The following interview is a conversation we had with David Pennino, CEO & Founder of LogicSource, on our podcast Category Visionaries. You can view the full episode here: $250 Million Raised to Power the Future of Procurement
David Pennino
Thank you so much for having me on.
Brett
Yeah. So to kick things off, could we just start with a quick summary of who you are and a bit more about your background?
David Pennino
Sure. Hi, everyone. My name is David Panino. I live in Charleston, South Carolina. I was born and raised in norwalk, Connecticut. I have four daughters, ages twelve to 21. I’ve been married for about 25 years, and we’ve been down here in South Carolina since 2019 and built the company up in Connecticut, went to Franklin and Marshall in Lancaster, Pennsylvania, and have been in the technology and professional services industries my entire career.
Brett
Have you ever had times where you wished you lived in silicon valley, or do you view it as an advantage living there in south Carolina and operating out of south Carolina?
David Pennino
I have to be careful. I don’t want to offend anyone in the user. No, never. I’m not a huge you know, I like the pace on the you know, I like the proximity to Europe. I think there’s a scrappier grittiness to the east coast, and you never want to get into politics. But I’m not a big fan of some of the policies out in California.
Brett
Yeah, let’s steer away from politics on this show. No. Appreciate the honesty, and I’m not offended. I’m in California, but not offended. Now, a couple of questions that we like to ask, really, just to better understand what makes you tick as a Founder and as a leader. First one is what Founder do you admire the most and what do you admire about them?
David Pennino
Yeah, you know, it’s interesting. I’ve been very blessed to have a number of mentors in my life, and many of them were founders. So at the risk of alienating any of them, I guess I’ll pick the one that’s probably had the most influence on me, and I would say that’d be Manny Fernandez. Manny Fernandez has done a number of different things in his career, but Manny left Cuba as a young man, I think he was eight or nine years old, and went to grade schools in Florida and ended up starting Gavelin computer corporation, which was the first truly portable laptop computer around 1983. That kind of catapulted Manny into a career in what started as technology he worked for places like Dataquest. He became the chairman and CEO Gartner when they were 40 million in revenue and grew them to 4 billion in market cap.
David Pennino
He’s built Si Ventures. He’s been on the board of businesses like Stanley Black and Decker and Brunswick and Cisco foods and flowers. Foods. And he’s just an incredible entrepreneur and leader, and he’s coached and mentored me since I was probably 22 years old. And I just admire everything about him. I admire him as a dad, as a father, as a husband. I admire him as a friend, just as a human being, and secondly, as a businessman. He’s just an incredible leader. He’s got a charisma that I’ve never seen matched, and I owe a lot to him. He gave me a shot at 21, 22 years old, and Manny’s a guy who just I learn every time I talk to him.
Brett
What do you think he saw in you back when you were 21, 22? What did he see in David?
David Pennino
Oh, gosh, you don’t have to ask him that, but maybe I hoodwinked him, I don’t know. It’s an interesting story I reminded him of recently because he’s met thousands of people in his life. I’m not sure he remembered, but we had a Winter Circle trip when I was barely 22 years old, and I made Winter Circle, which was Gartner’s top sales trip, and it was in Phuket, Thailand. And truth be told, I missed a boat. We were around a place called Fang Nai Bay, and they filmed one of the James Bond movies out there, and it’s a town on stilts in the middle of the ocean, and I missed the boat. And I was sitting on the dock thinking, God, I’m in trouble. There’s no cell phones back then, and I’m in the middle of this island, and Manny came around the corner. He was on a sat phone call, and there I was, sitting on the dock.
David Pennino
So him and I sat on the dock together, waited about an hour and a half for another boat. And we just got to talking about life and family and hopes and know his and mine. And he said, what do you want to do for the company? And I said, I don’t even know. I just got here. And he was stunned to hear my age and that I’d made Winter Circle. And he said, well, you should come up in the treehouse a little higher and work for me for a year, and you can see everything operations, finance, sales, marketing, and see what you want to do. So he made me a bet that if I doubled my quota in the next fiscal year, he’d let me be his bag man for a year. And he said, and I’ll help you. And he ended up genuinely helping.
David Pennino
He came up to Boston, which was my territory at the time, and he went on sales calls with me, and he kept his word. I doubled my quota, and he hired me as his director of corporate planning and know essentially carried his bag for a year. And he just taught me all aspects of the business. So I don’t know, I guess work ethic, drive, maybe courage. That’s a good question. I’ve never asked him.
