A gutsy rollercoaster that starts with ads optimization and ends with flooring retailers

Today’s Scatter Brain is brought to you by AngelList!

AngelList Stack is for startups that want faster fundraising, cleaner cap tables, and high interest banking, all in one place. Scaling companies such as Abound, Harness Wealth and Syndicate migrated from other vendors in less than a week with zero legal fees to gain an unfair advantage in managing their back-office. Learn more by signing up here.

If you follow Todd on Twitter, you will notice he makes a lot of nerdy jokes about flooring. I found it weird for the longest time why an ads guy is tweeting so much about flooring. I vaguely remembered he was into ad optimization from a news story years ago. When I looked into what he was up to, I discovered he was no longer working in ads and had pivoted to the flooring industry based on insights from the ads business! Not the kind of pivot you see every day! It is the most courageous and craziest pivot story I have learned about!

When I reached out to Todd to have this chat about Broadlume, I told him to be prepared to answer dumb questions because I knew little to nothing about flooring. He went, “I mean, you walk on flooring every day, I assume. DAUs are through the roof!”.

In this conversation, Todd talks about :

• An ex-Googler’s experience attending a flooring conference

• FloorCon (a clever spin on ComicCon) and The Dealer (a YT channel)

• Industry dynamics, trends, and value chain in the flooring world

• A dearth of digital penetration and consumer centricity in the industry

• His journey with AdHawk and the crazy pivot to Broadlume

• Shopping spree of acquisitions and the M&A learnings

• Broadlume’s unconventional product strategy and go-to-market

Todd backed into building a vertical software company for the flooring industry as a complete outsider who didn’t know anything about flooring in the first few years of their venture-backed journey building a successful business in a different domain. Broadlume has raised over $60 million, grown to over 100 employees, and serves over 3000 flooring retailers. I now understand Todd’s nerdy flooring humor on Twitter. 

Todd: I dodged the COVID bullet for like two and a half years; everyone around me had it. And then, of course, our biggest conference comes in February, and somehow I have it that day.

Sar: Ah, I went through a similar experience. Was the conference FloorCon? I didn't realize it was a thing until 24 hours before our chat. Is it like ComicCon, but for floor flooring nerds? What’s the story? Before we talk about the company, I want to discuss some pieces of your journey and what the flooring industry is like to create some minimum viable context necessary to understand what the company does.

Todd: I used to work at Google on AdWords. So I'm used to Google IO and HubSpot Inbound. When I started in the flooring industry, some industry people said, "Oh, you're from Google. You're going to a flooring conference.” I thought it would be at the HubSpot Inbound of the flooring industry. And I get there, and there's like a step stool in the corner, and they're like, stand on that step stool and give your talk! I'm like, what? I had no idea where to put up the deck I had prepared. I didn’t know what was happening. I was without a screen, slides, etc. I was talking to just one guy in the audience, half listening.

And I soon realized that the flooring industry conferences are like trade shows. Everyone touches and feels flooring products. You go to conferences for all of Q1 and touch and feel the same carpet samples as last year, but there is no content, learning, networking, or technology like you would expect at a conference. We went to those conferences for two years. And then what we realized was that the retailers want to network with each other. They want to get content. They want a Hubspot Inbound-like experience. So we launched FloorCon. We did it digitally in 2020. We had about 3000 retailers watch it live. And then last year, we had about 400 retailers come in person. We'll have about 600 retailers this year but think of this as the Inbound for flooring retailers.

It's less touch and feels like the carpet, find “new” of the same products to sell in your showroom. It's more networking, learning, education, seminars, and stories from successful peers that are super profitable, have sold their business, or have interesting stories. They are not used to getting all of that in conferences.

Sar: Ah, you brought what we are all used to in tech to this industry. You are trying to create the Twitter zeitgeist offline for flooring folks.

