TROND: Jason, how are you?


JASON: I am good. How are you?


TROND: I'm doing great. I thought we should talk a bit about manufacturing. It's an interesting industry, right?


JASON: It's my favorite topic. 


TROND: [laughs]


JASON: So I appreciate you inviting me to join the show here.


TROND: Sure. Jason, you are the Co-Founder and CEO of Paperless Parts, this exciting startup here in Massachusetts that, I guess, you started in 2017. You have background from the military, is that right? Supplies, logistics.


JASON: Yeah. I was a Supply Corps officer United States Navy. I got to see the other end of the industrial supply chain on the buyer side of things, which was really an interesting introduction into the manufacturing industry.


TROND: And then you also got your MBA at Babson. Was that before or after the military? 


JASON: I was actually fortunate enough to do it while I was on active duty. So they sent me up to Boston, long weekend a month for 21 months straight. I walked away with a nice piece of paper. So it's interesting. I had a professor there who said, "You're probably not going to use anything you learned here for at least two years. And then a couple years from now, something's going to click, and you're going to say, 'Oh, I learned that at Babson.'" It was almost two years to the day from when I graduated where I'm, like, oh my gosh, I'm thinking about a case study that we worked on at Babson. So yeah, it was great, great opportunity. Awesome education. So I'm very fortunate.


TROND: Is that where you got the entrepreneurial bug? I mean, Babson fashions itself quite a bit as an entrepreneurial education. But you learned other things there also.


JASON: Yeah. I've always wanted to be an entrepreneur. My parents were entrepreneurs, you know, whether it was early days of life, lemonade stands to, boat cleaning businesses, trying to get into the entrepreneurial world. I ended up going into the military in 2008 because the market was just such a tough place for recent graduates. And, you know, a lot of my mentors at the time had said, "Look, if you want to be an entrepreneur and you want to have people trust you with millions of dollars, you need to go into a role where you have millions of dollars of responsibility. And the military is going to be the place where you get that very, very fast."


And they couldn't have been more right. I mean, four years into my time in the military, not only had I managed really large budgets for warships but also negotiating billion-dollar contracts. And military is just this unique place where they train you, and then they give you a lot of rope and a lot of trust to go and take on really big problems.


TROND: It must be there that you discovered the importance, I guess, of a topic like procurement and how that whole process happens, which is not obvious. And, like you said, in larger organizations, it's a massive process, basically, and, typically, not that efficient. So, is that where you realized that there's scope here to work on this? Or did you kind of jump into manufacturing with something different in mind?


JASON: No. I'll give you the quick background. I went to this, really... It was more of an antiquated platform at the time. It was a minesweeper wooden ship. Most people don't know we have wooden ships in the United States Navy anymore. But that platform had been around for almost 30 years, and most of the supply chain had been degraded with that platform. And it made my job as Supply Corps Officer really challenging because here I am, entering part numbers into a system to try to order those parts and really getting crickets on the other end. 


And that opened my eyes to say, hey, wait a second, I thought we had one of the most advanced industrial bases in the world in the United States. And why is this so challenging? That was my first introduction to the manufacturing world, specifically job shop, mechanical component manufacturing. That's what kind of sent me down this path towards Paperless Parts.


TROND: So Paperless Parts, just talk about it for a second. It's a estimating and quoting software. Was that even a category when you started? I found a few other companies that do similar things that were, I guess, started in the last decade. But there can't be, I mean, apart from generic sort of accounting systems and stuff, this can't have been, or maybe, like, purposed-built system like proprietary systems, you know. Obviously, you know, I've worked for public sector, and they all used some version of this to handle procurement in some way. How does this space look?


JASON: We vastly compete with the status quo, so Excel spreadsheets, pen and paper, someone who has 30 years of experience. The way I explain this is a lot of people know CPQ, Configure, Price, Quote. And CPQ is just a layer up from where we are because CPQ is just taking off-the-shelf components and assembling those things together. And each configuration has a different cost associated with it, a different cost of assembly. And there are a lot of CPQ systems, and they've been around for a very, very long time. 


