Rental Roundtable #82: There Are No Shortcuts in Rental Tech

Kyle Clements (00:00):

Hey folks, for episode 82 of The Rental Roundtable we had on my friend Charles Anderson. He’s the founder and CEO of Arrow. It’s his second company. He’s been in the equipment space now in his second company. And Arrow makes buying a tractor as easy as buying a book. So we talked about how he got here, his journey, and why he started a company, and it really talks about the underlying reasons. He’s the youngest of 17 kids and it’s why he does it. Well, he has a responsibility to right? He can do it, and he has a responsibility to build this for the industry, for his customers, for his team, and a really cool story about why he’s doing this and how he got here. We talk about what Arrow does, and really it’s a pricing, marketing, point of sale experience. And we talk about AI and how that’s powering a lot of what they’re doing. And Charles is a great guy and really appreciate what he’s doing for the equipment industry. I hope you guys enjoy. Alright, everyone, welcome to The Rental Roundtable, episode number 82. Got my friend Charles Anderson. He’s the founder of Arrow. Charles, welcome to the show today.

Charles Anderson (01:00):

Thanks for having me, Kyle.

Kyle Clements (01:02):

Well, we’ve known each other for a few years, both tech software founders in the equipment space, and I’ve seen you at, I think I first met you at the ARA show a few years ago. We ran into each other at AED in January. And I think for people like us who are software people in equipment, there’s not many people like us. I feel like we have a common bond here. We could commiserate, talk about the highs, the lows,

Kyle Clements (01:25):

So it’s good to have you on. We speak the same language, I feel like.

Charles Anderson (01:28):

Same. It’s nice to connect and if you’re anything like me, everything is always going really well with no challenges, no bumps, no unexpected curve balls whatsoever. Is that right?

Kyle Clements (01:38):

Yeah, it’s so easy. It’s the easy, 95% of software companies fail. I don’t get it. It’s the easiest thing in the world.

Charles Anderson (01:46):

A hundred percent. You just have to be able to predict COVID and supply chain issues and

Kyle Clements (01:51):

COVID and supply chain issues. Interest rates, interest rates and tariffs and AI. Totally.

Charles Anderson (01:57):

We saw all it coming every time,

Kyle Clements (01:59):

All it coming, and we’ll continue to see perfectly for the next five years. A lot of building a software company is just hitting your head against the wall until it’s been 10 years and you’ve grown it. So I think me and you both have been doing that for a while.

Charles Anderson (02:11):

A hundred percent. Yeah, all day long. So it’s nice to connect with you again,

Kyle Clements (02:15):

There’s some people who found the shortcut. I never have. It’s just a lot of it’s just the consistency, showing up and knowing that you’ve been doing this for as long as I have. I know what it takes to keep going. So

Charles Anderson (02:25):

Start, leave that. Do you really, I’ve never seen anyone that’s ever actually found a shortcut. Do you think so?

Kyle Clements (02:32):

I think the perception is there are shortcuts, but I think when you talk to people, and I’ve done even these episodes about how did you grow overnight and I just keep going back to my dad’s phrase “10 years of all-nighters to be an overnight success.” And the perception is overnight success. But there was 10 years of just grinding. So do I believe that? No, but I do think there’s a perception that you have these Elon Musk geniuses who just invent stuff overnight, but even him, he was working 12 days a week.

Charles Anderson (02:59):

A good friend of a good friend of mine worked really closely with Elon during the, that was like 17, 18, 19 run. And this is a public story now so I can share it, but it’s well known that Elon in 17, 18, 19, wealthiest person on the planet, was on the factory floor of Tesla sleeping in the fetal position because he was sick to his stomach with stress. It was less than 10 years ago that that guy was even terrified of all of the reasons of failure and bankruptcy and all the things. So I’m glad I had that insight. It’s good reminder. It’s all hard.

Kyle Clements (03:37):

It’s all hard. It’s just work. You got to just put the work in and if you do everything and you put the work in, then you have a chance. And half of this is luck anyways. That feels like right, right place, right time. You can increase the surface layer of your luck by being consistent and showing up. But there’s a huge element of luck. I think the successful people don’t always like to admit right there. There’s a big element of luck too.

Charles Anderson (03:57):

I don’t know, man. I don’t know. I don’t know. I think especially with rental, it’s a really good example of persistence. I think persistence beats luck every time because luck comes and goes and if you build your plan around luck, so you luck out and you sign the right contract, the right customer, it’s probably a fluke. It’s probably going to evaporate. It’s probably not going to last. So I just think that the biggest and best companies just persist and persist and persist. I don’t know. Not that I haven’t been exceptionally lucky myself and I’ve had things break in my favor. I’m not saying that, but I just think it’s a combination of: persistence creates the moments for luck to be captured.