Todd: Yeah, correct, exactly. That's what FloorCon is. It is unique to the industry but probably not novel to you and me. It is the only place for flooring retailers to get together and talk strategy. They do not congregate anywhere else. The only other place would be a Facebook group we manage called Beat The Box Stores, with 3.5k members.

Sar: I love the name. Do people get that reference? Is there a wordplay on your company’s new name Broadlume?

Todd: I have no idea if they get that reference, but I'll tell you that the energy coming out of that event was incredible. Our name Broadlume is a play on broadloom carpet, the most sold type of carpet.

At FloorCon last year, we made more sales of our ERP product in that one day than we did in the whole last year. It's perfect for retailers and us. Everybody wins. At the end of the day, though, if our customers learn to be better retailers, they will be around longer, make more money, and have more money to pay for software. We have a burden as a company to fight for the independent small business flooring retailer, and FloorCon is just one of the many things we do.

Sar: Tell me about The Dealer, your Youtube channel. I was watching a bunch of videos of you talking with flooring entrepreneurs. You guys seem committed to content in different formats.

Todd: We take for granted all of that stuff in tech. But, the people in the flooring industry don’t have that. I did an episode with Jason Goldberg, who does 200 million in revenue; he’s like the God in the industry. Everyone looks up to him. Everyone wants to be like him. So by us getting him into one of our retailers and doing that whole episode was unbelievable marketing for us. Customers come to us. They want to be the next host now. It is a content play, and they love it. There's an ROI behind all of this.

The Dealer is a play on The Profit but for the flooring industry. Jason goes into stores and tells them what they are doing right/wrong. We spend much of our marketing time/resources building content like that. It helps us generate business, but more importantly, it helps us build our tight network of retailers.

Sar: And the market's not saturated. It’s novel for the industry when you guys use the content playbook. You guys are quite creative with all these names considering you were total outsiders to the flooring industry when you started.

Todd: Yep. There's no venture-backed technology company in our industry.

Sar: Is that true?

Todd: Yeah. Every other software company is like, “I owned a flooring store, I opened up a software company 30 years ago. We grow it 5% yearly. We make a million in EBITDA, isn't this great?”. We are the only ones that have raised capital and are investing heavily in R&D and technology.

Sar: Wow, and what do those guys do?

Todd: There are three ERP companies and one other website company, and that's it. It's a different business. And the average software company in our space has been around for 30 years. There's not been a new entrant because you can't get in. It’s all about who you know, and it's all about a small group of people. Many vertical software companies have tried to come into flooring but couldn't because you can't just say, “I've raised all this money; look at us, we're in TechCrunch!”.

The flooring industry is unique, complicated, and controlled by people in a backroom that run the industry. It’s funny; in Silicon Valley, there is Sand Hill Road, where all the investors work, but in the flooring industry, that is Dalton. Dalton, GA, is home to every flooring manufacturer. Replace Google with Mohawk Flooring and Facebook with Shaw flooring, and you have Sand Hill Road but in Dalton, Ga. They are all on the same street. Everyone knows everyone, and it is very easy to tell if you are a flooring person. Dalton is THE place for flooring. 60% of the carpet sold in the USA is made in Dalton.

Sar: I think we have hit the limit on analogies and comparisons between tech and flooring we can draw without talking about Broadlume. Talk about how you got started and what you do. You have quite a pivot story. I have never heard anything like it.

Todd: We left Google and started an adtech company. We had raised two rounds. Founder Collective led our A, and Techstars// Zelkova Ventures were the largest checks in our Seed. We also were part of Techstars Boulder, right out of Google.

We were doing 5-6 million in revenue. Our most significant customer was this flooring website platform called FloorForce. We saw this fantastic opportunity to become a vertical software company for the flooring industry. So we acquired them and made a bold bet to our board that we could be a vertical platform for the flooring industry rather than an ad tech platform for general SMBs. Six months after acquiring them, in October of 2019, we got rid of all our other customers that weren't flooring retailers. We went from 5-6 million in revenue down to 3 million and went all in on the flooring industry. That six-month period was tough. We worked hard for that revenue. Pivoting the whole business was also tough on the team, and we did not want to go through it, but the opportunity was too big not to.

