Can VC Help Shorten the LogTech Sales Cycle?

Welcome to the 43rd edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, compared the analytics revolution in the NBA to what we see in logistics. This week, I’m pondering how, or even whether, venture capital can play a role in changing the nature of logistics sales cycles.

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@ihsmarkit.com or on Twitter at @LogTechEric.

Something I’ve danced around in previous editions of this newsletter is the idea that venture capital’s thesis on logistics technology was, in part, based on the presumption that software and tech-enabled operators could fundamentally change this market.

Most presumptions were centered around areas like product usability, operational efficiency, better use of human resources, more focus on customer outcomes, and the like. But that focus has always felt like it skipped a key step – that is, the length of sales cycles in the logistics industry does not always align with the platonic ideal of a venture-backed growth model.

I find this interesting because the most talked-about areas in fast-growing startups tend to be product-market fit and customer acquisition strategy. Finding a market that wants a product, and then finding a way to rapidly sell to them in a cost-effective way are fundamental pillars of a venture-backed business.

But logistics is an enterprise-driven industry. And enterprises, whether a small direct-to-consumer brand that derives most of its orders from Instagram or a global multinational that sources and sells in almost every country, don’t tend to make decisions about technology investment quickly. In fact, it’s a fallacy to say that large enterprises are any slower in their decision-making process than smaller ones, or else every small importer would be running on killer systems already. In fact, most are in the dark about what to use.

This makes me wonder about two questions:

• Has VC’s outlook on the pace of growth for SaaS logistics technology companies or tech-enabled 3PLs changed at all?

• And can venture help change the buying decision-making process, in effect shortening traditional sales cycles?

Let’s address the first question first. In my view, VC attitude toward the length of sales cycles in logistics has adjusted over time. Let’s also clearly state that “venture capital” is not a monolith. Just as there are a thousand flavors of shippers and logistics services providers, there are thousand different types of VCs, so generalize at your peril. But, in aggregate, there is a greater appreciation for the challenges companies selling into this space face.

Let’s also realize that the variety of roles into which a particular VC-backed startup sells are quite varied, and that changes the math on sales cycle length. A startup aiming to sell SaaS dispatching software to a small trucking company is an entirely different proposition than a startup aiming to sell global multimodal visibility to an automotive OEM. VCs that have an appreciation for the sale of other categories of enterprise software have a head start here, versus those more accustomed to backing startups that sell to consumers.

That said, we cannot expect VCs to completely rationalize their expectations around sales cycle length. A VC is not going to say to a tech-enabled 3PL “I expect you to be 10 percent more efficient in selling to shippers than incumbents.” A VC is going to expect the tech-enabled 3PL to redraw the terms of customer engagement from start to finish, to the extent that a comparison with incumbents would almost be laughable. They are not after incremental improvement, but wholesale change. If a startup cannot paint a picture that it has a way to alter the structure of the existing sales cycle, it better have another way to show it can attain rapid growth. Sometimes that means it is creating a product for which there really isn’t an existing category, and thus no entrenched sales cycle structure. Sometimes, it means targeting a customer segment in an existing category that has been previously ignored. But if it’s a new way of doing something that already exists, to a customer segment that is already targeted, there better be a path toward reducing the length of the sales cycle.

Now let’s address question No. 2: can VCs actively alter sales cycle length? In my view, the answer to this is undoubtedly yes, and here’s how. First of all, VCs commit cash to companies they feel have a path toward fast growth. Fast growth is reliant on speeding up enterprise decision-making. In general, that either means those startups have a unique way to get a customer to say “yes” in a traditional sales cycle, or they have a low-friction tech stack that drives down customer acquisition cost. By funneling capital to companies that shorten the sales cycle, they are providing those companies an advantage over competitors that compounds over time.

Second, VCs have the ability to shape the direction a startup takes by actively advising them on how to shorten the sales cycle if that’s not a core strength of the founding team. If, for instance, the founders are amazing at product, but lack experience in sales, the VC can provide direct assistance, or help with a hire or advisor that can shore up that aspect of the business.

