Welcome to the 98th 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, with the help of the Channel 4 news team, I looked into how the battle royale in container shipping wasn’t between vendor and customers. This week, I’m explaining my position on profitable versus unprofitable companies and how I cover them.
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.
If I had a dollar for every time a logistics technology founder this year has told me that investors are now focused on a “path to profitability” above “growth at all costs”…well, I’d probably have less than $50…I don’t talk to that many companies. But you get my point. The narrative has certainly changed, which I’ve written about plenty at JOC.com and here. But I’m not going to belabor that specific issue this week. Instead, I’m going to focus on a corollary of it, as it relates to how I cover the technology space.
There are largely three camps in logistics technology, and they are not equally divided. In one camp, you have the “VC is a Ponzi scheme” folks. In the opposite camp, you have the “if you’re not using VC, you’re literally handcuffing yourself” team. And in the middle of those two camps, you have, by far, the largest camp, the people who realize some companies are best suited to bootstrap and others are best suited to raise venture capital.
Now one aspect of the VC-fueled model that particularly rankles the bootstrappers (and even some of the middle grounders) is that a VC-backed can, and usually does, operate for years without making a profit. I’m written before here that VC is, in some ways, like PEDs. Here’s a passage from my March 5, 2021 newsletter:
The argument is this: when funding is bestowed upon companies before they’re profitable (and in some cases before they even have a product), it disadvantages companies that are seeking to build profitable businesses from the start.
Now let me address how profitable a company is impacts whether or not I cover it. I’ll make this short: it pretty much doesn’t. Here’s why…
I view my role as primarily to help the audience that reads JOC.com and The LogTech Letter better understand the technology landscape in logistics. That means they need to broadly know what to invest in, and what not to invest in. Drilling down, that means I hopefully help them sharpen their own searches by filtering out software categories that are and aren’t meaningful to them. If I write about a certain company, my primary goal is to explain what they do, whether and how what they do has been done historically, and the competitive landscape in which they exist today.
Here’s what I try not to do:
Spend too much time determining if they’re profitable or not, nor a timeline for when they might be profitable
Get caught up in inter- or intra-company politics that have no bearing on the value they might bring
Conflate investment and company valuation with value to the industry
So here’s how that manifests itself in my reporting and blogging. A company with 10 people that has a handful of customers, zero venture funding and zero marketing might get more attention from me than a hot-as-the-sun venture-backed startup with 500 employees and slick marketing if…the first company is addressing something I know to be a problem in the logistics industry, and the second company is not. Especially if the first company, while relatively unknown, is unique in what it does.
Conversely, a small, bootstrapped, profitable software provider with a solid book of customers doing something that 30 other companies do is not going to merit the same attention as a unique, VC-fueled startup growing like crazy even if it’s widely known to be wildly unprofitable. The key threshold for me is value and uniqueness, not profits. Go back and read that newsletter I referenced earlier: unprofitability is a strategy at a certain stage for some companies - sometime a long stage. That doesn’t make what they do less valuable or common. It just means they have a greater risk variance in outcomes. But that’s the vendor’s issue, and its investors’ issue, not mine.
I say this not to say I prefer to write about VC-backed companies over bootstrapped ones. I think you’ll see I write about both types of companies regularly. It’s to say that it’s important to understand what I focus on - which is whether the company is developing something that can help parties in the industry with which I interact. I’m not a finance guy, I’m not an investor, and if I had a VC fund, the LPs would have shut me down a long time ago. So I focus on what I know and let the market determines who are the big winners, the little winners, and the non-winners.
TPMTech Registration is Live!
Registration for the second annual TPMTech, Feb. 23-24 in Long Beach, Calif. is live. So get your early bird passes while you can! It’s a 30 percent savings off full price until Oct. 2.
Neal Peart Lyrics of the Week:
Any escape might help to smooth
The unattractive truth
But the suburbs have no charms to soothe
The restless dreams of youth
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
An illuminating conversation with Trailer Bridge CEO Mitch Luciano earlier this week led to a brief exploration on the challenges diversified service providers (especially ones with asset- and non-asset-based services) have in unifying systems across services. The takeaway: that opportunities to cross-sell to eager customers are often hampered by standalone and disconnected systems.
Wrote about an interesting study from mid-2022 by supply chain intelligence software provider Interos, which found, among other things, that shippers in a few key verticals are ready to make massive changes to their supplier footprints over the next three years.
And here are some recent discussions, reports, and analysis I found interesting:
I hope you all got the bonus TLL Tuesday, from guest contributor Anthony Miller, about where WiseTech Global might go from an M&A perspective. It’s really a can’t miss read if you’re interested in the past, present, and future of forwarding software.
If Chris Jolly (The Freight Coach) is talking to Brian Glick, you better believe I’m watching that (and subsequently posting it here).
And if we’re talking powerhouse lineups, Sarah Barnes-Humphrey led a great discussion at the recent Intermodal Summit, with a panel that included world-renowned experts (and JOC.com contributors) Lars Jensen and Larry Gross.
Also reupping my conversation last week on LogTech Live with Freightify CEO Raghav Viswanathan, CEO of forwarding tech provider Freightify. We covered a ton of ground, including container line APIs, why digital quoting for international freight is tricky, how rate management fits into the dynamic pricing and quoting process, and more. Stick around for his awesome music suggestions at the end!
Some upcoming events I’ll be involved in:
I’m participating once again in the Parnity Forwarders Online Conference Sept. 14-15. Reach out if you want a discount code, which the organizers have kindly offered to my readers.
Our Inland Distribution Conference in Chicago Sept. 26-28 is now less than two months out. I’ll be doing a one-on-one with Emerge CEO Andrew Leto and then leading four tech-oriented discussions, including the one on small carrier tech, as well as sessions on LTL tech, freight procurement advances, and venture’s future role in trucking. Don’t miss this - it’s the most substantive surface transportation conference in the market.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or S&P Global, and any opinions are mine only.
Nice measured take on the role of VC! The mature answer is so often "it depends on what you're trying to accomplish."