Building an enterprise gateway marketplace with Kevin Lustig (Scientist.com)

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Kevin Lustig: [00:00:00] So we literally have a press release [laughs] from September 15th, 2008, you know, saying they were launching this platform, and we hoped it would be as consequential as, you know, Darwin stepping out 165 years ago this day onto the Galapagos. [laughs] Because what ended up happening was crickets.

Announcer: [00:00:24] Welcome to Two-Sided, the marketplace podcast. Brought to you by Sharetribe.

Sjoerd Handgraaf: [00:00:28] Hi, I'm Sjoerd, CMO at Sharetribe, and I am your host. In this episode, I speak to Kevin Lustig from Scientist.com, which is a marketplace for buyers and sellers of scientific research services. This was another of those gigantic B2B marketplaces that serves a trillion dollar industry that I had never, ever heard of. This has been one of the cool things, actually, of this podcast, that I get to discover all kinds of fantastic companies that serve industries I have no idea about in ways that I haven't even thought of. And this is also the case for Scientist.com, as you will hear. They call themselves an enterprise gateway marketplace, and indeed, they do have an exceptional model. We talk about that, and we talk about the long journey they have been on since they got started 13 years ago. And basically, we talk about all things that have to do with how to build a marketplace for enterprise customers. This was another great talk, and definitely some very interesting stories, so, enjoy. Hi, Kevin, welcome to the show.

Kevin Lustig: [00:01:40] Great to be here.

Sjoerd Handgraaf: [00:01:41] Hey, before we dive into the marketplace rabbit hole with Scientist.com, can you tell us, the listeners at home, me, a little bit about what did you do before you started Scientist.com?

Kevin Lustig: [00:01:53] Sure. I was essentially a, what we call in the United States, a lab rat. I spent about 18 years in the laboratory doing experiments with my own hands, developing new technologies, trying to make new discoveries. After that, I went into biotech, joined a company called Tularik, which was the first company spun out of Genentech. After that, I went off and I founded a company called Kalypsys. Which was a small biotech company. And it was really my experiences at Kalypsys that led directly to my and, uh, two other fellows founding Scientist.com.

Sjoerd Handgraaf: [00:02:29] All right. And could you tell us a little bit about what is Scientist.com?

Kevin Lustig: [00:02:33] Sure. Scientist.com is a two sided marketplace that connects buyers and sellers of complex research services. So just to give you an example, if a biotech researcher wants to make an antibody for the coronavirus, you know, in the past, they may have spent a year on their own time making that antibody. Today, what they do instead is they go outside to laboratories all around the world who actually do it for them, and they do it better, faster, and cheaper. So we're really a marketplace for medical research. And our mission is to empower and connect scientists and to make it possible to cure all human diseases by 2050.

Sjoerd Handgraaf: [00:03:17] All right. Wow, that is possibly the most ambitious mission we've had on the podcast so far [laughing] but that sounds really fantastic.

Kevin Lustig: [00:03:24] We're thinking very big [laughs]. We're thinking big.

Sjoerd Handgraaf: [00:03:26] Yeah. So you're saying, connecting scientists with scientists, in a way? So basically, you have supply and demand, someone could have two roles on your platform? Do I understand that right?

Kevin Lustig: [00:03:35] Yes. In fact, some people do. Although they're pretty rare. On the supply side, there are tens of thousands of research laboratories spread out all around the world, and they're often called contract research organizations.

Sjoerd Handgraaf: [00:03:50] All right.

Kevin Lustig: [00:03:50] And they do typically very sophisticated experiments. The average order value on a marketplace like this is typically in the tens of thousands of dollars. So when somebody's buying something, they're not going out and buying something for $50 and moving on, or coming back later to buy it again. They're basically buying a six month study that's gonna test whether their drug is active in an animal model for Parkinson's disease, as an example.

Sjoerd Handgraaf: [00:04:17] Yeah. And so you already gave one example, you know, someone would like to make a vaccine for the corona endemic. How does that work? Can anyone sign up on your marketplace?

Kevin Lustig: [00:04:28] Yeah, they can. Most of our business comes out of enterprise marketplaces that we build for large pharmaceutical and biotech companies.

Sjoerd Handgraaf: [00:04:37] All right.

Kevin Lustig: [00:04:37] But we also do run a public facing marketplace that's available to the little biotechs, that's available to academic researchers, that's even available to citizen scientists. I mean our goal, way back when we started this 14 years ago, was to help democratize science and make all of these sophisticated tools that are available today available to anyone that had ideas about how to use them.

Sjoerd Handgraaf: [00:05:04] Okay. So actually, I would like to still stick back a little bit 15 years ago, when you said, um, was it 15 years ago that you started this?

Kevin Lustig: [00:05:11] It was, it was 14 years ago, yes. I had the idea 15 years ago. So yes, about 15 years ago.

Sjoerd Handgraaf: [00:05:15] Yeah. So about the idea, how, could you tell a little bit more of, okay, I can understand the environment in which you got it. But can you tell me a little bit about how did the idea come into existence? Did you experience this pain point yourself? Did you talk to others? Can you tell a little bit about how did you move from, let's say, idea to validating the idea?