Brett
And I guess the takeaway is to be late to things. That’s where it all started.
David Pennino
My dad always said 90% of life is just showing up, and I’ve always tried to just show up if I’m invited to something or I don’t know. Being late to one is not a trick I’ve used since.
Brett
Nice. And what about books? Is there a specific book that’s had a major impact on you as a Founder? And this can be a business book or it can be a personal book as well.
David Pennino
That’s an easy question for me. In fact, the book I refer people to most is Crucial Conversations, and it’s probably a self reflective reason for me. It’s actually something I don’t naturally do well. I don’t know if you’ve ever have you ever read that book?
Brett
No, I haven’t.
David Pennino
So it’s essentially the art of having a difficult conversation. And the main premise and I apologize to the authors if I butcher this, but what I take from it is that human beings are designed to perform at their worst when they need to perform at their best. Generations and millennia of having to fight for survival and be uncomfortable. Our adrenaline kicks in times of danger, because danger used to be a bear, a shark, another hostile human being. Today in modern world, our danger could be an argument with your spouse. It could be having a conversation with your board of directors that are difficult and your generational kind of DNA pushes adrenaline forward because you were going to fight a bear, and now you have to have a calm business argument or a debate with your spouse or your child. And so it’s something I’m not naturally good at.
David Pennino
I perform at my worst when my adrenaline kicks in. So I read the book probably once a quarter to try to remind myself, tips and tricks, to kind of breathe, calm down, be thoughtful, listen, don’t overreact. And from a business context, it’s probably my all time favorite.
Brett
Sounds like it’s useful in a personal context then as well, I think, right?
David Pennino
Yeah, it’s interesting. I was just spending time. I just lost a fraternity brother to cancer, and I was with a bunch of my other fraternity brothers, and one of them was expressing some life challenges. And I recommended this book to him, and he sent me three or four texts since, saying, man, his last text to me was, the hardest thing about reading this book is realizing how bad I’ve been at this for 50 years. So, yeah, it’s a really great read.
Brett
Nice. That’s good endorsement. I’ll grab a copy and I’m sure many people listening as well. Will so thanks for that. Now let’s switch gears and let’s talk about the company. Can you just talk us through what the company does? Sure.
David Pennino
So LogicSource is we focus one area within the corporate environment, which is what we call indirect procurement. But depending on your industry, you’d call that purpose services, you’d call it goods. Not for resale, you might call it indirect. Each industry calls it something differently. But essentially, companies buy a ton of stuff every day to be in business and to oversimplify it, they buy things they sell, and they buy everything else that enables them to sell. So if you’re a hospital system, you have doctors and nurses and MRI machines, and that’s the stuff you ultimately are selling, if you will, to patients. There’s all this other stuff, marketing facilities, it distribution, logistics, et cetera that you also have to buy. And that’s the same for clients of ours that are in retail, in publishing, in financial services, in healthcare. They buy things, they sell, and they buy all this other stuff.
David Pennino
And we do the other stuff. About 20% of revenue, whether you’re a retail bank, a high end fashion brand, a publisher, or a hospital system, about 20% of revenue is the stuff that we buy. And we get at it in two ways. What we found when we started the company in 2009, which is still true today, is that very few organizations are really good at this. And some of that is because it’s just not a core competency. It’s not a core product, so they don’t put as much energy against it. It’s thousands of categories when you actually pan out and look at it. And like the stock market, these categories move every day. So mastering it is hard. And you only buy what you buy, so you don’t have leverage. So we’ve kind of gotten out of it in two different business. Gotten at it?
David Pennino
Excuse me, two different businesses. We have a services business, but not to be confused with the consulting business, we don’t do consulting. We’re in the retained professional services business. So LogicSource, Inc. The core brand, provides sourcing and procurement services for large enterprises either and simply put, with you or for you. We have clients that don’t want to be in the indirect procurement business, and we do it for them. We have clients that do want to be good at it, and we do it with them. And we bring data, and we bring technology, and we bring spend leverage and a center of excellence and an ecosystem of suppliers, et cetera. And we drive really meaningful EBITDA improvement every year, let alone things like risk mitigation, supply chain continuity, et cetera. And then we have a software business called One Market on e Market, which we’ve owned since 2009.
