In the Mind of a Distributor
No one teaches you how to run a distribution business. There’s no playbook for navigating shifting markets, growing sales, or making the right bets on technology. The best distributors figure it out by talking to the right people and learning from experience.
That’s what In the Mind of a Distributor is all about. Each month, Benj Cohen—founder of Proton, the CRM built for distributors—sits down with industry leaders, from owners to operators to sales pros, to break down what’s working, what’s not, and where the industry is headed.
If all goes well, listeners will leave each episode a little sharper, a little more informed, and a step ahead of the competition.
In the Mind of a Distributor
Using data as your next competitive edge | Erik Gershwind
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In this episode, Benj sits down with Erik Gershwind, Vice Chair of the Board at MSC Industrial, to unpack 30 years at one of the largest industrial distributors in the U.S. and the strategic shifts that defined his 13 years as CEO.
Erik walks through repositioning MSC from a "spot buy" supplier known for its catalog and next-day delivery into a mission-critical partner on the plant floor of North American manufacturing. He also explains how MSC leaned into technical product lines, digital, and an implant program that's grown from 1% of sales pre-COVID to 20% today.
He also shares his view on AI across the distribution value chain and why data is now a distributor's biggest asset alongside its people.
For us, the key with technology has always been don't fall in love with the technology. Technology is in service of delighting customers and doing things that we otherwise couldn't do. The realization we started to have, Benj, was digital technology is allowing us to do things that will fundamentally change the game and improve lives for the customer.
SPEAKER_02Hi, I'm Benj, founder-CEO of Proton AI, the AI-powered CRM built specifically for distributors. And you're listening to In the Mind of a Distributor, where we interviewed the smartest minds of distributors. Let's get into it. Well, Eric, thank you so much for coming on to the In the Mind of a Distributor podcast. As everyone I'm sure knows, Eric was the longtime CEO of MSC, one of the largest industrial distributors in the US. So, so glad to have you here. Excited to start by talking about sort of a retro on your time at MSc, your 30-year history there. So, yeah, thanks so much for being on the podcast.
SPEAKER_01Benjam, my pleasure. Thank you for having me. It's a pleasure to be back. I think we got to do this once before, so thrilled to do it. Yes. Awesome.
SPEAKER_02Well, I guess we'd love to start from the beginning. You sort of grew up in the family business, but would love to hear your story of like actually joining the family business and your history getting into distribution.
SPEAKER_01Yeah, sure, Benjam. So much like you, you could probably relate to in some in many ways, MSC was kind of like growing up a sibling around the dinner table, if you will, and from a young age became exposed to the company along the way. Um, the company grew up. I grew up. The company went public. And so as the company evolved and matured into what is today a true public independent company, I evolved and matured. And throughout my time in school, all through academics, I felt I found this natural gravitational pull back to the business. I loved it. I loved it in my summertimes. Instead of taking internships at Cushy Jobs, I was going back to MSc and sweeping warehouse floors, literally painting floors, answering phones in call centers. And it gave me a great appreciation for the business, for our people, and learning from the ground up. I went into law school thinking maybe there's a chance I practice, but again, that gravitational pull brought me back to MSc. And I was fortunate to have the opportunity to see virtually every area of the company and work my way through. And the agreement I had with my uncle at the time, who was our CEO, our board, was I was afforded the opportunity to get the initial intro, obviously, and into the company, and then from there had to earn it. And I thought that was the right way. That was the way the families always treated the business, which is that we wanted to be good stewards for our entire shareholder base. And so that was sort of the agreement we had. It's the only way I'd want it. And it's been an amazing run of 30 years of seeing every nook and cranny of the company from the ground up. The last 13 of those 30 years, really, if you extend my time as CEO to also president, the last 15 years um at the helm of the company, and which was for me just the ultimate privilege and honor and uh a great run.
SPEAKER_02When did the company go public? And I'm curious how that changed the dynamic within the family.
