Having a business that’s your startup’s first client creates a sandbox and gives you the necessary resources for you to experiment and grow much more effectively.

Every entrepreneur dreams of the moment they’ll make it to the Inc5000, a signal of success and industry recognition. We’re interviewing B2B Inc5000 companies to crack the code of HOW to get on the list (and ideally stay on!). This series will hopefully become the playbook to your success too. Today, we’re interviewing Joe Hessling, CEO of 365 Retail Markets.

NXT: What do you do

We make self-service technology for corporate employees.  Everything from self-checkout kiosks all the way to vending machine technology and standalone payment apps.  We now have 20,000 locations that use our tech across the US, and we have a small presence in Canada, Italy, England, and Ireland.

We’re a B2B2B technology company.  That’s right, there’s 3 Bs in there.  Essentially, we sell to our immediate clients, who are vendors or service providers, and in turn they resell our solutions to large corporations as part of a larger project.  For example, Amazon is a big user of our tech but we don’t sell directly to Amazon.

NXT: How does the B2B2B market work?

It’s much more complex because you have more stakeholders and you don’t have direct access to them.  It’s similar to B2B2C where companies have channel partners that reach the end customers.  Only in our case our channel partners are resellers that reach corporations.  And the end customer is actually the employee.

NXT: How did you get started?

I used to own a company that serviced large corporations in the Detroit area.  I’d be the person that runs their cafeterias and vending machines and would provide the food & snacks for them.

But we had a strong recession about 10 years ago – earlier than other regions in the country.  So we had to look at providing additional services to our current customers in order to bolster our revenues, and we had to figure out cost-effective offerings because they were getting squeezed too.

We had to be creative and finally turned to technology, going the self-service route, which saved on labor.  We started at cafeterias and then it turned into a business of its own starting in 2008-2009.

We immediately became very focused on self-service because we strongly believe that it’s here to stay, and it has legs almost in every area of retail.

NXT: What was the biggest challenge when you were first starting in this new business?

It was a big shift for us.  Going from providing the food to providing self-service kiosks.  Even though it’s convenient, it works, and it makes vendors more money, it was a really tough sell.  Because it was a very new behavior for consumers and people just didn’t see it working at first.

It takes a long time to change behavior and outlook.  The vending guy has been putting his product behind the glass for 15 years.  And now, I’m telling them that they have to put the product on a shelf out in the open!  It was a very difficult chasm to span.

But the consumer had a lot to do with it.  They voted with their dollars.  In the same spaces they would buy more, more often, and were willing to pay more.  After we had a track record to show financials, it clicked with people and they saw the value.

NXT: So how did you win the first client, before you had that track record?

We were actually blessed that my company was the ideal client for our tech solution, and we became our own first client, which proved critical to our success for 2 reasons:

  1. Having a “client” under our full control essentially created a sandbox for us to test different things and learn.  I think all early-stage companies really need a “friendly” client to get started.
  2. Also, having another business provided me with more flexibility and resources than I’d otherwise have.  I was able to effectively fund the new business with the old one.  Otherwise, I wouldn’t have been able to get into a new business that wasn’t generating money from the get-go.

Being our own 1st customer shaved years off the learning curve.

NXT: And how are you winning clients today, what has changed in your “pitch”?

Our marketplace is called “micro market”.  And back when we started, I used to talk about “why micro market” whereas now I talk about “why 365”.

It was a very innovative approach back then and most people didn’t “get” it.  But now everyone sees the benefits and we have proven the concept and have all the numbers.

We were the first company that did this.  Within 6 months we had the first competitor, but only a couple of competitors in 2-3 years.  Now we have 11 competitors.  So we have to explain why clients should work with us.

Our approach to getting customers has definitely changed to why we’re the right choice.  But luckily we’re the market leader growing at the fastest rate.

NXT: How do you win?  How do you differentiate from competitors?