Paperless Parts is a little bit different. We go all the way down to the unique component manufacturing. And we have to do a little bit more of an analyze price quote, where we're analyzing the unique geometries, the specs, the attributes, the tolerances of the component being produced. And, for our customers, each one they see is...could be unique. I mean, we see about 25,000 unique geometries a day. So, if that gives you any sense of the magnitude of innovation that's happening in the industry, people are designing new mechanical components every single day and are looking for quotes. 


And that creates a ton of risk because an estimator who's sitting there who has 20-30 years of experience their job is translating what they see in a design and a drawing into can I, should I make this? Should I even bother quoting it? If I'm going to, what steps am I going to go through to produce the component? And what inputs and how long is each one of those steps going to take? That's a lot of mental math. And there's a lot of opportunities for making a mistake. Or my co-founder always jokes that you know, Thursday morning and after bowling league on Wednesday night, the estimators were always off. And it's just because it's a very human-driven, tribal knowledge-driven piece of a business. 


And I think you kind of see we started as a marketplace. And what was really interesting is I think marketplaces pop up when there's a lot of friction in procurement. So what ends up happening is you get enterprising entrepreneurs who look at an industry and say, "Oh my gosh, like, why is it so hard to buy from Delta or American Airlines? Like, this doesn't make any sense. Why is it so hard to figure out when flights are leaving Boston and going into Bermuda, or the Bahamas, or name it?" 


And then what they do is they layer in technology, and they try to create a beautiful buying experience. So they're bridging the gap between what each individual company is able and willing to do, and what they can provide on their own from a tech perspective, and what consumers demand. And you've seen that happen quite a bit in this industry. So companies like Xometry and Fictiv, and others have created marketplaces where they're trying to bridge the gap between the buying experience and what the average everyday machine shop or manufacturer is able to provide. And this is...Amazon's a great example. 


Well, then you end up with other companies like ours that are much more like a Shopify. And Shopify said, "Well, rather than a marketplace, we're going to go out, and we're going to give everybody the same level of technology in order to be able to compete." Demandware did it as well in this space. And that's when you started to see companies actually set up their own e-commerce experience, their own websites, their own more frictionless experience that they could provide to customers, but they could uniquely tailor it to what their capabilities are. 


That's really where we sit. We found that being an intermediary, it was very, very challenging to create enough value to justify how much value we were trying to extract. And I really don't like the marketplace model because I find that it puts you at odds with both sides of the marketplace. Marketplaces they make money effectively on arbitrage or on fixed fees. And the fixed fees need to be pretty high in order to justify the amount of money you invest for the marketplace to be effective, an effective software tool that's secure. 


And so what you end up doing is falling into this arbitrage play, where you say, I'm going to try to get buyers to pay as much as physically possible. And then I'm going to try to use a network of suppliers on the back end to produce whatever it is I'm selling as cheaply as possible. And there's definitely a place for the business model. But we at Paperless Parts did not like the idea that winning for our company meant losing on both sides of the marketplace. We didn't want buyers to have to pay more. We didn't want shops to make less money on the jobs. We didn't want to stick ourselves between the two. 


One of the problems we had uniquely identified in the manufacturing space and quoting was, at the heart of this problem, is that it's very, very challenging for a shop to turn over ownership. So these smaller businesses, the owner manages the vast majority of the estimating and the sales activities. 


And so what ends up happening is when that owner is ready to retire, someone like me who's, you know, I've got my magic MBA. I know more than anybody else in the world now because I've, you know, I've got that piece of paper. I'm going to go in, and I'm going to take over the shop. And what's going to happen? Well, I don't know anything about estimating. I've never run a CNC machine before. I understand business, but at the end of the day, I'm not going to be able to take that business over because it's going to be hugely risky. 


To make that problem worse was not something we wanted to do. And we found that the risk was compounded by customer concentration. So, if you go into a manufacturing operation in the United States, the vast majority of them that are under 10 million in revenue, 80% of their business is consolidated across four customers, and that's a really risky proposition.