SPEAKER_01So we went public in December of 1995. So, I mean, it's been 30 years life as a public company. I always say that we're really lucky that I think we punch above our weight for what is considered in the investment world a mid-cap company, a market cap, plus or minus $5 billion. I look at our board of directors and say, boy, how are we so lucky to get these great people to join the company? In some ways, uh certainly there were changes. You know, the company goes from private to public, and from a governance standpoint, there's changes and from a sophistication standpoint, compensation and such. I think two things, though, that stayed true. One was the family's perspective on the business, as I mentioned, even when we were private, we always viewed ourselves as stewards of something bigger than ourselves. We never tried to treat it like a family business that was in service of our family. We always viewed um a stakeholder community that we were accountable to. And so, in a lot of ways, it was a natural transition for us. I think the other thing, Benjamin that's been really cool is staying true to my grandfather's values. He starts the business in 1941 and he was a very principled man. Wasn't a particularly vocal person. He was the type of leader who did it by actions, but there are a few values that came ringing through. And I think if he were alive today, I got to work closely with him for many years. We overlapped before he passed away. I think he'd be really proud. And I think what he'd be most proud about is the way we carry ourselves. I mean, the accomplishments have been great, but it's the way we've done it, his values, and that's just integrity and doing what you say you're going to do, empathy and a caring for people, a focus on the customer, and a desire, this insatiable desire to always get better than you were the day before. Those are some of his values that he lived by. And I think what's been great to see is that we've been able to retain that.
SPEAKER_02So you joined the business right around the time that it went public. And what I'm curious, like, just give us the the run up through becoming president, what your journey was there. I think it's especially interesting for honestly me, because coming from a family business, the whole thing, I'm just kind of curious, like how you thought about learning the business when you joined.
SPEAKER_01Yeah, so I think there's been this cool parallel path of how I grew up and matured in the business and how the company evolved and matured into what it is today. And for me, the path was really to move cross-functionally through the business. So my path probably, if you can see me, looked more like this, meaning more lateral and across than the traditional up and down, particularly in the early years. And that was so that I could get a 360-degree view of the business. And much like you, entering a family business, you realize if you can understand all sides, number one, it makes you a better leader. Number two, it helps cultivate empathy, which I think is a really important skill, the ability to walk in someone else's shoes if you've done the job. So I began actually interestingly, my first role with the company, this was in the 90s when we were acquiring a lot of bolt-on distributors, geographic expansion. And my first job was to build out a team, a process, an approach to integrating those businesses into MSc. And it gave me an enormous win, like a crash course into distribution, because through that process, we had to learn supplier relationships, customer relationships, technology and systems issues, most importantly, probably is the culture and people issues and how you assimilate culturally. So that was my first role. And then from there it was into sales, into product management. I spent some amount of time in almost every part of the company, but again, it was very much a sort of a lateral move through. Yep.
SPEAKER_02Yeah, makes sense. And then you become president, CEO or president first and then CEO, something like 15 years ago. What was that transition like going and becoming the CEO of the business?
SPEAKER_01So one of the really cool things, Benj, is I kind of feel like there's been a few things that we've gotten right over. I mean, we're 85 years old as a company, and yet Martina, who I transitioned to, is only going to be is our fifth CEO in 85 years. And so we we kind of developed over time this playbook for doing transitions. And I learned from my predecessor, David Sandler, who learned from his predecessor, Mitch, who's our non-exact chair. And uh it's really a process of pressure testing somebody over an extended period of time. And so David laid out a game plan with me that extended over many years. So we had a great transition, and I felt like two things. One is when I when you get in, there's always an element, as you know, starting your own business of when you're in the seat. There's no reproducing it through practice, right? You're in the game and it doesn't feel like anything else. But I did feel as prepared as I c possibly could be because we had a really good succession plan that was extended out over a long period of time. And I think the other thing it did for me was give me a perspective on when the time came for my transition, which just happened in January, I had a playbook to work from. And so that transition, while it occurred in January, was years in the making.