Kyle Clements (04:36):

Yes. Yeah, I think it’s the right way. There is an element of luck that needs to be captured, but you can only earn the right to capture that luck if you’re doing the thing day in and day out. And the people who’ve come on the podcast, you hear that story over and over again. You’re in episode 82, I’ve yet to hear anyone who didn’t get there by busting their ass for years, right? That’s what it taken even a couple episodes ago, actually our last three episodes, Dino, Mike, and Claire all work seven days a week. And they build this company, they build their rental companies, they’re outside painting the building and they’re putting new asphalt in and that’s what it is. And I think in rental in particular, it’s an industry that you can win by showing up with hard work, consistency and serving the customer well. If you do those things, yeah, there’s bad luck, et cetera can happen, but take that out of it. That’s how you win. And I think that’s what brought this industry is there’s just, there’s no shortcuts, right? It really is around hard work and I dunno, it’s America Dream manifested in this industry.

Charles Anderson (05:39):

I believe that.

Kyle Clements (05:41):

Anyways, I want to get to your story, Charles, first of all, tell us what Arrow is and how did you get here today? Tell me about your story going back, even growing up in California. Tell me how we got here today.

Charles Anderson (05:52):

Sure. Arrow is a software company. Our core purpose is to make buying a tractor as easy as buying a book. Remove “tractor”, insert “good loader”, insert whatever asset you want. We know technology should make the buying and selling process. I’ll say, I’ll use the word “transacting”, should make the transacting process smooth and easy and simple. A lot of our customers do rental. Our core customer is the equipment dealer or the manufacturer. So the person that’s selling the equipment, most of them have pretty good rental books of business as well. Our product is not a perfect fit for a pure play rental operation, but the process of figuring out what do you want to buy, how do you want to pay, what equipments do you need and how are you going to actually move funds around for that is what we do all day long. Pretty unexpected journey here. Never. My wife always says, my wife Tish always says “you’re the least likely person on the planet to sell tractors”, which I take as a badge of honor. It’s a really good way to kill a conversation at a party. People say “what do you do?” I’ll say “I sell tractors.” But that’s what Arrow does. It’s software that makes buying and selling as easy as buying a book.

Kyle Clements (07:09):

Yeah. So how did you get here today? What made you start Arrow knowing that you’re the least likely person to start Arrow, you ended up starting Arrow, you’ve been running it for years now. Tell me about your story getting to this point.

Charles Anderson (07:21):

Sure. Arrow was created out of unfinished business. The last company that I co-founded, and I’ll go back to the start of the story, my last company that co-founded this company called Currency. It is now owned by Sandhills, the Pete family, which owns Sandhills, which is a truck to machinery trader, truck, paper, all those publications, and it’s embedded all over the website. The reason why we launched Arrow is Currency got to the end of the story. And we decided to, I was not the controlling shareholder, the controlling shareholder decided to sell the company and the company was in the hands of a private equity fund that had a philosophical disagreement with where I thought the business should go. I felt like we had cracked the code on how buying and selling really can be driven by financing. I’ll talk about why that’s relevant in a second, but how if you solve the financing part of the equation.

Charles Anderson (08:15):

So much of our country, our economy, our fabric is built on interest rates and built on debt or we can say “investing”, it’s a little bit more of an attractive way to say. Just looking at what’s happening in headlines right now, who’s buying from who, who’s selling from, what the Fed is doing. It’s so foundational to our success. If you think about the last 15 years, so much of the success that happened in the last 15 years was because interest rates were essentially zero. And so if you accept that reality that we are an economy that is built off of knowing how to borrow, then it helps inform what’s to do next. And in my last company that’s what we focused on is how do you make the borrowing part of the equation really fast and easy by being built off of technology. And so my heart and my passion from this comes from, I grew up really underprivileged. I’m the youngest of 17 children. I grew up in a pretty rough. Yeah, this is crazy. I grew up in a rough background.

Kyle Clements (09:09):

17 you said 17 children. Wow.

Charles Anderson (09:11):

One seven. And so I had to learn at a very early age how important it is to understand access to capital, access to money. And my mind was blown, I think I was 13 or 14 years old when I first understood how you could buy, you’ll use round numbers, you could buy a million dollar house for $6,000 a month.

Charles Anderson (09:38):

And that blew me away that we as a system had created a way for someone to buy something that they couldn’t afford. The actual example was being able to afford a car with a car payment because we couldn’t afford cars growing up. And so actually seeing holy cow, you can actually pay over time for something. And to go one step further, when I realized that timing of access to money was more important than actually access to money. Meaning if you really, really need a dollar, you’re willing to pay a premium for that dollar if it’s available to you. If I tell you, if Kyle, if you need a hundred dollar loan from me, yeah, you can have a hundred dollar loan, but you can have it in two years, it’s worthless to you. If you can have it right now, that’s much more valuable. And so full circle, once I saw and this crazy passion to unlock opportunity for other people because of how hard my background was, but how lucky, I also was going back to the early part of our conversation and when I saw that come full circle, I like, this is what I want to do.