TROND: It is interesting that the industrial supply chain is actually evolving in this way, with both marketplaces and other kinds of digital solutions layered on top of it. How long has this process happened? And what are some other things that you're seeing? So marketplaces clearly was one, and you considered it, and there's, you know, there's Protolabs, Fictiv, Xometry. I'm sure there's others. But is there also other things that are happening kind of in your space that is affecting the ability of machine shops and others to create efficiencies?


JASON: Absolutely. When we started looking at this space in 2016, if a shop had a modern website, it was an anomaly. Most people were afraid of the cloud, like, this mythical cloud. No one knew what it was. And, honestly, I credit Microsoft and all of their marketing to this customer base, to the Windows customer base of making the cloud and demystifying the cloud, making it less scary. 


But for the first three years of our business, it was the single biggest objection we got. Cloud, the cloud is scary. Well, now manufacturers they're like, "Oh yeah, it's in the cloud. That makes sense. It's secure. It should be." And I think that that is driving our industry forward. 


And I think in manufacturing, you're starting to see this desire to understand the data. In these machine shops, they create millions of data points. But data is useless unless it's turned into information. And in order for data to become information, it needs to either be analyzed. It needs to be structured in a way that a human can understand it, or a computer can understand it. And I think you're starting to see a lot of that across our industry.


TROND: But I guess it all starts with fully understanding, you know, your shop floor, the parts, and optimizing it. It's just so interesting. The bit that you're holding here is it helps manufacturers really understand what they should be bringing in, not just, you know, at what price. But it would seem to me that, at least if you're doing advanced manufacturing, that this kind of a product is essential. But is it also important for smaller, more basic operations? I know you seem to have started with the smaller businesses. So this can even help very, very small shops.


JASON: Oh, absolutely. We have customers that range from 100,000 in revenue a year up to over a billion a year, which is really difficult to support from a software company perspective, as I'm sure you're familiar. The reality is a lot of these businesses...the small businesses, they're not doing job costing. So they really don't know if they make money or not. And the entrepreneurial way is to treat your time like a sunk cost. 


So the reality that starts to take shape is that these owners are running their businesses, and they're not really charging what they should be charging for the parts. So they're leaving a lot of money on the table. And they're doing it because there's an inherent fear that they won't win enough work to keep the lights on. So they work 12, 13, 14, 15 hours a day, whatever it is. They don't really charge for their time. They reduce their machine rates down to whatever they need to make the payment on that machine. 


And then, they never generate enough money to reinvest in their business to continue to provide more and more services or stability to their customer base. And that's the way a lot of these smaller shops go. But they will use a tool like Paperless Parts to realize that they're actually underquoting the vast majority of the jobs that they're pricing.


TROND: Hmm. That's fascinating. But it would strike me that if only a few of these smaller [chuckles] shops use your tool, then they're pricing themselves out. So it's sort of like you kind of have to lift all boats here in order to get the effect.


JASON: Maybe. I think what we've actually seen...because it's not a perfect market where I can send an RFQ to all 25,000 machine shops in the U.S., what you see is you see hyper-localized sourcing. And so what you'll actually find is that these small machine shops think they're competing with everyone else when, in reality, they're not. They're probably competing with the big shop that charges three times as much down the road. 


And by increasing their pricing by 20%, 30%, 40%, they actually aren't even getting close to pricing themselves out of the market. So we've seen it time and time again with our customers and how they've grown just by starting to come in and start to actually, like, do the real costing of what it's going to take to produce a component. So they understand what the shop down the street is going to charge.


TROND: You know, what I find fascinating is your startup is in a topic that you wouldn't necessarily imagine that this is a cool startup topic. Like, if a Silicon Valley person was talking and pitching a very, very cool startup, they might not be talking about procurement of industrial parts and quoting software.


JASON: You're so spot on. And in 2017 and '18, when I went out and pitched investors, I mean, blank stare. 


TROND: [laughs]


JASON: I got thrown out of people's offices that were, like, "Argh, get out. This is not even interesting." Nobody knew what a job shop even was. And it was brutal. It was absolutely brutal. We were really, really lucky to find a group of investors that just had deep conviction in what we were doing and carried us through to, you know, the last couple of years when...I honestly think the pandemic opened everyone's eyes. 


