base; a growing company needs more suppliers. They come to us to find the right suppliers but they also want to upgrade, meaning firing suppliers who are not performing.
What I’m most excited about in the not-too-distant future is being more predictive. A lot of these things, like safety and quality, are correlated. Business risk and health and safety risks are correlated. When a company gets into financial trouble, they stop investing in people. That affects safety and quality. With all the injections of data we have and all the monitoring we do, we want to be predictive about where a company will get into trouble.
Let me give you an example. When COVID first hit and the US economy was shut down, some companies worried about using too many suppliers (contractors) and they would rely on a single contractor for a critical job. That doesn’t always work, so they called us to ask if we had another supplier, and how to know who may go under. We built a risk view and created a heat map for our clients. We were able to show them where, geographically, they had a single point of failure, and which of those were likely to go under based on a number of attributes we collected: geography, size, vertical. We had to take all of that into account because not everybody is affected the same way. That's an example where this data we are collecting will eventually turn into providing insights that are more predictive in nature. This is more than just monitoring.
Bob: I think it's fascinating that we started off talking about a two-sided model but as you discuss the evolution, there's data that goes out to insurance companies, and there's data that comes in from OSHA, and public sources, and other commercial and financial organizations. You've gone from two-sided to multi-sided pretty clearly, and are joining data sets to create value for the whole ecosystem. I don't think that can be created any other way. I think that’s a really intriguing position.
Arshad: To use Dave’s term, it’s this idea of data gravity. This platform, as it gets bigger and denser, creates this data gravity because we are a single source of truth. Data flows to us, and we pull data from all these different sources. That's the control point that Dave talks about.
Dave: Thank you, Arshad and Indy, for your time. And thanks, Bob, for joining us. This has been a great conversation and I am excited to see what we can build with Avetta.
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Avetta: Supplier Network
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