SPEAKER_02So early on in your tenure as a CEO, Amazon talked about entering the B2B market. And I feel like that sort of played out to be less of a big deal in retrospect than it seemed at the time. But at the time, I think everyone was like really freaking out about it. So I'm curious like, how did you think about Amazon relative to the MSC value prop? How have you thought about it going forward? Yeah.
SPEAKER_01The Amazon announcement, um, our feeling at the time was that it was going to be a tough putt for Amazon to pivot from B2C into B2B, and particularly within B2B into technical high-touch areas, that it was a very different animal. But we also felt like it's Amazon. They have a tremendous staying power, the smartest people in the world, if they want to, they could probably figure it out. And even if they don't figure it out, they could do some damage along the way and or set off a chain of events that we couldn't imagine, but that there would be changes coming. So we looked back, and if you looked at the last chapter we were coming out of, I would refer to that as a spot by model. MSC in the industry was known as at the time it was a catalog house, but you know, essentially our role in the world was we had this awesome logistics engine, a massive product assortment, high-quality product assortment, great customer service experience. And uh we got product to customers next day for unplanned spot by needs. And that was a tremendous role we played, but nothing lasts forever. In the spirit of reinvention, we felt like that's what Amazon could potentially not only reproduce, but take to another level if they were to be successful. So it was the impetus for change. At the same time, an interesting dynamic was playing out, and so you're now looking at a few years removed from the global financial crisis, and while it was a few years removed, that event had a profound impact on our customer base. So MSE's customer base, 70% of our revenues are into the manufacturing sector. So you're talking about manufacturers of all size, and many of them had a near-death experience, if you will. You know, and and they go you go back to Economics 101 in this time of a crisis, cash is king. So we found that our customer base had an awakening. And the awakening was geez, it's not just about peace price. This game win winning at manufacturing is about throughput, being really efficient, and being really fast to market to be able to get products into customers' hands faster. And so this drumbeat, while the Amazon move was real, and and and if you will, the reaction was somewhat defensive of how do we defend against Amazon, there was a similar dynamic playing out that was, I would say, more offensive, which is we started to see white space in the market in the distribution market because these manufacturing customers that we had were crying out for help, basically saying we need help running our business better. And what that meant was we need help getting more efficient and streamlining our cost structure because we're facing disintermediation from technology, we're facing competitive overseas threats, and we're facing margin pressure. It played out in the form of um speeding up throughput because again, cash is king. How do we free up cash from inventory and get it into customers' hands? And it also played out in how do we speed up the manufacturing process so we can generate revenue faster and be more nimble for our customer base. So this drum beat starts. And what we did at the time is we took a look inside of MSc and said, you know, we have some assets beyond just the next day delivery engine and a broad product assortment. We can help these custom manufacturing customers actually solve their problems. And what we saw as we took stock is as a deep heritage going all the way back to my grandfather in metalworking supplies, cutting tools, abraces, and finishing supplies, and technical expertise around that area. And the reason we thought that was so important was that those product lines to a manufacturer would be more strategic, meaning more mission critical as part of their manufacturing and production process, that you can actually influence the output as opposed to stuff that was just happening around the plant. But the confluence of those two things led to a repositioning of the company. That I would say, if I looked back on my tenure as CEO, what would the headline be? Repositioning MSc from what was a spot by supplier to a mission critical partner on the plant floor of North American manufacturing. And that repositioning took hold in a number of different ways, but that was fundamentally the shift that we made.
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SPEAKER_02And how did investments in digital play into all of this? Because I mean, today, 60% of MSc sales are digital. It's been a pretty amazing transformation. How much of that came from this sort of Amazon moment? I my impression is like a lot of digital sales are spot by. So I'm curious sort of how that played into this overall strategy.
