Are We Undervaluing Bootstrapped Businesses?

Welcome to the 80th edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I revisited the issue of electronic bill of lading adoption. This week, I’m posing a hypothetical: will bootstrapped business in the logistics technology space end up faring better than those that are venture-backed?

As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.

For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@spglobal.com or on Twitter at @LogTechEric.

Success is an idea that always needs context. My 9-year-old son’s idea of success is getting a new LEGO set when he thought he was going on a boring trip to Target. Elon Musk’s idea of success is colonizing another planet.

Expectations are the conditions under which success can be measured. Did I expect my transportation budget to be $10 million in ‘21 and it was actually $20 million? Would success be defined differently if my budget was projected at $25 million in ‘21 and it came in at $20 million? What if demand growth doubled?

So let’s think about this in terms of investment into logistics technology. How will success in this era of logistics technology innovation, an era absolutely dominated by venture capital, be measured? By the raw number of so-called unicorns? By the number of viable companies? By some industry-derived measure of success, like empty miles reduced or carbon footprint decreased? Will it be measured by growth in freight or trade volume?

One area I’m curious about is whether we’ll come to find out that bootstrapped companies, the ones that either avoided venture capital, or which were avoided by venture capital, end up being the ones that drive more substantial change in the market. I wonder about this because I know several companies that have diverged from the venture capital path and have nonetheless become integral solutions providers for their customer bases.

This is not, at all, a swipe at venture investors, who have played and are playing a pivotal role in the remaking of global supply chain technology. It’s just that we have to broaden the lens out a bit and decide whether the approach of shooting for the moon and being okay with some crash landings aligns with a low-risk, fragmented, relationship-driven industry prone to inertia.

And it all comes back to how you define success. By definition, a bootstrapped startup (even ones with some outside, but patient, investors) has a lower threshold for success on its exit than does a venture-backed one. The math isn’t hard. If I start a business today, become profitable in year two, and sell in year 5 for $10 million, chances are that’s a solid outcome for me.

If I started that same business and took on pre-seed, seed, and A rounds ramping up to an B, I immediately need to sell at a certain threshold just to make my investors whole, never mind 10x their investment and provide me and my founding team a life-changing exit. Lost in my growing volume of stories on funding rounds is that it’s sometimes easier to achieve success, for both founder and customers, when the bar is lower.

One way to think about this is to compare annual revenue earned per dollar invested. Compare, say, a bootstrapped company that has invested $1 million over two years and has annual revenue of $2 million to a company that has raised $20 million in venture capital, and has that same $2 million in revenue. The first company has likely already built a sustainable business, albeit one that is not likely to ever be valued at seven, much less 10 figures. The second business has a chance at building a seven- or 10-figure company, but it cannot yet be considered sustainable, because if growth stalls, it would take eight to 10 years of revenue just to pay back investors.

The overall venture market is going through a moment, with multiple VCs telling me valuations are going down in logistics. Growth stage funds are becoming very selective, IPOs are not the exit path this year that they might have been even three months ago. It should all make founders think long and hard about the right path for them. And in reality, that should eventually benefit everyone.

Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):

• The cloud infrastructure wars are well and truly part of the global logistics and transportation industry now, evidenced further by Ocean Network Express deepening a partnership with Google Cloud. I also go into how ONE has been using RPA on its backend systems as a transitional step toward automation.

• Andrew Leto has some ambitious revenue goals in 2022 for his freight procurement platform Emerge, which he spelled out for me this week.

• Magaya is known for providing forwarding software, but this week it launched a tool to help those forwarder customers automate less-than-truckload (LTL) quoting. The idea is that if speed-to-quote is the ultimate factor in winning business, forwarders getting inquiries from shippers or overseas agents need a quick way to source inland transportation rates and autogenerate a quote back.

And here are some recent discussions, reports, and analysis I found interesting:

• If you’re not subscribed to Freight Forward, Cathy Morrow-Roberson’s new recap of JOC news, last mile and e-commerce developments and a look ahead to the next week…

  

• Also from Cathy, check out her Substack this week for a great canvassing of opinion on the slippery subject of visibility. Well worth it, especially for her categorization of the different functional areas visibility impacts.

• You also need to be reading my colleague Ari Ashe’s Please Haul My Freight newsletter. An absurd amount of detail and insight from his overflowing reporter’s notebook. This week, he tackles trucking rates, which are on the decline.

• Finally, an interesting blog from Kevin Speers at Splice on how the logistics industry’s innate fragmentation almost necessitates a strategic need for integration.

Some upcoming events I’ll be involved in:

• I’m leading a visibility panel at our JOC Breakbulk and Project Cargo Conference April 25-27 in New Orleans. My session, with representatives from Voyager Portal and FuelTrust, is at 4:25 CST April 26. Register for the event here.

• I’m leading a range of sessions on digitization in global ports at the IAPH World Ports Conference May 16-19 in Vancouver. This is going to be a fantastic gathering of the world’s leading ports, terminals and maritime decision makers. Here’s the agenda, and click here to register.

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or S&P Global, and any opinions are mine only.