SALT LAKE CITY, March 24, 2020 /PRNewswire/ — EKA Solutions, Inc., provider of a cloud-based integrated freight management ecosystem platform, announced today its special Omni-TMS® platform offer to Brokers who wish to operate their business partly or entirely remotely.
EKA provides a transformational digital freight management, dFEMX®, ecosystem platform to manage all the customer’s freight businesses including freight exchange and third-party services. EKA serves as the system of record across multiple applications and seamlessly ties into other freight solutions (TMS, driver apps, etc.) and third-party services.
“Together, we are facing a truly unprecedented situation. The global coronavirus pandemic is affecting all our families, our businesses, our communities, and our way of life. During this time, EKA wants to help the transportation and logistics industry continue to run its business without interruption,” said JJ Singh, Founder, Investor and CEO of EKA Solutions, Inc. “EKA’s cloud-based, end-to-end Omni-TMS® platform is currently enabling customers to operate at a high performance level entirely remotely (https://eka-beacon.com/2020/03/23/smart-covid-19-business-continuity-response-tech-up-not-shut-down/). EKA is integrated with the core industry data services; all you require to run your entire broker business is either a PC, laptop or tablet and a high-speed internet connection.”
“In support of our industry, we will on-board customers with EKA’s standard Broker TMS configuration for Brokers of all different sizes without charging onboarding fees or committing to a Term Contract,” said Mark Walker, Investor, President and Chief Digital Officer for EKA solutions, Inc. “We can on-board new customers in as little a time as a few days and at affordable monthly fees.”
EKA Solutions, Inc., provides a transformational cloud-based SaaS digital freight management, dFEMX®, ecosystem platform to manage all the customer’s freight businesses including freight exchange and third-party services. As part of dFEMX® Offering, EKA provides the Smart, Unified Platform EKA Omni-TMS® for – Virtually – Everyone. EKA Omni-TMS ® is designed to transform the transportation and logistics industry. It empowers small, medium and large size broker, carrier and shipper businesses to operate from quote-to-cash with affordable and best-in-class digital tools, enabling the higher performance demanded in tomorrow’s supply chain. With real-time information, EKA Omni-TMS® enables brokers, carriers and shippers to provide visibility and transparency as they fluidly trade across an expanding and verified network with key, trusted partners. For more information about EKA, visit: https://www.go-eka.com.
Today, tomorrow, and for the foreseeable future, millions, perhaps billions, of people are trying to work from home. Some current adapters have been forced out of their offices by the specter of COVID-19, struggle with time – and family – management, and hope to return to the comfortable routine of office life asap. But others adjust easily, as if they have been working remotely all along. They’re the ones that Tech Up.
What makes the telling difference? It is likely too early to draw conclusions. However, there is one young, growing business that, with a versatile approach, a “whatever it takes for the customer” attitude and a savvy, insightful technology decision, is able to make their “remote opportunity” thrive.
“We were glad to do what they wanted,” says David Buhl, co-founder and COO, “But not all the best people wanted to work in Eden Prairie. They wanted to work but didn’t want to commute.”
“So, I guess we went virtual,” laughs Johnson, whose love for life and logistics shows in his upbeat demeanor and continual optimism. “Maybe reluctantly, at first. Before we were comfortable with it. Certainly, before we really knew what it could do for us.”
“And what it can do for our customers,” Buhl adds.
ProServ is not all virtual, not all remote.
“I like coming into the office,” says Perry Torgenson, Manager, Business Development. “I’m a people person, and that’s what ‘having a job’ always meant to me.”
“Until this Coronavirus,” he adds, over the phone. “Now, a lot of offices are just risky.”
But, some of their key personnel have been remote from the beginning. Diane Johnson (no relation to Brian), VP Operations and an industry leader for more than twenty years, was “officed out.”
“I just reached a point in my life where I wanted to be closer to my family,” she explains. “I love logistics, supply chain, the constant challenges, helping people, preventing problems. But I can do that from home…or my cabin,” she adds, like a true Minnesotan. “And my commitment to my customers and ProServ? I’ll reach out to you before you need me, but I’m always available.”
Eric Jex, VP Operations, is an intense, “make things happen” dynamo who climbed every hill his “out of college” career choice presented him with.