We decided to be an all-one platform for flooring retailers. We acquired the second largest ERP company, the largest CRM company, and our website builder competitor in the industry. So all of a sudden, our team is now half flooring people that have been in the industry for 30 years and half tech people. We went from 8 million to 3 million to 22 million in revenue during this time. So it was a massive bet that has paid off so far.

Sar: So you went through this pivot and made four acquisitions within two years?

Todd: Yeah, the craziest part of the whole thing is the timing of it. Adtech fell off in early 2020 because of COVID, and home improvement skyrocketed during lockdowns. We went all in on flooring in October 2019 because the conference season in our industry is Q1. Hence, we wanted to be ready to attend these conferences as a flooring company. The flooring business exploded in 2020. It was like we predicted the timing of going all in on the flooring industry, but it was luck.

Sar: How did you build conviction around flooring? The flooring industry wasn’t on your radar at the beginning of your career. What was special about the flooring customer segment in your prior adtech business?

Todd: If you looked at our retention numbers with our ad tech business, it was 95% with our flooring customers and 80% retention with everyone else. Today with our customers, our logo retention is 92%, and our NRR is 115%. We are servicing a specific customer, talking to them, and building something great for them. When we were a generic adtech company, we were something generic to everyone.

Sar: Why do you think the retention was so high?

Todd: They're starved of anything, right? I'll give a good example. You go to an adtech conference, and everyone is selling you some new targeting algorithm. You go to a flooring conference, and there's not a single person talking about anything technology related. So I remember going to my first flooring conference a few months before we acquired that first company to get more customers on our adtech offering. There was one guy with a popup banner selling Google ads with half the words spelled wrong, and he had a line of people waiting to talk to him about Google and generally the internet, and he was the guy. And I was like, what is happening here?

I started exploring the industry then. I was looking at it and comparing it to the pizza or auto industry and all these other industries with vertical platforms. Nothing like that existed in the flooring industry.

Every person I talked to in the flooring industry had told me that once you're in the flooring industry, you never leave. Whether in retail or manufacturing, you jump from one place to another because this industry is all about who you know, not what you know. The more people I started to understand, the more I realized how much an advantage you have if you know the right people, and you can only do that if you've been in the industry for a very long time or you acquired a bunch of these businesses. So we had this massive competitive advantage going to this space with these acquisitions. And it honestly sounds crazy. No matter what happens to this business, I probably won't leave. I'll probably be back, maybe opening up my stores or building more software for these retailers.

You don't leave because there's so much opportunity.

Seriously though, I will most likely never leave the flooring industry, either. It’s full of great, hard-working people, and there is so much opportunity everywhere.

Sar: You've heard these stories of people not leaving enough over the years that you're manifesting it for yourself now!

Todd: And we're addicted too! It's just a group of passionate, poorly equipped retailers fighting tooth and nail daily. My dad has his own small business. I get it. I can imagine how difficult running it would be if you were to strip out all the software he uses. Being a flooring retailer is tough. You are relying on manufacturers to make the products for you, installers to do the installing in homes for you, and barely have any software. A little bit of technology in these stores can help the business explode. The retailers we work with go from 35% margins to 50% margins in the first month. So we're making a huge impact on the industry, which is awesome.

Sar: Woah, that’s amazing! How did you navigate that transition emotionally? How did you help your team process this? It sounds like a real rollercoaster.

Todd: This was extremely difficult, especially for first-time co-founders and myself being a first-time CEO. As part of us going all in on the flooring industry, we had to let go ~ ten people. We just had a ton of redundancies. That was tough. Laying people off, especially when you have never done it before, SUCKS. We made a lot of mistakes but did it the best we could. We then announced to the team that we were going all in on the flooring industry. Some were happy, some were like, WTF? After a few weeks, the dust settled; we told the team we had no other layoff plans and that we just had some redundancies. Little did we know that COVID would come, and like all companies, we planned for the worst. We had to do a RIF, and the blowback was massive. I told the team we wouldn’t do this, but I had no idea the pandemic would come.

