Start-up Deepdive - ProductEngine

Good afternoon and welcome to a special edition of Overnight Successes, the weekly newsletter that levels you up on everything Aussie Start-ups.

As promised in the weekend edition, this is a deep dive into a start-up that was recently featured in the newsletter after raising their seed round. Well done to the 2 subscribers who reached out with the correct guess. Editions like this will be sporadic. The hope is to give exposure to a team doing great things, explain a business model and a potential path to success. Despite the name, nothing is an Overnight Sucess, hard work needs to compound for months and years. Below you will find a snapshot of a start-up's journey and an explanation of why it might be an outsized winner.

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The secret ingredients that make ProductEngine a potential unicorn

A deep dive into the business with co-founder Matt Hollis

ProductEngine announced in early May they had raised $1.2 million in seed capital from Folklore Ventures. The business was touted as a "product and pricing management SaaS startup". This description may make sense to some. But if you're not from the industry, the value proposition can be hard to grasp. I initially sat down with co-founder Matt Hollis to understand more about the capital raise. After understanding more about what ProductEngine does, I left feeling that Folklore Ventures and Startmate had backed a winner. 

This piece will summarise their business, the founding team and the potential powers ProductEngine could leverage on its path to becoming an Overnight Success. 

Before diving in, we'll touch on the founding story and a quick explainer of the company. It’s also essential to understand more about my mindset. My optimism metre is set to 11. Sure, identifying a business that may struggle is easy. Start-up failure rates are extremely high by nature. But this isn’t the bond market, venture capital must chase opportunities high on the risk-reward curve. For me, understanding commonalities between these high performers are rewarding and fun.

So, let’s go!

The People

The co-founders tick the boxes. Matt Hollis comes with 25 years in product and sales with experience in the industry. His counterpart, Jarrad Seers, is the CTO and arrives with 22 years of software development in software development and senior management. On top of this, the founding team have worked together previously for over 7 years. 

The Product

The software is described as the single source of truth to manage your products and pricing. At a first glance, this sounds like a spiffy database for a store to manage all its SKUs, making sure the price is updated across the floor and online. That’s just the beginning of ProductEngine’s capability. The system can be used across the business as a CRM to harmonize sales, warehousing, procurement, marketing, resource management and much more. How? Through a series of APIs and an object-based database. A quick mid-call Wikipedia search tells me ‘object-based’ means the data reflects real-world information, like size, colour, and specifications.  

The Why? 

ProductEngine won’t suit all businesses. Hollis described a key milestone a business will hit before they feel the pinch of a poorly optimised product database. The milestone is around 1000 different SKUs. However, 1000 can be hit pretty quickly when products are sold across borders. An example is one beta tester with 120,000 different products on their books. This is complex enough before accounting for 27 different pricing levels across retail, wholesale and international. A perfect customer, in Hollis’ opinion, would look like Valvoline, an Australian oil and lubricant manufacturer that distributes worldwide. For Valvoline's famous lube guide, head here.  

The Powers

So what makes ProductEngine potentially a future Unicorn? 

The ingredients are there, ProductEngine is solving a challenging problem with a very large TAM. Think of all the obvious candidates that could use this software? Now think of the non-obvious examples like lubricant manufacturers. The tailwinds are there too. Brands are continuing to consolidate and expand internationally, This means internal teams need better solutions to manage their inventory if they want to be successful. 

But what powers does ProductEngine have now and what powers will they unlock at scale? Using the Hamilton Helmers 7 powers framework there are a couple that is in effect already while others will grow as the business does. 

Network Effects 

Presently, ProductEngine allows its users to send synced price information to their clients. The client receives this nicely formatted data with everything they need - ending email price list tag. 

This system lives inside a ProductEngine window. If that client were to also jump on the ProductEngine bandwagon, APIs could eventually sync up and supply issues identified earlier. As each user joins ProductEngine’s systems, other users in the system may potentially benefit from easy access to pricing information from their suppliers. The other benefit of this process customers naturally become the sales team when they share their product lists. 

Counter positioning

ProductEngine is future-proofed for the next generation of online commerce, built with international expansion and APIs in mind. While incumbents, like spreadsheets or CRMs, are not focused on this particular problem. Incumbents will focus on their solution while ProductEngine can continue to specialise in their niche. 

What about at scale? Powers after growth

When ProductEngine matures, and a business is using the service to manage over 600,000 products and their individual prices, the inherent stickiness is incredible. Imagine trying to change providers with that much complexity. The churn (if the service remains quality) will be extremely low so high switching costs are in play. Another interesting angle comes with time as well, ProductEngine will have a unique dataset to play with which may unlock a new cornered resource. This dataset could identify international trends, industry health and product popularity, all information with high value. Furthermore, as larger and larger companies join ProductEngine and remain clients, the brand could develop into something that's seen as essential. This will give pricing power to ProductEngine. 

The network effects and counter positioning will continue to remain strengths. 

Advice for founders?

While ProductEngine were lucky to raise before the recent change in climate, Hollis did have some evergreen advice for founders. The early conversations with Folklore investors and in particular, Dan Flemming, went incredibly well. Hollis felt in his gut that he liked the team at Folklore. Plus knowing he was starting a partnership likely to last 10 years and working with a local team (in the same timezone). So for the founders of ProductEngine, chasing larger valuations and international investors seemed unnecessary when smart money could be found locally. 

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I know it's a kinda random advertisement, if anyone actually signs up the marketing manager is buying me a slab of beer. Think of the CAC on that? Or should I say SAC? Slab to acquire customers...

Notice Board

• Dream Venture Masterclasses is equipping Indigenous Australians with the connections, capabilities and access to capital to become investor-ready. The free program will provide up to $150K worth of seed funding. More info!

• Start-up Victoria has launched a new website! Worth a look for some fun community events. Startupvictoira

Hand Curated Jobs

• Folklore Ventures is hiring for an Investment Manager, Investment Associate and Investment Analyst.

• Rampersand is hiring for mulitple Investment Principals & Investment Associates.

• Breakthrough Victoria, the manager of Vic Govs 2Billy fund is looking for an investment analyst.

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