“But I’d chased that rabbit long enough,” he says, smiling to help you understand. “I just wanted to have more meaningful relationships with family, friends, co-workers and customers. Brian and I had worked together earlier, and, when I heard what he had started, I was intrigued.”
Jex, initially the most remote employee, went from “intrigued” to “all in” when Brian Johnson and Buhl said he could “come aboard” without being on site. “The lifestyle I want is miles away from Eden Prairie,” he says. “When they said they were cool with me being remote, it was the easiest – and best – decision I ever made.”
Remoteness Becomes a Strength
ProServ had an office, where most of their employees showed up daily, intent on serving each customer, and committed to growing their business. But, two of their key personnel – Johnson and Jex – were miles away. Then came Melissa, a customer advocate whose name and talent was well-known.
“We had identified her as a rising star,” says Jex, who had recruited Melissa earlier in their careers. “When we had the chance to get her on our team, we wanted to find a way.”
“I live in Kalamazoo,” Melissa says with a laugh. “When I interviewed, I told them, ‘Give me a chance and I will help you build your business…but I’ve got to do it from Kalamazoo.”
Then, there were three who were remote; vital team members, core to Pro Serv’s success. “At first, it was easy to communicate the important stuff,” Johnson says. “We were small, and we didn’t always have a lot that we needed to work together on.”
But, the business grew, and success presented challenges.
“As a service provider, you need your team to communicate, collaborate, and coordinate,” Johnson realized.
“And technology is my area of expertise,” Buhl states. “And this looked like an opportunity. We’d been looking at what was out there, kicking some tires, so to speak. We knew it was time to upgrade our technology.”
“We’d heard about EKA Solutions,” Johnson recalls. “And had worked with some of their people earlier in our careers. So, we put them to the test. This is our livelihood; we can’t gamble.”
“We agreed to be a BETA tester,” says Buhl. “And, first of this year, we went live.”
“And you know how all of our people are able to work remotely this week?” Johnson asks. “Because we’ve been doing it. Working remotely, communicating with each other, helping our customers and carriers use our technology.”
“EKA is a distributive platform,” Buhl elaborates. “Its security protocols are second to none, but it allows our people – and trusted partners – single sign-on access – and, it’s role-based.”
“So, was it hard to tell everyone to not come to the office because of the pandemic?” Johnson asks. “Yes, because we’re all used to what we’re all used to. But, did I worry about our business? Or about taking care of our customers? No, because we’ve got the best people, and the EKA platform does everything we need it to. And they’re building new features in all the time.”
“Every two weeks EKA does another release,” Buhl says. “I tell them they need to keep pace with ProServ. Our team is working remotely, but we’re going places.”
“That we are,” Johnson says with a laugh. “We may be remote now, but we’re all still in sync!”
It’s Time To Tech Up
The world is changing rapidly – and more so in the last four weeks. While many factors are out of our control, that makes it more imperative to learn from the success of ProServ Logistics who decided to embrace technological progress in business.
They decided to Tech Up.
This is no longer a choice. Companies rigidly holding to the old ways of doing business in an analog mindset aren’t prepared for the myriad of challenges about to arrive in an increasingly digital world.
No one can predict everything that’s coming – but we can say with confidence that refusing to embrace cloud-based technologies and platforms means you won’t be ready for the future.
Electrification, autonomous trucks, and connectivity are transforming the trucking industry. said Martin Lundstedt, President and CEO of the Volvo Group. He explored these topics addressing a crowd of trucking industry suppliers at the Heavy Duty Manufacturers Association’s lunch briefing during the North American Commercial Vehicle Show in Atlanta Oct. 29.
With 8 billion people projected to be living in an increasingly digital world by 2030, he said, “With that population that means that transportation needs will continue to grow and increase, both goods and people – but it needs to be considerably more sustainable,” in order to leave the world in good shape for future generations.
Vehicles are only used about 25 percent of the time over their life cycle, sitting idle and unproductive the rest of the time
Only about 40-50% of available load capacity is actually used, meaning more of a vehicle’s length is theoretically available for cargo
5-10% of total fuel consumed is used to move goods
Roads reach their peak throughput only 5% of the time, and even then, it is only 10% covered with vehicles
Nearly 7% of all U.S. accidents involve a large truck – and about 12% of fatal crashes.