So I think it did two things; one, it opened our country's eyes to the critical importance of manufacturing. We started to realize, oh my gosh, you know, all this pennywise pound foolish behavior we've said, uh-oh, we're going to be in a situation where now we can't source from China. We can't source from all of these different outsourced entities. And people started to look internally and say, "Oh my God, why did we let injection molding go? Why have we let all the textile companies fade into the night? That was a terribly short-sighted decision." 


So I think two things happened; the world was...their eyes were open to the critical importance of manufacturing. And at the exact same time, manufacturers' eyes were open to the importance of having modern technology where their estimators, who are arguably the oldest people in the shop, could actually work from home. And they could do their jobs from anywhere. And they didn't have to worry about putting those people at risk. 


And so, in one fell swoop, the whole picture of what we were doing dramatically changed. And when we started to go back out to investors, they said, "Oh my gosh, you're right. This is actually really important." Like, the industrial space went from being kind of, like, dark and no idea what it is to this, like, sexy, greenfield opportunity that nobody had been thinking about.


TROND: Yeah, I'm curious, though, does this kind of product lead to more local sourcing, or does it actually lead to more global sourcing? Or is there no such relationship? Because you're sort of saying, okay, in the U.S., we woke up to manufacturing, and manufacturers are realizing what their value is, plus, you know, we need to build a domestic supply chain. So that's been going on, and there's obviously some support for that. So you might have, you know, state-level programs that are saying, "Well, you know, you got to digitize and do this." But does it lead to more global and kind of worldwide market sourcing? Or do you have any sense of how your software is being used?


JASON: So, today, we're United States only as a customer base. I think what you'll see...accessibility and speed opens up the market dramatically. So what we're seeing right now is it's driving more local sourcing because the machine shop that would have taken a week to respond to a quote where if someone sent it over to China, they'd have it back in an hour, well, now that machine shop is actually as fast with their quote turnaround times. So companies end up buying locally because they're accessible, and the industrial base is more accessible. 


That accessibility will be that rising tide that you're talking about. It's going to become if you cannot respond to requests and you can't communicate what your capabilities are, meaning not just, oh, you posted 15 different CNC machines on your website in your equipment list...because that doesn't mean anything to any buyer nowadays. You know, buyers are in their early 20s. They don't know what, you know, a horizontal mill is vice a vertical mill. That's not how they think. 


But if you can't communicate your capabilities in the form of a quote very, very quickly, you just won't be able to compete in the market. And I think what this is doing is it's starting to open up accessibility into shops that buyers had never worked with before. Some of that will be local, some of that will be international at some point.


TROND: What about the aspect of...so we talked about digital and digitalization briefly. What about the physical versus the digital? So there's big discussions now on the role of not just automation more generally but specifically sort of generative design processes and the role of AI. Does this mean, for you, that manufacturing is becoming fully automated over a very short amount of time? Or is there still a lot of physical work to be done in manufacturing?


JASON: I think there are companies that believe that manufacturing can be completely automated and digitized. And you've seen several companies take runs at this. Plethora was an example of a company that took a run at it. Now you have Hadrian. You've got other companies out there that are thinking they can build completely autonomous factories. And I think the challenge today is there's still a gap between design and manufacturability. So I can go into a CAD system, and as those CAD systems get more and more flexible and there's generative design, and name it, you know, you can produce almost anything now in that CAD system. Just because you can design it, though, doesn't mean it can actually be produced. 


And so what ends up happening is we abstract away all of the back and forth that would normally happen between the estimator and the procurement person or the engineer who designed the part. And we say, no, this can be completely digital. Send me your files. The files are going to be designed perfectly. The CAD will be right. You won't have bodies floating around in your CAD. All the tolerance will be easily readable in model-based definitions. And you will have annotated it perfectly.


