Build the Back-End First - Why Strategy Beats Tech Any Day

Mike Hockett: Thanks for listening to the MDM podcast brought to you by our shift conference coming May 12th through the 14th in Denver. If you like what you just heard, you can find all of our past episodes at MDM.com slash podcasts or wherever you listen to podcasts. Innovation in distribution is often framed as a race to adopt new technology from AI to e-commerce to digital sales tools.

But what if that's the wrong way to think about it? I'm Mike Hockett, MDM's executive editor. And in this episode of the MDM podcast, I'm joined by Max Meister, co-CEO of Germany based power transmission products distributor Ludwig Meister, a company that has spent more than a decade building one of the industry's most disciplined Max, welcome back to the MDM podcast. Max Meister: Yeah, thank you, Mike, for having me.

Mike Hockett: Well, MDM and most prominently Tom Gale have been writing about Ludwig Meister for about a decade now, and so there's probably a lot of long-time MDM readers that are familiar with your company's story, but there are certainly plenty who aren't, and especially among NAW's membership. So let's start with a brief introduction to who you are and then who Ludwig Meister is in terms of what it looks like today. and effective innovation models. Their approach?

Start with execution, not tools. Instead of leading with customer facing digital, Ludwig Meister focused first on internal processes, data structure, and operational discipline, building the foundation before scaling outward. In our conversation here, Mac shares why so many distributors struggled to turn good ideas into real results, why AI won't fix poor data, Max Meister: Yeah, I'm running Logic Meister together with my sister. It's a family-owned business, third generation, and we are a power transmission, fluidics and tools distributor from Munich, Germany.

We have about 300 people and 140 million euros, ⁓ US dollars revenue. And maybe one speciality is we have about 70 % of our revenue is OEM. So it's not about spare parts, it's about OEM business. Mike Hockett: and how sequencing your transformation efforts make or break long-term success.

MDM and NAW's Shift Conference is rapidly approaching on May 12th through the 14th, and it's all about turning concepts and best practice insights into action and processes. There aren't many distributors that better exemplify our shift content pillars of hybrid sales, digital transformation, data analytics, and culture better than Ludwig Meister. All right, well that gives us a nice snapshot of what Ludwig looks like today. And MDM's content and our shift conference have long been all about change management and taking concepts and turning them into process and execution.

And I know that's an area of your expertise here. Most distributors think of innovation as adopting new technology, but your story and our case study on your company really suggests that it's an execution challenge. which was the subject of MDM's latest case study feature. We also preview Max's upcoming session at Shift, where attendees will benchmark their progress across those pillars.

If you're trying to cut through the noise around digital transformation and focus on what actually works, that's what our discussion is all about. Enjoy. So from your perspective, why do so many companies get that wrong? Max Meister: I think it is easy to have a good idea, especially for general managers or CEOs.

They are on a conference, they see a software or they see a tool and they think, ⁓ that solves all my problems, for example, pricing or whatever. And when you come back home and you tell this great idea to your team and you've got the first questions, how to implement it, how the data stream works and all this stuff. then reality kicks in. And I think this is the biggest problem that usually a tool is not solving a problem.

You really have to have good process design and with AI now also context design. But I think that's a key issue. And it is very difficult to really implement new tools with real traction. That takes time and you have to be very good in change management.

Mike Hockett: Yeah, and you have to have a firm understanding of the expected ROI when it comes to these tools that you might not see an ROI for three or six months or longer. So there's, think, such an appetite for immediacy when it comes to seeing a payoff with these tools. But like you said, it certainly takes time. a ⁓ central in Ludwig Meister's journey over the past, let's call it six to eight years, is in sequencing, building capabilities in the right order.

And that can be difficult right now when distributors feel pressured to innovate on so many fronts simultaneously, whether that's digital transformation, their pricing strategy, ⁓ &A, Salesforce organization, or elsewhere. So from your perspective, what does real sequencing look like in practice? Max Meister: ⁓ We call it Ludwig Meister style, so we started digitizing as far away as possible from the customer. So ⁓ it is easy to build a fancy website, but if everything in the background is not working, you only scale chaos.

