Clem Cazalot on Driving Innovation in the Built World

I first met Clement Cazalot at Armory’s annual Summer Soirée last August, where I witnessed him overseeing the extrication of a low-riding rental car from a mud trap. The mud was deep and gloopy, verging on quicksand, and even with a team of seven we struggled to budge the hapless Ford Fiesta. As night fell and frustration mounted, Clem remained jolly and unfazed. Our resident Frenchman was not going to let a piddling Fiesta sour a perfectly good Soirée. Nor did he: with Clem leading the way, we at last succeeded in freeing the vehicle from the muck. 

A few months later, Clem’s company Machinery Partner announced its Series A round, a critical milestone in the company’s quest to revolutionize the heavy equipment industry. In the months since, it’s been full steam ahead for the MP team. Clem was kind enough to sit down with me to excavate some lessons learned from three years of building. 

Preston DeGarmo (PD): You noted in your interview with VentureFizz that up until the last five years or so, there wasn't as much capital being allocated towards the built world and blue-collar industries. In your view, why have investors finally started paying more attention to this sphere?

Clement Cazalot (CC): To give some context, there has always been money deployed in the robotics world and in the industrial construction world. However, what I've seen over the past few years (since before Covid, and accelerating since) is an uptick in specific funds raising large sums of capital dedicated to the industrial world, and dedicated to filling the digital gap between the online world and the physical world. We’ve seen more capital allocated to deep tech and material sciences, investments that have historically taken a longer cycle to realize.

And so my read is that you have two things that have changed. You have an appetite from Limited Partners (LPs) to invest in funds that are focusing on traditional industries, which in turn pushes General Partners (GPs) to develop theses more aligned with that. You see more traditional family offices, as well as large institutional investors (who made their wealth in the built world), through ventures or private equity, allocating capital in pockets of the economy they perceive as being underserved. 

The other, related piece is the number of GPs finding great success in the vertical SaaS world. Investors are seeing that, actually, there is plenty of opportunity at the intersection of the physical world and the digital world. This nexus has long been underserved in terms of innovation. A number of GPs (with Somak and Armory one of the leading firms in the space) have spent a lot of capital developing a brand and expertise and thus attracting founders. 

PD: To clarify, when you use this term “digital gap,” what is this referring to exactly?

CC: There is a huge subset of industries where the physical world still doesn't send back information to the digital world. Gains in productivity that could happen as a result of this are still not yet realized. So, when we talk about the digital gap, the question remains: How do you make the physical world better able to be orchestrated by the digital ecosystem? In the world of machinery, for instance, the easy answer is to address the gaps and opportunities in the supply chain; preventative maintenance; and the ability to understand the production rate — things traditionally shielded from the digital world. When you're orchestrating hundreds, let alone thousands or tens of thousands of transactions on a digital platform, you need visibility around what may be happening in the physical world. 

It’s what we call the digital gap because we have operators on the field or running million-dollar plants in areas with no internet or cell service. 

PD: With Machinery Partner bridging that digital gap, it seems as though you have a philosophical focus on the physical world. What animates that and your approach to solving problems in the built world, as opposed to a pure software play?

CC: It's interesting how you put it. The reality is there is a limit to how much can happen online. Many investors tend to have a myopic focus. I say that as someone who participated in the venture world and who has been in the game for fifteen years as part of the software ecosystem. The claim, frequently, in these circles is that software will ultimately eat the world. Even amid the rise of AI and generative AI, the reality is that distribution of technology and innovation is still the number one barrier limiting our growth as a society.

No question, there is a ton of innovation happening in select pockets. But the minute I leave Boston, where I am based, I encounter a vastly different mindset both around leveraging new technologies and what innovation actually means. Philosophically, Machinery Partner is dedicated to answering two primary questions. 

(1) How do we distribute the best technologies, some digital, some physical, to people who will ideally be in a place to leverage them? 

And, (2), How do you sell goods worth $100,000 or more, online, in the industrial world? It is a universe that is vastly untapped. Most of the online world is made to transact items in the $100 range, a few thousand dollars at most. Transactions valued at $100,000 or more — are not the sort that happen online.

Yet, this high price-point applies to the bulk of the built world. 

So, that's the context. In Boston, I have had the chance to spend time at MIT, Harvard and so many fantastic universities with technologies in development. These tools will not hit the real world, however, for another ten or twenty years. In the interim, if we can accelerate the rate of distribution of technologies, then, as a society, we improve. Smaller cities, like the one I grew up in, are going to rise faster and quality of life is bound to improve for a major slice of the population. 

Clem pictured at last summer’s Soirée. 

PD: Coming from a construction background, you travel frequently to see customers in different cultural environments. How does that square with you? Some of your customers are not as accustomed to using technology in the manner you suggest.

CC: As a founder, most innovation occurs outside of the four walls of your office, and outside screens you are on. At the moment I spend one, two, or three days a week with clients, which means traveling around the U.S. Regardless of what background someone has in an industry, the reality is things are changing very quickly. Being on the frontline is key. I have a strong French-Boston accent, so it’s not news to anyone I am not originally from Boston (though I am a proud American now, too).