You know, entertaining a drawing for design vice entertaining a drawing for manufacturing is very, very different, and there's still a pretty huge gap there. So I don't believe that there will be humans removed from this process anytime soon. But I do think; just like anything else in manufacturing, those humans will be using much better and much more powerful tools to do their jobs. And that will speed up the whole process and drive a lot of efficiency. 


What we've identified and our core thesis in this market is that as you move from the point of design, the origin of that design so that, you know, the mechanical or industrial engineer that's sitting there designing in Siemens, or CATIA, or SOLIDWORKS, name it, as you move from that down the industrial supply chain, the fidelity of the technical data declines at every node of the supply chain.


And as you continue to go down and down and down in fidelity, what that requires is it requires more skill, more experience, more domain expertise in the chair of the estimator to translate that low fidelity form of technical data into can I make these parts? What's it going to cost me? What are the manufacturing steps to go through in order to do that? And that really increases the cost of sales engineering at every step of the industrial supply chain. 


But if we can raise the level of fidelity across the whole industrial supply chain where everyone's reading off the same sheet of music and computers are able to be used to help with some of the rote tasks, you can start to infuse an enormous amount of efficiency. And I think that's going to speed up the pace of innovation.


I'm a big fan of tech companies that are supporting companies that produce physical things because we very much live in a physical world. We're not plugged into the matrix or the Metaverse yet, which means that in order to make significant progress in a physical world, the pace of iteration and the pace of manufacturing and production need to accelerate. And that's going to be the key to unlocking that.


TROND: Is this the idea of physical, or is it the cost to produce? You said fidelity. So it's like the translation and the loss of information along the supply chain is a real problem. But is it also just the cost, or is it even technically producing it? Because, you know, there's all of this hype. I guess people who don't do manufacturing but read about, you know, 3D printing they're assuming, at this point, that you can 3D print everything. And no one's taking into account the material usage, the cost of various machines, you know, and the size of the parts that you're trying to print or the accuracy.


I mean, not that we're going to, you know, have a long discussion here about 3D printing. But is there just a lacking awareness all along here, certainly in the general public, you know, people who are not day-to-day either quoting things or actually trying to make physical products? I guess it's an open question here. Where are we with all the virtual production on the production side of things? Could we print everything, you know? And is it a cost issue, or is it other issues?


JASON: It's a great question. I would say, and this is my opinion on it, that additive manufacturing is a fantastic tool, just like a CNC machine, just like a press brake, just like a laser cutter. And the biggest disservice to that technology was to put it on a pedestal as almost like the, you know, the skeleton key that would open every single door because it's just not true. I mean, this morning is a great example of what is happening in the world with Stratasys and Desktop Metal merging. You see, these two could be juggernauts in the 3D printing space, you know, coming together because the hype cycle has just been so long on additive manufacturing. 


And it is a really compelling, really exciting technology. But I would say it's only really compelling and really exciting when a component is designed for that specific technology. If you take a machined component that you're going to make a lot of, that could be run on a 5-axis CNC machine, and you try to compare that against 3D printing, it's not...there's no comparison. CNC machines can produce almost anything, especially if there's design consideration taken into how the component was designed. Now you're starting to look at things like tabbing, automated programming, all these things that allow these CNC machines to run for hours and hours and hours unattended that allow you to produce hypercomplex, super tight tolerance parts in a very repeatable fashion.


So I think we've done ourselves a little bit of a disservice by hyping the technology. It is a fantastic tool, and people should continue to design components with that tool in mind for very specific applications that require the components to be lighter, that require the components to have special cooling channels, whether that's to keep a rocket engine cool or to cool an injection mold so that you get faster shot times. There's a lot of really fantastic applications for additive manufacturing. But I think everybody needs to step back from the idea that it's going to be the only way we produce parts.


TROND: So, Jason, let's end then for a second on this topic of augmentation, which obviously is dear to me here. If this whole techyfying everything and virtualizing everything in manufacturing perhaps isn't even a strategic goal, and, for many, it isn't because it obviously has employment consequences that are massive and, you know, wouldn't be a good thing from that point of view either. What about augmentation, then? What are you seeing? If we kind of make the lens, you know, the next decade, what are the things that will augment the humans on the shop floor, the humans in the quoting department, procurement? What are the things, the big things you're seeing that are going to really make not just efficiencies but more effective organizations in the time to come?


