Published Last Week

1. Watsco Customer Survey: Service Quality, SEER, and Replacement Demand

2. Veeva Systems, IQVIA, & the Pharma Sales Flow

3. Lumine Group: Nokia's Device and Service Management Acquisition

4. Indutrade: Unsuccessful Acquisition Case Study

5. Smartsheet: Sales Strategy & Org Structure

6. Inchcape: Distribution for Chinese OEMs

7. Public Policy Holding Company: Forbes Tate & Consolidating Public Affairs

Watsco & Ferguson: HVAC Customer Survey

We surveyed Watsco and Ferguson HVAC customers to understand how contractors choose distributors and the impact of refrigerant and SEER changes on unit replacement demand and margins.

HVAC is unique. Distributors don’t carry hundreds of products from suppliers across all price points. OEMs assign exclusive rights to distributors at each price point for single territories. For example, Baker Distributing, a WSO company, will typically only carry one ductless brand for each ‘good, better, best’ price point in any given territory. Some contractors also negotiate 'national pricing' with OEMs leaving Watsco more like the captive fulfilment partner than a B2B distributor serving fragmented suppliers and customers.

One insight from the survey highlights how WSO is stronger on equipment, FERG on HVAC parts. Also, FERGs inventory system more tightly integrates with customers compared to WSO.

Ferguson stocks our warehouses and we set the inventory levels wherever we want it to be. We provide the shelving and space. They fully stock at no cost to us. Once or twice a week, depending on the size of the warehouse, they'll have one of their associates come in and inventory our warehouse and charge us based on our usage of those parts. It's like another Ferguson branch that we have access to. You can lose a lot of money if you're not moving inventory like you need to so this works well for that case. East Coast doesn't have a program like that. I gave them the opportunity because I've had a relationship with East Coast longer than Ferguson, but they don't have the type of process to do that and that's not their niche. By in large, all of our parts are from Ferguson and all of our equipment is from East Coast. We still buy parts from East Coast but we don't buy as many because it's easier to pull them off of our shelf. - HVAC Contractor Respondent 3

The survey also explores how SEER and the refrigerant changes drive unit replacement demand and contractor and distributor margins:

I am concerned about the upcoming refrigerant change. The consumer isn't getting a better product. The price of the 14 SEER increased by 10% to 15%, but they received a more efficient and durable unit. The upcoming change will not offer any of these benefits. The new refrigerant will reduce performance, it's flammable, and it won't increase efficiency, yet it comes with a 20% higher price tag. The previous change was beneficial because we made better margins and the customers received a better unit. However, the upcoming change will not be profitable for us or beneficial for the consumer. - HVAC Contractor Respondent 5

Veeva Systems & IQVIA

Veeva, the CRM software and data provider to pharma companies, is one of the most capital efficient software businesses we’ve studied. It raised less than $10m pre-IPO and is now generating over $400m in operating profit. Gross and operating profit has 100x'd in 14 years.

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The company seems to be at an inflection point. Its CRM was built on Salesforce and is now migrating to AWS. Secondly, pharma companies are restructuring their sales organisation away from traditional sales reps which hurts VEEVs per-seat CRM pricing model. And, finally, IQVIA Holdings is the monopoly incumbent suing VEEV on the data side.

This interview is the first in our research to understand Veeva Systems and software and data sold across the life sciences value chain. A Former Account Director, responsible for leading a top 10 pharmaceutical account at VEEV, walks through how the pharma sales process and CRM requirements are unique relative to other industry verticals:

For example, in media organizations or retail, sales reps are typically selling, which is what Salesforce is designed for. Salesforce is built for managing a pipeline, moving it through the funnel, and creating opportunities. Marketing creates a pipeline that turns into an opportunity, which has a value. When you convert it, the sales rep gets paid. That's what it's built for. However, sales reps in life sciences don't directly sell to doctors. Instead, they might go to a doctor, discuss the latest drug, and explain its benefits. But then, the doctor may or may not prescribe that drug to their patients, creating a gap between the promotion of the drug and its prescription. - Former Global Account Director, Top 10 Pharma Customer at VEEV

The interview also explores the potential impact on churn and LTV as VEEV shifts away from Salesforce's technology backend. It also discusses the tension between IQVIA and VEEV and is focused on understanding which company has the more critical positioning within the value chain:

The prescription data is actually handled by IQVIA. They have a near monopoly on prescription data, which they sell to pharmaceutical companies… From the sales reps' perspective, they don't really care about CRM too much. Going back to what I was saying earlier about the company having their whole CRM locked down, the sales reps in life sciences often have KPIs where they need to speak to a certain number of doctors a week. So, it's like, I need to hit my KPIs, then I get paid on the revenue for my territory. CRM is important because I need to make five calls a day, tick that box, tick that box, and then I just get paid on whatever is sold in my area. Strategically important? No, but important for doing your job? Yes. - Former Global Account Director, Top 10 Pharma Customer at VEEV

Next week, we explore Veeva Compass and how it’s planning to compete with IQVIA’s monopoly in Rx and claims data.