Kevin Lustig: [00:05:33] Yeah, absolutely. I had founded a company called Kalypsys, this small biotech company based in San Diego. And we had been very successful in raising money, we were very successful in doing business development deals that brought in money to the company. We built a building, you know, to house all of our scientists. But what we found was that despite all that money, our research wasn't going much faster than it had before we had the money. You know, we could do a little bit more, but not that much more. We became increasingly frustrated with the pace of medical research. And then one day, we realized that there might be a completely different way to approach this problem. And, and that we really needed to turn the entire process upside down. Up until then, we had this philosophy that outsourcing was bad. That real scientists do the work in their own laboratories with their own hands. And we had really bought into that. And then one day, we realized that that was just completely wrong headed, and that if we could turn it upside down and perhaps create a platform that would allow a scientist to outsource everything but the genius, and that became our tagline over the past 15 years.

Sjoerd Handgraaf: [00:06:48] Yeah. So the idea's really that you take a very complex process, like an entire research timeline, I guess, like a ... sorry, I'm obviously not a scientist, as you will hear in the next couple of seconds [laughing]. But where you take your first idea or your first hypothesis, and then you go to some stage of testing, another stage of testing, third stage of testing, for example. And the idea is that you can sort of split that now up, you can sort of chop up the work and then outsource it to other people who are faster, better, have better material, et cetera, to it. Is that correct? Is that what you're doing?

Kevin Lustig: [00:07:17] That is ex- you got, you got, you hit the nail on the head. Right? When you think about the scientific method, it's about having an idea. The next step is doing the experiment to test that idea. The third and final step is analyzing the results of that experiment. And of course, based upon the results of that experiment, you've gone around the cycle once, now you come up with your next idea, do the experiment, do the analysis, come up with the next idea. And what Scientist.com does is allow scientists, in exactly the way you laid out, to go around that cycle much more quickly than they could if they were doing the work on their own.

Sjoerd Handgraaf: [00:07:55] I mean, that sounds fantastic, obviously. So how did you validate the idea? What was the first version of Scientist.com? I would be very interested to hear about that. Because it's not necessarily, even though they work on the, let's say, forefronts of science, a lot of academics and related are not necessarily open to the most, you know, technological changes or advances sometimes. So how did that work for you?

Kevin Lustig: [00:08:19] Okay, I'll keep the story fairly short. Scientist.com is an overnight success 15 years in the making, okay? [laughing] [inaudible 00:08:28] During those 15 years, we have had three serious business model pivots, and, and two near death experiences. I could probably speak for the next 10 minutes about those. But to really answer your question [laughs], so we actually started out, not as a marketplace, right? We were all working together at a biotech that I had co-founded where I ran R&D. And what we thought to build was a better CRO, essentially, we wanted to become a supplier of hundreds of biological tests and assays. And so we actually, initially, for the first six months, we built a big lab and we bought and fixed all this robotic equipment, and the idea was that scientists were gonna mail us their compounds, we were gonna test them against hundreds of cancer cell lines, and then simple send them the data back. That was the initial idea. And then six months after building all of that-

Sjoerd Handgraaf: [00:09:29] Yep.

Kevin Lustig: [00:09:30] -we realized that there was a better idea in the making, and that there were actually hundreds, and we soon found out that there were thousands of companies all around the world already doing this, and we said, "Wait a minute, let's shut the lab down, and instead, create a marketplace that brings together all of these CROs from around the world and allows a scientist anywhere to interact with CROs, regardless of what country they're in."

Sjoerd Handgraaf: [00:09:57] Yeah. So what was the first version of the marketplace? Or the platform approach, then.

Kevin Lustig: [00:10:01] So the timing was exquisite. We launched the first version of the marketplace on September 15th, 2008.

Sjoerd Handgraaf: [00:10:11] Okay.

Kevin Lustig: [00:10:12] So in the United States, that is a date in history. It was the day that Lehman Brothers, the giant bank, went bankrupt, shut down, and what we call the great recession started in the United States. So we literally launched on that day.

Sjoerd Handgraaf: [00:10:26] Okay.

Kevin Lustig: [00:10:26] I remember vividly, because it was 165 years to the day since Darwin had stepped off the Beagle to start his groundbreaking work in the Galapagos Islands. So we literally have a press release [laughs] from September 15th, 2008, you know, saying that we were launching this platform, and we hoped it would be as consequential as, you know, Darwin stepping out 165 years ago this day [laughing], onto the Galapagos.

Sjoerd Handgraaf: [00:10:52] Oh my God.

Kevin Lustig: [00:10:55] Oh [laughs].

Sjoerd Handgraaf: [00:10:56] Oh. Wow.

Kevin Lustig: [00:10:56] Yeah. Because what ended up happening was, crickets. We called crickets. Basically no one came, no one bought anything, it, about three weeks after the launch, I finally called an old professor friend of mine and said, "Hey listen, we've launched the marketplace, it's been three weeks and we don't have any sales. Aren't you guys doing something that we could buy through the marketplace?" And then their lab then did, it was a fellow by the name of Gary Wiseman at the University of Missouri was our very first customer.

Sjoerd Handgraaf: [00:11:28] Okay [laughing] that's awesome. So, but can you tell a little bit about, how did you build the first version? Like obviously, I'm asking this, we have a slight bias because we're a marketplace software provider. But I still think it's an interesting question. Like what was your ... Did you hire a coder? Did you know people? How did that work?

Kevin Lustig: [00:11:46] Well I was really fortunate that I co-founded the company with two really talented scientists. One was a software developer by the name of Chris Peterson, another was an IT expert by the name of Andy Martin. And Chris Peterson, who's still with us today, is our CTO, is an absolute brilliant software developer. For the first five or six years, he and a few consultants, you know, created the first few hundred thousand lines of code. Now, obviously, he runs a team of about 25 software developers within Scientist.com.

Sjoerd Handgraaf: [00:12:18] Yeah.