Charles Anderson (10:42):

How can I use access to capital to unlock opportunity for other people? How can I use access to cash, access to debt to help create revenue opportunities for other people? And so with Currency, that was the perfect culmination of everything that I’ve been working for up to that point in my career of like, well, how do we actually use instantaneous equipment financing to give a general contractor a rental company access to be able to pay over time, they don’t care about the asset, they care about being able to feed their family and we access the capital markets, we access Wall Street, we access banks at the point of sale. So finally the question can be what do you want to buy and how do you want to pay?

Charles Anderson (11:23):

And so after eight years of Currency, really proud of what we built over there and building and scaling that business and having the right partnerships, it was a good moment to reset because I wanted to see the business go in a very different direction, take it to the next step, which was okay, now let’s get deep into the dealer network, into the manufacturer network and bring the holistic approach to technology. We’ll talk about AI here in a minute, but really now going to the next layer of, it’s not just financing. Financing is one part of the equation. It’s a critical part of the equation, but it’s actually the end of the story. How do you get to the financing moment? And that’s really around search, that’s around product selection, that’s around application and that’s around checkout. So that was the long story of my heart and my passion is creating opportunities for other people. I saw that show up with a simple, simple application of how a payment changes everything. Think about how rental companies are the definition of a payment instead of a purchase that unlocks so much value every single, it’s a multi, multi, multi-billion dollar industry because it’s a payment instead of a whole purchase.

Charles Anderson (12:25):

So, that to me, showing up in software is crazy that that’s possible.

Kyle Clements (12:32):

So it sounds like your first company, Currency, which eight years, successful exit that came out of a personal story for you not having access to capital growing up. Were you the youngest of 17, you said? 

Charles Anderson (12:44):

I was.

Kyle Clements (12:55):

Youngest of 17. Can’t even imagine. We have a whole episode about what your life was like growing up, but we won’t do that today. We’ll keep it on equipment side, but that was your driving force and you enabled that. What drives you today? Right now you’re doing a second company, no one’s making you. We sort of joked around how easy to start a company. It’s not, it’s you got to be a little crazy. Before we get into Arrow, why keep going? What’s your driving force towards building companies? Right. It’s not easy.

Charles Anderson (13:16):

Good question. I think there’s a lot in there. I think one part of it is I can do it, I can do it. I had some really great partners, and I wasn’t the original founder of Currency, and so a huge part of it was I’ve been fortunate to be handed the skills and opportunity to build a business and I think it’s somewhat of an obligation or job or duty that I have to take advantage of that because I know how fortunate I am.

Charles Anderson (13:53):

And, so one is I can do it. I think another part of the answer is: I love the opportunity to give people a shot. I love that. I love seeing people develop and change and watching them take on new challenges and learn new things. I think that the next piece of it is: I can’t put the problem down. We didn’t finish a story at Currency. We got close, we didn’t finish it. And until buying a tractor is as easy as buying a book, it’s not incomplete for me. And I think finally I just have crazy amounts of energy and so I need to do something. I don’t ever really see myself stopping and sitting on a beach and relaxing, but I think it’s our duty. I think it’s your duty. I think it’s your obligation. Someone has to create the job, someone has to create the technology. Someone has to be willing to get punched in the face over and over and over again in order to bring, someone told me once that every product, if you look around your house or you look around your office, every product that you’re looking at, somebody had to take 500 face punches for that to get over the finish line.

Charles Anderson (15:05):

And if we have a capacity to take that pain, that’s our role.

Kyle Clements (15:11):

It’s a purpose bigger than yourself. And I think you said two things. One, you can do it. I would actually say that’s the luck part. We won the ovarian lottery. Being in United States, we both have had access to capital, we’ve been able, we had skill sets being able to go to certain universities to unlock access the capital, to get the skillset experiences. That is the luck because if I was born in a third world country, I would not be a software founder,

Kyle Clements (15:36):

99.9% chance share. I would not be a software founder. That is the luck component. You were born in the right place, the right time being in America for all the challenges. It’s the best place in the world to start a company, I still think today. So that’s the responsibility. You can do it. But the other part you said is “you can’t not do it” because that’s the part for others. I think that’s ultimately what drives you when you keep going, when you get hit in the face of the 499 time and you’re like, “alright, why am I keep doing it?” Well, you have the responsibility, right? Because when your customers tell you “Thank you for building this company, my life would not be the same without you.” Where you create another job for someone and you’ve employed someone and you’ve created a job and you’ve hired someone who had a terrible last job and you’ve created that opportunity.

