JT Garwood explains how Bttn handles supply constraints from manual SKU setup work and its strategy with major distributors like McKesson and Henry Schein. He argues incumbents won't aggressively undercut Bttn on price because of their own business models.
Hey, JT, how's it going?
How's it going, Eric?
Cool. So I guess like 2 quick questions for you. I guess like the big thing I'm curious about is like, I think I've read elsewhere, maybe in one of the articles, you kind of talking about like the marketplace being supply constrained. So just like kind of curious, like what's kind of like the network of like distributors that you guys are working with right now, or kind of like how do you start to really like up your capacity on the supply front? And then I guess related to that is like, at what point do the McKessons and the big guys of the world like start to really pay attention? And like, can they, it's like, or have you started to see any behavior where kind of come to like start to come in and be like, I'm just going to crush you on price, right? Like this small doctor's practice is still valuable to me because of all the things you were talking about before with the minimum order quantities and such. And, you know, like screw button, we're just going to come after you guys.
Yeah, absolutely. 2 really good questions. The first one is absolutely true. We are completely supply constrained. Like I mentioned, you know, we have 2.5 million SKUs, but we only have 15 million live on the platform, or sorry, 15,000 live on the platform. And so what we found is that the more— and we should have realized this earlier, but basically the moment that we started dumping SKUs on the platform, optimizing landing pages, just getting everything up there, demand, sales, XYZ, it all just climbed thereafter. So we have an interesting sort of supply constraint where it's not that we don't have the access. We actually have great supply access. You know, our distributors It's only expanding, right? We can go direct to manufacturer now because we have enough demand. So it's less so the aspect of getting the SKUs, it's just that none of those folks that we're sourcing the SKUs from are tech-enabled, right? So they don't have images that are ready to go for us. So we have to go crawl the internet and find, you know, non-copyrighted images for these products for them to— for us to upload. We We have to index them. We have to go through that heavy lift, and so our supply constraint is completely tied to how many SKUs can we get live on the platform as soon as possible, and not so much that you know our distributors aren't willing to. I think if you think about that in terms of the environment, so basically how every distributor works today is that they source from you know hundreds of different manufacturers. They take inventory. based on the segments that they serve. So they take— let's take Henry Schein, for example. They have a huge dentist presence, right? And so most of their inventories are based on dental manufacturers, right? And so they typically don't compete with the McKessons and the Medlines and the other folks. They compete with more regional distributors. But since their inventories are backed into that, they focus on dentists. They have to stay to dentists. McKesson, you know, very heavy in alternate site providers, um, and pretty much like anything that's a physician office. Owens& Minor, very good with hospitals, right? And huge tonnage amounts. And so, but what Button gets to do is we get to sit a layer on top of that and go, we don't need to pick which ones because we don't have to back our inventories in like that. And manufacturers love that. Manufacturers love to see that Oh, this is a channel that we aren't accessing through our current customers. Great. We'll sell to you the same way that we sell to a McKesson or the same way that we sell to a Henry Schein, because we see this as market share, right? If you're capturing market share that we don't have and we can sell more products through yours, why not? So our supply constraint isn't the willingness of more distributors to join. It's just the manual process of getting those SKUs up and ready. And then the second part, yes, they're definitely taking notice. And it's interesting because, you know, we, we've done a pretty mixed, mixed bag of flying under the radar plus intentionally poking the bear. And it's all strategic in the sense of, you know, we need to get our name out there because dentists care a lot about name brand recognition and they care about the communities and circles that you're in. But the truth is, is that there's not really a price lowering mechanism, as you said, that they could do to force Button out of the market. The business model that they have to support doesn't allow for that, right? The quarterly reports to Wall Street don't support that model. And additionally, the easiest way to do this is for them to build it themselves, right? For them to go, why don't we just also have an e-commerce experience? The way that 95 or 99% of their revenues flow are through these field reps, right? Or through these sales reps that are in the field that then act as, you know, their own little entrepreneurs And then all of that business funnels through them and they set the price and they go for it. So in order to match what Button's doing in terms of a price competitive standpoint, they have to fire all of those people or lay them off, and then they'd have to build an e-commerce platform. I don't know if I was sitting in a boardroom if I would align with that decision, right? Because you literally, it's like Frank Slootman, right? You have to burn the ships in order to potentially set up a new business model that works for them, or it's 7 Powers counter-positioning. It's these things that they just fundamentally would have to bet so hard on an area that they have no expertise in, no area, and also believe that Button is the future, which they can't because it's a lot of innovator's dilemma, which means that we just have this situation on our hands that quite frankly, they will probably never build something to match what we have. And if they do, it'll be an afterthought, right? Like some of them have an e-commerce website, but you have to have an account and you have to sign up for it. And something like 1% of sales ends up going to the platform because it's just an afterthought. It's not the priority, right? It's not the thing that they focus night and day on building because they're not a tech company. And so from the price standpoint, because of the way the distribution works, They can't price us out. We go to the same manufacturers as them, right? We're buying from the same people, and those folks care more about market share than they do about making one of their customers happy. And so we have a great opportunity, I think, to not only, you know, meet the challenge, but then the other side of it is we would love those people to be our partners. If we could use their distribution and fulfillment capabilities at our pricing levels, That would be the perfect scenario. So what we more often find is that it's not a competitive conversation. They see us as a potential partner, right? Because they're not going to do e-commerce. They don't really care about doing e-commerce, but they know that Button will be able to do it better than they will and potentially capture more market share.