We then built culture back up and have been skyrocketing ever since. However, going through a layoff and a RIF to get there was tough. Also, integrating all these acquisitions and merging cultures is always a challenge, but it is something we have gotten very good at. We have also had to spend a lot of time training our team in the flooring industry. Very few understand the dynamics of the flooring industry, and we needed our team to go from advertising experts to flooring experts. We took a lot of them out to Dalton to learn.

Sar: So, to take a step back, can you give an overview of the industry? Who are the major players? What does the existing experience look like for consumers? What are the current trends, and where do you sit in the value chain?

Todd: Flooring retailers are like mattress stores. They have 500 brands of flooring products they sell. They work with hundreds of manufacturers, many of whom might have multiple private labels across showrooms. Most retailers do not stock any products. They are mostly showrooms with large format samples and have to order everything to be delivered into their showroom from the manufacturer. When a consumer walks in, it's a terrible experience. It's like old-school buying a mattress. It's very confusing. Things are priced all over the place. The consumer picks a product, and the retailer has to order that product from that manufacturer. They don't carry any inventory. The store is a showroom. They then have to get that product freighted in. The product might be coming manufacturer or distributor. Then the retailer does the installation. They have their installation crews. The retailer is critical because the education piece is important.

Consumers are uneducated about the products. These products are expensive and are going to be all across their house. When you buy a car, you trust the brand; each car brand stands for something in the eyes of the consumer. There is no brand loyalty in flooring; no one knows brands in the first place. The consumers trust what the reps at the retail store are telling them. So retailer is important for education, and they hold the installation keys. They work with installers across the country. And installation's only half the battle. It could malfunction. It could be faulty or look terrible. A major issue in the industry is the shortage of skilled labor to provide installation services. Most installers work at retailers.

Let’s now talk about the manufacturers. Carpets were the biggest flooring product a decade ago. Making carpets is expensive and intensive. And you can't ship carpets from overseas; you're talking about roll 16-foot rolls of carpet. You could do it, but it's costly. About ten years ago, the industry flipped to luxury vinyl. Luxury vinyl is now 70% of the market. Luxury vinyl flooring can replace tiles with a print of stones or wood on top of it. It's extremely durable. The problem is everyone can get that overseas. It can be shipped on pallets because it's a hard surface and comes in strips. So the industry went from a few manufacturers producing a few brands to having a million manufacturers and brands over the last ten years.

There is a sea of sameness now because luxury vinyl is easy to build and ship. There’s an explosion of new brands. Both distributors and manufacturers are spinning up new brands. Our database added 300 new brands this year. The relationships between manufacturers, distributors, and retailers have become very complicated. There’s an incentive for everyone to have their brand. Manufacturers are like, why do I even need distributors? And distributors have access to trucks and retailers and started to wonder why they would need the manufacturers.

Sar: Is that sustainable? We have seen a similar dynamic with all these DTC brands in other industries.

Todd: The industry has turned upside down. I would say most people think it's going to bust because it’s plastic flooring. It looks good, but insiders predict luxury vinyl flooring will no longer be in all the million-dollar houses in the next ten years, and hardwood will replace them. The industry dynamic has completely changed and is now centered around access to retailers. The distributors are distributing for brand X and sourcing for their private brand Y simultaneously. Everyone is asking, “how do I market to a retailer? If I get a hundred square feet and the showroom is a thousand square feet, I have 10% of the showroom, which means I'll have a 10% chance of getting sales when a consumer walks in.”.

Sar: Oh wow, okay. That sounds so archaic. Talk more about how the manufacturers and distributors sell to retailers.