“In Volvo, what we are going for is safety, that should continue to be the main priority,” he said – but at the same time, obviously new technologies offer great potential for more efficiency and productivity.
Lundstedt said the new technologies transforming the transportation system are electrification, autonomous technologies, and connectivity.
“They are interesting, but they must be put in context,” he said. “How do we get out the benefits?”
As a project that covers all three technologies, he highlighted Vera, an electric, connected and autonomous tractor, designed for repetitive assignments in logistics centers, factories and ports, Vera doesn’t even have a cab for a driver. Vera now is being used in its first real-world job – providing autonomous transport between a logistics center and the port terminal in Volvo’s hometown of Gothenburg, Sweden.
Moving to e-mobility, Lundstedt pointed to the Volvo Lights project (Volvo Low Impact Green Heavy Transport Solutions) where it’s conducting real-world tests of battery electric Volvo VNRs at the southern California ports, working with California’s South Coast Air Quality Management District and over a dozen industry partners. Volvo has said it plans to have the EVNRs available for sale by the end of 2020.
Also under the Volvo Group, Mack offers the LR electric for waste/refuse applications.
Autonomous trucks, he said, have a great deal of potential in areas such as safety, energy efficiency, and productivity, and predicted they “will come quickly into our business.” There are many applications the Volvo Group is involved with where autonomous trucks make sense, such as port drayage, mines, and cross dock operations. “This is an area where we are putting a lot of effort.”
Volvo recently announced it is establishing a new business division that will focus the company’s engineering, design and financial efforts to accelerate the development, commercialization and sales of self-driving vehicles. And earlier this year, Volvo Group announced a partnership with Nnvidia to develop advanced AI platform for autonomous trucks.
The third area where there is huge potential, he said, is “growing digitization.”
Today there are 1 million connected Volvo group vehicles. “We are collecting enormous amounts of data. The capability of collection, analysis and action have improved tremendously.”
This connectivity is enabling new levels of customer service and uptime, he said, allowing for more informed and specific advice.
Lundstedt emphasized that a large proportion of its investment in developing new technologies focuses on what he called “well-known technology,” such as powertrains, aerodynamics, and safety systems.
“Yes, we are investing heavily in new technologies, but equality heavily into what was call well known; there’s a lot that can be done in those areas as well.”
Transflo has introduced Transflo Engage, giving fleets the ability to measure driver satisfaction from within the Transflo Mobile+ app using the People Element employee engagement platform.
People Element’s platform allows fleet managers and HR professionals to create, automate and delivery custom surveys to drivers through their mobile devices. It can be used to measure driver engagement, commitment to the organization and intent to stay, while helping employers take a proactive approach to turnover.
“When you combine our world-class survey platform and data coaches with the ability to reach drivers directly and easily through the Transflo Mobile+ app, you maximize your opportunity to increase driver engagement and retention like never before,” said Chris Coberly, president and CEO of People Element.
Traditional survey methods such as email or phone calls can be more easily ignored. Transflo Engage leverages the People Element platform and Transflo Mobile+ to provide a simple and convenient survey experience since the driver is responding to questions within the mobile app he or she uses as part of an everyday workflow.
With custom surveys and instant feedback, managers and HR professionals can make fast, strategic, data-driven decisions about how to manage driver satisfaction while maintaining a high level of engagement.
“Imagine if you could reach out to any one of your drivers at any time and ask how happy they are, or for their opinion about company policies or procedures,” said Doug Schrier, vice president of product and innovation at Transflo. “Now you can, with Transflo Engage on the Transflo Mobile+ platform. Drivers will feel more engaged and respected, which leads to improved morale, lower turnover, and a better bottom line.”
Articles extolling the disruptive potential of digital freight brokers (DFBs) tend to draw impassioned comments from individual freight brokers who argue that DFBs are merely competing on price using the enormous amounts of capital ignorant VCs have showered on them. In this article I will highlight some of the arguments about why DFBs may find it harder to succeed to the extent that the venture capitalists who have invested in them might expect.
It is important to differentiate between DFBs and digital freight marketplaces (DFMs). The former operate traditional businesses with a relatively small number of outside partners while the latter seek to build software platforms with a relatively large number of partners and participants. In terms of the value proposition to customers, every digital freight marketplace would also function as a digital freight brokerage but not every digital freight brokerage would be a true marketplace.
