Interview Published January 23, 2001|
Maury Friedman, Need2Buy
My interview today is with Maury Friedman, Chairman and CEO of Westlake Village-based Need2Buy (www.need2buy.com).
BK: What's Need2Buy all about?
MF: Need2Buy is a comprehensive, neutral online marketplace for the electronic components industry. We bring together users from all sides of the industry (original equipment manufacturers, contract manufacturers, franchised distributors and component manufacturers) for increased supply-chain efficiency. To put it simply, we are "all about" making the process of designing, finding, buying and selling components faster, easier and more cost effective than ever before possible.
We do this by providing a full set of services and tools to meet the needs of engineers, buyers and sellers in this industry. We offer an Open-RFQ Marketplace where buyers can post requests-for-quote and suppliers can respond online, global sourcing capabilities to locate hard-to-find parts for buyers, and inventory-management solutions to help companies sell components that they no longer need or will not use right away. We are about to introduce our new SuperCatalog, which will enable buyers to instantly browse the current available inventories of more than 40 leading franchised distributors in just one click. We will also debut our Part Research Center, which will give users free access to the technical and parametric information on over 7 million parts.
What we've done is to provide the critical information that buyers and sellers need, and flow it into their process right when they need it. So, for example, when a buyer wants to post an RFQ, our Expert System database will show him or her all of the distributors who are franchised to carry the needed parts. Before this, buyers would have to look up the information in catalogs, call the manufacturers or visit multiple websites. So we've taken a tedious, manual process and made it much more efficient. We also have a team of professionals with years of experience in this industry who help facilitate the matching of buyers with the right suppliers. I believe this combination of the experienced personal element and powerful database tools is one of the keys to Need2Buy's success.
BK: How are you different from all of the other B2B/vertical marketplaces which have been struggling to find a business model recently?
MF: I think there are several key differences:
First, we always focused on solid business fundamentals from the beginning. For a while there, some people were acting as if the old rules of running a business - offering real value to your customers, generating healthy revenue and achieving profitability - did not apply. Now, many of these companies are gone or are attempting to create a new model that will sustain their business and satisfy their investors. Since Need2Buy started out with a solid business model and an already proven source of "brick & mortar" revenue, we didn't need to change our approach to the business in response to changing market conditions or increased scrutiny. Our original foundation continues to serve us well and is driving tremendous growth.
While some other e-commerce companies focused on just one user group - usually buyers, we chose a different approach. We designed our marketplace to provide valuable services for all industry participants and to complement existing buyer-supplier relationships, rather than trying to change the supply chain. So, we put extensive effort at making sure our marketplace provides significant value to franchised distributors, and gaining their involvement and support. We believe this has been a major success factor and a key point of distinction within our industry.
The other main difference is that we've organized our services in a way that is consistent with how buyers and sellers in this industry already work. I believed all along that the Internet and e-procurement could help improve the process of buying and selling components, but that the changes would be evolutionary, not revolutionary. So we really focused on asking the right questions of people within our industry, seeking to understand their daily business challenges, and then designing solutions to better meet their needs. And we're continually modifying our services and developing new ones based on direct input from buyers and sellers - we are not afraid to challenge our own assumptions and modify our approach to develop a better solution.
BK: At what stage is your company?
MF: We're definitely in expansion mode - and on all fronts. We continue to experience strong growth in the number of users and transactions. And we're gearing up for the release of an exciting new marketplace in North America to replace our current site. This will be a completely new Need2Buy, featuring a dramatically redesigned user interface, several powerful new services and improved content. We believe that this new release will greatly strengthen our value proposition and expand our user base.
We're also expanding geographically. This Spring, we will be launching a new Need2Buy marketplace specifically for the European market. We laid the groundwork last year by acquiring a German company with extensive regional component sourcing experience to serve as our base in Europe. And we established a strategic alliance with Infineon Technologies, Germany's largest semiconductor manufacturer, which will accelerate our expansion into this important market. A few months later, we will launch a marketplace for Asia, with our partners Mitsubishi Corporation and Taiwan-based World Peace Industrial, a $1-billion components distributor.
BK: How did you get into this business?
MF: My educational background is in Electrical Engineering, and I've worked in the electronic components industry for over 20 years, originally in manufacturing, before moving to the distribution side and creating a successful global sourcing operation. So I knew from personal experience how time-consuming, repetitive and challenging the buying and selling processes could be.
Much of my effort with my own company revolved around incorporating technology and developing databases to make the processes faster and more efficient. Then a few years ago, as the Internet was starting to grow and show real promise, I recognized that it could be utilized to greatly improve the processes within the electronic components industry. So I set out to create the online marketplace now known as Need2Buy. I never expected the business to grow as rapidly as it has in such a short period of time. We got such a positive response in the first month after we launched the site that I knew we were really onto something - and it has just continued to grow ever since.