Todd: They show up at your store and say, look, you should carry our products and buy this display unit. And the retailers are like, okay, that’s $2,000 for the right to sell your products. That rep comes to the store monthly and brings jelly donuts for the PK (product knowledge) meeting. The rep talks about the products and what’s great about them, and why the retailer should sell them. The retailer tries to remember that. Every brand tries to do this to convince retailers to sell to consumers. When the consumer walks in, it’s all about whatever that salesperson wants to sell them, or what the customer bumps their head into is what they buy. The internet has changed everything, and consumers now want to do research.

Sar: Wait, retailers pay the manufacturers? Arent the display units ads? The brands should pay the retailers, no?

Todd: In theory, yes, but that is not how it currently works. Retailers pay for the displays and the samples that go in the display. When a customer walks in and wants a product, the retailer orders the product from the manufacturer. With that said, often, the manufacturer offers rebate dollars that the realtors can get back for the price of the display. For example, If a retailer sells $20,000 of flooring, the manufacturer will pay them $2,000 back for the display.

Sar: Oh wow! That sounds so backward. Talk about how you are trying to change the consumer experience in this new world and how you work with retailers.

Todd: Our view is it's all about access to consumers. So if you can market a product to a consumer and have the consumer come into a store and ask for that product, you win. But that’s now how the industry thinks. Consumers want to go online and look for the best products. They want to find a few options, fall in love with the brand, and go into the store and ask for that product. If you want to buy a TV, you look up the TVs on the internet and go into Walmart and ask what you want to buy. You don’t go in blind and rely solely on the salesperson’s word.

We have 3000 retailers as customers. We get millions of consumers visiting our websites. That's where consumers do their research. That's where you have to influence the consumer. So I would say manufacturers are now coming to us saying, wait, we need to influence the consumer to go in the store, asking for our product, not influencing the retailer to sell our product over other products. We sell websites, CRM, and ERP and are trying to digitize how the retail business works and change the consumer experience. The retailer websites have product catalogs and homepage banners for brand promotional material. Customers can order samples online.

Sar: These are basic things, but the industry is still so old school that even a simple website is a big deal! You are building a Shopify-style website builder for retailers, not the brands or manufacturers, correct? When you talk about consumers learning about brands online, wouldn’t a better approach be creating brand websites? Retailers care about total sales more than brand stories.

Todd: The “brands” of the industry are the retailer’s brands, not the product/manufacturer brands. There are a few reasons for that:

Manufacturers have private labeled their brands so many times that there are now almost 1,000 flooring “brands” in the country with no differentiation. This sea of sameness has made it nearly impossible for a manufacturer brand to stand out. It has also made it impossible to do national advertising to consumers and expect the consumer to find that brand/SKU name in a local flooring store. Most likely, that product’s brand/SKU name has changed so many times from manufacturer to distributor to retailer that the consumer would never be able to connect the dots.

With that said, the retailer’s brand matters a lot. Consumers walk into a showroom ready to purchase thousands of dollars worth of flooring without understanding the material’s brands/technical aspects. They have to trust the retailer who is educating them and, more importantly, handling the actual installation of the product. 75% of flooring issues come down to the installation. You could pick out the best flooring, but if it is installed improperly or not with the right application, it will result in a disaster.

This is all why the retailer’s local brand matters way more than the manufacturer’s. The manufacturer brand is just a widget. The retailer holds the educational and installation power and needs to build a brand and trust with the consumer.

Sar: The purchases are still happening in the stores, right?

Todd: The purchase happens in the store. The store has large format samples, much bigger than a sample any e-commerce website could ship you. As a consumer, you also need a retailer to help get the product to your house. Hard surface products come on pallets, and the carpet comes on 16-foot rolls. Both of these cannot just be shipped to your house. You need 18-wheelers with liftgates to get them there.

Sar: What does go-to-market look like for you? Do you sell the retailers on the website and then upsell the rest? Why can’t they just use other website builders?