The Tyranny of Complexity
Transporting freight is a complex business:
There are numerous regulations with which carriers and shippers must adhere.
Often, freight shipments must be transported via different modes of transport between origin and destination – giving rise to a coordination problem between different counterparties.
Shippers expectations and needs keep evolving.
Things go wrong all the time when freight is being transported over relatively long distances.
This is why traditional freight brokerages are characterised by a relatively large number of people who understand shippers’ needs, and work as intermediaries between shippers and carriers. Individual freight brokers perform a function that can not yet be replicated entirely with software.
As a result of the inherent complexity of transporting freight, DFBs quickly start to resemble their non-digital counterparts in terms of organizational structure. To put this another way, they operate in almost exactly the same way that their traditional counterparts do with the distinction that;
Traditional freight brokers invest relatively more money on people and relatively less on developing proprietary software technology to make individual brokers more productive and efficient.
Digital freight brokers invest relatively more capital in developing proprietary software technology to make their individual brokers more productive relative to their peers at traditional freight brokers.
What is Disruption?
One way to think of disruption is that it happens when a wave of new entrants into a market leads to financial distress for the most dominant incumbent firms causing dramatic shifts in market share and market power. For this to happen, new entrants must function in a way that makes it impossible for incumbents to offer an appropriate response.
In other words, technology-enabled price competition is insufficient; The most powerful incumbents can compete on price. Traditional freight brokerages can invest in productivity-enhancing software if they realize that is the direction in which the market is going.
Digital freight brokers will not disrupt the freight brokerage market until they start doing things in a way that traditional freight brokers can not. This is where digital freight marketplaces could come into the picture. A digital freight marketplace is a platform that largely eliminates the need for human intermediaries between shippers and carriers for load matching, allowing them to transact directly with one another using the magic of software.
The Functions of A Digital Freight Marketplace
To succeed a DFM must build and maintain a multi-sided platform that performs four functions;
First, it must build a large audience of shippers and carriers who have an interest in transacting with one another on the marketplace.
Second, as I have already described above, it must successfully match shippers and carriers with one another for the purpose of transporting freight. For carriers, it is critical that such a marketplace also solve the deadheading problem.
Third, it must provide, or allow other partners to provide complementary tools and services that are important for facilitating and removing friction from the on-going value exchange between shippers and carriers.
Fourth, it must develop, maintain, and enforce rules of behavior for participants of the platform.
This is why I said every digital freight marketplace is a digital freight broker, but not every digital freight broker is a digital freight marketplace. To succeed, digital freight marketplaces must equal or beat the performance characteristics that shippers have become accustomed to and expect from traditional freight brokers and DFBs. If DFMs can do this at a lower price, while folding other critical services and features into the marketplace, then we may start to see disruption that is repeatable, scalable, and profitable. By itself, load matching is a commodity, and DFMs must offer much more value beyond load-matching.
Moreover, DFMs must eventually be capable of integrated into existing: Transportation Management System (TMSs), Warehouse Management (WMSs) and/or Warehouse Execution Systems (WESs); Demand Planning Systems (DPSs); Materials Planning Systems (MRPs); Distribution Requirements Systems (DRPs); Labor Management Systems (LMSs), Customer Relationship Management Systems (CRMs); Supplier Relationship Management Systems (SRMs); Enterprise Resources Planning Systems (ERPs); or Business Intelligence Systems (BI). Basically, a DFM must be capable of integrating with whatever software and technology systems shippers and carriers use daily to facilitate the movement of freight.
Some Final Questions
Rather than debating if DFBs will disrupt traditional brokers, I find it more productive to ask if any of the current cohort of DFBs will make the transition from being a product- or service-based company to becoming a platform, a digital freight marketplace? A related question is this: Rather than trying to supplant traditional freight brokers should software startups be building a platform of productivity tools for traditional brokers?
I do not think there’s an easy answer to either question, but the answers that entrepreneurs and investors develop to those questions will determine what happens in the freight brokerage industry.