And you will have unhappy customers and you will have outside salespeople that have to deal with unhappy customers. what we did is we started in purchasing. to digitize and then later on in logistics and then we made a CRM and then pricing and now we are very close to the customer. But it takes a long breath so it is very tempting to buy a new website or to start a new website and think, this will ⁓ push my revenue about 20 percent.

the problem is also when the reality kicks in, you see that you need good reliable processes and a good data structure. And that's much more important even now in times of AI in our point of view. Mike Hockett: Yeah, there is such a hyper focus on the customer, especially since COVID onward. And with that comes that, like you said, that appetite for adding new tools as fast as you can that serve the customer immediately.

But like you said, without the infrastructure and the backend capability there, a lot of those tools might fail if you don't have the internal. infrastructure in place before you have anything facing external. So ⁓ a hard thing to get right, but it's to hear about how you guys have made it work. Max Meister: And you need a long breath because you don't see the results in the beginning.

And you cannot go to conferences and tell cool stories because nobody knows what you're doing. Mike Hockett: Absolutely. Well, AI is all the rage in nearly every industry right now, and that's certainly true in distribution. And our MDM latest research took a deep dive on AI in this industry, which will detail on stage at Shift.

And it shows a remarkable level of adoption in this industry, which is not known for being a tech leader. In all of our research, the biggest hesitancy distributors 0.24 Why they haven't jumped in or scaled AI in their organization is that their data isn't good enough. We hear it all the time.

Your team at Ludwig Meister invested years in data before leaning into AI. So can you touch on how much simpler that made adopting AI rather than having to figure out the data piece at the same time? And then what do you see as the risk for distributors trying to jump into AI without having that data infrastructure really set first? Max Meister: Maybe I answer the second ⁓ question first.

My biggest fear is that ⁓ companies and leaders of companies think that AI will solve their data problems and this will not happen. In my point of view, it only gets worse because you automize maybe chaos and problems. And I'm very sure that AI will not help digitize. It will be a new competition, ⁓ new companies rising and stuff like this, but it will not help.

It is a tool, basically. And answering the first question, for us, AI is just a tool. So we don't start AI projects, but we ask what we want to achieve. What are our objectives and key results?

And when we see that AI is a good solution for one part of the process, then we implement it by ourselves. So we don't build LLMs, we use them. And we have machine learning for lead time calculation, for example, that's also hosted by us. But ⁓ AI is just a tool.

I think it's much more important that you are good in process design. So if you look at a complex process, for example, like ⁓ making a quotation from a PDF that's coming in, you have to identify the SKUs, you have to identify the customer, and then you have to have the right customer segmentation. So it's some kind of marketing. with customer potential.

And then you need your pricing engine. So it's a lot of ⁓ steps. And if you want to solve everything with one tool, with AI, it will not work. But if you have a good process design and you cut it into small steps, then you are able to digitize maybe something in the beginning, something in the middle, something in the end, and then it gives a picture.

But it also takes process design as a skill and ⁓ time. to really get results. Mike Hockett: And I know that it's tough for distributors who aren't deeply involved with AI yet because they're now seeing all these use cases and examples of these great things that distributors have done with AI. But to your point, if you don't have that data component figured out first, it's going to be very messy to try to do it at the same time.

So I think distributors, very understandable if they are hesitant to jump right in. It's almost a good thing to have some hesitation there and get the infrastructure in place. Max Meister: Yes, and also I think ⁓ speed of the development is so fast at the moment. ⁓ example, we built a custom GPT before custom GPTs were made by OpenAI.

And we invested a lot of intelligence and how to do it and stuff like this. And three months later, ⁓ our ideas were worthless. So ⁓ I think maybe it's not ⁓ best thing to jump on the hype on every hype train. And it's better to now work on data and make an AI architecture, think about what is the long-term plan, and then decide when you're really jumping on the train.

Mike Hockett: That's great. Well, along with anything customer facing, sales transformation is often one of the first moves distributors make that... At their core, distributors are selling organizations. But Ludwig Meister made sales transformation one of the last or most strategic moves that it has made.

Why is that? Max Meister: It's very tempting to start with sales because usually it's the biggest workforce, the biggest part, and you think that you have the highest rewards. But the problem is if you do a sales transformation without good processes in the background, the people have to take more care about, I don't know, customer segmentation and stuff like this when they change, for example, departments. and they cannot really take care of the customer and really add value for the customer.