Kevin Lustig: [00:12:19] So we were just really, really fortunate to have a software developer as a co-founder.

Sjoerd Handgraaf: [00:12:24] Yeah.

Kevin Lustig: [00:12:24] You asked about how we built it, we really focused initially on the supply side. All right? And what we did was, we went out and we found about 70 CROs in San Diego, people we could actually go visit in person. And we got them to join, right? So at least we had [inaudible 00:12:43]. In fact, I was going through my garage fairly recently and I found this old placard with the names and logos of all 70 on it [laughs].

Sjoerd Handgraaf: [00:12:51] Oh.

Kevin Lustig: [00:12:51] If everything ... Today, we have 3,400 and we grow by 30 to 40 every month. But back then, 70 was enough to get some interest from the first clients. So we started on the supply side. Based on that, we got a little bit of demand. And then of course, the users, the customers, started asking to use suppliers that we had not yet signed up. And that really became the way to sign up the next few hundred suppliers. We would reach out to them and say, "Hey, this customer at this organization, really wants to speak with you, you know, about potential work. Would you like to sign up at Scientist.com? It's free for you to sign up and use the platform." And then we got, and then obviously, little bit of a network effect, you know, even, even very early on.

Sjoerd Handgraaf: [00:13:36] Yeah. So did you do anything to exploit that? Like did you, like, give a referral bonus? Or did you, like ... Because this sounds like a really nice, indeed, like a network effect, [inaudible 00:13:45] effect. Did you do anything to sort of motivate that more?

Kevin Lustig: [00:13:48] We did. We did exactly what you suggested. We, we gave out a thousand options. Whereas today it's gotten quite valuable, and should be very valuable in four or five years [laughs]. But we gave out a thousand options to anyone that would refer us with an email or a phone call into a new supplier, into a new CRO. And about 30 or 40 people took advantage of that, and that actually did help us sign up that first cohort.

Sjoerd Handgraaf: [00:14:15] That's one I haven't heard before, to give away options. That's pretty generous, a really interesting approach, actually. Yeah. Okay, so then I always wanna know, did you constrain the marketplace in one way or another? So you ... Because this triggered, also, because you said, like, hey, we signed up 70 in San Diego. You were not necessarily a hyper local marketplace, I'd guess. So basically, a scientist from anywhere in the world can order work from anywhere else in the world? I guess assuming that you can send the materials there. Did you do that constrainment in any way? Like geologically?

Kevin Lustig: [00:14:45] We did not.

Sjoerd Handgraaf: [00:14:46] Okay.

Kevin Lustig: [00:14:47] We did not constrain it in any way. But what we did find was that the CROs that were being most used by the clients were located primarily in the United States and in Europe.

Sjoerd Handgraaf: [00:14:59] Okay.

Kevin Lustig: [00:14:59] Uh, when people think about outsourcing, they always say, "Whoa, you're sending jobs to China, you're sending jobs to India, you know, the Asian Pacific." And that's just not the case in this particular industry. There are CROs located in Singapore, China, Japan, India, obviously, but the vast majority of them are located in Europe and located throughout the United States.

Sjoerd Handgraaf: [00:15:19] And you also didn't constrain by particular type of research? Or like a particular type of CRO? Like just to, as a reminder for people that have been listening, so CRO, what was it again? Contract research organization?

Kevin Lustig: [00:15:33] Yeah, exactly. Yes, I guess in that sense, we did. We really focused the business around anything a pharmaceutical researcher might use in pre-clinical development.

Sjoerd Handgraaf: [00:15:45] Okay, so-

Kevin Lustig: [00:15:46] So everything that happens up until that new potential therapeutic goes into a human is what we focused on. And the idea, from very early on, was pretty big. We, we do think big. We wanted to enable a single highly trained scientist, and this would have to be, obviously, an outstanding scientist. But we wanted to enable them to use our platform to run an entire drug discovery program from idea all the way to R&D, or, or concept to clinic is the other way it's often phrased. From their laptop computer, without ever requiring access, physical access, to a lab. And I'm really proud today to say that that's exactly what we offer. Th- if you are a scientist, and you don't have a lab, you can use our platform to go from A to Z.

Sjoerd Handgraaf: [00:16:37] Cool, I had no idea that this existed. That's very cool. Then while you grew, [inaudible 00:16:43], this is, of course, an industry where the quality is extremely important, because you're relying ... You know, you're putting part of your scientific experiment in the hands of someone else, you'd need to make sure that they do what they do, I suppose? How do you maintain the quality? Or how did you maintain the quality initially? Or how did you make sure that people were happy with what they got [laughs]?

Kevin Lustig: [00:17:04] Yeah, well today, we obviously have a, a ratings system. You know, we had started out as an Amazon five star like system, and now it's net promoter value. But early on, we didn't have enough ratings to actually make that useful. Today we do, but back in the beginning, we didn't. So what we did, I think, was somewhat unique in that we ... And I believe it's also a lot of the special sauce that we have, something that makes us very special. We created a group within Scientist.com called the research concierge. And it's, today it's about 25 to 30 people, quite a number of PhD's and master's and, in science. And what they do is they oversee every single request that comes in from a scientist anywhere in the world. So we actually, literally get involved in every request. And sometimes that just means taking a look at it to make sure the relevant information is there, that's, everything's being done correctly. Other times it means helping the scientists select the right CROs. You know, recommending a CRO that we know is high quality but also very cost competitive. And troubleshooting any problems that inevitably arise during the process. So we over- and we still do that today. And remember, every, the average R value of a purchase is about $30,000 on our website.