David Pennino
Interestingly. We mentioned California. It’s actually named after One Market, the restaurant on Market Street in San Francisco. I used to work above that building, and we thought it was a cool name for a marketplace software. One market provides five modules data analytics, sourcing and procurement, project management, sourcing, procure to pay and contracts. So the kind of two businesses that.
Brett
We operate, people listening in from California are cheering now. They’re like, Take that, David. California did have an impact.
David Pennino
Yeah. If anybody knows the owner of that restaurant I’ve been trying to buy the URL for years, haven’t called me.
Brett
I love it. Now, can you take us back to 2009? Let’s talk about those early days. So what was it about this problem that made you say, all right, let’s do it? Because I understand you were working at a different company before you started this. Correct. So what happened that made you decide to leave and start your own company?
David Pennino
Great question. So a couple of things. So let me start with the end, which is your question. At the end, what made me leave? So I’m one of these people that has goals. I write them down. Here’s what I want to do by this age and all that kind of stuff. And I wanted to start my own business by the time I was 35. And I had my own landscaping business. I was a kid, and I just liked building something. So my dad was my best friend. He passed away in 18. He, in my 35th year, called me and said, hey, wise guy, you said you always meet your goals. You said you wanted to start a business by the time you’re 35. So, I mean, literally, that’s what happened. And I created the business plan. It was 17 of the worst slides you ever seen in your life.
David Pennino
You’ll be shocked to know Bain funded us. But I created these 17 slides with two business partners. One was a former fraternity brother and good friend of mine. Another was a neighbor and friend of mine. And we used our gartner relationships to get a meeting at Bain Capital Ventures and met a gentleman who’s become a lifelong friend. And I wouldn’t have a company without him, a guy named Jeff Schwartz. I wouldn’t have a lot of things without him. And Jeff liked us and liked the model and introduced us to his partners. And they funded us from scratch. And to my knowledge, two things that I’ve said multiple times and no one’s challenged me because I think they’re true. One, I don’t think Bain Capital Ventures at that time, maybe since, had ever funded something from an idea. I think it was a first. And I’ve never found a retained professional services business, an outsourcing business, tech enabled that started from scratch.
David Pennino
I’ve never found. You know, guys like Bob Howe and Denny Welsh started IBM global services from within seen. I’ve not found another professional services firm like this that truly started from scratch. They usually start as consulting firms or something and migrate. So that’s how this came to be, why we chose this. I’m not a procurement person. Many of my colleagues make fun of me to this day and say I’m still not 14 years later. But we saw a gap in the enterprise. I looked at what IBM did in It outsourcing and what Accenture did in finance and what Hewitt and Aon have done in HR and thought, boy, where else in the enterprise could you create a really powerful, tech enabled, retained professional services business? And buying stuff just jumped off the table at me. Companies aren’t good at it. Economies of scale make a ton of difference.
David Pennino
Leverage makes a ton of difference. You could build really meaningful shared services and automate, and that’s what we set out to do back in nine. And it’s held true to 2023. I mean, most companies are looking for help in this area. We drive meaningful profit improvement. And let’s face it, in this economy, everybody needs it. And most of our competitive landscape is consultants. And having been one, I say this lovingly to my consulting friends. Having been one, consultants have two fatal flaws as it pertains to buying things. One, they don’t buy anything, they don’t bring leverage, and two, they don’t do anything. So they tend to sell really expensive PowerPoint. But the number one finding is companies are underfunded in procurement, so who’s going to go do all the great work that consultant recommended? So building a utility like we have that actually executes has been a real differentiator.
Brett
In 2009, that was right towards the tail end of the financial cris. So did you know at the time that may be a bad time to start a company, or what was going on inside your mind? And the reason I ask is right now, obviously crazy times in the economy. I think there’s a lot of founders listening in who may be thinking, hey, on paper this is a bad time to start a company. But I think what others have said is that’s the best time to start a company? So what were your thoughts at the time?
David Pennino
It’s interesting. I mean, capital markets aside, there are better and worse times to raise money that people way more qualified than me should opine on your podcast on. But I think the right time for an early stage company is the right time for, I think the founders, their family, their personal situation, their risk tolerance. Economies go up and down. I personally think that the time is really down to when you can put your heart and soul into it and when you have partners in your life, your wife, your husband, whatever it may be, who are willing to support you. I think that’s actually more important, provided you can figure out the capital market side of things. Because early stage is not for the faint of heart. The number of firms that actually survive is shocking. So you really have to put your heart and soul in it and be willing to sacrifice an incredible amount to do this.
