How did a company that provided simple risk services become a hugely successful linchpin platform in the risk and compliance industry? Avetta CEO Arshad Matin discusses the Avetta journey with show host Avanish Sahai, sharing some incredible insights about identifying and maximizing value in a two-sided SaaS network.
In this episode, Arshad Matin details Avetta’s impressive platform journey and the critical components to developing a successful SaaS platform that provides value to everyone that touches it. See key topics in his discussion with Avanish below:
Guest: Arshad Matin
As Avetta’s CEO, Arshad is focused on enhancing safety, sustainability, and regulatory compliance outcomes for organizations throughout the world. Prior to joining Avetta, Arshad served as President, Chief Executive Officer, and a board member of Paradigm, a leading global developer of software and analytics solutions to the global oil and gas industry. Arshad also held senior leadership positions at Symantec Corporation (NASDAQ: SYMC), Seismic Micro Technology, and was a Partner at McKinsey & Company. Arshad also serves as a board member and trustee for ASGN Incorporated (NYSE: ASGN), and several non-profit organizations including the Houston Endowment, Texas Children’s Hospital, and Asia Society Texas Center.
Host: Avanish Sahai
Avanish Sahai is a Tidemark Fellow and has served as a Board Member of Hubspot since April 2018. Previously, Avanish served as the vice president, ISV and Apps partner ecosystem of Google from 2019 until 2021. From 2016 to 2019, he served as the global vice president, ISV and Technology alliances at ServiceNow. From 2014 to 2015, he was the senior vice president and chief product officer at Demandbase. Prior to Demandbase, Avanish built and led the Appexchange platform ecosystem team at Salesforce, and was an executive at Oracle and McKinsey & Company, as well as various early-to-mid stage startups in Silicon Valley.
About Tidemark
Tidemark is a venture capital firm, foundation, and community built to serve category-leading technology companies as they scale. Tidemark was founded in 2021 by David Yuan, who has been investing, advising, and building technology companies for over 20 years. Learn more at www.tidemarkcap.com.
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You can find the full transcript here.
Avanish: Welcome everybody. Today I’m delighted to host a friend and terrific CEO, Arshad Matin of Avetta. Arshad and I go back a long way – we were actually colleagues in the consulting world at McKinsey in the late ’90s, early 2000s! Arshad, first of all, welcome, and thank you for joining us today.
Arshad: Great to be back with you, Avanish. Thanks for inviting me.
Avanish: Absolutely. First off, let’s start with some background. Tell us about the Avetta business, the strategy, and who your customers are.
Arshad: Avetta is one of the leading supply chain risk management SaaS platforms in the world. Supply chain risk, as you know, is a big topic of interest for everybody these days. We are one of the largest players in that field.
We have a two-sided network: we sit between enterprises on one end and their suppliers on the other, and we help the two parties define risk, manage that risk, and then report on their compliance against risk. We have a modern, multi-tenant SaaS platform that enables those relationships, and we use data and technology to make it as efficient and effective as possible.
Avanish: Very topical. You mentioned one really interesting concept: your platform enables the network and brings different components together. Let’s talk about the underlying platform strategy for Avetta. How did that come about, and what were the driving forces?
Arshad: Avetta started out almost 20 years ago as a tech-enabled services business. We vetted contractors who came on site. This was something that large companies used to do in-house, but they found it more practical to have experts do it for them.
About five years ago, Avetta realized that this use case was perfect for a true modern SaaS platform in the cloud, and we built a multi-tenant platform, which has all the elements you would expect. It runs on AWS and uses the most modern technology stack on the software side. We have a database using Mongo, and there are workflow capabilities built into it; we have applications that sit on top of that. We’re increasingly focused on building analytics and working toward the predictive side.
It’s also open, because we are a two-sided network. On one end, we connect to the systems that sit inside the enterprise: ERP systems, procurement systems, and workforce management systems (including GRC and ESG). On the other end are systems that our contractors or suppliers use. Many of them are small companies where we may be the only real digital platform that they interact with, which is a huge opportunity. Others are Fortune 500 companies who have their own technology stack. Our platform connects both sides.