About The Author:
Brian Laung Aoaeh writes about the reinvention of global supply chains, from the perspective of an early-stage technology venture capitalist. He is the co-founder of REFASHIOND Ventures, an early stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. He is also the co-founder of The Worldwide Supply Chain Federation (The New York Supply Chain Meetup). His background covers the gamut from scientific research, data and statistical analysis, corporate development and investing for a single-family office, and then building an early stage venture fund from scratch – immediately prior to REFASHIOND. Brian holds an MBA in Financial Instruments and Markets, General Management from NYU’s Stern School of Business. He also holds a Bachelor’s Degree in Mathematics & Physics from Connecticut College. Brian is a charter holding member of the CFA Institute.
Recently EKA Solutions launched its EKA MPlace platform, which lets shippers and brokers create private freight marketplaces where they can trade with their trusted providers in a precise, automated and real-time way.
Now EKA is offering some of the capabilities of its cloud-based Software-as-a-Service freight ecosystem to large motor carriers that use owner-operators. EKA iLoop Solution can help carriers that want to mitigate worker classification liability risks when they contract with lease or independent operators.
“The EKA iLoop platform enables carriers to manage their leased or independent operator relationships without interfering into their independent execution,” explained JJ Singh, founder and CEO of EKA Solutions, in a press release. EKA gives carriers a driver-facing app that enables load tendering, interactive communication with dispatcher and real-time information access to improve life on the road for these owner-operators.
“By providing leased-on owner-operators the ability to select freight, determine routes and schedules, monitor settlements and manage operational accounting in their own systems, carriers can improve owner-operator relationships while mitigating work classification liability risks,” said Mark Walker, EKA president.
EKA iLoop provides real-time visibility of load movement and ETA updates (LiveETA) that factor in driver unplanned events, hours-of-service compliance, and actual traffic and weather conditions.
EKA Solutions recently launched MPlace, which allows larger shippers and brokers to create private marketplaces where they can trade with “trusted providers in a more precise, automated and real-time manner,” the company said in a release.
“We provide technology solutions that are very efficient and at a lower cost,” JJ Singh, founder and chief executive of EKA, told FreightWaves. “We already focus on small and medium-sized brokers, shippers and carriers, so we thought larger brokers and shippers could benefit from our solutions.”
The company launched its unified, cloud-based Omni-TMS (transportation management system) platform for small and medium-sized brokers, carriers and shippers in 2018. Its is now offering some of the capabilities of its software platform to larger shippers, brokers and carriers “in a way that can complement their existing TMS platforms and help them meet today’s more dynamic logistics environment,” the company said.
For example, if a large shipper needs a load hauled in a new freight lane, one of its employees can go onto MPlace and find partners in its own private space and not have to go out to the spot market or load boards,” Singh said.
“Utilizing the EKA MPlace, customers reduce direct labor, transportation spend and contracting risk while providing end-to-end visibility, audit and analysis,” Singh said.
$5.6B of venture capital has been invested in FreightTech in 2019 to-date
FreightTech venture investing is super hot, but most of these startups continue to lose money. Is this a fad or something else?
Last year, FreightWaves created a FreightTech Venture Index to track the venture capital (VC) investing in FreightTech startups. The term FreightTech is defined loosely as software companies and other technologies that aid in the movement of freight or management of supply chains through logistics.
In prior studies, we eliminated companies that were involved in on-demand mobility (Uber for instance), because much of the investment was targeted towards personal mobility and not freight movement.
Recently, mobility and e-commerce companies have started to play a much bigger role in the freight innovation map, with significant resources deployed to expand their on-demand mobility networks and experience into the logistics sector. With companies like Uber, Amazon, JD.com, Alibaba and others building out freight networks and looking more like logistics powerhouses, the lines between personal mobility and freight movement are starting to blur.
Going forward, we will include venture funded on-demand mobility companies in our studies, as long as they include freight logistics as a core product offering. These firms have been some of the biggest freight innovators of all and dismissing them because they do other types of mobility businesses leaves total investment under represented.
The logistics sector (defined as the movement or management of freight) is a $9.6 trillion sector, globally. In the U.S. alone, logistics represents $1.6 trillion, or approximately 8 percent of domestic GDP. Compared to financial services revenues, logistics is bigger, with financial services generating $1.5 trillion, or 7.4 percent of domestic GDP.
FinTech has been one of the hottest venture sectors for the past decade, while FreightTech has only recently become a core focus of Silicon Valley investors. FinTech describes the software services and other technology used to support or enable banking and financial services. Payments, money movement, capital markets or insurance technologies are sub-segments of the FinTech industry.