David Pennino
And I think that’s actually more important. Our business in particular, we save companies money. So, candidly, bad economies are better. So good economies are good. Bad economies are better for a business like ours because everybody needs to save money.
Brett
And on the topic of survival, as you mentioned, there something we like to always ask about are those near death experiences? So what I see when I Google your name, there’s great media coverage, there’s that podcast of raising 200 million you sound like the man. Right? It’s all the good stuff. But what I feel that often doesn’t get told are the hard times that founders have to go through to really make the company a success. So can you recall any specific near death experiences or just crazy stories that maybe haven’t been told before that you’d be up for sharing?
David Pennino
Oh, man, I don’t know if we have enough time. Look, building something like this and I tell everybody that’s ever interviewed here, we have done 120 really stupid things, and thank God we’ve done 125 smart things. So we’re net positive five. I have ten stories for you of near death experiences. I mean, I have exited my home in a deed in lieu of foreclosure because of financial strain. Building this company from scratch, putting my family in harm’s way. I’ve lost the support of my board and almost had to exit the business, had another CEO brought in around me. When we started the firm, were sued for Rico federal racketeering.
Brett
Like the mafia stuff?
David Pennino
Yes, sir. My former employer hired a great lawyer who I’ve since made peace with. And I’ve made peace with all of my former employers executives. But they were worried that were going to take bank Capital’s money and our know how of how to do this stuff, and were gonna point it right at them. They had a real fear that were going to hurt them and take their customers. And they had a great lawyer who know Bain Capital is terrified of the newspaper. So let’s drum up a shock and awe strategy that’ll make them leave Dave and his founders alone so that we can just kill them from a professional context.
Brett
Yeah. Clarify, right?
David Pennino
Yes.
Brett
You talk about Rico is not really killing you.
David Pennino
So basically, this gentleman said, look, because Dave and his founders commuted from, at the time, Connecticut to Manhattan on Metro North, and they used laptops to plan their new business idea. Their new business plan. And they crossed state lines from Connecticut to New York. They committed interstate computer fraud under Rico and under the fruit of the poisonous tree statute. They claimed they owned the company. And it almost worked. We were only seed funded about half a million dollars when they did it. And Bain almost walked away. And if not for Jeff Schwartz and doug Morris at the time was another investor out of St. Louis. If it wasn’t for those guys standing their ground and having the courage. And I think Jeff’s attitude was, boy, if they’re trying this hard to stop this idea and this team, I must be on to something. They stuck with us, and it cost several million dollars in lawsuits, and it hardened us in a way from day one that’s been pretty special ever since.
David Pennino
But it was a true not only was it a near death experience, it was immediate. It’d be like you’re about to climb Everest and you almost die getting off the airplane before you even start climbing.
Brett
I have to admire the investor’s perspective there that reminds me of the Uber story, or I should say the Travis Kalanick story from Uber. I was watching some videos a couple months back, and he was talking about his first company. It was like kind of napster. He got sued for a quarter trillion dollars. He walks into the office of a VC, they throw down the newspapers where they’re on the COVID and says, congratulations, your valuation just increased five X or something along those lines. And it was all this media attention about this massive lawsuit made it seem like an opportunity they really had to pursue. So it sounds like your investors were viewing as something similar. Right. Like that was a sign of or a good indicator of opportunity.
David Pennino
Absolutely. Look, and I would say there are times where I probably severely disappointed. Bank Capital and Pegasus Capital and Solomir Capital and FTD Capital all have been partners of mine over the years, over the last 14 years. But I will say that they’ve all been wonderful. And there is a very big difference between Founder friendly firms and others. And I do get reference calls a lot. And that’s the first thing I tell folks trying to start something is be really money is not the hard part. The right partners is the hard part. And they’ve all been winning. And we’ve created lifelong friendships because of it.
Brett
And on the topic of fundraising, how do you know if it’s a Founder friendly firm? Because everyone says they’re a Founder friendly firm. If you go to like 100 investors websites, they’re all kind of saying the same thing now. Right, so how do you know? How do you dig deeper than the homepage of the website?
David Pennino
Yeah, I think sorry for the terrible analogy, but I think it’s like dating. You just got to date and go on as many dates as you can and do as many reference calls as you can and put yourself in as many situations. Our recent deal with, you know, Brad Bernstein, their managing, know, went on our home turf, know bars and restaurants, know meeting locations that weren’t just in big fancy conference rooms in Know. We got to know them. We got to know multiple people at the firm, not just met, you know, probably six of Know partners and senior folks, by the way, not all of whom loved the idea of LogicSource, which was really great. So having that ability to debate with them and get into their heads around how they think and get into some of their other investments. And also we spent a lot of time with their operating crew, their head of talent, their head of It, their head of business development, and really got to know them.
