A Cleveland startup company is looking to dominate the world’s marketplace for buying, selling and moving steel, and it believes getting steel to embrace technology is the way to do it.
Felux, based in Cleveland’s Midtown neighborhood, has gathered $24 million in venture capital and is a national player as it approaches four years operating its digital marketplace for steel.
CEO Dallas Hogensen, one of three Felux co-founders, is a veteran of marketplace-disrupting startups, including Lyft, where he was vice president of corporate and commercial sales. He describes Felux as a “very early stage” company on a decade-long mission to “rewrite the operating manual” for an antiquated marketplace for steel. The company name is a combination of “Fe,’’ the chemical symbol for iron, and “lux,’’ the Latin term for light.
“For us it's a guiding principle to bring the light and change with technology into the iron industry,” Hogensen said.
The Felux platform facilitated more than $500 million in transactions last year and plans to carve out a lot more of a metals market valued in the trillions of dollars annually.
“We want to own every transaction between every supplier and buyer that exists on this planet,’’ Hogensen said last summer during a “Founders Unfiltered IRL (In Real Life)” podcast hosted by JumpStart, the region’s largest venture-development organization. A fund in JumpStart’s venture capital division is among Felux’s investors, and JumpStart is satisfied with Felux’s performance so far.
“They're trying to change behavior in a very old legacy industry, which always takes time,” said Hardik Desai, managing partner for investing at JumpStart. “We feel very comfortable and very confident in Dallas and the team's leadership and the ability to execute on longer goals over the next two, three years and then scale ultimately from that.”
Felux is a pioneer in the digital innovation that’s coming to the industrial Midwest, says Youngjin Yoo, professor of information systems at the Weatherhead School of Management at Case Western Reserve University. Old-line industries are only now looking to unlock value from the data they’ve amassed after producing and selling goods for generations, said Yoo. Car manufacturers, for example, have lots of information about cars and buyers. Digitizing and analyzing that data can drive new value from an old business model, Yoo said.
“This is the next frontier of digital innovation,” said Yoo. “The really interesting stuff will be happening over the next 10, 15, 20 years in the heartland of America, rather than the East Coast and West Coast, because that's where things are being made, in the Rust Belt.”
To succeed, digital entrepreneurs must be experts in the commodities and markets where they want to innovate, Yoo said. To that end, Felux has a mix of technology and steel veterans. Co-founder Todd Leebow is CEO of family-owned Majestic Steel USA, a Pepper Pike-based steel service center serving North America. Leebow is also an entrepreneur whose Cleveland-area ventures include restaurants, a clothing line and real estate development. Chris Day, who led technological advances at Majestic, is chief operating officer at Felux as well as a co-founder.
Felux wants to disrupt an old-school marketplace where business is still done by emails, texts and phone calls with transactions recorded on paper and spreadsheets. Felux seeks to modernize and streamline the commerce with an online marketplace connecting steel buyers and suppliers.
The company gets a cut of each deal. Felux “takes a rate off each transaction (which is a percentage of the overall sale) that happens from either the buyer or seller of steel,” Hogensen said. Customers can opt for freight and logistics services and financing options, too, allowing Felux to earn money multiple ways off thousands of transactions annually.
About 700 to 800 manufacturers work with Felux, including a number of Fortune 500 companies, along with several hundred steel suppliers, Hogensen said. The company’s revenue is in the tens of millions of dollars, Hogensen said, with the potential for many times that.
Felux is using more than a technology approach to shake up the staid steel culture. It’s brand is #makingsteelsexy, which emphasizes youth, energy and trust. Some of the company’s early revenue was from selling hundreds of “Making Steel Sexy” T-shirts, leading company officials to joke that they had become a clothing company.
The approach with a customer base that is older and technology-challenged is to “meet them where they are at,” Hogensen said. “Sometimes it's sitting next to them, sometimes it’s buying them a computer.’’
Along the way, Felux is striving to digitize every element of the steel supply chain, making it easier for customers to find, buy, finance and ship products from its online marketplace. But the digitizing will take longer than expected, Hogensen said. Gathering data from the companies’ outdated computer systems and paper-based records takes time. And, there is no common language for steel products, Hogensen said. Regions, cities and companies “all describe the same material differently,’’ he said.
Felux has also faced financial challenges due to a volatile economy and a venture capital market that has tightened considerably since late 2021. Felux shifted focus from rapid growth of the transaction sales volume on its marketplace to growing dependable revenue and profit, Hogensen said.
“We are hyper focused on bottom-line profitability in each unit,” Hogensen said. The company should have three to four more years before it has to raise money again.
Felux’s workforce reached 36 employees but is now less than half that after the company laid off employees hired during the pandemic from outside Ohio. That’s in keeping with the company’s mission to establish a workforce based in the Cleveland area, Hogensen said. Felux plans to hire 12 to 13 people this year and 30 to 40 more next year.
Desai, of JumpStart, said the layoffs showed a “more judicious, more conservative” approach by Felux that reflects the realities of a tight market for raising money.
“This, I would say, is a scale down to get to a place where you can scale up rapidly again,’’ DeSai said.
Felux isn’t the only company disrupting the steel marketplace. Reibus International, based in Atlanta, also offers an online marketplace with logistics and financing services. The five-year-old company has drawn more than $100 million in venture capital and has seen fast growth, but is now tightening its belt. Reibus recently pared its workforce by 50 to about 200 employees, according to Steel Market Update, an industry newsletter.
Felux investors aren’t worried about competition, said JumpStart’s Desai. “The market for steel transactions is very big,” Desai said. “There is definitely room for more than one player, given the size and scope of the market as well as all the challenges that need to be addressed.”
Besides steel, the Felux marketplace lists aluminum products and is positioned to expand into copper, stainless steel and scrap metal down the road. Hogensen sees Felux employing 300 to 500 people in the next decade, handling $30 billion to $100 billion in transactions annually.
Hogensen said he loves Cleveland and is working with other technology company founders who want to bolster the talent and capital resources needed for startup companies. One measure of Felux’s success will be how many employees leave to start their own technology companies in the area, Hogensen said.
“I want us to be known as a beacon of change,’’ Hogensen said. “That’s the goal.”
