Issue 36 | Convoy, Education for Automation, Flexport Valuation & Volumes
|Sep 24, 2018||Public post|| 2|
Dynamo Dispatch. Weekly update from Dynamo covering the latest and greatest in commerce and trade, #logisticstechnology, and building venture-scale businesses.
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Weekly Commentary 💭
The CEO’s role tends to be hinged on attracting, engaging, and securing customers, talent, and capital. Today, I want to focus on the activities around attracting and securing talent — the lifeblood of a company. At seed, where we invest, I tend to lean on the “slow to hire” bit. There’s value in keeping burn low until you start to see traction. But when do you speed up?
Initial hiring occurs when the founding team realizes that traction is requiring them to neglect their core duties (for example, CEOs and focus on talent, capital, strategy, and key customers). Then the first set of hires start to tap-out on capacity or need to remove themselves from certain tasks to generate leverage. It’s important to be proactive and not “play catch up” when your business is moving to product/market fit (and beyond).
We don’t want to be caught flatfooted but don’t want to engage in senseless hiring (and burn). As operational capacity proves itself (high growth and strong monthly revenues solidify this), certain account additions or expansions will create break points that reveal 1) necessary process-tooling, 2) product gaps, and/or 3) required marketing, sales, and support additions. Not to mention that employee attrition is a natural part of the business.
In a recent exchange with a founder, we looked at the sales pipeline as a guiding tool to plan business-related hiring (similarly, could look at the product roadmap/customer feedback for technical hiring). This framework could prove useful for others:
Look at existing accounts and estimate growth (both unit and dollar level) on a rolling 6 month basis. Assign a probability to existing account growth and you have a weighted growth figure.
Look at your pipeline and estimate sales wins (both unit and dollar level) on a rolling 6 month basis. Account for lag — delay between signing and accounts generating revenue. Similarly, assign a probability to each new account and derive a weighting growth figure.
What is the resulting sum look like? Does it signal that things will break? Is that process retooling, product gaps (might mean adding more engineering and design), or is it purely a business staffing issue?
Like most other things, it tends to be that multiple strategies are required. The key is to have a pipeline of talent to tap as teams determine their headcount needs — always be recruiting! Great founding teams are able to estimate the impact of pending operational retooling and feature roll-out in an effort to not over-hire and get into a “throw people at problems” mindset. They can also adjust for other factors in the business and not rely solely on numbers — what humans are great at! Further, the employee on-boarding and training tends to make or break hires in high octane phases (for another day). Rational and preemptive hiring is hard to do and we’d love to hear how others approach it.
We Are Dynamo,
What We’re Reading 📖
Convoy Raises $185M from CapitalG at Billion Dollar Valuation. Convoy has raised $265M as the entire digital freight management industry has attracted $420M in capital to inject technology into highly manual and relationship-driven operations related to trucking brokerage. All intermediary organizations will be reduced over-time but it requires maturity across several enabling technologies like conversational AI and NLP tp play into the existing behavior of truckers and shippers. It’s worth noting that the most recent major data point from UPS’ $1.8B purchase of Coyote was at a 0.85x revenue multiple (EBITDA not disclosed). Valuation aside, the mix of investors is interesting — CapitalG is more of a PE entity that can assume lower return multiples. Logistics has long been a favored space for PE — Warburg/Coyote; Warburg/Bluegrace; TPG/Transplace — because of the ability to generate strong EBITDA at scale. It will be interesting to see how the Convoy platform enables multiple shipments, trade financing, and supply chain analytics. Speaking of trucking, did you know Florida ranks as a top corridor for fully automated trucking?
World Economic Forum - Automation Could Create 133M Net New Jobs. “Significant” re-skilling and pipeline development in educational institutions could help us avoid the “labor Armageddon” that automation is expected to bring. That said, stakeholders have still yet to move on retraining the 75M employees that could be displaced by 2022. An analysis of major companies in developed and developing economies estimate that 42% of labor will be automated by 2022 with 50%+ by 2025 (2017 readings show 27% of labor is automated). I have been pretty open about the fact we need to be proactive in retooling employee skill sets for a world that will rely more on EQ, relationships, creativity, and associated reasoning. I strongly believe there are venture-scale opportunities for educational retooling across verticals.
The JoC on Flexport’s Valuation & Volumes. A critical piece on logisticstech unicorn, Flexport that brings to question what the differentiating factors and underlying traction of the business are. In a bid to build a best-of-breed forwarder without the technology and organizational debt of incumbents, Flexport has raised $304M in the last 5 years with it’s latest valuation around 6x 2017 gross sales of $226M (industry trades at 1x). While volume trends are important, the volumes are not what venture investors are looking to value the business on, nor should they. Investors are looking at the future value that can accrete to Flexport via it’s technology. Some potential questions they might be asking: Does technology allow Flexport to rapidly increase market share? Are margins better than incumbents (or is there a path to that)? Does software allow Flexport to tap an underserved marker that’s large and lucrative? Does software drive defensibility/unfair advantages? If so, “the market” will price Flexport at a premium given it deems the provider as technology-powered vs technology-enabled. It’s uncertain right now what the ultimate result will be but late stage venture investors do have a process (and a fuller picture). I suspect we will see a shift in strategy for digital freight forwarders (Flexport included) that combine subscale and major shippers while playing both spot and contract opportunities. Any balanced forwarder needs the margin benefits of subscale and spot shippers while gaining price advantages and a recurring revenue base from large shippers and associated contracts with the ship lines. Technology will streamline process, address much of the customs/compliance opportunity, and uphold customer service. Speaking of customer service, FreightOS closed their $44.4M Series C last week and is known to champion technology as a driver of customer service and a banking-style approach to freight.
The Prime Effect (2 Day Shipping) on Retail. Amazon has forced retailers to compete at it’s level where two day shipping has become the norm. On the back of 75 warehouses and 25 sortation centers, Amazon powers not only it’s own business but those of smaller businesses via Amazon Marketplace. In a world where scale is important, Amazon’s massive investments allowing mom and pops to compete. Startups have taken note, a variety of startups compete with FBA (most notably, Shipbob) and also try to sell into the behemoth’s efforts via automation and optimization tools.
Daimler Launches Marketplace for Mobility Bundles. The Moovel platform will allow transit authorities to bundle public transit with third party mobility solutions. Users can book and pay for a journey that bundles modes such as bike, car- sharing, ride-hailing, buses, and trains. The service will start in Berlin, Amsterdam, and Barcelona with 5.4M users as the car maker looks to build a mobility-as-a-service platform. It will face stiff competition from Citymapper that provides a multi-modal experience in major cities and has the UK market on lock. It’s wise for auto OEMs to continue moving into the demand-side of the business (given they have a competency on the supply side) to better transform an ownership model around automobiles and mobility into one that’s service-oriented and highly flexible. The more mobility spend OEMs can capture on their platform, the more they can optimize services and asset utilization in a more mobile world. Related, the electric remake across planes, trains, and autos and Mercedes plans to launch autonomous vans for urban mobility.
What We’re Listening To 🎧
We were quiet on the headphones this week. Back next week!
Who's Hiring? 👩💻
Head of Business Strategy at Gatik AI in Sunnyvale, CA.
Business Intelligence Analyst at Sennder in Berlin, Germany.
Senior Full-Stack Developer at Stord in Atlanta, GA.
Check out other jobs at Dynamo portfolio companies.