JASON: Yeah, it's a fantastic question. I really do think the next ten years in manufacturing is going to be a very, very exciting time. There are still millions of open jobs. If anything is taken away from this conversation, it should not be that there are going to be people out on the streets. You know, it's not like we're going to create a huge Rust Belt where humans are no longer working in these facilities. I think the opposite is actually true; I think these jobs are going to get much more attractive. 


The old, dirty, dark manufacturing facility that nobody wants to go into that is dangerous and risky and, you know, it's not a place that you see yourself working for a long period of time, that perception is changing. I think people now look at manufacturing and say, "My gosh, this is super high-tech. These are robots that we're telling how to produce the most critical components that go into anything: medical devices, rocket engines, name it. And so I think the tech coming into this space will be fantastic, especially because we're seeing much more tech native owners as the industry turns over ownership.


And augmenting humans, it's going to start like any other augmentation. We're going to go after the lowest-hanging fruit first, the rote tasks that have been solved in other companies for years and years and years in other industries. So, oh my goodness, let's put a computer out on the shop floor so that we can actually look at the 3D model, or we can actually have work instructions on the desktop. Let's use scanning technology and tracking technology to make sure we know where work in progress is in our shop. Let's just monitor whether the machine is on or off. I mean things that other industries have been doing for decades, and manufacturing has been a little bit slower to adopt; I think that's where it'll all start. 


And then what you'll start to see is you'll start to see even more innovation because as you start to free workers up from the massive amount of context switching and the significant amount of rote tasks that they have to take on every day, you'll start to see internal innovation skyrocket because now those people will be peeking their heads up, and they are closest to the problems. And that's always where the best innovation comes from is the people who have lived the problems. 


So I think we're just starting to see the tip of the iceberg there. And it should be a really exciting time over the next decade or so. I hope that answers your question.


TROND: No, it does, Jason. And it strikes me that, you know, we were talking a little bit about consolidation and sometimes, you know, companies merging and stuff. But there's so much more than that happening. And the reasons why it seems to be happening is much more to do with sort of transparency and fostering internal and external innovation than purely with sort of size advantages. 


I just wanted to give you the last word. If you want to give some advice to people out there who are, you know, running manufacturing businesses, what are the things they should take from all of the things that we've talked about that are happening in the marketplace to get a grip on your business these days and really, well, consolidate, make it more transparent and make innovation happen? What are the steps that you would recommend? What are the things you have done to build your business?


JASON: I think it comes back to mindset. So, a lot of times, manufacturers think about the tools they buy as expenses rather than thinking about the tools they buy as investments that generate a return on that investment. And I think that's the biggest difference I see between shops that really, really excel and grow and acquire additional businesses. They approach the world with an investment mindset and a growth mindset rather than an expense mindset. And that, in and of itself, when you look at technology, that is the key differentiator. Do you see a return on your investment? And do you recognize that there's an opportunity cost associated with the time savings?


Because I think a lot of CFOs approach the world as, well, who can I remove from a position, or where am I going to get my savings from? And they don't approach the world from the, well, this person is actually my most valuable resource. If I could apply that person in a little bit of a different way, our revenue is going to increase. 


I'll give you just a very basic example: estimators; you're never going to fire an estimator. They're the hardest people to find. But if you can save that estimator 20% of their time, they're either going to quote 20% more work, which will increase your revenue, or they're going to have 20% of their time to follow up on the quotes they've sent, which is already proven to increase your win rates. Just simply picking up the phone and saying, "Did you get my quote? Do you have any questions? No? Are you going to buy it? Yes? Great." Click. But that 20% time doesn't happen. 


And so I think changing the mindset to where people are assets, and there's a huge opportunity cost associated with their time that's the key to being open to these new technologies.


TROND: That's fantastic. I like that to end on a growth mindset for procurement and industrial supply chains. Thanks so much, Jason. This has been fascinating.


JASON: Thank you. I appreciate it.