Kyle Clements (16:15):

And the challenge with entrepreneurship, you don’t really see those moments for a long time I’ve been, I don’t know, now you’ve probably several years and your second company, so you’ve seen it now you know that it’s really the ultimate delayed gratification you put in the 10 years and at the end of that you start to see the fruit for it. So I think it’s encouraging to hear your why, which I think is important. It’s not like I want to be a trillionaire and it’s like, no, you do it because you love it and you feel like you have an obligation to

Charles Anderson (16:43):

A hundred percent, a hundred percent. And I think the hardest part about the sport for me is finding ways to find gratification along the way

Charles Anderson (16:56):

Because I don’t think those are there. I don’t think that, I mean even today Bezos announced that he is back to work, which is his third announcement of going back to work. It is who you are. That’s just how you’re wired. It’s more about acceptance of your brain ticks differently, which makes you really great in some ways and probably a terrible employee and a terrible person in other ways. There’s so many things that I do that probably drive a lot of people crazy, but makes me uniquely equipped to do this. And so I dunno, I think I’m trying to force myself to remember that and celebrate those moments. Like you said, it is so moving. When a customer says thank you, and it’s so powerful because they get it. Your customers understand the problem and they understand the need. This is not new to them.

Charles Anderson (17:53):

If you go to them and say, “would you like software to make your job easier,” everyone’s going to say “yes.” If you were to go to them and say, “tell me the five ways software could help you today,” everyone in the company could have an answer to that question. That’s the easy part. The really hard part is taking that answer and actually developing a product around it and then implementing it and then managing it over the finish line and then making sure that it did what those things were supposed to be done. And so that loop, when you get that “thank you,” that’s just a stamp of approval to me that says, “Hey, you took what I knew could be done and you actually did it.” And that’s so unique. So yeah, that’s a really good recap of the why.

Kyle Clements (18:34):

Yeah, I think if you start a rental company or dealership, and I mean it’s the same thing. It’s not any different. You are getting punched to the face constantly.

Kyle Clements (18:44):

But the sense of “why,” I just think if it’s for me, I would say “I can’t not do it.” There’s nothing else. I was a terrible employee, maybe not terrible, but I wasn’t good at that. I’m not very good at vacations. I like to work and some people just like to work and they feel a lot of my purpose is to build quickly and to build whatever one day another quickly in the future. And I think if you’re wired like that, I think the biggest thing is don’t fight it, just accept your fate. And people who start rental companies, it’s the same sort of DNA.

Charles Anderson (19:17):

I could go through story after story of rental company founders who,  they get that first asset, they get it on rent and then its engine blows. It’s like, you finally pull the trigger, you finally secure financing, you finally get everything going. You finally get a customer, you finally get it right, and then you just get punched in the face on your first three machines or you’re renting out whatever the engine blows or something goes catastrophically wrong with that first asset and you’ve got an angry customer. You don’t have the service technicians. It’s just that story has happened over and over and over and over again. That is the fact. Yeah. It’s like, when that fact happens, and that always happens, do you have the capacity to manage through that? I’d say everyone that is managing a rental company today does. They have to.

Kyle Clements (20:10):

Yeah. And that’s the difference between the ones who make it 5, 10, 20 years, and the ones who don’t. It’s the grit you’re going to get, how many times can you get punched and knocked down and get back up? Well, one more than it takes. If you get knocked down a hundred times, get up 101. If you get knocked down once, get up twice. And I don’t know, that’s what I love about this industry is people, that’s the DNA, that’s the grit, right? People are out there doing the work so Well, I appreciate you sharing that. I want to talk a little bit more about Arrow and the AI side of things. Even just looking at your website, there’s several products you have. Tell me about a little bit more detail about what the Arrow offering is, some of the features and products that you’ve been able to roll out.

Charles Anderson (20:47):

Sure. So we have one software platform, which is called Arrow, and it breaks down into three main components. And the three main components are our pricing technology, our marketing technology, and finally our point of sale technology. So inside those three core products, first on our pricing technology, it took us a lot of years to build, but what this helps a rental fleet manager do  what they already know how to do, faster.

Charles Anderson (21:19):

What I mean by that is, they already know how to price their fleet. That’s not new information. What they probably don’t know is how do they use best in class technology, cutting edge technology from the best technology companies on the planet to do what they know how to do in minutes rather than days or weeks. And so on, the pricing type of technology, our technology can reprice a dealer’s fleet using today’s data, today’s sold information, today’s market data and give them instantaneous mark to market price on their fleet. Something that they have to do. If they don’t do that right, they can’t answer the question of should I sell this or should I keep renting? What’s my utilization rate? What’s the sales cycle? What’s the market clearing price for this and should I keep it or should I sell it? So one side we can deliver an instant answer to the question: should I keep it or should I sell it? Once I decide I should sell it, for example, that’s where the marketing technology comes in. Marketing technology is all things that you would hope to imagine with speed to contact, contact rate. How do you instantly stay in front of your customers? An easy way to describe it is kind of like the dentist office reminders that you get.

Kyle Clements (22:30):

Yep.

