Dynamo Dispatch (01/07/19)

Issue 48 | Reverse Logistics, Fleet Auctions, Forager

Dynamo Dispatch. Weekly update from Dynamo covering the latest and greatest in supply chain, mobility, and building venture-scale businesses.

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Weekly Commentary 💭

Happy New Year!

We're coming into the new year with jittery equity markets amid an ongoing US government shutdown and trade war concerns. It seems markets are cautious and hopeful for solutions to our shutdown and amicable trade agreements. The perks of being involved with industries that are the backbone of the economy is that as founders, we tend to have a better pulse of the market: container flows, truckload volumes, warehousing activity, inventory builds, automobile purchasing, etc. It's helpful to have such leading indicators and understanding of sentiment given that a recession is called only after two consecutive quarters of economic contraction. It's worth noting that perception and fundamentals can detach and that can be unnerving. A fundamentally healthy economy can be driven to recession if enough Americans "feel" less wealthy and curtail spending; business start to delay or defer hiring, purchasing, and investing; and credit moves slower across the system. Founders in the industry should leverage their vantage point to be pragmatic, plan ahead, and exercise caution through a downturn.

We tend to hear "cash is king" more often during recessions and resulting recoveries. Cash is always king and that means your startup should have enough to weather a 18-24 month recession (the last recession was 18 months with durations as short as 6 months). Understand that startups with product/market fit or a clear path to product/market fit will tend to raise financing albiet at slightly lower valuations. Middling startups namely those with a slower path to product/market fit, high capital consumers, or poor growth will tend to get cash at poor terms. A third bucket of startups might be unable to seek venture funding and will need to shutter or bootstrap through. The benefit of supply chain startups is that they tend to bring customers operating leverage and reduced costs — a huge focal point for any business dealing with economic contraction.

As a founder, be cautious, moderate burn and lean into exercises that can bring greater optionality in a slow business climate. If executed well, this can result in reduced (or no) reliance on outside investment. All that said, a slow-down is a boon for well-capitalized startups who can invest into a slow down. Prices tend to fall not only for assets but also talent, product investments, and customer acquisition. I recall learning early in my career that companies that invest through downturns (not only during growth cycles but consistently), especially when their competitors sit out, tend to be better positioned during the upturn.

On the talent front, keep on top of competitors as well as employers of great, costly talent (think ML, data science, senior sales). Ensure a plan for new hires — what will they work on? can they "pay for themselves" within 12 months? How do we hire the best before others?

On product, founders (assuming you don't have a PM yet) have to know their competition and competitive products really well. It's essential intelligence to assist in ruthless prioritization and build for where the market is going. Generally this is talent-driven, hire more to build the high-need/high-value aspects of your offering you've deferred, didn't have bandwidth to build, have your competitors beating you on the margin, or know will become necessary from customers in the near future. This approach importantly ensures that any new hires will work on things that matter and accrete value to your business.

Customers and sales cycles might be overlooked for cash and liquidity concerns. As previously stated, perception can manifest itself into a recession. Monitor customer outlook and sentiment, emphasize ROI opportunities, and try to get large opportunities over-the-line in the next 6 months. Also know your competitors' weaknesses and prep your sales team to take share should any get in a cash bind or start to be stretched on product development.

I would suggest speaking with your investors who know your business well, have certain opinions on the current economic climate, and can help determine the appropriate strategy.

We Are Dynamo,

Santosh 💥

Supply Chain 📦

🌟 Reverse Logistics in Focus: Managing Reverse Logistics During the Holidays. With timely deliveries turning into table stakes for eCommerce, the need for a timely return and refund experience is not be far behind. With promises of free returns, consumers are buying, trying, and returning up to 30% of online purchases driving a need for more robust reverse logistics operations. Reserve Logistics Is Primary Driver of Warehousing Demand. CBRE estimates that 700M sq ft of space is being used for handling ~$100B of returns.

Trucking Survey Shows Economic Optimism and Hopes for Infrastructure Improvement. The Transport Topics survey of various trucking executives, shippers, and stakeholders reads surprisingly positive with continued hopes for government spending on roads.

Delisting from Instacart and Other Grocery Platforms. Grocery executives are asking the question, "how can we switch eCommerce providers?" as Instacart and other platforms disintermediate grocers from their customers.

🌟 Crash Course Into the African Supply Chain: A Call for Improved Infrastructure Plans With China. China is the leading infrastructure financier for the country — there should be policy that favors free trade and foreign direct investment without giving away the farm (or ports and roads in this case). Encumbrance of infrastructure prior to a major economic catalyst could create massive headaches. Ports, roads, rail need to be open, affordable, reliable, and safe. The Supply Chain Africa Needs. The "last economic frontier" requires improved policy (free trade zones, tariff reform, technology and manufacturing incentives), fundamental fixtures of supply chain and informed actors (regional and local distributors, customs agents, forwarders), investment in associated technology platforms (distribution, warehousing, demand forecasting). The result could be a massive economic powerhouse that has massive intra-regional trade flows.

📊 Rail Volumes Up in 2018. 2018 U.S. rail carloads increased 1.8%, or by 238,857 carloads, annually to 13,640,641, compared to 2017’s 13,401,784. Intermodal containers and trailers increased 5.5%, or 751,217 units annually to 14,472,849. From my conversations, many rail executives noted they were also benefiting from elevated long haul trucking rates and shipper efforts to maintain margins.

New Whole Foods Openings Likely To Speed 2 Hour Delivery. Whole Foods provided Amazon a network of grocery stores that can also serve as a base for the distribution of perishable goods. Now, a planned ramp of new Whole Foods locations can bolster the advantages of micro DCs in driving 2 hour or same day deliveries.