Sjoerd Handgraaf: [00:18:32] Okay.

Kevin Lustig: [00:18:32] So every time somebody's going on there, they're buying the, sort of the equivalent of a car. And so we always have someone there to make sure it's all being done in the correct way.

Sjoerd Handgraaf: [00:18:42] Yeah. So they are more like, can I say, if I wanna translate it to layman's terms, they're more like, sort of account managers somehow? Like even though they may not be assigned to specific accounts, but more like ... Or is that an oversimplification?

Kevin Lustig: [00:18:55] No it's not. In fact we, some of them are called account managers, and these are the people that [laughs] they go on the campuses, they meet with the scientists. Not obviously in the last three or four months, but before that.

Sjoerd Handgraaf: [00:19:06] Yeah. Does it happen for every sort of transaction that goes on? Because, like, I'm trying to ... What I'm getting at is that I'm trying to sort of get a sense of, like, are you a managed marketplace somewhat, fully? Is there, like, white glove involved in every supply and demand interaction? How does that go?

Kevin Lustig: [00:19:25] God, that's a good question. It is white glove, but the majority of the, we call them requests, for services, do not require much handholding at all. And there are areas on the site, human sample acquisition, for example, which is fairly self service. We put a lot of time and effort into making sure we had the highest quality suppliers.

Sjoerd Handgraaf: [00:19:50] Yeah.

Kevin Lustig: [00:19:50] And that they had been vetted and qualified.

Sjoerd Handgraaf: [00:19:53] But after that, not much is needed anymore?

Kevin Lustig: [00:19:55] Not much is needed. Yes, exactly. So I forgot to mention early on that one of the things we did very early, that people told us we would never be able to do, but which we did achieve, is to create a single legal agreement that all the suppliers could sign, and that all of the clients, the biotechs and the pharmaceutical lawyers would also sign off on. So we pre-established the legal agreement. We also act as a billing consolidator. So one of the pharmaceutical companies might work with a thousand CROs, but they don't pay a thousand CROs, they pay us, and we pay the thousand CROs. So what we've tried to do is really eliminate all the paperwork around this complex sourcing. And make it so that a scientist can have what we hope is a eureka moment. They have a great, amazing idea, and that they can then start that idea, start the experiment that will test that idea, in under a week. Without a platform like that, it will often take about six months. If you have an idea, and you wanna go outside to the CRO, you don't get the results back, you know, for three, four, five, six months. With the Scientist.com platform, you don't know when you're gonna get the results back, depends on the experiment of course. But the experiment starts much more quickly than it would otherwise.

Sjoerd Handgraaf: [00:21:15] And actually, that's an interesting point that you mentioned, because you mentioned earlier that it's 30,000, the average order value. Obviously high risk, I guess, in theory for, uh, this intermediation. Are you taking a transaction fee? Or do you have a subscription model?

Kevin Lustig: [00:21:30] The primary source of revenue is a transaction fee. We typically charge between three and eight percent, depending upon the category.

Sjoerd Handgraaf: [00:21:41] That makes sense. Because then, my next question is, would be, like, so how do you make sure that that transaction happens over on the platform, right? And not off platform, especially there is a risk, usually, with marketplaces when, let's say, I'm a scientist and I have a CRO, uh, who did great work, and I actually have more of this work coming up on a regular basis. If you not provide anything else, there's not much reason for me to necessarily keep that transaction on the platform. So you already mentioned, like, billing consolidation. Are there other things that you do to sort of keep the transactions going through the platform?

Kevin Lustig: [00:22:18] Yes, we do. It's a really good question, and it's a nuanced answer, I think. The marketplace in many ways can be considered a three sided marketplace. I didn't wanna bring that up, uh, too early in our discussion. And because most of our clients, we- where the business comes from are large pharmaceutical companies, and these large pharmaceutical companies today, they have about 100,000 people, and they often have about a thousand people in procurement. And what they do is, they're working in 200 different research areas, and they put a few people in charge of each research area.

Sjoerd Handgraaf: [00:22:53] Yeah.

Kevin Lustig: [00:22:53] Now these people, then, often, get to determine how items within their categories will be purchased, okay? So procurement is the third side. You have the pharmaceutical researchers, that's one side, you have procurement, who's particularly focused on making sure that all the regulations are followed, and that they're getting good value, and then you have the suppliers as the third side. And so for many of our biggest clients, procurement has actually gone out in particular areas and told the researchers that the marketplace is the only way that you can acquire human samples, because it's the only way that pharmaceutical company can be 100% sure that when those human samples are delivered, that they were obtained from ethical suppliers in an ethical way. That the patient that donated the human tissue has actually given their permission to use it. So basically, we have really used the compliance as a way to get recurring revenue, as a way to prevent the scientists from going off platform.

Sjoerd Handgraaf: [00:24:05] Yeah.

Kevin Lustig: [00:24:05] And that's, the model is different for each of the categories. In compound synthesis, the model we're using is quite a bit different, it's not really compliance-based, it's that we have a lot of data, that if you get three quotes from three qualified suppliers, that you can save on average about 50%. Now I won't go into the reasons why, but in that particular category, many of the procurement folks who run that category have told their scientists listen, we want you to use the platform, we know there's an extra 5% fee, but on average, we're saving 50%. So overall, it's just a fantastic thing for us to be doing. And so we've come up with various category-specific strategies that make us very sticky, that give us recurring revenue, and that prevent the scientists from going off the platform.