SPEAKER_01Yeah, Benjam, I would say the investment in digital predated Amazon.
SPEAKER_02Yep.
SPEAKER_01You know, certainly the Amazon momentum accelerated it. I would say COVID then accelerated it again. The efforts around digital started even during the prior chapter. And I know we'll talk about sort of perspective on the industry and for other distributors thinking about this. For us, the key with technology has always been don't fall in love with the technology. Technology is in service of delighting customers and doing things that we otherwise couldn't do. The realization we started to have, Benj, was digital technology is allowing us to do things that will fundamentally change the game and improve lives for the customer. So, I mean, I'll give you a great example. Obviously, search on an e-commerce site, and that's been really hard, by the way, because our catalog was so clean and so easy, but it's bounded. It was limited. And we had reached the sort of the maximum capacity of the catalog. And one of the things we're hearing from our customers is as many SKUs as we had, they have assorted needs for other products. And e-commerce gave us the ability to open that up and not be bound by a physical print. Another great example would be our marketing efforts, our digital marketing efforts, which have really picked up steam as of late, thanks to the help of Proton, I might add. But a great example would be the traditional catalog house approach to marketing that MSc benefited from for many years was print brochures. And with a brochure, we would curate a set of products that we thought were relevant to customers. We would storyboard those out and come up with a print brochure that would last a month. It would go out. We would see the returns relatively quickly. But by the time we could make adjustments, we're two or three brochures out, which is two or three months later. And I contrast that to digital marketing, that is a cornerstone of our marketing programs today, where we curate product assortment and merchandising decisions daily. We see results hourly, and we make changes daily. So literally by the next day, if we see something that's working or not working, we can adjust. That's a great example where our lead times went in a print world from at least six weeks to be able to move on a dime to 24 hours. So those would be examples, I think, of thinking about technology in service of something as opposed to the end in itself.
SPEAKER_02You guys have invested in digital capabilities beyond just I go on the website, I search for an item, and I buy it. Yeah. How have you thought about digital as a service layer to the customer?
SPEAKER_01So part of what we did when we made this pivot from SpotBy to being mission critical on the plant floor was we moved and focused within our portfolio on product lines and services that are technical or high touch. And we extended, literally extended the footprint of MSC inside of our customers. So in the old model of the SpotBy chapter, our role in the world basically stopped when the UPS truck would deliver to our customers' loading dock. Fast forward 10 or 15 years, our role is as much as anything inside of the customer's operation. And there's two ways that plays out where data, digital assets, and data are at the core of it. So one would be our inventory management systems, i.e. vending and VMI. So our vending machines, while they're secure units that can dispense tooling, that's only half of the benefit. The other half of the benefit is that these machines are capturing data, capturing usage patterns, usage patterns by job, usage patterns by person. And so being able to mine that data is bringing value to the customers because we can go back and help them cost jobs. We can go back and identify training opportunities for them where one group is using X amount of cutting tools, and the same group doing a similar function are using two or three X. We have an opportunity there. So harnessing that data is powerful. The other program that is extended our reach inside of customers and it also is anchored in data is our implant program. So this is where for larger customer relationships, we'll actually place an MSc person, an associate, one or more full-time inside of our customers. And this one's really picked up steam. And I think in large part because for most of our customers, one of their biggest challenges right now is access to qualified trained labor, particularly in the manufacturing and market. And we're helping overcome that with our customers. So that program went from pre-COVID, I'll call it around 1% of sales, Benjamin. But we we did it when we had to reactively. We realized we were onto something. Fast forward, that program is now 20% of sales and climbing. And the value is our people are playing a role of procurement and put away and light manufacturing services like hitting and value add, they're also capturing data, whether it's through a vending machine, whether that's through an e-procurement portal. So it's interesting. The role of a distributor today, if you go back 10, 20 years and said, what is the biggest asset we have? I would have probably said, aside from our people, that's number one, always. Aside from our people, I would have said to you, it's inventory and its distribution centers. Today, data is really at the heart of what a distributor does. And by data, I'm referring to the intersection to me between product, supplier, and customer. There's no other entity like a distributor that has access to the intersection of all those three. And so that's really at the heart of what a distributor does now.