Charles Anderson (22:31):

You need to come in for your cleaning. We all hate it, but we all require it. You need to come in for your cleaning or the updates you get from your service technician when you get your car serviced. So the marketing technologies, okay, once I identify that I have an asset I need to move, who do I move it to? How do I move it to them? How do I manage all that communication? Because the internet has changed. How we sell COVID has changed how we sell. A lot of our customers are aging out and the next generation expects things to be done over the phone, expects things to be done through technology. And a final piece of the equation for our business is all around the transaction. This is very similar to what we did at Currency. This is the, you’ve identified what you’re going to sell, you’ve identified how you’re going to sell it, and now it’s the transaction complexity, all things around do you need financing, all things around payments, all things around point of sale, things around digital signing, et cetera, et cetera. So it’s really those three parts, the intelligence around pricing, marketing, technology, and then finally the point of sale technology.

Kyle Clements (23:31):

Yeah, pricing, marketing, point of sale. What’s your ideal customer profile? Where have you seen the most traction with this really integrated stack of offering for the end-to-end, really the lifecycle here? Where have you found the most traction so far?

Charles Anderson (23:58):

 Good question. It’s a hard question because we also, as part of a marketing technology, we also have a marketplace called cloud store. And part of the cloud store marketplace is it’s a digital offering for people who want to sell equipment to sell their equipment online. And all of that technology is wrapped up in a cloud store: it’s cloudstore.co, a cloud store experience. And so the quickest and highest impact way to experience the benefits of our technology is to list on cloud store and have a fully digital buyer outside of your market. So from where we seen the most traction has probably been with our marketplace. Where have we seen the most impact? It’s kind of in the invisible ways, meaning for the first time a dealer or a fleet manager, I’ll say an asset manager, we call them an asset manager can mark to market and they can identify this $500,000 asset is probably only worth $440,000.

Charles Anderson (24:53):

If I sell it right now, as much as it sucks, I’m going to lose 60 grand on this, based on all the data that shows where it’s trending. If I wait another six months, I’m probably going to lose a hundred grand. And so that $40,000 of savings is probably the most impactful thing we’ve been able to deliver to our customers, which is a little bit invisible, but it doesn’t take much if you’re the owner that has had an interest carrying expense on that and you’re eating the loss on it doesn’t feel invisible to them. But I would say it is a slightly different answer to your question of most impact has been on the fleet repricing and how fast that goes and the time savings instead of taking your best athletes and having them sit in a room for three to four days to reprice your entire fleet, that’s been the most impactful where we’ve seen the most traction. It’s easiest to see the traction whenever we sell. We’ve sold over about 2000 assets so far through cloud store. And so whenever it’s just a really clear you wanted to buy something and then you bought something answer, does that answer your question?

Kyle Clements (25:52):

Yeah, yeah. The marketplace, you get the quick immediate like, okay, I had a piece of equipment, I no longer have it, I got paid. There’s an associated value with that.That’s a very obvious thing like the equipment disappeared, right? It’s not here anymore. But the pricing thing, you’re actually being able to see the biggest margin lift potentially on the pricing product is effectively you just took all this tribal knowledge that’s been in people’s heads for decades and you put it into software that used to take this manual data day or week or month process and you were able to make it in minutes because of your technology, you pretty much took something from people’s heads and put it into the software that made it happen almost instantaneously. Instantaneously. Is that what you guys been building?

Charles Anderson (26:35):

So that was step one. That was step one. Or I’d say maybe that was like that was step 400. Steps 1 through 399, at our last company, we had to figure out: how can we instantaneously underwrite a $10,000 trailer borrower for a loan for an investor on Wall Street for a buyer in Beaumont, California, like the Riverside area.

Charles Anderson (27:03):

And so we had to build a credit decisioning engine that could instantaneously say yes or no and you couldn’t be wrong or else the portfolio would break and it would go out of business. And so the way that we built that architecture, it didn’t have any of access to any of that code to start over from scratch. And AI helped a lot with us going a lot faster this time. But the way that we built the architecture for pricing this technology, it’s the same risk algorithm we had to build that Currency, meaning in order to understand a yes or no credit decision, part of that input is understanding the value of the trailer. Because if your trailer that your underwriting is worth zero, that’s a different risk profile than if your trailer underwriting is worth $20,000 and you need a 10,000 loan. And so the way that we architected how that works is a series of essentially yes or no questions. And so under the hood to determine evaluation, every user equipment manager goes through thousands of yes or no questions. They don’t even know that they do it anymore,

Charles Anderson (28:03):

But they’re going through thousands of yes or no questions of how many, easy example, how many other combines are listed on the market. Is my combine listed at a higher price or a low price than the market right now? Is it higher? Yes, it’s higher. That’s your question. And you go through that over and over and over again. And so essentially we did something that no human could do. It’s not possible because we don’t forget the question that you asked last time. And so when you start stacking on thousands and thousands and thousands of yes or no questions, you develop this scatterplot. It’s the same thing that happens in the stock market every single day. It was maybe 25 years ago, high frequency trading became a thing. And then there was the book, I think it was from Gladwell, was Gladwell, it was a book about the Flash Boys, about high frequency trading that kind of brought more awareness to it.