We have all kinds of APIs and connectors to a wide variety of systems, and we are continually adding to those connections. We also pull information from public sources on things like ESG data (e.g., greenhouse gas calculators) that we provide to our clients. There’s a growing list of third-party systems who are feeding us information that’s relevant for risk assessment. For example, part of risk management is checking whether the people coming out to a facility are drug and alcohol free. We work with companies who do drug and alcohol testing, and we have APIs built into those service providers.
Avanish: You’re defining platform at multiple levels. There’s the underlying technology that you use from AWS, all the data models that you’ve built, and the connectors and integrations with APIs to suppliers of all sizes – and you also include vendors of specific services whose data is relevant. Then of course, you’re providing your own insights on risk management. And ESG, that’s a big topic from every perspective.
You’ve described a very compelling story. Our hypothesis is that platform companies have a natural advantage. They’re the aggregators, and customers probably want all the details about their risks regarding employees or contractors in one system. Where are you on that journey? Is this the beginning of something even bigger?
Arshad: I think we are very early. There’s an opportunity for us to grow this network/platform exponentially, and we are at that inflection point. We look at our markets in three dimensions: a vertical or industry, a geographical region, and a trade, such as electricians or air conditioning technicians. Our new clients want to know how many of the contractors they need us to manage are already members of our network. You reach a tipping point at around 30% or 40%, and we’re reaching that in each of these three dimensions. That’s where the flywheel kicks in. There’s nobody else who can say they’ve already got half of your suppliers vetted and in the network. The marginal cost to the supplier and to the client becomes very small once they’re in the network.
You also mentioned ESG. We made a big announcement a few weeks ago regarding our next-generation platform, Avetta One (for one supply chain, one platform). When Avetta started 15 or 20 years ago, we were exclusively focused on health and safety, and we focused mostly on safety-conscious industries.
Since then, we have added new capabilities. One is workforce management. The industry has realized that the smallest unit of risk or compliance is not an entity, it’s an individual. We bought one of the world’s top contract worker management companies last year, an Australian company called Pegasus. Australia is the most advanced market in worker management because of certain regulations the government put in place a decade ago. Today, we have 1.5 million workers being managed inside our platform.
Then we have ESG and sustainability. Companies are really trying to understand how to deal with ESG in the supply chain. Within their own company, they know what they control and measure; they have the data. When it comes to their external suppliers, they don’t. Especially in the supply chain where companies work very closely with their suppliers, these people are a part of your team but you have no idea who they are. We believe we have the most sophisticated product built just for supply chain ESG. Even prior to this product, we had a number of customers already using us for ESG reporting! We expect this to be a big change for us.
We also monitor business risk and liability. One outcome of the pandemic is that a lot of companies are worried about their suppliers going out of business, so they want to know where they are vulnerable in their supply chain. We built a risk product to bring in third-party financial data to assess those risks. Financial players provide data to us, and our proprietary risk model can then identify which suppliers are vulnerable. This also ties in to our core mission around safety – a company in financial trouble is a leading indicator of poor safety and poor quality all around.
So stepping back, we’ve got four legs to the story: health and safety (our traditional business), workforce management, ESG, and business risk and liability. We believe the tipping point share, our growth, these new applications, and the addition of the new partners we’re bringing in are going to drive exponential growth in our network.
Avanish: That is such a thoughtful description of all the value points, not just for the company, but for the customer too. As you look back on building both the network and the technology, what are some of the lessons learned, and some of the case success factors?
Arshad: I think it’s a handful of things. Number one, we didn’t try to solve both sides of the network. We started out with a compelling value proposition that was easy to sell to one side of the network. We showed these companies that we could do this better for them because we had the experts, we had the scale, and we took care of that side of the network. We then used them to mandate adoption on the other side: “If you want to do business with this client, you have to do this.” We had a clear value proposition and a clear path to selling to the network.
The second piece was investing in the platform. Our competitors who have chosen not to invest in the platform are growing linearly. To grow exponentially, you have to be willing to forward-invest in this business – especially in the platform and the technology, but also in all the things you need to do in terms of APIs. We were kind of late to it, but we did it. We’re doing it now, though we still have work to do.