David Pennino
And I think so many folks make the mistake whether it’s their first run and they’re raising money for the first time or they’re parlaying their investment, taking some money off the table and going again. I think folks get a little deal horny and they need to chill out and date a lot before they make that final decision and do a lot of reference checks and ultimately check their trust, their gut.
Brett
Nice. That’s super helpful advice.
David Pennino
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Brett
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David Pennino
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David Pennino
Now back today’s episode.
Brett
Now take us back to the first couple of paying customers that you were able to land. So looking on your site today, you have all the greats massive logos, but I’m sure you didn’t always have those logos. So in those early days or early months and years, how did you convince those first customers to give you a shot?
David Pennino
Somebody asked me this the other day and it was almost like I don’t even remember. Somebody said, how do you convince one of them it was my daughter said, how did you convince I think our first customer was Michael Stores out of Dallas, Texas. Interestingly, they’re still a client. And I think our second customer is black, so Smith, Klein, and they’re still a client. Wow. GSK was actually an RFP, and it’s actually the last one I can recall we’ve ever done. And it was in 2010. And Michaels was a bank capital company at the time, so they’re very different. But a lot of it was at the time trading on our personal backgrounds and our personal capabilities because the firm didn’t have any. We were, were leveraging what we had done in other companies. We were leveraging our former employees. People like Amandi Fernandez, who had mentioned doing reference calls for us as human beings and also being willing to jump in and help us along the way.
David Pennino
It takes an awful lot of courage to get those first folks to give you a shot and then just deliver flawlessly. The benefit of early stage companies is when you walk into LogicSources, lobby. We’ve been criticized sometimes for the language, but it’s not bad language, but the way it’s worded. There’s a huge poster in our lobby that says, this company didn’t happen to us, we built it. And a lot of people work at a company that they’re an employee. They don’t really care, really, about what goes on there, whether it’s a wrapper on the bathroom floor or a little bit of extra effort they could make tonight to make a customer happy. They’re an employee. They don’t really care. And we have always been an owner operated business. And the age old saying that ten soldiers fighting for their home are more powerful than 100 hired soldiers, it’s very true in early stage.
David Pennino
When you give an early stage company a chance for your business, you’re affecting positively their family, and they work that hard. And I think that’s what we kind of expressed to our early customers and then followed it with delivery. And look, we didn’t always get it right. We screwed some up really royally early days and learned a hard lesson from that. And interestingly, we always embrace those failures. In fact, if somebody asks us for a reference of one that went wrong, we actually have those which we never shied away from. Here’s one I really screwed up, and we’ve built a relationship in hindsight and shared with that company. We messed up with that. We’ve gotten better because of it, and we’re all still friends.
Brett
And given your background at Gartner, do you have strong opinions about market categories and the market category that you’re in? Are your buyers just going to Gartner and saying, hey, who’s the best? And then that’s where the deals come from, or what’s the relationship there with Gartner and what’s your views on category creation?
David Pennino
So I love Gartner, I loved my time there. I met my wife there. I think it’s an absolutely world class brand period. I don’t think they cover our space well at all. And I’ve been running this company for 14 years, and I worked for a company that was much more narrow and focused three years prior. So 17 years I’ve not had a Gartner contract because they just don’t cover this space. And I meet with them about annually and try really hard to do something with them, and they just don’t cover it. They’ll cover Ariba and Koopa because they have massive marketing budgets and they pay Gartner a lot of money, but I just don’t see them really covering this space well. So we’ve worked with Everest and we’ve worked with Forrester, and we’ve worked with, you know, analyst firms that really are in this space.
David Pennino
I’ve just been very underwhelmed with Gartner’s coverage of the space.
Brett
Candidly and what about your market category then? How do you think about that? Is it sourcing and procurement or what’s the actual term? And. The phrase there that’s commonly used, I’d.