We were the first in the industry so we have the most experience, we’ve already implemented our solutions at large corporate clients, and we have the most customer data.  More specifically, what differentiates us is:

  1. Reputation: We have a fantastic reputation, and it took a long time to accomplish that.
  2. Professionalism: Many people think they can just build the kiosk and that’s all.  But having years of experience to understand what are the table stakes allows us to build extra capabilities into our products.
  3. Customer-focus: scanning and paying isn’t too complicated so we need to offer more than just products, i.e., customer care and focus.

NXT: And how do you find your channel partners?

You need brand recognition and to be well-respected in your industry.  For example, it’s often worth it to sponsor a tradeshow for $20,000 because people perceive you as a leader in the industry.  And the 2nd or 3rd time they see you as a sponsor they will be more likely to buy from you.  Of course, you have to combine this investment with a good sales team to follow up with these prospects.

An interesting dynamic in our industry is that, even though it’s a massive market of $25bn in annual sales that goes through corporate POS systems (or even $100bn if you include cafeterias at work), it’s managed by a small group of people.  So our target audience is about 5,000 clients.  It’s not too hard to know who they are…

That’s why digital marketing doesn’t really work for a business like ours.  Brand and product recognition are definitely important.  But we’d use digital email marketing and click ads for brand recognition more than lead generation.

NXT: Your sales are up 4-5x over the past few years to over $25mm in 2015… what’s your secret sauce for growth?

The secret sauce in many ways is “luck”: being at the right place at the right time with the right product.

Right place: The right place was in the contracting food vending world because they had been dying for more revenue and profit so they quickly opened up to cost-cutting solutions.

Right time: Having a cost-cutting solution out when people were cutting back on costs and were looking for innovative tech to do more things for less was the right time.

Right product: The end consumer who buys a snack became increasingly open to self checkout technology, so this is definitely the right product.

We found a new way of doing business and persevered to get that out to the marketplace.  Once it started taking root and became more of a standard, we were professional enough to manage that growth by delivering a robust solution.

Don’t get me wrong.  We’re very good at product development and execution, but we had lots of luck on our side too.

NXT: Where do you see opportunity in the near future to continue your growth?

There are three major opportunity categories for us:

Ancillary products & services

Our clients will need more solutions related to our products, e.g., business intelligence, advertising, and promotions.

Growth within AND outside the food service space

According to some research reports I’m seeing, self service is scheduled to grow at a very rapid pace of 19% annually until 2026.  We have so many areas of industry and retail, where people are looking for more self service options.  We can take our products and tweak them to create a solution for them.

One example of how we continue to innovate and stay at the forefront of this industry is that we’re trying to do a better job at connecting a consumer with a vendor through mobile.

Driving participation at the consumer level

You have some natural participation but there are definitely ways to entice more participation and engagement: by integrating with other systems, as well as through loyalty programs, brand promotions, and gamification (putting a competitive spin on food consumption, and aligning it with the goals of the locations we’re serving, e.g., for charity or wellness).

NXT: What do you see as the future of self-service for someone like you?

We want to connect more and more with the consumer.  We have tons of data and soon we’ll be able to leverage that in order to become more a more integrated part of our consumers’ lifestyle.

It would be great to integrate with other lifestyle apps and products like Fitbit in the corporate environment, or working with HR departments as part of their wellness programs.  For example, we could do things like:

  • “if you eat this snack you need to add 2,000 steps to your daily goal”, or
  • “You had a chocolate already, how about an apple this time”

And we’ll be able to bring together both the front end and the back-end technology to connect effectively brands to consumers in a non-invasive way.

Soon, we could be looking at consumers’ detailed history, vendors’ inventories, and brand engagement… and drive everything together in a seamless, connected manner.

365 Retail Markets

Kosta BoardStudios.com

Founder of Board Studios Inc, an animation production agency that helps B2B companies simplify and communicate more effectively. Specializing in B2B makes a big difference because we know what information your clients need, what works and what doesn’t. B2B communications can be very different than B2C, so if you get your video explainer from a B2C agency you may not get the results you deserve.

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