Lumine

While device and service management workflows can, in theory, be in-housed or replaced, the operational and financial switching costs are significant. This stickiness seems to be a core driver of Lumine's recent acquisition of Nokia's device and service management business units. This interview with a Former Director at Nokia explores the stickiness and overall quality of the business:

I think these companies are obviously focused on avoiding risk. It's quite risky to replace a major system. For example, at AT&T, the group that oversaw the product was called Tech Dev. It was very bureaucratic there, and they had what they called their core key platforms. SMP was considered one of those. It was so critical that it received the highest level of monitoring, maintenance, and support. Additionally, if a new group wanted to implement service orchestration or automate workflows, they had to try using our platform first and prove that it didn't work for their business purposes before they could purchase new competing software or build something from scratch. In that way, it was process-wise sticky. You can imagine that if this platform is integrated into mobile apps, used by technicians who are trained and comfortable with it, and relied upon by support agents to assist customers, replacing all of that would be quite difficult. On the device management side, you have all the data and history to maintain. Migrating that to a different platform would be an incredibly difficult and risky exercise. - Former Account Director at Motive (Nokia)

Indutrade

Indutrade is one of the most successful serial acquirers in Sweden. The company has consistently grown through programmatic acquisitions of small, profitable, niche industrial companies. However, the company has also had less successful acquisitions such as Sander Meson. This interview with a former COO at Sander Meson explores the potential reasons for underperformance and the eventual total restructuring of the company under Indutrade's ownership:

I would say that Sander Meson was probably the most complicated acquisition in that group. Many of the companies had simpler products. They were selling only valves, or maybe tubes or actuators, or offering services, and so on. In many cases, they were much smaller. Our turnover in the Sander Meson group was maybe €35 million, while many other companies had a yearly turnover of maybe €3 million or €7 million. So they were very small. The CEO often also served as the sales director and handled everything. For us, being a large group with six or seven different companies, it was more complex than usual. I don't think they've failed with other acquisitions, but Sander Meson was so large that it was probably more costly. If a small company fails a little, it's easier to adjust and support them. - Former COO at Indutrade OpCo

Smartsheet and Monday.com

Smartsheet is a $5B Work Management software company. A former Smartsheet Sales executive explores the structure of the sales org, use cases & typical customer use cases for the product:

From a new business perspective, it was generally one team within one department or one single business unit. If it was a strategic evaluation, it was probably an entire business unit within an organization. However, if it was a smaller evaluation, it was probably just for a team within a business unit within an organization. This is from the new business perspective. Once those accounts become more established and they move over to our client development side, the use of Smartsheet could potentially expand to 60% to 70% of the organization using it in some capacity. - Former Sales Executive at Smartsheet

Inchcape: Distribution for Chinese OEMs

Last week, Inchcape sold its UK auto retail business as it continues to focus on auto distribution. This interview continues to explore the fundamentals of auto distribution and how Inchchape aims to distribute Chinese OEMs across Europe:

Going back to distribution, Sime Darby has been quite smart. They had BYD a long time ago in Singapore as part of one of their smaller ventures, because Singapore is very environmentally conscious. They built a relationship with BYD in a small way. As BYD became more aggressive, Sime Darby was successful in getting the distributorship for BYD for the whole of Malaysia. Now, Inchcape isn't even present in Malaysia. - Former Head of Mazda Operations at Sime Darby Motors Thailand

Public Policy Holding Company: Forbes Tate & Consolidating Public Affairs

Public Policy Holding Company is a UK-listed small cap consolidator of Public Affairs advisory companies. The largest company within the group is Forbes Tate, a multi-services firm based in Washington DC. In this interview, a former Senior Vice President of the company discusses the overall Public Affairs market landscape and the strategic rationale for having multiple firms under one roof:

This integration gives Forbes Tate an advantage when engaging with potential clients. Having everyone under the same roof facilitates collaboration and the development of a broad strategic plan. It's not about calling up a partner to discuss polling; the head of polling is in the meetings and can immediately contribute, suggesting focus groups to drill down on specific issues. - Former Senior Vice President at Forbes Tate