SPEAKER_02Yep. Yeah, it makes sense. I want to dig into that on-site program a little bit more because I know that's been such a big success. How did you think about designing roles and role clarity as you were rolling out that program? The thought behind the question is that a lot of like mid-size and smaller distributors often offer some version of an on-site help, but through their outside salesperson who really should be selling. And so the roles kind of get all jumbled. And so I'm curious like, how did you think about differentiating the roles? And at what scale did you say, okay, we we don't want the outside salesperson putting stuff away at a location. We're gonna have someone here who is really in charge of this and manage it and thought it's a good question, Benjam.
SPEAKER_01I I would say pretty early on, as we hit the accelerator on the program, and we hit the accelerator on the program because we were hearing it from customers, it was pretty clear that the customer was asking for somebody full-time and dedicated. And you're exactly right, the outside salesperson who is generally compensated in some way, shape, or form to grow, whether it's revenue or gross margin dollars or whatever, you know, has to move around from account to account. The the role that the what the customer needs is different from somebody that's just adding on new products. They they need somebody who essentially this person becomes an extension of the customer. They are really part of the fabric of the customer's team and operation. What's interesting on the people front, as much as structure, it led to a different challenge, which is the old model of an inside person would exist in a branch or a customer care center where they're surrounded by a management structure and team members. Oftentimes, these folks are either on their own or maybe they have one or two other people, and they're inside of our customer from a training and development standpoint. The skills needed, you're talking about somebody that's got to be more autonomous and has to be able to make decisions independently, with obviously with some guardrails, but has to be equipped to be able. To make decisions on the spot that in the past they could just, you know, lean over their shoulder, look at their manager and say, What should I do? You know, it's it's it's a different game because if if you try to take that model into an implant, you're going to slow down dramatically. So how did I'm curious how you guys got around that? I would say a combination of training and culture and leadership around what the expectations are, what's okay, that it's okay to make a mistake as long as you learn from it. And so I think certainly some training and then some expectations and leadership.
SPEAKER_02Want to pivot to talk about AI at MSc, which you mentioned and I think is right, is like the next big shift that we're going to see in distribution. So I'm curious, you know, you guys are obviously at significant scale, how you guys thought about AI, bringing in AI, what the opportunities have been at MSc for AI, what's been successful, what hasn't been successful, some learnings there.
SPEAKER_01Look, I our interest and curiosity got peaked early, and certainly before the craze that took off with generative AI. I go back to actually when you and I first met, it was at the NAW CEO roundtable. And I was intrigued because I thought you were at at the time AI was it wasn't generative, but there it was a lot around big data and quantitative analytics and models. And I think you were onto the same thing that MSC believed in, that there was no industry that was more ripe for the use of AI, big data, and quantitative analytics than distribution. Because if I take MSc as a microcosm, we've got 400,000 something customers, 2 million something SKUs, that leads to a gazillion transactions all the time. And people have bounded knowledge of what they're capable of. So the amount of opportunity that a human being just simply can't tap into to be able to see pattern recognition across that many SKUs, transactions, customers, we thought the opportunity was really big. We began slowly. One of our early steps was actually a partnership with Proton. We also took some other steps though early on. We we brought on a board member. We felt like it was really important to get some expertise, not necessarily day-to-day inside the company, but at the board level. So Radina Siseri, who was co-founder of Glasswing Ventures, joined our board also before the move to generative AI. And for us, we had some early proof points. I know Proton, as I said, was a great example where we had been cross-cell and upsell, which was our first use case together, was not a new concept for MSC. We had a tool that had been in place for years and years. But our A B test, if you will, what it showed was the power that AI would bring because the outperformance was dramatic. It was one of the early sort of proof points for us, pricing being another. I would say for us, we were early to recognize the power of this. It just we took some, I would say, baby steps in the early years pre-generative AI.