Charles Anderson (28:56):

And what they essentially did was lots of small trades were actually one way to make money in the stock market as opposed to big long kind of B style trades, which required lots of capital reserves and the ability to buy and the people are scared and sell what people are buying. And so we kind of brought the same approach into equipment underwriting at Currency and equipment valuation here at Arrow, which is make lots and lots and lots of small yes or no decisions. And the combination of all of these small yes or no decisions gets to a repeatable version of how you’re answering the question, not what’s the answer? The answer is going to change depending on so many factors, but if you can have repeatable process for how you’re going to answer the question, then you can have competence in the process and then you can aggregate because of technology and make a decision across your entire fleet really quick of what’s the price of this loader today and should I keep it or should I sell it?

Kyle Clements (29:51):

Interesting. So is that all those thousands of questions you sort of stacked over time, right? Those are all hard coded and what’s the use of with AI now? How has AI been part of the product you’ve been building? Is that an important part at all?

Charles Anderson (30:04):

So at Currency, they started in Excel at Currency. They were hard coded in Excel and Martina still works with me today. She was our lead underwriter and this is 15 years ago, but we sat in a cubicle and we just listed question after question. We sat there with one engineer and it was so tedious it went one at a time and we just asked yes or no question. With technology, we were able to do it in a fraction at a time that’s coming up with yes no questions is pretty easy to do. You can go into ChatGPT and do that in an hour. Now the hard part is the layering all those questions in together and getting them to work together to communicate together and flow harmoniously. It’s kind like why Google was a better search algorithm than Bing doesn’t. No even know Bing is anymore.

Charles Anderson (30:57):

What’s V? So it is Google’s ability to crawl the internet much faster and easier than any other search engine out there on the planet. And that’s why they’ve been the dominant force. And so now what our technology does because of AI is it can really quickly look for the right combination of yes or no questions. So coming up with Sno questions is the easy part. If you sit down with a hundred user equipment managers and you interview them, you’ll get all the questions you need. The really, really hard part is which questions do you activate depending on what subject machine you’re trying to evaluate. And the portfolio view matters too because if there’s a fleet of combines that are coming onto the market, if there’s a fleet of fill in the blankets coming onto the market now your pricing are going to decline depending on which market you’re in. And so that’s the careful balance that our asset managers have to think through every single day. And now they have technology to do that.

Kyle Clements (31:51):

It sounds like mean that sounds like a major shift historically how equipment’s been bought and sold. That is taking the manual sit in a room. Let’s pull up the Excel sheet. Let’s look at the website. I think it should be a hundred dollars. You think it should be $95. Okay. You’ve now built what other industries have in terms of somewhat of dynamic pricing in a sense with the hotels and airlines and you’ve built a very sophisticated pricing model. I have to imagine the impact has been pretty significant from going from old pen and paper to new modern pricing technology. What’s been the reception with the dealerships? Has this been like a game changer? I have to imagine it’s been pretty impactful

Charles Anderson (32:30):

And I want want to carefully differentiate the pricing managers and asset managers are doing today versus what the technology allows them to do. Because every rental shop and every dealer and every manufacturer who is alive today has already done this successfully without us. They got to this point without Arrow. They didn’t need us to get to here. So they’ve already figured it out, period.

Charles Anderson (32:58):

So we didn’t unlock some magical code about how to price an asset or what the rental rates should be or anything like that. They already answered that question. What we’re seeing now is because of consolidation and because of confusion around interest rates, the problem is getting harder. You’re not managing 10 assets anymore. You’re managing a thousand or 3000, you’re managing hundreds of millions of dollars. These asset managers are professional investors, they’re professional hedge fund managers. They’re managing so much money and the consequences of being wrong are catastrophic. And so we didn’t teach them how to value machines, we just brought them technology that they were already using in pieces into one solution. And so we sped them up. And so the impact of giving them back their energy and their time to focus on the hardest parts of the question, which is should I hold or should I sell that?

Charles Anderson (33:56):

To me, that’s art. That’s not science. That’s their judgment based on factors that only they have. And so that part of the equation they can now go and do and there’s not this assumption that they have to continue to hire to just manage their fleet. And so those have been the two biggest impacts of we brought them time back to be able to think and work and do what they do best. And we also have given them some amount of clarity on, okay, I don’t have to just keep hiring more and more people as the business grows, I can actually look at the technology to do more for me. So I just want to carefully answer that question because I’m not from inside the industry. It’s like I don’t want to take anything away from what they’ve already sold.

Kyle Clements (34:34):

You’re not coming in and saying, Hey, I’ve figured out how to price stuff better than you who’s been doing it for generations, right? You’re not saying that. You’re saying

Charles Anderson (34:40):

We’re taking what you already did. No one wants to talk to that guy.