David Pennino
Say the most common phrase is probably performance improvement. And by the way, everybody and their brother has a performance improvement practice. Now even the McKinsey’s and the Baines and BCGS will have performance improvement. Know, cost optimization, spend management, I think those are all areas for personally, I think to date myself, when I grew up at Gartner, where they didn’t call it back in 1994 or 1995, it was Mis. Gartner created it, created the CIO. And if you think back to date myself, I’m almost 50. Back in the day, the CIO didn’t exist. There was an Mis director who pushed a cart with AV equipment on it. When everybody went to work, they pressed down and went to a data center. Everybody else pressed up. They had screwdrivers in their pockets, fixed Xerox machines, and at some point in the late 90s, before Y two K, they gave the screwdrivers to Xerox, they gave the data center to IBM, and they put a suit on and they went upstairs and started talking about innovation and omnichannel and security, and they became the CIO.
David Pennino
Procurement has got the same problem. If procurement by its pure title assumes someone’s already made a strategic decision and they’re just executing a buy, it’s the wrong name for the function. It’s really spend management. We’re managing the company’s resources to a more effective outcome. So the category sits in there somewhere performance improvement, spend management, productivity.
Brett
And is that how buyers are buying, then? Are they saying, oh, I need a spend management solution, and they go out and hunt for the market? Or what are they doing when it comes to looking to fulfill that line item?
David Pennino
It’s interesting, this day and age, right? First you have the pandemic, and nobody could find anything they needed. I need sanitary wipes. I need blast shields at registers. I need gloves and masks. Then there was this crazy supply chain crisis, and shipping containers went from 7000 to 50,000 overnight per container. And then there was this entire supply chain shortage. Couldn’t get anything when you needed it, and then inflation crushed everybody. Then just before you got comfortable, now there’s a recession. So the last few years have been fascinating, and everybody needs help. So really what we’re finding, no matter how hard we try, we’re always grounded in profit improvement. Opex EBITDA in year net benefit is where everybody is focused. We also do a lot of really smart things like mitigate risk. It is stunning to me how many corporations, I’m talking 1020 billion publicly traded don’t know what they buy, who they buy it from, who buys it, why they buy it, how much they pay for it, let alone is it contracted, let alone does what they pay match what the contract says?
David Pennino
And I’m not exaggerating, I mean, companies don’t know what do they buy from, how much they pay for it, and their contracts are a dog’s breakfast. And what’s crazy is COVID has actually made it worse. You would think with people working from home and DocuSign being so prolific, contracts will be easier to put your hands on. They’ve actually gotten worse during COVID I would say the highest percentage I’ve ever seen of being able to get my hands on contracts. About 60% of spend is the highest I’ve ever seen of spend, contracted on average, about 26 27% of spend. And we’re talking billions in these companies is under a contract that they can find.
Brett
Wow, that’s insane.
David Pennino
It’s crazy, right? But no matter how hard I pitch business continuity risk, we always end up anchored in economic benefit.
Brett
Makes sense. I mean, if you have to be anchored somewhere, that’s probably a pretty good place to be anchored, right? Economic benefit.
David Pennino
Yeah, well, provided you can deliver it. And procurement does get a bad rap because there’s a lot of consulting firms out there and there’s a lot of in house procurement departments that there’s some bad words in our industry. Right. Extrapolate is a very bad word in procurement, and I’ll tell you what I mean by that. Well, I saved you 16% on this thing over here where I had a contract and I had data and I had a benchmark on this thing over here. I’m just going to extrapolate that 16% held over here because I don’t have a contract and I don’t have a baseline. That’s a bad word. The other bad word in our industry is identified. Identified savings simply means I’ve put it in a PowerPoint slide. It doesn’t mean it’s hit your p. L right. So anybody who’s in finance FP a CFOs in your audience are going to be nodding their heads off their shoulders.
David Pennino
Identified savings drive them nuts. The other thing that drives them nuts is cost avoidance. The other thing that drives them nuts are lost savings reports. CFOs want to see EBITDA hit the P L before anybody declares victory and calls it a save.
Brett
Yeah, it sounds like that’d. Be like a sales team saying, we have identified revenue, identified leads, and counting. That as good to go.
David Pennino
Yeah, it’s like taking your pipeline and saying, look at how great we’re doing, even close to getting it.
Brett
Pipeline, that’s funny. Yeah.
David Pennino
Gas revenue is what the CFO is looking at. Your pipeline. Exactly.
Brett
Nice. I love that. Now let’s talk about growth. So our audience loves to hear numbers and metrics. Are there any numbers and metrics that you can share that just demonstrate the growth and traction that you’re seeing right now? Sure.