There’s one other element in all of this. SaaS itself, the idea that software can be procured and implemented online, is a factor in sales cycle length in logistics. But ease of acquisition and implementation isn’t enough. The startup needs to play an active role in convincing logistics practitioners to take a leap faster.

To be clear, in logistics, sales cycle lengths are still measured in months, not weeks or days. When I asked software providers in the industry to chime in (on background) about the length of their sales cycles, it ranged from as little as one to three weeks for smaller companies up to one year in enterprise. Considering startups are frequently getting multiple VC funding rounds within six months of each other, that suggests that VCs are aware of the challenge of long cycles, but confident that the companies they back can solve those challenges.

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

• While project44 and FourKites occupy a lot of the attention in the visibility space, there are other providers out there, and some of them are getting some pretty major backing as well. Overhaul, for instance, announced a $35 million round this week. Why is that notable? Well, project44 and FourKites both raised precisely the same amount in their series B rounds in 2018. Guess that’s the benchmark.

• I write about automation a lot these days, and it’s starting to feel like we’re edging closer to people understanding just how powerful some of these tools are. TNX Logistics, which was acquired this week by Transporeon, is an interesting example. TNX helps freight brokers automate spot freight procurement decisions – not recommended actions, but actual automated decision-making. The technology is really cool, but the company (by CEO Jonah McIntire’s own admission) was not exactly adept at sales and marketing. Hooking into Transporeon’s vast network and sales/marketing engine will help get TNX’s product into more hands.

• Another example is RPA Labs releasing a set of customer service bots for logistics companies, to help automate everything from problem resolution to spot quotes.

• Meanwhile, Maersk Growth is continuing its investment spree in North America, funding a Massachusetts-based autonomous trucking company whose technology is being rolled out at North American trailer yards, as reported by my colleague Michael Angell.

• I first met Haulio CEO Alvin Ea in 2018 during a trip to Singapore. His goal was to initially digitize the coordination of drayage into and out of his home country’s port, and then expand to other countries in Southeast Asia. Having onboarded 90 percent of drayage carriers in Singapore, this week, Haulio rolled out an expansion into Thailand, with eyes on Indonesia next.

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

• Always interesting to read Miles Varghese’s view on the forwarding market.

• Speaking of TNX Logistics, I unearthed this commentary from McIntire a few years ago on freight marketplaces that’s well worth a look.

• OOCL has rolled out an ocean freight product analogous to Maersk Spot, with penalties on both sides for failure to adhere to the booking agreed upon by both parties. This is an example of the role technology can play in changing industry behavior. Without an online process, the industry reverts to old, bad habits. It’s currently only available out of a handful of countries in Asia, but definitely worth watching.

• Finally, I found this chat with STORD CEO Sean Henry very interesting. In it, he provides one of the most rational descriptions of the size of the market he’s targeting that I’ve heard from a logistics technology founder. As many know, overstating the market size of the logistics industry is a pet peeve of mine.

• The host of this podcast, Romeen Sheth, has also interviewed a few other logistics founders, including Cloud Trucks CEO Tobenna Arodiogbu, Shipwell President Jason Traff, and Shippo CEO Laura Behrens-Wu.

Some upcoming events I’ll be involved in:

• I’ll be hosting two JOC webinars, on June 17 and June 24, diving into our Top 100 Importers and Exporters list. Joining me are my expert colleagues, including Dustin Braden, Ari Ashe, Bill Mongelluzzo, and Michael Angell, to dissect the findings. The import-focused webcast is June 17 and the export-focused one is June 24. Both are at 2 pm ET and free to attend.

• The IAPH World Ports Conference starts in 10 days, running the week of June 21-25. I’ll be involved in various technology-related elements of the program, including sessions on how ports should prepare for automation, demystifying data collaboration, a session on how ports of all sizes can embrace the technology on offer, and a chat with MSC’s André Simha about how electronic bills of lading might impact ports. Register here.

• I’ll be moderating a session on where TMS is headed at 10 am CET June 22 as part of SupplyStack’s TMS Insight Series.

• I’m also moderating two sessions at the SMC³ Connections conference June 28-30, one interviewing Chad Crotty, chief operating officer of DDC, and another talking to Steve Blough, president of MercuryGate. 

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.