Convictional, A Y Combinator Startup, Will Revolutionize The $5 Trillion B2B E-Commerce Market
With the growth of e-commerce in the past two decades, smaller vendors have more significant opportunities to sell to merchandisers and retailers regardless of their size. However, these vendors have difficulty selling to larger entities as the latter relies on legacy transaction software to facilitate receiving goods from the former. Chris Grouchy, 24, and Roger Kirkness, 25, saw this unmet need in the e-commerce market and created Convictional in response. Convictional is a B2B e-commerce platform that allows these small brands and businesses to enable small vendors to sell to any retailer effectively. The San-Francisco-based startup was a part of Y Combinator’s Winter 2019 batch.
For a small supplier to sell to a large retailer, the transaction of goods is facilitated through electronic data interchange (EDI) software, which was first created in the 1940s to facilitate military logistics. EDI software allows for the computer-to-computer exchange of data between businesses using a standard electronic format. The type of data being exchanged varies on the companies involved in the transaction. Depending on the retailer, they could use one of the more commonly used EDI standards such as ANSI ASC X12 or GS1 ED1, or rely on a custom one for their unique needs. EDI replaces the paper-based methods of documenting, filing, and executing the exchange of goods and payments between supplier and retailer. By replacing business processes that were driven by paper flow or phone, email, and fax, EDI is estimated to reduce delivery time from suppliers to vendors by 30%. Also, the data exchange software reduces the likelihood of inaccurate information being transferred between business entities.
However, EDI is not without its drawbacks. For smaller vendors selling their products to larger merchandisers, the EDI software that the buyer (the merchandiser) uses does not integrate with the seller’s (supplier) order management. EDI depends on manual data entry, as it cannot read data automatically from other business applications, such as a seller’s order system. Also, each retailer may have different and unique needs that their EDI software must address. For suppliers, each retailer’s distinctive requirements force the sellers to ask each buyer for their EDI requirement documents to facilitate the exchange of goods and payments correctly. The seller must develop a separate implementation based on each set of EDI requirements from the buyers of their products, which is a clear bottleneck in the vendor’s sales process. This variance of EDI requirements between buyers requires a full-time staff member in the seller’s back office to facilitate orders and relying on sales representatives to help resolve issues that may arise. The lack of automation slows down sales cycles between buyer and seller in the e-commerce market.
“While Amazon is obsessed with the customer and Shopify is obsessed with the merchant, here at Convictional, we are obsessed with the supplier,” says Grouchy.
According to Forrester Research, with EDI being responsible for facilitating more than $5 trillion worth of orders between buyers and sellers in the $9 trillion B2B e-commerce market, the inflexibility of the legacy data transaction software’s lack of modernization and automation leaves ample opportunity for innovation. Within the B2B e-commerce market, the fastest growing segment of merchants may not use EDI as more massive big-box retailers do. This fast-growing group of smaller buyers such as brick-and-mortar stores and other small and medium-sized businesses may still rely primarily on phone, fax, and email to facilitate orders. Therefore, for sellers to adequately service their buyer’s requests, a new solution is needed in the B2B e-commerce space.
“Given the opportunity in the segment of the e-commerce that we are focusing on, there’s the pressure to grow fast as opposed to building the right product. From our 500+ conversations with suppliers, we wanted to make sure we built a platform that could solve their problems,” Kirkness says.
Grouchy and Kirkness recognize the shortcomings of modern EDI software as their opportunity to disrupt a market they believe is still in the “pre-Netscape Internet” phase. Convictional’s business model relies on traditional software-as-a-service (SaaS) monthly subscription pricing. Convictional’s e-commerce platform performs three essential functions: better wholesale processing, EDI integration, and marketplace building. The startup states that it can allow a supplier to book orders from their point of origin after a buyer sees the seller’s live inventory and current catalog of goods. Convictional’s EDI integrations remove various points of friction in the information exchange between suppliers and retailers to allow products and payments to be transacted quickly. Convictional’s most promising value is supporting marketplace building, taking the burden off of retailers to fulfill orders by outsourcing that function to the vendors who hold the product, which is drop shipping.
The core value-add stemming from using Convictional is the startup’s e-commerce platform enables online stores (i.e., marketplaces) to fulfill orders via drop shipping. Drop shipping allows for orders of smaller quantities to be facilitated and processed, instead of retailers having to meet a minimum order quantity to have their request fulfilled by a supplier. Retailers and marketplaces not needing to meet this minimum order quantity allow them to address the needs of customer segments directly that they couldn’t before, thus directly increasing their revenues. Also, these smaller retailers and marketplaces can begin to build predictive models around selling to these new customer segments that order fewer quantities of product, similar to big-box retailers learning how much to order from their established vendors based on their inventory turnover. These models can be used to better assist vendors in dynamically adjusting their inventory to meet consumer demand for their product best. The team behind Convictional has deep experience in the B2B e-commerce space to bring value to the suppliers, retailers, and marketplaces at that rely on their platform.
Grouchy and Kirkness combine to make a formidable team in tackling these lucrative problems in the B2B e-commerce space. Grouchy previously worked in enterprise sales and product marketing roles at Shopify, Cisco, and Oracle. Kirkness had successfully sold his past food manufacturing ERP startup and went to work on product at Shopify, where he leveraged his strong engineering background and sales experience. The two met at Shopify, and soon after had begun brainstorming how to solve the canonical problems in B2B e-commerce, which lead to them creating Convictional. Grouchy’s sales expertise combined with Kirkness’s rare ability to translate customer need into product led them to create a startup that was rated by TechCrunch to be “one of the top 10 startups” from Y Combinator’s W19 Demo Day 1.
It takes guts to leave a comfortable job to start your own company, but it takes conviction to make a positive difference in the e-commerce system for all.
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