Choosing the Right 3PL and IT Partners: An Entrepreneur’s Perspective

Many entrepreneurs are very knowledgeable about engineering and product development, but they lack the skills and expertise in one critical area to scale their companies: logistics and supply chain management.

And when it comes to logistics, entrepreneurs have to decide which capabilities to develop in-house and which ones to outsource — and if they opt for the latter, finding the right 3PL partner is often a challenge.

So, what’s an entrepreneur to do?

Last week, I interviewed Jordan Kivelstadt, founder and CEO of Free Flow Wines, a pioneer in the “wine on tap” movement that Jordan and his partner launched in 2009. Logistics is core to the company’s business, so I asked Jordan about his experience finding the right 3PL partner and here’s what he said:

I think that’s one of the big challenges – [finding] great partners versus partners who are just in it for the money. When you look at a [business] space, it’s important to see who’s in that space, do your research on who’s behind them — whether they’re family owned, private equity, a large corporation, publicly traded, whatever the history of the company is — and decide on the kind of partner you think would be the best match for your business and also has the right approach from a corporate level.

So, when we…partnered with a [3PL] called Satellite Logistics Group [based] in Houston, at the time it was a privately-held company and the founder and CEO was an entrepreneur himself (he was an Ernst & Young Entrepreneur of the Year), and I reached out to him and said, “Kevin, I’m a young entrepreneur, here’s what we’re trying to do, we’d like to work with you” and told him about our vision, and not only did they help us on the return logistics, his company actually loaned us the first $1 million in kegs we needed to get our business off the ground.

So, it ended up being more than just a business partnership; it ended up being a really incredible partnership for both companies.

Today, we probably spend almost $1 million with Satellite Logistics every year…and that number is growing 200 percent a year. So, for [Satellite’s CEO], he made a calculated bet, he knew the space, he liked me and my partner personally, and so he took a gamble, and that might not have happened if we had tried to do it with UPS. So, it’s about looking for and pursuing the right partnerships, partnerships that are mutually advantageous, and that’s what we found.

Jordan’s advice echoes what I’ve been telling entrepreneurs the past few years: If you can get a 3PL to effectively invest its time, resources, and assets in your business — via a Vested agreement, for example, where the risks the 3PL takes upfront are balanced with the rewards later on — then you have a partner at your side that can address whatever supply chain and logistics challenges and concerns an investor might have.

Of course, you have to give credit to Satellite Logistics Group for not following in the footsteps of other 3PLs that often turn away start-ups because the revenue opportunity is too small (at least in the near term) and the risks/uncertainties are too high. The company followed the advice I often give to 3PLs: Be forward thinking if an entrepreneur knocks on your door. If an opportunity looks promising, find a creative way to partner with the entrepreneur, where you minimize the upfront costs and risks for him or her, while maximizing your longer term profit potential.

I also asked Jordan about another challenge many entrepreneurs face: getting set up with technology to run their business, such as ERP and logistics systems. Watch the short clip below for his response, where he talks about the build versus buy decision and the benefits of software-as-a-service (SaaS).

I particularly liked this piece of advice:

The first recommendation I give to every entrepreneur is don’t go with the simple cheap solution and get used to it because if you do, two to three years from now if you’re wildly successful, the cost to transition to another platform is unbelievable.

Our switch costs when we did it from QuickBooks to what we use now [NetSuite and Oz Development] was about $150,000. If we [made the switch] today…only two years later, it would be over $1 million.

In other words, choose a solution that will scale with your growth, not one that you will quickly outgrow.

Watch the rest of my conversation with Jordan for additional insights on this topic. Then post a comment and share your perspective!