Kyle Clements (34:42):

Yeah, I’m the tech guy. I have all the answers to why my way is better your way. How long do you have? What you’ve been able to do is be able to do that scale. If you’re starting a company and you’ve got five employees, well you can manage five employees, but if you end up running Uber or Amazon and you’ve got 20,000 or a hundred thousand employees, you can’t manage 20,000 people one-on-one. You got to build a system and process and structure. And Arrow’s allowed, taking the principles of managing a five person team, but allowed it to go much bigger. To kind of give you an analogy to make sure I’m tracking And there’s real value in that consolidation and less is you have to be able to do more with less. And that’s a real thing here. Talk to me about AI, how has that changed how you guys have been building the last five years, and where do you think the equipment industry goes with AI in the next five years?

Charles Anderson (35:34):

Yeah, it’s interesting. Yesterday I heard the term machine learning. I hadn’t heard that term in a while. Yeah,

Kyle Clements (35:41):

That’s the original.

Charles Anderson (35:42):

That is AI, right? And if there’s a book Crossing the Chasm, so there’s an old school business book from the early two thousands, late nineties about crossing the chasm and how software companies go from the early adopters to the late majority and the early majority and what that looks like. And in that book, so its 25-year-old book. In that book, there’s a whole section on AI, not called AI, but it’s the same thing. And I think it’s fascinating how we as humans finally understand now that we can talk to the computers, which whatever that movie her came out or whatever it was like 10 years ago, that seemed crazy. And when Siri came out and we thought that was great technology, and now I get really upset whenever Siri asks me if I should use GPT to answer a question because Siri is not good enough.

Charles Anderson (36:34):

But it’s the whole thing. AI has been around for a very long time. It’s probabilistic mathematical computations that basically tell us the next word that’s going to come up. And so we’ve been using AI since day one. We didn’t necessarily call it AI, we called it machine learning, but back when we were even at Currency trying to predict who was going to be an approvable loan or not, it’s the same thing. And so where it’s really shown up for us at Arrow is the velocity of our engineers is incredible. Our software development team is probably going five times faster than they were going five years ago. It’s incredible. And so from an AI perspective, and the way that I usually explain AI is we see code writing code, and when you see computers writing computer code, just think about how fast you can move a practical application of that.

Charles Anderson (37:35):

So there’s a lot of AI buried inside of our technology. A practical application of that is with the Arrow technology, you can have a computer thinking about your business 24/7, and it can be ingesting your sold data and all of your invoices and all your work orders, looking for things that are interesting and then giving you suggested next steps. So it’s almost like a 24/7 business analyst that is giving you ideas that if you had all the information and you didn’t forget anything, which computers you would do the same thing. And so that’s an easy use case would be computer, look at all my sold data, look at all my utilization rates, and tell me which assets in my fleet should I sell. Right now I go into details of how we’re using AI, but I’m sure aren’t you seeing some things in your application for quickly on how you guys are using AI?

Kyle Clements (38:29):

For sure. I love this tee up. It’s almost like, “Hey guys, I want to talk to you about this really sort of old technology. It’s been here for a while. It’s called AI.” It’s been here what, 60, 80 years? It’s not new. And I think partly because maybe mostly because of ChatGPT, which is the fastest growing app of all time with hundreds of millions of daily users now. And I think people, like I said, it is an interface to communicate with technology that’s never been easier. It’s a free text form. You can do anything you want. And I think people like OpenAI invented AI. It’s like, no, it’s been here forever. They’ve just figured out the new application of it. But it is also going up the curve here. But I think for what we’ve been thinking about is agents, which I think you probably know about, but we think about AI doing work within a company, a rental company in particular, work that they don’t want to do or they don’t have time to do or they’re not good at.

Kyle Clements (39:28):

So an example being every phone call, they get dozens of phone call a day at a rental company and they’re supposed to log missed rentals, “Hey, I didn’t have the skidsteer.” Lemme log into my software so that at the end of the year, end of the month, I’m making purchasing decisions. I should know what fleet we should have had that would’ve yielded more revenue and rental. And the reality is maybe if you’re lucky, half of your team is doing that every day. So one use case of an agent would be to automatically listen to every phone call and email and log missed rentals, transcribe the call log, the missed rentals. So at the end of the day, you have perfect data that makes your fleet decision fleet purchasing decisions better. That would be an agent. Another agent would be every time there’s a permit pulled in your area, send that to your sales team in real time with the contact information, what the rental needs are, setting a job appointment. So that’s how we think about, it’s really just doing work. It’s almost like labor and it’s not replacing jobs, just doing jobs that people don’t do today.

Charles Anderson (40:25):

Correct. And it’s the ability for these agents to read millions of data points and think about that 24 7. That is crazy to me. So I don’t know if mean, maybe we call that AI or we just call it a continuation of better continuation.