David Pennino
No, the business has been very successful from a growth perspective, and I think it’s important to point out if I’m hard on myself and on our team, we’ve underinvested in sales and marketing substantially. And I think some of it’s I grew up in sales and marketing, and I overcorrected on the areas kind of why I read crucial conversations every quarter. I’m not good at it, so I keep reading it to get better at it. I’m naturally a sales and marketing person, so I get nervous around finance and operations and implementation and quality and continuous improvement. So we spent all of the money there. We spent all of our money on operations and being really great at this. So we tend to keep our customers and keep them happy. We’ve underinvested in sales and marketing. So until this year, until 2023, I had a person, one in marketing who grew up here, got out of college when he was 21.
David Pennino
He’s now 31. He’s been here the whole ride. One guy, phenomenal guy. I think he’s listening. So I love you, Colin, but the guy’s done everything on his own. And this year he’s got three different agencies supporting him. He’s got ten employees helping him. So we’re getting noisy now. And I guess for the founders out there, we got really good at making sure we could deliver it first, and we sold it kind of organically, and now we’re going to pour gas on the fire. So we’re doing the same thing with sales. We’re pouring some gas on the fire. So back to your question. The services business grows 40% to 60% a year, real steady, before I make all this investment in sales and marketing. Our software business grows a couple of hundred percent a year. Now, don’t get too impressed with that, because we just started it and we had no idea what were doing.
David Pennino
I mean, no idea what were doing. We could spell software. We knew our software worked for our customers. We’ve owned and operated one market, which is our platform since 2009. But we always had captive to support our outsourcing clients. We’ve never commercialized it and sold it in the market. So that’s about an 18 month new effort. So that 200 plus percent a year is from a pretty low baseline. So I think that will become a 70 80% consistent thrower every year. Because frankly, Ariba is dated and complex. Koopa has gotten dated and complex, and there’s still a lot of gaps in the marketplace that we solve with our tech. And we’ve got kind of to steal from our friends at FUBU. We’ve got a bit of a for us, by us. We’ve built our technology for procurement practitioners, by procurement practitioners. So it just tends to work a bit better than the fancy stuff developed by kids wearing flip flops that have never been in procurement or operations a.
Brett
Day in their life with their Stanford hoodies on and just out of college.
David Pennino
Just saying they might be out in Silicon Valley.
Brett
And what do you attribute to the growth and the success of the business? I’m sure there’s many things that you got right. I think you mentioned 125 of them. But if we had to pick out a few things that you really nailed, what would those things be, I think, focus.
David Pennino
We had a couple of Bain Capital partners, early days who were really they were focused was like their playbook. Don’t get distracted by shiny objects. Stay in your kind of strike. You know, we only do indirect procurement. We’ve only done it in US and Canada. We’ve stayed in consumer businesses, so consumer health, consumer retail, consumer packaged goods. And when you start a business from scratch, you get a lot of shiny objects coming know, hey, there’s an opportunity in France. Hey, there’s an opportunity in a different industry. And we’ve been very disciplined about that. Focus. So I would say the number one thing that I would say has been a consistent, true north here is focus. I’d say the second has been ownership mentality. The team and the way we treat each other like owners. We have a very flat organization. I can be fired. From day one, I had a board and investors.
David Pennino
I think a lot of founders make the mistake of wanting to own a lot of a little. I wanted a little of a lot. I knew I didn’t know what I was doing in many categories. I wanted a professional board. I knew that meant I could be fired. And that has constantly, to this day, pushed and challenged me to keep the job. I always liken it. To the sports analogy, I don’t have a problem with giving Aaron Judge 400 million after his on base percentage is over 430. His home runs are 72. He’s healthy for 120 games. Paying him before that. And I don’t know about you, but I’d have a hard time waking up in the morning if I have 400 million and working out as hard as he does. And I think so many of these athletic contracts make that mistake. And I think early stage companies made the same mistake.
David Pennino
If the Founder makes all the decisions, they didn’t run a massive enterprise before they founded it what makes them qualified. Embrace that skill set from outside your four walls. Be vulnerable, be fireable. It makes you work harder. It keeps you sharp. And then hire a team around you who are owners. And this is I say this all the time too. I can’t fire my CFO. I can’t fire my head of customer operations. The team would have to agree with me. Not just my board, the team. We treat each other like partners, and because of that, we’re constantly pushing and challenging each other to get better. And that’s been a real true north for us, and something I hope we never lose as we get bigger. If we do, I think a bunch of us will go somewhere else because it’s what keeps the oxygen flowing.