In 2018, FinTech received $40.5 billion in VC investment, while FreightTech received $10.4 billion. More remarkably, however, FreightTech saw an explosion of interest from VC, growing by more than 400 percent, from $2.3 billion in 2017. FinTech doubled between 2017 and 2018. Since 2014, FinTech has grown by almost 500 percent, while FreightTech has grown by almost 1,000 percent, according to an analysis by FreightWaves using Pitchbook data.
FreightTech Venture Capital investing measured by total VC dollar investments:
So far in 2019, FreightTech startups have raised $5.6 billion of venture capital, while FinTech startups have raised $19.1 billion of venture capital.
Venture investing momentum in FreightTech is unlikely to slow down anytime soon. VCs tend to be momentum-driven investors, following their peers, but also looking at broader market trends. With companies around the world making significant investments in delivery and logistics networks to remain competitive, VCs will want an outsized share of the upside.
Over the next decade, companies that fail to invest in their logistics networks will find themselves disinter-mediated by companies that do. Consumers and companies alike will want real-time visibility, custody tracking and sourcing information, combined with near instant on-demand fulfillment.
Restaurants, retailers, distributors and manufacturers that fail to adapt to these demands will be as endangered as a niche media outlet that generates a large percent of its contribution margins from paywall subscriptions.
There is only one thing stronger than all the armies of the world: and that is an idea whose time has come. -Victor Hugo
Existing incumbents that have maintained their go-to-market strategies for years or decades with little value add to their clients will be displaced by venture-backed startups.
Incumbents that have a dated understanding of established business cycles and go-to-market strategies will be forced to adapt to a new way of thinking. Simply blowing off venture startups and their founders as idealistic, impractical and cocky is foolish and demonstrates historical ignorance or context.
Blockbuster versus Netflix is perhaps the greatest example of a market leader that pretended that a scrappy VC-backed company couldn’t displace them. Blockbuster had the chance to buy Netflix on multiple occasions (for as low as $50 million), but miscalculated where the market was headed and underestimated the advantages of Netflix’s business model and tech team.
Incumbent company execs interpret VC fundraising success as grandstanding for follow-on venture funding, without understanding how or why these same startups attract investment to begin with. They dismiss their business models as “unsustainable” or “ill-conceived”, assuming that the founder is clueless, arrogant, or living in a fantasy world.
In the early days of a startup’s funding cycle, Seed or Series A, a company doesn’t have to generate revenue. Often times, a good idea, charismatic entrepreneur, and a large total addressable market (TAM) size is all you need in the earliest days of startup. For FreightTech companies, the enormous size of the total logistics market ($9.6 trillion) is so massive, even in specialized areas, that investors know if the company has early traction in the market, it can grow to a big enough size for a large exit.
The amount of investment is often small in these early days (a few million dollars), just enough to get the company to a stage where the first couple of paying customers will buy the product.
Later stage companies that raise larger rounds (Series B and beyond) require product market fit, which means they need paying customers and high revenue growth. The biggest risk to a startup is running out of money, and tech-enabled startups that have high revenue growth and favorable unit economics almost never run out of willing investors to support the company.
Startups that are not growing fast (40+ percent year-over-year) face pressure by investors for a premature exit, often to a larger company, where the startup becomes a bolt-on product or feature of the acquirer’s core business. Lack of revenue growth is death for a startup, lack of profit is not.
In order for a startup to generate revenue, it must deliver real value to customers. The assumption that startups only play for venture capitalists and not for customers is usually held by the existing incumbents that are confused by the new entrants’ business model and go-to-market strategy. The tactics of the disrupter are usually drastically different than the incumbents, so the legacy companies write the new player off as a flash in the pan or assume the startup is given market credit that is neither deserved nor earned (“hype”).
Paying customers will have a different perspective, however.
Fast revenue growth is a sign of an under served client need identified by the new entrant. If the incumbents were serving the client’s needs, the startup wouldn’t have an opportunity to gain a foothold in the market and wouldn’t make it past a Series A funding.
In what is considered by many to be the most important book in Silicon Valley, Innovator’s Dilemma, incumbents misinterpret the opportunity, often dismissing it as a small and uninteresting niche. This allows the startup to establish a beachhead without any push back from the establishment.