Kyle Clements (40:47):

It’s just computers that continue to get better. We’re calling it AI. We want to put a name to it. But this is technology evolution and it’s been going up the curve. It accelerates, right?

Charles Anderson (40:59):

Well, and the example you gave, we as consumers want that. The internet became a thing once we had Netscape, once we had browsers, once we had an ability to use the internet, it became a much better thing than way back in the day when we were sitting in really creepy chat rooms just texting each other. So the internet became a thing once we had a browser and once Google figured out search and just been compounding from there. And I think the same way your customers are calling in to your operation trying to see what you have available. They don’t want to chat. They’re trying to solve a problem. What do you have available? And so it’s a benefit to your customer if you can even answer that question faster and anticipate it. So next year when you know you’re going to get that call for that track loader, you actually can take that call through AI to an AI agent and respond, and everyone is better for it, including your end user, including your employees. They don’t want to answer that question either. They can just look on the internet.

Kyle Clements (41:52):

It’s better for if your customers want it, which they’re saying they’re seeing all this adoption with people wanting agents to talk to. I mean, but it’s also it’s jobs that people don’t want to do. People want in the rental, they want to go talk to customers, they want to be in the field selling equipment, selling rentals. That’s what people want to do. That’s why you’re in this space. They don’t want to be answering phone and logging stuff into a software. That’s not what they get excited about. And I think the first case that’s happening right now is all these call centers that are being, you’re now, the voice agents and their email, and they’re not perfect, but they’re going to get better. It’s never going to get worse than it’s right now. AI’s going to continue to get better, but some of those jobs are terrible jobs that people don’t really want to do, and it frees people up to do the more impactful high value work that makes us human. So

Charles Anderson (42:35):

I think I was on the phone with it. I think it was Ohio. I’m in Ohio yesterday. I got a letter from them and it’s a missing, messed up information. I was trying to work with the agent on the other side of the phone. So even for the agent, the agent on the other side of the phone who works for the government wants to solve the problem. And so I could see a world where that agent who couldn’t, the account number didn’t work, the letter ID didn’t work. You just go through the list of how fast AI could help that agent run a better search query to get to the results they’re looking for. Even the agents that have a really frustrating job dealing with me, and I’m angry, I don’t want to talk to them, they don’t want to talk to me and give them some technology to help them search, to be able to look across multiple databases at the same time. That’s what an agent could absolutely do. Whether it’s a frustrated government agent or a rental shop. 

Kyle Clements (43:25):

Yeah, yeah, exactly. And I think that’s what we’re seeing already, right? It’s doing these jobs that these little two minute things that add up over time. And that’s been the history of technology doing stuff that we’ve never, even going from the horse to the car and even just the phone call, you just have the phone operators moving the lines around. That’s not a job we need to have anymore. So it’s very exciting. And again, it’s funny because a lot of people talk about AI, it just got embedded 60 days ago and it’s like 60 years ago. Plus right? Large learning model’s been here for a while. It’s just better and faster. I think people are becoming more comfortable with it. And I think ChatGPT’s credit, they are getting a lot of credit for the adoption that we’re seeing across every industry and across our own personal lives too.

Charles Anderson (44:12):

Oh, I mean it’s incredible the application of the technology that they figured out. Absolutely. You got to tip our hat to them. It did change the world. Putting it into production.

Kyle Clements (44:23):

Yeah. Well, Charles, last question I always have. For people who come on best career advice you’ve gotten that’s helped shape your success and what you’re building at Arrow.

Charles Anderson (44:33):

Best career advice to just anybody, any topic, any stage of career?

Kyle Clements (44:39)

Your best career advice you’ve gotten that’s helped shape your success for you. You think about all the people who’ve helped you along the way, what’s something that’s stuck with you that’s really helped you build, now, your second company?

Charles Anderson (44:48):

Long-term hard work beats short-term bad luck every time.

Kyle Clements (45:01):

Well, to wrap it up full circle, that’s what we talked about at the beginning here, and I think after this conversation, people should be adventurous. No shortcuts, right? It is doing the hard work over time, being patient. Our previous guest, Claire from Dot’s Rentals, her grandmother started the company, she’s 92 years old, started 37 years ago, and she was telling us that constantly they will lose money on individual renters. So like equipment broke, they bring it back, they don’t charge. They say, we want you to be a customer for life. And if you have that mindset, taking the long view, that’s how you win.

Charles Anderson (45:36):

I buy that. I completely, it’s really, really hard to do when you’re taking that loss.

Kyle Clements (45:41):

It’s really hard to do day to day, but that’s the secret, right? So anyways, Charles, it’s great having you on today. It’s great getting to know you. Congratulations on all your success you’ve had, and thanks for coming on The Rental Roundtable today.

Charles Anderson (45:53):

Thanks for the time. Nice to see you again, Kyle.