And then it's difficult and you get a lot of pushback because you maybe have a good idea but it's not working in daily life. So that is why we said, okay, first ⁓ maybe we tidy up the background and then we go on stage and we really try to do ⁓ a sales transformation. ⁓ if you follow the, if the listeners follow the MDM ⁓ content, There were so many stories about sales transformation inside outside sales transformation stuff like this. You really have to be sure what you want to do.

⁓ we took quite some years to really find our way. And now we are doing a very complex sales transformation. Mike Hockett: Very interesting. Well, I want to touch on culture here as that has been a vital component of Ludwig Meister's success.

You've said that innovation only works when it becomes part of daily operations rather than in a vacuum and when meetings are just dedicated to innovation. So what did you do culturally to really make that stick and foster a culture of innovation? Max Meister: We implemented in 2019 a business method called Objective and Key Results. In the US also very famous is EOS Traction.

And it's basically a way to really prioritize and plan the resources and really the goals for maybe the 90 or 120 days. And this was a game changer for our company because today we handle 130 projects at the same time. and we only have 300 people. And ⁓ the general management and IT department is no longer the bottleneck because you have more people really pushing forward because they really want their projects to be successful because they were pitching it in the management workshop, for example, and then they get the resources and they really, they always show up on time and they want to be successful.

And this was a big change ⁓ in our company because in the past, I went to an MDM conference, I came back, I had 20 ideas, and I made everybody nervous. said, ⁓ this is interesting, here, and pricing, and logistics, and whatever. But the problem is, if you don't get traction, ideas don't help. And that was a big change for us.

And our culture now is, I, for example, have a very interesting idea, in my point of view. I have to pitch it in the management workshop. And if my people think, the effort is too high or the impact is not high enough, we are not doing it. So that's the same for the CEO or co-CEO.

We like, for example, for a team leader from logistics. Everybody has the right to pitch and sometimes your projects are declined. Mike Hockett: I love that shark tank type of mentality there and that process. And it's something I've heard from a couple other very successful distributors that it works for them because again, it puts intentionality behind these ideas ⁓ than saying, let's just try this.

It's getting ⁓ stakeholder and getting them involved in the process and a group vote on are we doing next? So that's great. ⁓ Max Meister: Yeah, and innovation is not about having ideas. Innovation is about really implementing stuff and seeing what works and then adapting and changing and getting it to work.

So, and this takes time. Mike Hockett: At Shift, attendees are going to benchmark themselves across sales, digital, data analytics, and culture. And our cohort-specific roundtable sessions are a great format to do that in, just small group discussions with non-competitors and people that outside of your own industry or your market where you can get ideas from. With that, where do you think distributors maybe most commonly overestimate their maturity?

Max Meister: ⁓ Actually, I think still in digital transformation, ⁓ unfortunately. And in Germany, think the company culture is ⁓ quite a good value, but I don't know how it's in the US, how ⁓ overestimated it is. But I think digital transformation is still not as mature as some people think. Mike Hockett: Sure.

Yeah, it'll be great to see the results of that benchmarking at Shift. Well, that's really all I have for you here, Max. We are very much looking forward to having you back at Shift and on our main stage as a featured speaker. As we finish up here, is there anything in particular you're most interested in hearing from distributors or asking them there in Denver?

Max Meister: Yeah, actually I have two topics. So the first one is I'm very interested in ⁓ sales transformation ⁓ models that worked. Different customer segmentation and needs-based, value-based segmentation and stuff like this. So everybody who has done something interesting, this would be very interesting for us.

And for my keynote, I would really appreciate if the listeners ⁓ just send in questions. ⁓ you can maybe connect me or put my LinkedIn profile in the podcast because my goal is to really add value for the audience. So it's not about marketing for Ludwig Meister, it is about adding value and I really want to show what is in our ⁓ engine of the company and how it's working. if there are any topics somebody is interested who maybe read the issue from Tom Gale or whatever, I'm very happy to include this in my presentation.

Mike Hockett: Absolutely. think not only are you going to get a lot out of this, but I think the MD or the SHIFT attendees are going to get a lot of great takeaways from yourself and certainly from the case study written by Tom Gale. So I will definitely promote both of those and insert a call to action for ask Max any questions at SHIFT on stage that you're curious about. Well, with Max, thanks again for joining the MDM podcast and we'll look forward to seeing you in Denver.

Max Meister: Yeah, thank you. It's an honor and yeah, all the best.