Todd: Yeah, usually the website's the easiest. If you were to build a website on Squarespace, you wouldn't have the product catalog. You could technically do everything else but couldn't get all these products with descriptions. There's no API for all these items. You couldn't even go to every manufacturer and get an API. We have acquired all that information through acquisitions. You must find a random person at every manufacturer, distributor, and brand to piece together all the product pricing, inventory, and spec information. The retailer carries more than a hundred brands! We have thousands of brands in our database. That’s years of relationships and work.

Sar: So that data becomes your edge. That’s the asset that differentiates you from other horizontal website builders. Walk me through your business model. Are you involved with transactions or money movement?

Todd: We don't make a lot of money on our websites. It's an entry point. It's a similar playbook as every other vertical software company. It's building the network with software and fintech.

We do charge for the CRM and ERP. Our software has a SaaS fee, but we keep our margins low as we focus on scale. Today we work with 3,000+ flooring retailers, and the goal is to get to 6,000, which is about 40% of the industry. As we build the network, our goal is to leverage the network and then get further into the transaction.

We get into the transaction two different ways currently. The first way is through payment processing. We have Broadlume payments and Broadlume consumer financing. It’s pretty straightforward; we are the payment gateway for retailers and their consumers. It’s fully integrated into their websites/ERP, making the whole process seamless for the consumer and the retailer’s books. This part of our business is no different than a company like Toast. They charge a nominal fee on the software, but they make money on the payment processing.

The other way we get into the transaction is through partnerships with flooring manufacturers. When they launch a new line of products, we help them open accounts with retailers in our network, get their product images/promotions on our retailer websites, and develop digital strategies to help get consumer eyeballs on their products. All the manufacturer has to do is make the product. They no longer have to drive around the country opening accounts, and now they instantly get their promotions, product images, etc., on the retailers’ websites. In return, we get a % of all sales for all the open retailer accounts. It’s a massive market for this. There is $90B of flooring bought/sold every single year.

Sar: Switching gears. The acquisitions were a critical part of your journey. What learnings from the first two acquisitions helped make integration easier for the next set of acquisitions? What was your team most frequently surprised or annoyed by when they got trained and exposed to the industry?

Todd: Acquisitions always look easy on paper, but they are hard as hell. All the acquisitions we made were companies in the flooring industry. Most of them have been operating as flooring software companies for 10+ years.

The hardest thing about M&A and integration is the culture. Merging two cultures with different backgrounds, working environments, and mindsets is difficult. In our case, we are a venture-backed business with a growth mindset, and all the companies we have acquired are lifestyle businesses. They are great businesses, but the difference in how we do things is drastically different.

We have banned the term “this is how we’ve always done it.” At first, that is always the answer whenever we challenge new or current teammates to think differently.

There is also a big difference in going from a 15-person company with no HR to a company with 200+ people and HR/process. There are things you just can’t say or do like you could at a smaller company.

The key to integration is putting someone in charge. We have someone full-time as an integration manager. Their job is to be the liaison between the two companies as they merge. Whether it’s a question about HR, Sales, or ways to work within the organization.

Funny story - one of the companies we acquired never sent invoices to customers. They were appalled that we started sending invoices to customers rather than just continuing to charge them. Another company we acquired had all their company records handwritten on paper in boxes. That’s all of their accounting, financial, employee, and customer records, handwritten. We had to spend weeks manually typing it all into our systems.

Sar: Multiple rounds of funding, multiple acquisitions, 150+ employees, a revamped website, and a host of products later; what are you most proud of today? What’s next for Broadlume?

Todd: I grew up in a small business, and we have a real-life impact on thousands of small businesses and their families. I’m unbelievably proud of the businesses we have been able to help over the last seven years and proud of the jobs we have created at Broadlume. I feel we are helping keep SMB businesses alive; without us, we would all be buying from sterile, corporate box stores.