Sjoerd Handgraaf: [00:24:56] That's really interesting. I, uh, I hadn't really considered that. I also haven't heard that much before, that indeed, that you'd have individual strategies for, let's say, categories within the marketplace. But that makes a lot of sense in your case. Yeah, actually, so I've glanced over the compliance part, but that's actually an interesting point. Because I talked on an earlier episode, I talked to Ruthie Amaru from Freightos, which is a freight platform, which has totally different industry, but which faces, like, similar problems about compliance. You know, you need to pay customs and whatnot, and certain products need to be travel in a certain way. And for them also, if I remember correctly, she called them standard operating procedures. And for them also, that was one of the biggest sort of like sticky things, and one of the biggest sort of play chips that they got to keep people on the platform. I wanna come back to something you said earlier, so you now mentioned that for the big pharmaceutical companies, they have 100,000 people. And then, but earlier you said that, you know, the ideal is that, an individual scientist can order these things. So on your demand side, do you just have these big pharmaceutical companies, mainly? Or is there also a big chunk of the citizen side, as you mentioned before?

Kevin Lustig: [00:26:06] So we, I would say that 90% of our sales, which will hit about 300 million this year, comes from the big pharmaceutical companies.

Sjoerd Handgraaf: [00:26:16] All right.

Kevin Lustig: [00:26:16] We've built enterprise marketplaces for 24 of the top 30, 22 of those are exclusive to us. And we've been able, over the past five or six years, to take a category by category expansion approach for those pharma companies, and that's really paying off. But, we also signed about 70 biotechs, and these range from the big ones, like Moderna, Agios, BioMarin, to the smallest ones that you've never heard of.

Sjoerd Handgraaf: [00:26:47] I hadn't even heard of the first three [laughs].

Kevin Lustig: [00:26:49] [laughs] They've been in the news because they're working on COVID vaccines.

Sjoerd Handgraaf: [00:26:53] Okay, yeah, yeah.

Kevin Lustig: [00:26:55] That's where you may have heard of them. But what we have found, but only a small part of the business is coming from the biotech side, because we've found that they want something different than what we give to the pharma companies. And so our next big product launch is coming in August and it's going to be a new marketplace, and it's a marketplace really designed for biotech companies. And it will include not just the custom research services that we offer the pharmaceutical industry, it's also going to be offering reagents, lab supplies, consumables, consultants, as well as fractional accounting and fractional procurement. Basically, a friend of mine calls it biotech in a box. So that if an academic has a great idea, has an asset, if a citizen scientist has somehow come up with an asset that they think can be made into a biotech, we're there and they can essentially outsource everything but the genius, their own genius.

Sjoerd Handgraaf: [00:27:59] Biotech as a service. Yeah.

Kevin Lustig: [00:28:01] Essentially, yes.

Sjoerd Handgraaf: [00:28:02] Okay. So you drop, you dropped a great term here, which I would like to talk about a little bit more, which is this enterprise gateway marketplace. Because I think this is an interesting situation that you're having, where you, if I understood correctly for when we talked before, is that you're basically building for those 24 big pharmaceutical companies, you're building their own sort of individual portal, right? Am I correct?

Kevin Lustig: [00:28:26] That's exactly how it works. It's all based on the same code. It's like a white label approach. But what we do is, we first of all create a private marketplace for each of the big pharmaceutical companies.

Sjoerd Handgraaf: [00:28:37] Yeah.

Kevin Lustig: [00:28:38] And then work with them to brand it, and they often come up with some clever name. Uh, Alexion came up with WARP, web accelerated research procurement, and they had a little picture of, like, a little, the Star Trek Enterprise [laughing] as their logo, uh, just to give you an example.

Sjoerd Handgraaf: [00:28:54] Oh [laughs]. Nerds can be nerds.

Kevin Lustig: [00:28:56] Exactly [laughs]. But most importantly, what we then do is we integrate into their existing finance systems, and their existing total ERP systems. You guys know them as SAP, and Ariba, and KUBRA. And so we basically streamline the financial piece, without getting around it. So in other words, everything can be done in our marketplace up until the point they hit, "I wanna buy this." Then, all that information gets packaged up in the right way, it gets sent over into their ERP system, they have checks and balances. If it's over a million dollars, a VP has to sign it, whatever it is.

Sjoerd Handgraaf: [00:29:38] Yeah.

Kevin Lustig: [00:29:38] And then the PO pops out the other end, that can be 12 hours, it can be a week, and then that comes back over to us.

Sjoerd Handgraaf: [00:29:45] What's a PO again? Sorry.

Kevin Lustig: [00:29:47] Purchase order. It's what you would-

Sjoerd Handgraaf: [00:29:49] Oh okay, yeah.

Kevin Lustig: [00:29:49] It's a purchase order, it's what you would send the supplier and its commitment to buy the item, buy the service, and then to pay at the end, essentially.

Sjoerd Handgraaf: [00:29:57] All right.

Kevin Lustig: [00:29:58] Now in addition to this financial integration, which is fairly deep, we also integrate into other IT systems. The most common are, nobody today likes to remember passwords. So they're so-called single sign ons, so you can just use your Google account to sign into your marketplace account, and we obviously set that up for everyone, because it just makes it easier for them to go and use the site. And then on top of that, what we do is we work with the pharmaceutical client to take all the information that they have existing about a particular CRO, about a supplier, and that could be ratings, it could be audit material, it could be background material. And all of that information goes into the marketplace. And then we go to the suppliers and we say, "Hey listen, you could upload your marketing material, your reference letters, you know, anything you want into the marketplace." And so what we've created then is a place where scientists can go and get fingertip access to everything they need to make the best decision about how to spend that $50 and move this particular project forward.

