Differentiation by Design: Moving the Distribution Industry into 21st Century Goes Beyond Digital

Peter Jackson, CEO of Miller Industrial Supply, came up in the world of consumer marketing and design before breaking into industrial distribution when he bought Miller Industrial – a 100-year-old MRO and hardware distributor based in the Chicago area – in 2018.

Although he’s a newcomer to the distribution industry, he brings ringing endorsements from his former employees and a belief that management should look more like coaching than controlling. He was never comfortable in big corporate environments and found his way to Groupon when it was just a start-up just before the company took off. Using his experiences there, he became an independent consultant where he began to wonder: How do you play by different rules in industries that cling to the status quo?

We sat down with Jackson on a recent episode of Wholesale Change to discuss how, at Miller, he’s brought his creativity to industrial distribution.

Distribution Strategy Group: What drew you to distribution?

Peter Jackson: Nerd alert: I wrote a thesis called The Superman Theory, all about how Superman is only super in a relative sense because no one on earth has seen someone from the planet Krypton before. Even though most of my former colleagues in the digital world of Groupon went on to work for other tech startups in Chicago or the coasts or Apple, Amazon or Facebook, I realized I wanted to go back in time to compete in a traditional 20th Century “unsexy” business.

I knew I would have to do an acquisition and that I wanted to look at industrials because no one was looking there.

I think a lot about competitive advantage and choosing my competitors wisely and where talent is flowing. Places like Wall Street, Silicon Valley or the Goldman Sachs of the world come to mind, and they all just hoard talent. They’ve created a marketing machine to find those who’ve been privileged enough in American society to have gone to the US News and World Report Top 25 colleges who are ready to trade a huge salary for a high-pressure job. Those folks won’t look in this industrial environment.

DSG: This is exactly what is drawing the disruptors to this industry, right? Amazon would rather compete with Grainger than Google because it’s not a hundred-billion-dollar behemoth with leading AI experts. Alibaba is also moving in and Berkshire Hathaway is buying companies.

You’re in good company with people who recognize there is less innovation here. Traditionally, we’ve been a slow-changing industry, but that’s all changing right now. So when you look at what’s happening with your competitors and with your business, where do you think you can apply innovation in a way that brings you competitive advantage?

Jackson: Choose your customers. We’re not a big business, we’re on pace to do somewhere between $3.5-$4 million this year. We look at the small manufacturers, construction companies and logistics companies that we can service better than Grainger, because Grainger can’t make enough return on investment on those kinds of customers.

We fly under the radar of where the big boys are playing. Competitive strategy design is important. Companies like Apple are obsessively secret about their intellectual property, and while there’s something to that, we work really hard to be excellent for a core audience. Secrecy tries to perpetuate a mythology that pretends there’s not a process to this and that creativity is luck or a gift. I see it vastly differently.

DSG: Someone mentioned they love how you cut through the red tape on your website – what are you doing differently?

Jackson: There’s a kind of dad joke on the website about the red tape that our business is riddled with. Amazon has this dominant powerful vision to rule by automation, so I think a lot about what humans can do better than robots. Humans have endurance, imagination and can deal in nonlinearity. Embracing those things can carve out interesting business opportunities.

DSG: I like the Miller propaganda. It looks like you’re using gamification on your website.

Jackson: I look for those kinds of opportunities. A typical pitch we hear in our industry sounds like, “Lucky you! It’s March 31, that means 10% off hammers!”

When I hear that, I’m assuming I wasn’t the only one who got that message. It only shows the company hasn’t done a whole lot of homework on me or my business. How is that even going to be remotely relevant?

So, what we’ve tried to do at Miller, though it’s difficult, is learn to tailor messages to particular customers and the specific challenges they’re dealing with. Then, we work on ways that are fun, interesting and engaging by connecting with emotional elements.

We focus on design and how to bring humanity, creativity and sexiness to a world that, for the most part, doesn’t think along those lines.

DSG: You’ve talked about the concept of fast or cheap failure, which seems like an idea from the tech world – can you explain that?

Jackson: Ultimately what I’m after is what we can do that cannot be copied. We find this differentiation through experimentation, play and testing. Amazon calls this working backwards – looking at a customer’s world and determining what should exist but doesn’t, then working backwards to figure out how to bring it into existence.

It’s a dual-pronged discipline to be both imaginative and bring something to life. This often works with the venture capital process-funding ten ideas knowing most of them won’t work while two are going to be home runs.

When I follow this process, I don’t know which ideas are going be successful ones and I don’t care. I only that the process will yield great outcomes. It requires managing the budget and killing ideas that aren’t showing traction as fast as possible.

The beautiful part about the venture capital process is that it scales – the larger your business gets, the bigger your bets can get. We know we’re going to have a low batting average in terms of how often we hit or get on base, but when we do, the impact when we score is tremendous.

