In many ways, B2B marketplaces have been slower to modernize than their consumer counterparts when it comes to e-commerce. Today, a startup that has been a frontrunner in that area announces some funding from a major investor that highlights how this is changing and the opportunities that exist as a result.
professional built a store that sells products for business and industrial environments – think power tools, workbenches and agricultural and hospitality equipment, as well as office supplies – by working directly with manufacturers (not wholesalers). The ‘just in time’ order and distribution platform has raised $35 million, an equity investment it will use to further expand its business and platform in Europe and elsewhere.
Based in Bremen, Germany, Profishop is now active in 13 markets, with its German storefront currently the largest; earlier this year, it also led efforts to breaking into the US† Arasch Jalali, the CEO who co-founded the company with Anna Hoffmann (the CTO, who also happens to be Jalali’s wife), said the company achieved $100 million in sales last year with 500,000 customers, and it’s on track. to more than double those figures this year.
“Since inception, we have grown by 100% to 120% every year,” he said.
That growth rate is likely what got the company on the radar of Tiger Global – the legendary late-stage investor who has become more active in Europe lately and in making previous bets – the sole investor in this round. Profishop has been in business for about a decade and has been profitable during that time. In fact, before that, it had just raised a seed round of an undisclosed amount from Takkt and Howzat, according to PitchBook Data†
The initial inspiration for Profishop, and its subsequent growth, is a textbook startup story.
Jalali said he first thought of the concept for Profishop when he worked in his first job outside of college, a B2B company, where he saw firsthand what outdated processes were like for sellers and buyers in the marketplace.
It was 2010, but companies in the B2B space in Germany were still mainly using print catalogs to show potential customers everything they had for sale, and the rest of the process was equally analogous: the product purchase process, including contacting a company to request price estimates and inventory checks were done by fax. Comparing different products from different places also included… comparing different faxed documents.
It was also a tedious process that usually involved middleman type players who slowed things down and put more costs into the system. Supplies manufacturers typically partnered with wholesalers, who could then sell directly to businesses, or possibly other retailers, who then sold to corporate customers.
In that context, the threshold for disrupting that state of affairs was paradoxically both very high and very low.
Low because there was so much to do: Even digitizing those catalogs or setting up an online payment system would be an important step towards modernization – forget more advanced ideas about better search algorithms, more tailored marketing, smart pricing, better logistics services, analytics for suppliers to understand what customers want, and so on.
High because it can be difficult to convince companies stuck in traditional ways of doing business to change the way they do business. And Profishop’s idea of changing things was relatively revolutionary: the idea was to tap directly into the German manufacturing industry to work directly with the companies that make products. When a business customer purchased a product, Profishop passed the order directly to that manufacturer, who forwarded it directly to the company placing the order. This ‘just in time’ approach would mean that Profishop would have no warehouses and no inventory purchases, that it was building a platform to position itself as an intermediary between the other two parties.
Jalali said the first attempts to work with manufacturers were very slow. When it started doing business online, there were only five products on the list, including a workbench and a safe. And he and his wife had zero experience in e-commerce.
“We hadn’t even done any marketing,” he said. “But we got our first sale in 45 minutes.” In fact, they didn’t even have the time or money to stock up, so the ‘just in time’ first sale happened almost by default.
In the beginning it was difficult to talk to manufacturers and sell them on the idea. “Nobody believed in us, and some even laughed at us and said this would never work.”
“We added 20 new manufacturers in our first year,” he said. This year there will be 500 “and soon there will be 5,000”.
Ironically, one of the first naysayers brands is now one of its biggest partners. In total, Profishop has about 1,600 manufacturers and offers 1.6 million items for dropshipping.
In developing this company, Profishop has made use of a number of interesting socio-economic trends.
One of the biggest is the role of manufacturing and how it has changed over the years. For decades, much of global manufacturing has moved to Asia, especially China, which has invested heavily to become the world leader in this field. The entire business model of Profishop is based on local production that fits the logistics and execution model. In fact, it currently has no deals with manufacturers further afield.
This has led it to foster a new market entry point and business opportunities for more localized manufacturing companies, but that was not always the case. Jalali noted that in some cases, the factories it visited prior to partnering with a company were inactive, as the company had switched to shipping supplies from China and used its factories more as warehouses.
“We would ask, ‘Where are your employees? Your site says you have 250.’ They would reply that they are now ordering everything from China,” he said. “But that has changed.” He said part of the reason is economic: Prices have risen, both in terms of the costs needed to maintain production quality, but also in terms of the logistics and shipping costs for those goods, averaging about 5x between 2020 and 2022, he said.
“It has led many people to think about returning production to Europe or Eastern Europe. But it is a process. It’s hard work, but they’re thinking about it.” Partly because of the size of the country, the US company is partnering Profishop with a logistics company to help handle drop shipments, and as it expands in Europe, it will likely expand there as well. be part of the equation.
In terms of competitors, there are a number of other companies that are moving deeper into B2B, and major marketplaces like Amazon and Alibaba are already big players (there’s wholesalers doing the sales to buyers). Even the name Profishop – a portmanteau of “professional” and “shop” – is not trademarked and is already used by a specific brand to sell its industrial equipment directly online. It’s a busy space, but one where building relationships and offering the more direct option to manufacturers (no wholesalers involved) seems to give Profishop a big opening.
“The long tail of equipment purchases for businesses is often unattended and offline. Profishop’s B2B marketplace brings these expenses online, allowing customers to easily manage and purchase more than 1.5 million high-value SKUs on a single platform,” said Griffin Schroeder, a partner at Tiger Global, in a statement, adding that “200,000 active buyers in Europe use Profishop, and we are excited to partner with Arasch and Anna to help them expand the business internationally.”