Sjoerd Handgraaf: [00:31:09] Okay. Like I mean, this is sort of a late answer to my earlier question about how to make things sticky. I mean, like, integration with the existing software [laughs] system is probably the stickiest of all, because no one ever wants ...

Kevin Lustig: [00:31:22] So enterprise gateway marketplaces are incredibly sticky.

Sjoerd Handgraaf: [00:31:26] Yeah.

Kevin Lustig: [00:31:27] In the, since we relaunched in January of 2015 ...

Sjoerd Handgraaf: [00:31:32] Okay.

Kevin Lustig: [00:31:32] ... we have not lost a single client. It's that sticky. You can't just, like, you can't just shut it off and walk away, it's the place where all the information has been brought together.

Sjoerd Handgraaf: [00:31:43] Hey, because now, we've skipped a couple of steps of the evolution of Scientist.com, because I think this is a really advanced model, which sounds really interesting. We talked a little bit about it already. But how did you go from, you know, your first version, where you got the first order, you know, from 2008, up until now. That you mentioned already earlier, where you made a couple of big pivots. Could we talk about that a little bit? Like could you talk us a, a little bit about through the, the different pivots that you made? Because you didn't apparently just starting making enterprise gateway marketplaces. So what, what did you learn with your first versions?

Kevin Lustig: [00:32:16] So we launched a public facing marketplace, open to everyone, and no one used it.

Sjoerd Handgraaf: [00:32:22] Yeah.

Kevin Lustig: [00:32:22] And we were very lean at the time, you know. But I still went to a conference in 2010, and in the final moments of the conference, a gentleman with a nice British accent walked up to me and said, you know, please tell me what this is. And I could barely talk, I talked the whole time. And I said, "Well this is a marketplace for scientists, and it's where you scientists can go to access any CRO in the world." And at the end of my, my five minute description he said, "Okay, I'll buy it." [laughing] And I said, "Oh no, you don't understand. Uh, you can use it for free. There's no buying it." And he says, "No, no, I'm from a large pharmaceutical company, I need a platform like this, and what I want you to do is to just build one for me and my company." And I said to him, "Well, would you pay us for that?" And he said, "Yes I will." [laughs] And so on that, literally on that moment, we pivoted to basically building an enterprise marketplace for, uh, our first pharmaceutical client [laughs]. We then worked for a year with this big pharmaceutical company and it was going incredibly well, they put 10 or 15 people on it. We didn't have an agreement yet, but we worked on an agreement. We spent six months putting that in order. We all, we came to an agreement, it was all set, and they agreed to pay us $400,000. On the strength of that, I had gotten a Hollywood producer to pledge that he would put in a million dollars if we got this deal. And then on December 18th of that year [laughs], December 10th, I literally got an email basically just telling me that the deal was off.

Sjoerd Handgraaf: [00:34:05] Wow [laughing].

Kevin Lustig: [00:34:06] We call it the Christmas surprise [laughs].

Sjoerd Handgraaf: [00:34:08] Oh my God.

Kevin Lustig: [00:34:09] Because that was, at the end of December, we were running out of money.

Sjoerd Handgraaf: [00:34:12] Yeah.

Kevin Lustig: [00:34:13] And this was all going to be, the money we needed to keep the company going.

Sjoerd Handgraaf: [00:34:16] Yeah.

Kevin Lustig: [00:34:17] And fortunately, the Hollywood producer was an old friend. He basically said, "I'm not putting the money in now, but I'll loan you some money, and now you need to get two of these big pharmaceutical companies before I put my million in."

Sjoerd Handgraaf: [00:34:31] Yeah.

Kevin Lustig: [00:34:32] And I'm really happy to say that six months later, we signed up. Pfizer was first, J&J was second. He put the money in, you know [laughs] the money he had loaned us allowed us to make it to that point, and we had survived our first near death experience.

Sjoerd Handgraaf: [00:34:47] Wow.

Kevin Lustig: [00:34:48] And, and the product we built was not a, really an enterprise marketplace. We called it a research exchange, because it had no legal piece and it had no finance, no billing consolidation. It was simply something that would allow the scientists to reach out to any CRO, communicate with them, get a proposal, and then they would have to take the proposal off platform, and then buy it the usual way, through their ERP system.

Sjoerd Handgraaf: [00:35:14] Yeah.

Kevin Lustig: [00:35:14] So we survived with that for about three years. We made it to near profitability two years in a row. We had four of the biggest pharmaceutical companies actually join in this way. It looked like it was going incredibly well, but then we kind of stalled. We didn't sign up any new ones, and then we lost one of the four. Once again, someone who had told us, "Don't worry, we cut the check." And then the check never arrived [laughing]. Pharma companies are infamous for doing this, this type of thing.

Sjoerd Handgraaf: [00:35:43] Okay, okay, yeah. [laughing]

Kevin Lustig: [00:35:45] And then finally, we ended up meeting someone here in town, a gentleman and his wife, that had done incredibly well selling their company, and they set themselves up as a VC, they're called Bootstrap Ventures based in San Diego. And they said, "Well listen, why don't we go back to the original model, why don't we go back to the full marketplace model, put the legal in place, you know, put the billing consolidation in place, and maybe now is the time to try that model." And so we spent all of 2014, spent some of their money to make that happen. And then we launched in January 2015 and we have now been, let's see, it's 67 months straight of year over year growth, 22 quarters of year over year growth.