BK: What's your revenue model? i.e. do you charge a transaction or listing fees?
Need2Buy doesn't charge transaction, listing, membership or registration fees. I have always believed that these are counterproductive to building marketplace participation. Instead, we based our revenue model based on proven "brick and mortar" services that we offer to our users to help them resolve key business challenges, and which are typically not addressed by standard distribution channels. Let me explain further...
We build liquidity in our marketplace by providing important free services and resources of value to our users. The centerpiece of Need2Buy is our Open RFQ Marketplace, which enables buyers to easily post online requests-for-quote for individual components or entire bills of material, and then receive bids from their chosen suppliers. As I mentioned earlier, we are preparing to introduce our SuperCatalog service, which will provide buyers with current inventory information from more than 40 franchised distributors - available all in one place and at no charge. And, our new Part Research Center is a free resource that will enable users to access the world's most comprehensive database of technical component information, so they can easily identify specific parts based on performance criteria or technical parameters.
Our revenue is derived from providing value-added services to our users, when requested. The first of these is our Global Sourcing Services, by which we help buyers locate "hard-to-find" parts - essentially, supply-constrained, discontinued or specialty components. Because we provide one-stop access to the global components market, we save buyers the hassle of contacting multiple supply sources themselves, and enable manufacturers to avoid the worst-case scenario of being forced to stop production because they can't find one or more critical components. Our second revenue source is Inventory Management Services, which enables companies that have overstocked components, or parts not immediately needed for production, to find viable buyers for those parts. Sellers post inventory with us online and their product is exposed to a broad market of potential buyers. As a result, we are typically able to get them a higher return than they would recoup by writing off these components or selling them for pennies on the dollar. For both these value-added services, Need2Buy earns revenue on margin between the acquisition and resale cost of the components.
BK: Who are your investors?
MF: I'm proud to say that we have received more than $50 million in funding from a world-class group of venture capital firms and strategic investors. These include:
Baker Capital (New York)
BK: How did you hook up with the large number of international partners you now have (Mitsubishi, etc.). How do you handle the complexities of international business?
MF: For the most part, our relationships with our key partners, both domestic and international, have been cultivated by our own executive team. We have been able to attract highly experienced professionals to Need2Buy from throughout the electronics industry, representing both the buy-side and the sell-side. In addition to their deep understanding of the industry, these individuals brought with them a strong network of industry contacts that we have been able to tap as appropriate to advance our business plan and globalization strategy. In the case of Mitsubishi Corporation specifically, the company was an original investor in Need2Buy, and therefore had the opportunity to get to know us well over time. This relationship has developed into a full-fledged partnership, with Mitsubishi subsequently participating in our second-round financing and signing on to a joint venture to create Need2Buy-Asia, our future online marketplace for the Asia-Pacific region.
To address the second part of your question, we believe that global commerce issues and regional opportunities can only be fully anticipated and addressed by local management. So, our approach to globalization has been to establish on-the-ground operations in each region where we offer our solution and create a local management team that is empowered to identify and respond to region-specific issues. As an example, last year, we acquired Unimate Electronics, a global trading company based in Munich, to serve as the platform for our European operations. This acquisition provided us with the required infrastructure, "brick and mortar" capabilities, region-specific expertise and extensive customer relationships to energize our expansion into the European market. Our new strategic relationship with Infineon Technologies will also help expand our knowledge of this major market, and we have recruited an experienced managing director from the European electronics industry to oversee local operations and the launch of our new marketplace in the region this Spring.
BK: Finally, what has been the toughest part of starting Need2Buy, and what would you have done differently if did it all again?
MF: As I said earlier, all the dot-com hype was really at its peak we launched the company, and I remember it was extremely difficult to avoid being distracted by the fact that companies with poor or non-existent revenue models were having little trouble getting investors or staging successful IPOs. All the noise changed - for the moment, anyway - people's definition of the true measure of a businesses' success. I believed that normalcy would eventually be restored, but there really was tremendous pressure at the time to take shortcuts. Because we maintained our focus on the business fundamentals and establishing a true value proposition for the long haul, we have achieved considerable success in less than two years' time - as measured by the more traditional yardsticks, of course.
In terms of what I might have done differently from the beginning, I can honestly say that nothing comes to mind. I don't mean to say that we've done everything right the first time, but since we've kept our approach to the business flexible, we have been able to make changes on the fly in response to emerging opportunities, changing market needs or simply new information. So, when we discover something we should have done differently, we start doing it differently.
Copyright (c) 2001 by Benjamin F. Kuo. All rights reserved.
May not be reprinted without permission.