“New entrants (often founded by frustrated ex-employees of the incumbents) with little or nothing to lose when they enter the market. Initially these small upstarts don’t pose a threat — the new entrants find new markets to apply these technologies largely by trial and error, at low margins. Their nimbleness and low cost structures allow them to operate sustainably where incumbents could not.
However, the error in valuing these technologies comes from what happens next. By finding the right application use and market, the upstarts advance rapidly and hit the steep part of the classic “S” curve, eventually entering the more mature markets of the incumbents and disrupting them.
In essence, the smaller markets are the guinea-pigs and test labs that help the technologies advance enough to play in the big boys league. In many cases the entry-point markets are left behind as the new technologies move into higher margin upmarket territory disrupting due to their superior performance.”
In order for the startup to grow, it must continue to add new revenue and client satisfaction throughout the engagement. The startup doesn’t enjoy the longer history or distribution of incumbents and must innovate to gain customers. Simply using a playbook of much larger and entrenched incumbents just means competitors will run the same playbook with a lot more resources than the startup.
As the company scales, client satisfaction is paramount. Usually this means that the startup is solving a major issue that the prior incumbents were ignoring. In later stage companies, venture investors want to see product market fit (real customer traction), high revenue growth and high paying customer satisfaction (usually tracked through NPS scores).
Venture investors are not concerned about profits if the startup is growing revenues quickly. This confuses a lot of people that don’t understand the venture investment model. Many of the most successful technology companies burn millions of dollars each year while they are growing fast. The biggest venture exits are usually companies that have high recurring (or reocurring) revenue growth, but with substantial losses. VC investors have a great deal of experience in seeing these companies become the dominant leaders of the next generation.
Even public companies can have big losses, so long as their revenues are growing. For software-enabled tech companies, investors have created the “Rule of 40,” which means that a healthy company should have a combined profit margin and growth rate in excess of 40 percent. Under this guidance, companies can lose 100 percent, but grow by 140 percent and still be considered “healthy.” ‘
Venture-backed startups are encouraged to sacrifice short-term profits, if the pursuit of profits sacrifices growth. The logic behind this is actually quite simple: fast growing revenue companies are far more valuable than slow growth, but profitable companies.
In Grow Fast or Die Slow, McKinsey studied 3,000 tech-companies between 1980 and 2012. Their conclusions were something that venture capitalists instinctively already knew, but defied conventional wisdom held by traditional business model thinkers, reporters and executives. Since the freight space has never seen the level of tech disruption that is going on currently, it is understandable that there would be a reluctance to accept it.
In the report, the management consulting firm stated:
Three pieces of evidence attest to the paramount importance of growth. First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent. Additionally, growth matters more than margin or cost structure. Increases in revenue growth rates drive twice as much market-capitalization gain as margin improvements for companies with less than $4 billion in revenues. Further, we observed no correlation between cost structure and growth rates.
VCs also have defined exit time horizons; their investment will only be in the startup for a few years. If the startup chooses to make a profit, it isn’t investing as much in marketing, product features or market expansion. With tech-enabled businesses valued at a multiple of revenues, venture investors want revenue growth above all to maximize their returns.
Customers are usually the winners when venture startups join the market. Often, startups build their businesses with more favorable unit economics for buyers, more flexible terms, better features and service.
Plus, with a focus on customer retention above all, client satisfaction and success is built into the startup’s DNA. Existing legacy companies that are measured on quarterly profits alone are more challenged to compete and will struggle to fend off the eventual pressure of the new FreightTech startups.
If a startup demonstrates an ability to raise multiple rounds of funding from reputable venture investors with solid track records, that signal alone is usually a sign of product market fit and high revenue growth.
For executives where their core business is under siege, it is a difficult place to be, especially if you are apart of an enterprise where innovation funding is not readily available. The instinct is to lash out and assume the startups will either flame out or lack long term sustainable business models. In other words, when surrounded, they just shoot everyone.
But for the freight executives that understand the current investment trend is just getting started, the best chance for survival is to take the startups very credible, assume that customers are as well, innovate internally, find ways to partner, or acquire.
Sitting angry, defiant, and idle is death- just ask Blockbuster. And venture investing in the freight space is just getting started.
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