The third piece is continuing to find ways to add to the platform. We’re not just building the platform, we’re adding new capabilities to it, creating more reasons for clients and suppliers to join.
Finally – and this is very hard – you have to change the organization’s mindset. A lot of companies think they’re a platform company because they have an API. As you know, Avanish, being one of the experts in the space, a strong platform starts with the mindset of the organization and a strategy that backs it. Your organization has to be willing to leave enough value in the platform for others to make money. It’s hard to leave pennies on the table, but people want to be on your platform because they see value on the client side, the supplier side, and the partner side.
Avanish: That is one of the most fundamental challenges, what I call the win-win-win. It’s got to be a win for the customer, a win for you as the platform provider, and a win for the partner ecosystem. And it is absolutely hard, because it’s natural instinct to think of it as a win-lose or tradeoff. Was that the biggest challenge?
Arshad: I think so. For us, rather than the partner value, I think it was the legacy view of this industry that we come from. As a compliance company, our job is to enforce, on behalf of our clients, the compliance of their policies and suppliers. And that’s it.
Avanish: It’s a bit of a stick approach, by and large.
Arshad: Yeah. We were the enforcer, and we fundamentally turned that around. We are here not just to take care of the client, but also to create value for our suppliers. A significant number of these suppliers have no other digital platform that they interact with; we are the onramp for thousands and thousands of these businesses. We had to reorient ourselves towards them, and create value for them so that they want to join our network.
We have data that nobody else does for these suppliers. They’ve been working with us for many years for multiple clients. One example of creating value: these suppliers have a very expensive line item in their P&L around Workers’ Comp. Small companies, 10-20 employees, pay tens of thousands of dollars in Workers’ Comp every year. We worked with five leading insurance underwriters; we showed them the profile and performance of our suppliers. Based on our certification and our stamp of approval, suppliers could then save as much as 40% on Workers’ Comp. That’s multiples of what they pay Avetta yearly.
Avanish: Wow!
Arshad: It’s an example of providing value to our suppliers, not just enforcing some policy. Another example: we have a partner in the insurance space. When people come into our platform and find that they don’t have enough insurance, or that the insurance needs to be renewed, there’s a link that sends them to this Fintech partner with whom we’ve negotiated rates. Value is also being created for our insurance partner, who is getting business from us.
Avanish: Those are great examples of win-win-win. You’ve created some phenomenal value. What are two or three recommendations you would give to someone whose industry or business has a similar opportunity, regarding how to think about this from a platform/ecosystem strategy?
Arshad: The first thing you need to figure out is where the value is in your network, in the platform. Is it the data? Do you want data to flow to you, or are you generating data, or is it a membership? What is it about your platform that makes it a platform? Figure that point out, and be very clear about what it is.
The second thing is, size matters. The bigger the platform, and in our case the network, the more valuable it is. You need to find ways to grow that, even if it means you have a lot of free riders. You want to find a way to get people to play initially. You need to get the flywheel spinning.
Avanish: And achieve that tipping point that you referred to.
Arshad: The third thing is the one we were just talking about, the win-win-win. It has to make sense for all participants. It may not be about direct dollars and cents, but savings. Either way, there has to be a very clear change in value for them to want to be part of your platform.
Avanish: Across all of those, the common thread is value. Understanding where the value is, how you identify it, and how to share it in such a way that you grow the pie.
Arshad, not surprisingly, I think you’ve shared some amazing insights. Any final thoughts?
Arshad: I truly think one has to go into this with an open mind and humility. You have to be able to admit that there is a lot you don’t know, and there are others around you, your clients and your colleagues, or even your competitors, who know a lot. You have to have the humility to watch them, learn from them, and craft your own strategy.
The second piece is empathy. Put yourself in the shoes of the client or a supplier who is writing you a check, and ask, “What value are they getting from this?” To me, it’s about how you bring humility and empathy to this problem solving. Everything else takes care of itself. Everybody has brain cells, and passion and drive to be successful, but if you can bring those two things, I think you’ll go far.
Avanish: We often don’t see enough of that. Thank you for closing on that very thoughtful note. I can’t thank you enough for making the time. Wishing you the very, very best in your continued journey.