Sjoerd Handgraaf: [00:36:31] Fantastic. Was it so ... How, because I'm curious, of course, how, and I think most people who are listening who are, might be thinking about building a marketplace in an industry with mainly big players. Like pharma industry. How did you grow the demand side? Like, uh, you mentioned it took you, like, six months to sign up two, then a year or so, then you had four? Or was it two years? Now you're at 24? Like, can you tell us a little bit about that? Because I'm, uh, very interested to hear that.

Kevin Lustig: [00:36:58] Yeah, uh, boy. I guess the pharmaceutical industry, like most trillion dollar industries, moves incredibly slowly. We're fond of saying glacially slowly [laughing]. And I think our biggest strength has probably been our tenacity, the fact that we've been willing to stick it out for 14 years and wait for the industry to change. I mean I'd like to say that we're part of the reason they're changing, but I suspect it's more about older people retiring, it's more that most of us, in our private life, have gotten used to going to one place and using marketplaces to simplify everything, to get good deals, to speed up whatever we're trying to do. So, you know, we built the demand side, you know, like I don't know, sort of like, one pharma at a time, one category at a time, if I even get more granular than that. There was no secret, except great customer service, you know, a good product, patience, and relationship building.

Sjoerd Handgraaf: [00:38:00] Yeah.

Kevin Lustig: [00:38:00] Let me give you an example. The guy who I worked with back in 2009 and '10, at this big pharmaceutical company, that didn't do the deal, he, then, left that company and joined up at AstraZeneca as somebody very senior there. And AstraZeneca in their first year maybe did five million in sales, the second year 10 million, the third year 20 million. You know, this year it'll do 70 or 80 million. It's just, get in, have a good product, build the relationships, and give outstanding service, and hopefully they will change with you.

Sjoerd Handgraaf: [00:38:35] Yeah.

Kevin Lustig: [00:38:35] Very difficult to get big enterprises to do anything fast.

Sjoerd Handgraaf: [00:38:39] Yeah. No, I mean, that's a pretty risky ... like at least, those are from my own experience with startups, trying to do business with bigger corporations. Okay, I've never been in such terrible situations like the ones that you just described. But I don't know who told me this. Someone said, in these situations where you had startups or new companies, and big corporations have one thing that startups don't have, which is time. And they'll happily throw another meeting at you, and 20 meetings deep, you're, to the first person who can actually make a decision. [laughing] And by that time, you've usually run out of money.

Kevin Lustig: [00:39:12] Yes.

Sjoerd Handgraaf: [00:39:12] Or [inaudible 00:39:15] yeah. But something interesting you said, actually, because this is something that I think Josh Breinlinger said from Jackson Square Ventures, that one of the reasons why sort of B2B marketplace and you're essentially kind of a B2B marketplace, if we were doing a broad colorization. Is that people have really, like one of the reasons why they are sort of now growing or coming up is that people have also gotten used to these things, like you said as well, in real life, right? You know that these things exist. Your private life, you're so used to these things can be consolidated into one place, so people just start to expect that, hey, why can't I do the same thing for work? And I think the only thing that he also says, like one of the reasons has been a little bit slower in catching up is that this idea of other people's money, like, you know? You're spending the company's money, not your own, so people are slightly less motivated to try to save that, unless it's your own company. But yeah, that's cool to hear, that even though it's glacial, it's moving, and you have seen that. I mean, you're probably one of the oldest marketplaces I've talked to so far. Actually possibly the oldest one.

Kevin Lustig: [00:40:12] Yeah, it's hard for people to understand. So we were founded the same year the iPhone came out [laughing]. Which really s- you know, speaks to how big an impact the iPhone has had, right [laughing], just 13 years, or 14 years.

Sjoerd Handgraaf: [00:40:26] Yeah, yeah.

Kevin Lustig: [00:40:27] And so when we were initially dealing with these pharmaceutical companies, I can vividly remember a meeting going in, and talking to five, they must have all been 60 plus, 65 plus, and you know, trying to use Facebook and Amazon as an example to explain what they do.

Sjoerd Handgraaf: [00:40:49] Yeah.

Kevin Lustig: [00:40:49] And to discover that none of them knew what Facebook was. And this was in 2010.

Sjoerd Handgraaf: [00:40:55] Yeah.

Kevin Lustig: [00:40:56] And none of them knew what Amazon was. And when I dug a little deeper, it turned out that none of them actually used email. They would have their, what they used to call secretaries, now administrative aids, print it out for them, and they would read it.

Sjoerd Handgraaf: [00:41:09] Yeah.

Kevin Lustig: [00:41:10] Okay? Those people are now gone. They have retired, they've died, they've moved on. And now, you get people in their 50's and 60's who are familiar with the technology, who have been using it themselves for 20 years, who've had an iPhone for 13 years. And that's helped accelerate the change.

Sjoerd Handgraaf: [00:41:30] Yeah.

Kevin Lustig: [00:41:30] Now the other thing I wanted to bring up was, part of the reason it didn't grow as quickly as we had hoped is because many of the people we're dealing with in procurement in particular are fearful that we're gonna end up just replacing them.

Sjoerd Handgraaf: [00:41:45] Yeah.

Kevin Lustig: [00:41:45] And so it's sort of like, you have, you know, the person that's gonna be replaced has to vote about whether or not the company's going to be using this platform. And, and again, going back to the early days, there were a few times, particularly in Europe, in, around 2010, 2011, where people would stand up in talks I was giving and start screaming at me that I was gonna cause them all to lose their jobs, how could I be doing this? You know, you're a terrible person. I've had people stand up and tell me that.

Sjoerd Handgraaf: [00:42:20] Wow.