SPEAKER_02I want to talk a little bit about where all the generative AI use cases are going. The big conversation now is around what's going to happen in the labor market. And a lot of these use cases are replacing what used to be very manual tasks with AI. Yeah. As you think about what the top use cases are within MSc and what that will mean for the future, at least within the MSc world, the industrial world, what that means for the future of the distribution of what people are working on, where people are spending time. I'm curious how you see that playing out over the next, you know, call it five or 10 years.
SPEAKER_01Yeah, that's a great question, Benjam. I would say the way we think about AI is we look at the entire value chain of a distributor from the time you figure out what to buy and buy from a supplier to warehousing it, to getting it to customers, to servicing and all the stuff that happens after sale. There, there's virtually not a spot in the value chain where there should not be some application for AI technology. And that could be to either reduce cost and/or slash improve productivity. That could be to generate revenue, as we talked about with cross-sell, upseller marketing, or it could just be to make life better and easier for the customer. So for us, it's gotta go end to end across the value chain. I I think you raise a really good point that the role of the human being inside the company, we've always had this mantra that there's like a bifurcation of people who believe the answer is in digital and other people who say it's in people. Um our belief is it's both and not either or. I think it's hard to outrun the fact that over time, if you extrapolate out five years, ten years, Benjamin to your point, there's work that's occurring today by human beings that will no longer occur with human beings. So, what that means is that the role of the person has to change and evolve. And the role of the person has to move up the food chain, higher value add stuff. Look, ultimately, the secret sauce of any distributor, fundamentally, is what you do for a customer. And I think what AI is going to allow us to do, we're in a fortunate position, all of us, not just MSC, we are in a huge, fragmented market that all of us are levered to different end markets, but most of those end markets are going to grow at GDP or better. And so you take a market that's going to grow at GDP or better and a huge fragmented one, there's so much growth opportunity that I don't think it has to scare people to say, oh my God, there's going to be no jobs. Because I think at MSU, when I think about our strategic plans, the company should be multiples bigger than it is today in five years and ten years. There's more to get done. But I think the role of the person changes.
SPEAKER_02I always ask the last question the same, which is curiosity is one of our biggest values at Proton. After a long career in distribution, what's one thing that you're still curious about or trying to learn?
SPEAKER_01Great question. So I'll give you one that I think I'm curious about, and I think probably many people who I talk to who are in and around the distribution space have the same question for me, and I don't have a good answer for it, which is this market is massive, $200 billion plus, however you slice it, and it's highly fragmented. The top 50 distributors only have 35% of the share. Why hasn't it consolidated? And when is consolidation gonna really heat up? And I've never had a great answer for that one. I mean, I have some ideas as to why, and I guess the question, Ben, so that's question one and question two, there have been catalysts or inflection points, as we referred to earlier, that were gonna be the thing that was going to accelerate uh consolidation. It was gonna be the internet, it was going to be the indirect procurement tools like Ariba that gave visibility. Then it was inventory management like vending. There's been one, it was COVID, it was some external events. None of them have lived up to the promise of truly accelerating consolidation. And and I guess the thing I'm curious about, I mean, AI is another one of those things, certainly, that has the potential to be such a step function change in what a distributor looks like. But that's the thing that's still on my mind after all these years, how fragmented the market still is.
SPEAKER_02This really was awesome, Eric. Thank you so much for doing this. I super appreciate it. My plug. That's it for this episode of In the Mind of a Distributor. If you like this conversation, leave a review. It helps more folks in distribution find the show. If you're thinking about a CRM for your business, head to proton.ai to see how Proton can help you grow faster. Or if you want to connect with me, you can add me, Ben Cohen, on LinkedIn. Thanks for listening, and I'll catch you next time.