Brett
And if you reflect on your journey, what’s the number one piece of advice you’d give yourself if you were starting the company again today from scratch?
David Pennino
Oh, dear God, there’s so many things that I should have done better. I think you might be surprised by this answer. Stay out of recruiting. I’ve gotten it wrong more than I’ve gotten it right, I’d say. And I now joke with my CFO and my COO. And don’t let me hire anybody because I’m a sales and marketing person. So I’m an emotional buyer. So if I really liked you, I’ll hire you. I don’t even really listen to your resume and know how good you are. So I’ve gotten out of the hiring business. And by the way, if there’s anybody listening that I hired and is amazing, that doesn’t mean I didn’t do a good job with you. It just means in general, my track record is not great. I’d say the second thing, and I think every Founder makes this mistake. Hire people that are as good or better than you.
David Pennino
Hire people you’d be terrified to compete with. So to me, it’s all team and my quality of life. I’m very blessed to have a wife ordered me through this whole journey. And I have four kids, and I’d say, for the most part, all four of them don’t really remember life before LogicSource because it’s on its 14th year and my oldest is 21. And having a family that supported is amazing. But I burned. I missed a lot of soccer games and a lot of dance competitions and a lot of dinners out. And now I’ve got a really awesome team and I can go home, I can go on vacation, I can have a life. In fact, my CFO pointed out last year was the first time in 14 years I didn’t fly out of a vacation. True story.
Brett
Wow.
David Pennino
And that was a big mistake. That’s not right. That doesn’t scale. So I’d say that’s the second biggest thing is hire the right team and be willing to hire people that could kick your butt.
Brett
Love it. Final question here. What’s the vision for the future? Maybe paint a picture for us three to five years from today. What does LogicSource look like? Yeah.
David Pennino
So this question would have changed if you asked me five years ago. We are having so much fun. We love the market that we exist in. We love our clients. We’ve got such a cool portfolio. I would have said five years ago, we’ll sell it and we’ll go on a ridland drip and some earn out and we’ll go do something else. We are having so much fun. I think we’ll do this for the foreseeable future. I don’t think we have a new market we have to enter. We’re very blessed in this regard. I don’t think there’s a new market we have to enter. I don’t think there’s somebody building some hyperdigulator in their garage that’s going to surprise us and come out of left field. I think we have to keep doing what we’ve been doing. I think you’ll see us go very big in healthcare because they need us badly.
David Pennino
Assuming there’s a lot of Americans listening, you should all be terrified about the condition of the US health system, especially non for profit. They can’t raise price the way everybody else can, and the only way they can cost is without a firm like us is staff, which means your services, means your oncology department, means your orthopedic department. So I think you’ll see us make a big push into healthcare health system space. I think you’ll see us make a bigger push into CPG. I think you’ll continue to see us loving and doing great work for our retail clients. Canada will probably go a bit bigger. I think you’ll see a bit more AI enter the picture. On our tech side, we’d like to be able to get better at pushing benchmarks supplier diversity, sustainability into our spend analytics tools. So I think you’re just going to see a lot more of what we’re doing, hopefully in a more automated and AI generated way.
Brett
Amazing. I love it. All right, David, we are up on time, so we’re going to have to wrap here before we do. If people want to follow along with your journey as you build and execute on all this, where should they go?
David Pennino
Well, I’d say we put everything we do up on logicsource.com LinkedIn. We keep a very active LinkedIn profile. I’d love to link in directly with people and interact with them that, you know, they’re always willing to just come to me directly. As I mentioned earlier, we’re flat as a board, so I love ideas and feedback, and we’ve also met a lot of great colleagues that way as well. So any of those channels, the only thing I don’t do is Twitter or any of that stuff.
Brett
Probably best to avoid Twitter.
David Pennino
Terribly interested in what I have.
Brett
Amazing. David, thank you so much for taking the time to share your story and share all these lessons that you’ve learned along the way. I really enjoyed this episode and got a lot of value from it, and I know our audience is going to as well. So thanks so much for making the time. Really appreciate it.
David Pennino
Thank you. Have a great day.
Brett
All right, keep in touch. This episode of Category Visionaries is brought to you by Front Lines Media, silicon Valley’s leading podcast production studio. If you’re a B, two B Founder looking for help launching and growing your own podcast, visit frontlines.io podcast. And for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening and we’ll catch you on the next episode.
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