Kevin Lustig: [00:42:20] Not in the last five years. You know, so going back about 10 years, after that, it was a combination of people being against outsourcing and worrying that they could lose their jobs. And the thing is, there's some truth in it because what they do today in a lot of procurement is push a lot of paper around, put a legal agreement in place, put a finance arrangement in place.

Sjoerd Handgraaf: [00:42:41] Mm-hmm [affirmative].

Kevin Lustig: [00:42:41] Qualified supplier, well we do all of that, and it's already pre-done. And so those people need to move to a more, from a tactical role to a strategic role. And for the first time, they had one data reporting source, that can go and say, "Okay, on these campuses we're spending this amount of money in these categories." And by the way, we've compared the two campuses, and one of them's spending three times more with the same vendor, why is that? Let's dig into ...

Sjoerd Handgraaf: [00:43:08] Yeah.

Kevin Lustig: [00:43:09] ... why that is. But it takes someone with confidence. If you're somebody who's been in procurement for 20 years, that's your niche, you don't have the confidence to go off and be strategic, then we were a very scary proposition. No more today, because so many layoffs have happened, and it's, you know, as you said, everybody's using it in their private life.

Sjoerd Handgraaf: [00:43:30] Yeah. But do you do something to make it attractive for the procurement people to use it? Actually I mean, like, you already mentioned it from one day reporting. Reason that I'm asking is that I talked, for example, to Michael DeGiorgio from CREXi who are, have a commercial real estate platform. And they really took the brokers, who could possibly have the same reaction to their marketplace idea as you just described the, uh, procurement people. But instead, they made them sort of like the central piece of their marketplace. And, like, hey, let's build tools for these people so that they are more than happy to use them. And basically, the marketplace enables the brokers to use free up time from paper pushing and actually make more deals. Have you taken a similar approach with procurement?

Kevin Lustig: [00:44:10] It's exactly what we've done with procurement, and that has primarily been around compliance, right? They used to have to manually go and validate each of the suppliers, you know, for each of the orders. And they would have to, you know, there was paper approvals, and what we've done is done a lot of that work upfront to make it easier to qualify the suppliers, and we've also put in place approval workflows. So if I'm a scientist, and I go in and I put in an animal model, and I say, "Hey, I want a quote on this animal model." Almost definitely that will be routed to somebody in procurement who oversees every animal model being purchased across the entire company. They can then look at it, they can say, "I deny this." Or they can say, "I approve this." And they can then go on through the process. And that way they can go back to the scientists and get more explanation. So yeah, it, that's exactly right. We've built tools like that. And then we've also built business intelligence tools. We use Tableau reporting infrastructure, it's now a part of SalesForce, apparently.

Sjoerd Handgraaf: [00:45:16] Yeah.

Kevin Lustig: [00:45:16] But basically, it allows you to slice and dice all the data in many different ways, you know, at your fingertips, you know exactly what's going on, where and when.

Sjoerd Handgraaf: [00:45:26] All right. This make me a much, much better understanding of Scientist.com. Because like I said earlier, with the enterprise gateway and the, uh, I wasn't sure if I fully grasped this but I hope at least I have, I hope people listening as well. Uh, closing question. So, this has been a long journey for you [laughs], things have been going well. Other things have been going not so well. Is there one single thing that you now say to, like, I would have done this differently? And something that people listening can take as a lesson?

Kevin Lustig: [00:45:54] Maybe. Maybe. This is something that really has been, really came home to me just over the past year. So I, I would do something differently. I would not spend as much time trying to build outside partnerships to plug the holes that I believe we have.

Sjoerd Handgraaf: [00:46:14] Mm-hmm [affirmative].

Kevin Lustig: [00:46:15] Instead, we should've just built those things ourselves. Just done the hard work. And what I'm really saying is, like, we, you know, we made a decision that we wanted to go into, you know, the reagent space.

Sjoerd Handgraaf: [00:46:28] Uh-huh.

Kevin Lustig: [00:46:29] And then wasted a number of months trying to talk to the four or five companies that do reagent sourcing, and trying to integrate them into our platform and come up with an acceptable partnership scenario.

Sjoerd Handgraaf: [00:46:42] Yeah.

Kevin Lustig: [00:46:42] And it just didn't work, and it didn't work in any of the areas we tried over the past five or six years.

Sjoerd Handgraaf: [00:46:48] Okay.

Kevin Lustig: [00:46:49] So I think, you know, we talk about business development, people are always saying, "Well you wanna develop the business by doing partnerships." I have found that trying to do that has really been a, an incredible waste of time. And if I had to do it all over again, I would reduce the emphasis on that and increase the amount of effort we put on just building what we know needed to be built, and not relying upon someone else to do it for us.

Sjoerd Handgraaf: [00:47:13] All right. That's a great answer. Let's close on that. Thank you very much, Kevin, for your insights and your stories and your time. Any last things, where do people find Scientist.com? For, I mean, [laughs] it's in the name. But, like, any plugs?

Kevin Lustig: [00:47:26] Yeah, Scientist.com, that's it [laughs] just go there. That's our marketing site. And at any point, reach out to me through LinkedIn or through email, I'm happy to have the conversation.

Sjoerd Handgraaf: [00:47:36] All right. Thank you very much, Kevin. Have a good one.

Kevin Lustig: [00:47:39] Thank you very much for having me. I really appreciated being here. Announcer: [00:47:43] Thank you for listening to Two-Sided, the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit https://www.sharetribe.com. It's the fastest way to build a successful online marketplace business. Until next time.