DSG: Jeff Bezos said that the problem with the baseball analogy is that the maximum you can get is four runs, but if you actually hit the right idea, you can get a thousand runs.

Jackson: It’s a bet on impact over perfection. In American education, culture and business, we tend to want to be perfect. We don’t measure the impact. You’re not taking any risks. At Miller, we’re getting comfortable with structuring things where, psychologically, we’re prepared to have a low batting average, but when we hit, it’s crazy.

DSG: I love that thinking, but there are some nuts and bolts when it comes to the distribution industry from managing inventory and accounts receivable to making sure customer service is bulletproof. How much of that did you bring with you and how much of that did you have to learn when you got here?

Jackson: I’ve had to learn all of those nuts and bolts. My weaknesses are the elements everybody else tends to focus highly on. But for the audience we’re servicing right now, we’re doing good work, and I’m getting better at those things.

What I’m bringing into this industry is innovative design that seeks to continuously bring what should exist but doesn’t into your customer’s world over and over again. Now we’re positioned to go from good to great.

DSG: You’re doing a lot that a typical industrial distributor might not do as a hybrid industrial hardware store and industrial distributor. Where do you go from here? How do you think about continuing to grow the business? There’s a lot of competition and a lot of business opportunity out there.

Jackson: I see an aging ownership base in this industrial world. I’m interested in the private equity design firm model. A traditional interdisciplinary design firm has lots of graphic designers, product designers, web designers and industrial designers all in the same group using an agency business model and charging by the hour. They’ll charge a Fortune 500 company to make something better for that company.

I think there’s an opportunity in private equity to take that same talent of design, and instead of using the agency model, use the capital model. This model takes all that design talent, designs it themselves, and buys the business. Then they can use that design as a massive competitive advantage. Because in these industrial environments, there just aren’t a lot of designers creating things like this that have the potential to be “thousand-run” impact projects.

DSG: It feels like what you’re describing is a platform model, and that you would want to eventually be the platform.

Jackson: I think there’s a way to do design as a platform in environments that typically don’t put design first or consider design at all.

Most people think of design as how something looks, but design is how something works. Design is centered around solving problems for a particular audience. There’s no universal design–it’s about determining what audience has problems that we think we can solve in an elegant way better than anybody else.

If you can do that, you can stand on your own island, which is what I’m after. I don’t want a whole lot of other people looking like me – I’m happy to be on this Island. To paraphrase Jerry Garcia, you want to be the only one who does what you do. That’s how you grow the business – it’s not about financial engineering which is what you typically find from the Harvard guys – it’s way more about how an IDEO (https://www.ideo.com/) would solve the problem, except when you solve the problem, you own the equity of the business.

DSG: Peter Drucker would agree with Jerry Garcia when he said, “the essence of strategy is avoiding competition.” If you’re coming up with solutions that nobody else has, then you’re not competing with them anymore.

Jackson: That’s my whole investment thesis – my superman theory is not about being absolutely great, it’s about being relatively great. If you’re a grown man playing hoops against fifth graders, you’ll probably win.

DSG: I’m curious how you think about digital and omnichannel and how that plays out for a small distributor.

Jackson: You have to weave digital competency into the future of your business whether you do it internally or acquire it. You also have to be careful to keep it in the right context. It’s a tool to make something better for an audience, not to exist in and of itself.

In an omnichannel world, I think it’s really interesting that there are four generations in the workforce in industrial environments right now that have grown up in different times of U.S. history. Digital competencies and buying preferences have been vastly accelerated, political attitudes are all different – that influences how people make buying decisions. You can have multiple designs from multiple groups of people and integrate them into your business really well.

Miller is already a hybrid – a hardware store on steroids with 90% of what we do being B2B for manufacturers, construction companies and logistics companies. I want to keep extending our hybrid omnichannel presence. But if I would’ve bought a more traditional distributor, I would lean more into the digital side as a competency and improve the traditional metrics that go down the Lean Six Sigma mindset of operations, using digital technology to make progress.

Right now, our channels are in three domains: There’s a retail channel where people walk through the front door and pick stuff off the shelf and check out at a point of sale with terms on some accounts receivable. It’s an experience. We also have vendor-managed inventory that we call field services. Then, we offer an experience in the digital world.

You can do really special design projects in each one of those domains, native to that domain. There are things you can do in retail that you can’t do online or on someone else’s premises and vice versa. If I had, you know, unlimited funds, I’d hire a chief designer for each channel.

DSG: This is an example of how you think about design in that it’s about how something works, not how it looks.

Jackson: Correct. We recently redid one of our boxes changing it from the typical brown box to a yellow, black and white funky style with big letters, you know, just all funkiness. That’s an example of how something looks.