Intel Launches New IoT Platform with Honeywell. The effort is part of a broader joint effort to provide solutions for logistics. The Connected Logistics Platform provides supply chain visibility with a focus on quality, integrity, and security.

Mobility 🚗

🌟 Trucking Fleets Turning to Action Market for Assets. Strong freight rates and a need for assets has driven large fleets to join owner-operators at auctions. Interesting to note that overall auction supply was low as assets were put to work — so low that 4-6 year old trucks had no depreciation priced in to their values (usually 1-1.5%/month). Some asset owners opted to sell model years in that range as they garnered a premium with relatively low milage and in some cases, an on-going warranty.

🌟 Citi Research on The Future of Mobility. A great report from my former employer (I think Citi Research is some of the best out there) on the future of mobility. Still getting through the monster.

Dynamo Portfolio Founder, Diane Lansinger on Envirofencing in AV. Diane discusses the importance of dealing with varying environmental conditions (snow, mud, bug hatches) and physical obstruction of sensor faces. Today, OEMs avoid regions with less-than-perfect weather but that's not viable to continue AV development and deployment. Software alone cannot maintain perception through the elements for ADAS and AV.

📊 A Tweetstorm of Data from Bird's Tel Aviv Activity. The interesting weekday rides per hour are interesting — supply for evening commutes could be improved. Fleet operations are still a struggle — keeping units charged and distributed. Related, The Scooter Wars of 2018.

The NYC L Train Shutdown is Canceled. In a surprise announcement, a "hastily sketched plan" could allow the L Train to remain open through much needed repairs if the Board approves. A concrete wall will no longer need to be torn down to replace power cables. Given that the line facilitates 400k passengers trips each day, the news is super positive for citizens. As a former L Train rider, the repairs couldn't happen soon enough but a shutdown wouldn't be viable given its importance in cross-town transit.

Quadricycles Coming to India Mobility Landscape. The compact four-wheel vehicles will have to weigh below 500kg and subject to safety and emission standards (presumably these will be electric, but not necessary). Bajaj will launch the first model will cost ₹2 Lakh (~$3k) and likely drive great utility in crowded but geographically expansive cities (consider Chennai metro is home to 10M people across ~460 sq mi).

The Coming Explosion of Light Electric Vehicles. An in-depth look at the unbundling of the automobile and resulting rise of LEVs in urban environments. CHA, a small city by most standards (~550k people in MSA/~145 sq miles), could benefit from LEVs to address a lack of public transit, congestion, and generally short mileage trips among the population. A world of LEVs would give rise to purchasing experiences analogous to smartphones, a new variety of software opportunities, and service models.

Waymo Vehicles Attacked in Arizona. Apparently citizens have thrown rocks, slashed tires, and even shot at the self driving vehicles. The backlash could be an example of rising anti-technology sentiment as people weigh benefits against job loss.

Strategic Developments, Fundraises, M&A 💸

Forager Logistics Launches with Focus on North American Cross-Border Freight. The company is founded by Matt Silver with a focus on facilitating freight crossing Mexican, American, and Canadian borders. Silver brings with him deep experience and pedigree having operated teams moving freight in/out of Canada and Mexico during his time at Coyote Logistics.

Formant Raises $6M Seed. Formant is building infrastructure for robots with fleet management, telemetry, and remediation features. The round was led by SignalFire.

Boom Supersonic Raises $100M. The Series B financing was led by Emerson Collective to advance development of the Overture supersonic aircraft.

Samsara Raises $100M from a16z and General Catalyst. Announced right prior to the new year, Samsara, the supply chain visibility platform raised a fresh round from existing investors.

KKR Investing $1B in Commercial Aircraft Venture, Altavair. An increase in eCommerce has increased demand for in cargo planes especially as air cargo capacity remains tight and underpinning elevated pricing. KKR has already been active in aircraft finance and drive scale at Altavair.

Seko Logistics Acquires GoodShip International. GoodShip adds a customs and compliance competency as well as a focus on eastbound transpacific freight flows to Seko's growing group of offerings.

GM Cruise/DoorDash Partner on Autonomous Food Deliver. Joining Nuro, Waymo, and Ford, Cruise looks to be putting safety drivers to work. It has 180 vehicles and 400 safety drivers who could facilitate high-volume, low-value food deliveries.

Company Building 🛠️

Series A SaaS Benchmarks. The median business was at $1.8M ARR with 250% growth. Some worthwhile details here that explain the "moving goal posts" for SaaS Series A raises.

Hiring Your First VP Sales. We spend a lot of time helping founders think about a transition from founder-led sales to process-driven sales. A big component of that is hiring a VP Sales and could agree more with "optimize for the sales leader that can communicate effectively with your CEO." I appreciate the section on-boarding... the heavy lifting begins only after a candidate signs.

Own the Demand. An analysis on why business moats are strongest when a company has as much control of demand as possible. This is useful not only for marketplace businesses but any business as they evaluate their role in a "broader stack" and plot a path to defensibility.

Who's Hiring? 👩‍💻

Head of Sales at Zeelo in London, England.

Integration Engineer at Stord in Atlanta, GA.

Customer Success at LogisticsExchange in New York, NY.

Check out other jobs at Dynamo portfolio companies.

❤️ We would love your support. Please forward to friends or share on Twitter or LinkedIn.

🗞️ If you were forwarded this and found it interesting or helpful, please sign up.

🎙 Check out Dynamo's podcast series, The Future of Supply Chain.