Being present with customers is helpful. It gives us a leg up and grants me a clearer picture of the industry. There is so much variation currently in the building ecosystem in Boston versus Western Mass, versus Wyoming, versus Arkansas, versus the one in California. That means different players inform the supply chain and fulfill local demand. Different climates make for altered construction choices. I love that about the United States. It’s a single country with literally fifty different markets underneath, all with similarities, but particularities, too. It’s fantastic. The term founder-market fit is real. When you spend 80 hours a week on a problem for four years at a time, you become a de facto expert on that issue.

I would venture to say that for every founder out there, the key is just spending the time to develop that empathy for your clients and the scope of your problem. You ought to make sure everyone on your team embodies that ethos. Only a third of our team comes from the built world, but I'm confident when I say 100 percent of them are among the foremost experts in the problems we are solving. 

PD: Speaking of travel — if, gun to your head, you had to leave Boston, where would you headquarter Machinery Partner? Or, to ask the question another way, what cities strike you as hotbeds for digital innovation in the physical world — in years to come? 

CC: The reason we are based in Boston is because it is one of those places where, when it comes to physical marketplaces — with Wayfairs of the world having led and paved the way — and a lot of the Amazon team also being here — there is a lot of expertise we're tapping into. Boston was a natural place to come together in. If we were not in Boston, we would be probably a fully remote company that came together in person for high bandwidth discussions that need to happen on strategy. 

But, to offer a few specific examples, I got the chance to spend time in Bentonville, Arkansas recently, which is where the headquarters of Walmart is. You also have GB there, Tyson, several large industry players. It is not something that makes the front-page cover of the Wall Street Journal, but it is a central one where, if you're trying to transform retail, there is an obscene amount of talent. People there know how to change the retail world. Buffalo, in the auto ecosystem, meanwhile, is growing around ACV Auctions into one of the hotbeds of transformation when you are thinking about the car-auction market.

These pockets are usually built around one single company. You have Holtcat, one of the largest distributors of Caterpillar, in San Antonio, for example, and, as a result, an ecosystem of distributors sprung up around them. These are fantastic, less obvious cities that are hotbeds for transformation on their specific subsegments. Durango, Colorado is a place where you have a lot of people changing the online payments space. It was BrainTree and a few unicorns that came out of this one city in Colorado that are now blowing up. Similar things are happening around Irvine, California for equipment financing, and for lending in Orange County. I would say 70 percent of all the excavators in the U.S. are financed by folks in Orange County. 

PD: Speaking of your time in Boston, you spent plenty of time at Techstars on the investing side. Having observed other early-stage founders, what was the most difficult learning curve you tended to notice them grappling with? What early mistakes should founders avoid and/or overcome? 

CC: The hardest part of the role for everyone, even for me, has been to foster a cadence of weekly accountability on leadership teams. I have seen a direct correlation between outlier successes and people who cultivate a true cadence of weekly accountability. As a team, regardless of your industry, this is the single hardest skill, the one that is, in my eyes, the most correlated to prolonged success. 

PD: Looking at B2B marketplaces specifically, what hurdles and pitfalls do marketplace founders need to avoid? 

CC: I have the chance to have an intellectual partner in our business named David Blair, who is fantastic. He's our CTO, and the one who prodded me early on to acknowledge one key question, which is: Are we supply constrained or demand constrained? 

That informs a lot of who is your number one stakeholder. In our case, I know we are supply constrained, full stop. If we can get ten times more supply, then this company is going to be ten times bigger, if not more.

For every marketplace, it’s about understanding the dominant pillar in your equation. That will change over time, but the inflection point is recognizing whether you are in a subset of the B2B marketplace landscape where you find demand and can act as a concierge on supply. Otherwise, do you need to find supply first in order to be able to bolster demand? 

This truly is the hardest challenge for B2B marketplaces, whether double-sided or triple-sided in nature. You are being paid to make the transaction easy. That's the beauty of marketplaces. And so, the more complexity you peel away, the higher your take rates become. From there, you figure out how to generate repeat customers and retention. 

The primary pitfall I see for marketplace founders, myself included, is trying to look like a software company. We are very different. Our business models are different. We're in the world of re-occurrence of transactions, not necessarily of recurrent transactions. So a marketplace is a unique business model. It points back to your first question about what has changed. I think it’s the emergence of fantastic investors like Armory Square Ventures and others — investors who understand what it takes to scale marketplaces. There is a different underwriting process involved as compared with a traditional SaaS company.

PD: I wanted to wrap up with a couple of more personal questions. One being, where do you find inspiration outside of work?

CC: Two places. My family — my wife is an entrepreneur herself. She runs a restaurant group, and, through her work, I get a healthy dose of reality. 

Also, I watch Disney Plus nonstop with my kids. And more seriously, running. Running with friends or all around the U.S. Actually, I run from job site to job site and on longer routes into industrial parts of town. That's a great way to understand what is happening. And reading. Reading biographies of great founders. 

PD: That leads into my next question. Having seen Walter Isaacson’s DaVinci bio on your desk, are there any other books you've read that really inspired you? 

CC: I would strongly recommend reading that one. It’s one of the best biographies I've ever encountered. Inspiring in so many ways, and one that allows you to put everything in a broader context. And I return to the classics all the time. I probably reread The Lean Startup every two, three years. Always return to the classics. There’s a reason why they’re the bedrock of a lot of the theses we have these days