Commentary: How supply chain startups are surviving COVID-19

Between September 2014 and August 2016, I explored how economic moats playout in early stage technology startups and venture capital investing. For the purpose of this commentary, there are two issues I want to highlight for FreightWaves readers from my prior work.

First, as I point out several times in the collection of articles I reference above, a startup is a temporary organization built to search for the solution to a problem, and in the process to find a repeatable, scalable and profitable business model that is designed for incredibly fast growth. The defining characteristic of a startup is that of experimentation – in order to have a chance of survival every startup has to be good at performing the experiments that are necessary for the discovery of a successful business model. A company is what a startup becomes once it has successfully navigated the discovery phase of its lifecycle.

In other words, as Steve Blank puts it, a startup is not a small version of a big company, nor is it simply a type of small- or medium-size business.

Second, the types of startups I am specifically focused on are startups that are modernizing old business processes in supply chain and operations. They are doing this by creating fundamentally new technologies or building new innovations. Some of the innovations combine mature and established technologies with new delivery mechanisms or business models. Some of the new innovations use new technologies like blockchain and other distributed ledger technology to increase the efficiency and security with which information is transmitted across and between nodes in supply chain networks.

I have a bias towards stories about pre-seed and seed-stage startups, and readers will notice that in my writing and in the startups I choose to highlight in this column.

Insights from the field – what supply chain tech startups are experiencing, in their own words

Name: Michael Pakula (PK)

Title: CEO

Startup: BoxC (Founded in 2013)

Location: New York City 

BLA: What does BoxC do?

PK: BoxC is a technology powering cross border e-commerce shipping. For brands and sellers, we connect them to consumers globally, with end-to-end services that are e-commerce alternatives to express courier and post. For logistics companies, we connect them to customs-compliant services and final-mile delivery options to consumers in over 50 countries, all through one API.

BLA: What have you been experiencing in 2020, and especially since COVID-19 became a global issue – say in late February?

PK: What we have been seeing is a higher level of engagement from potential new customers and potential customers who connected with us in 2019. I believe that many companies are opening their eyes to seriously consider what alternative options are available. Whether they have more thinking time since ‘self-isolating’ or whether they are seeing a ‘doomsday scenario’ or coming to the conclusion that some things will never be the same or just ‘there must be a better way,’ it’s probably a mix of drivers.

BLA: Is this very different from your experience before COVID-19?

PK: It feels so. To our key market segments of brands/sellers (shipping direct to consumer, or D2C, internationally) and logistics service providers (looking to add new services for their traditional logistics offering), our offer is innovative and compelling and that can sometimes take longer to fully comprehend, but COVID-19 is helping these companies drive their decision-making process in 2020.

BLA: What are you hearing from your existing customers?

PK: Some customers’ initial reaction was to cut back on their marketing, which directly impacted their order volumes and at the same time, other customers advertised/marketed more and are shipping more orders. A general comment is that overall, the metrics don’t seem to have changed, just the mind set.

BLA: What are you hearing from potential customers?

PK: One key area of interest is for customers sourcing their products in China, we operate e-commerce fulfillment centers, where their goods are stored and their orders are picked, packed and shipped D2C in the USA and D2C globally. This saves both time and money and reduces the risk of a U.S. fulfillment center being shut down from illness.

BLA: What are you hearing from other startups?

PK: Uncertainty is something that I am hearing (naturally), but anyone in industries related to e-commerce are busy. Uncertain and busy at the same time.

BLA: Anything else you think readers of FreightWaves should know?

PK: Our technology is a ‘connector’ (globally to consumers, for brands and sellers and to logistics service providers) and we are open to help solve challenges and problems by discussing innovative and consumer-focused solutions with brands, sellers and logistics service providers.

Name: Rathna Sharad (RS)

Title: CEO

Startup: FlavorCloud (Founded in 2018)

Location: Seattle, Washington

BLA: What does FlavorCloud do?

RS: We enable brands to go global by making international shipping and returns easy, affordable and friction-free.

BLA: What have you been experiencing in 2020, and especially since COVID-19 became a global issue – say in late February?

RS: It’s been an acceleration and a huge positive overall for FlavorCloud – we see positive implications from COVID-19 on three fronts. First, Amazon FBA refusing third-party merchant parcels means businesses were left to figure out their own options. This has led to a greater number of folks moving to D2C (direct-to-consumer) fulfillment strategies as a mitigation. Second, for larger merchants, this has been a wake-up call in terms of how to think about building resilience in supply chain optimization in different parts of the world. Third, and more immediate is the surge to move online while brick and mortar is suffering. This seems to be highly dependent on verticals – some doing better than others.

BLA: What are you hearing from your existing customers?

RS: We’ve seen an impact on customers who have a brick and mortar presence. However, for the most part we’re seeing neutral or positive growth due to enhanced focus on their online business or international expansion. The growth is very positive in verticals like food, personal care, home, athleisure and baby products that are doing really well, while others like luxury fashion and accessories not so much.

BLA: What are you hearing from potential customers?

RS: The last month has been the busiest for us in terms of surge in inbound requests from brands wanting to expand internationally with more urgency or to think about long-term supply chain implications. We’ve onboarded as many brands this month as we did last quarter!

BLA: What are you hearing from other startups?

RS: This is a really hard time for most startups and there are very few that are seeing silver linings or positives from this in terms of adjusting to working from home (WFH) and also in terms of cost-cutting measures. We’re lucky to be able to seamlessly transition to WFH since our team was already remote. We’ve also had no changes to personnel.

Name: Stefan Kukman (SK)

Title: CEO & Founder

Startup: CargoX (Founded in 2018)

Location: Ljubljana, Slovenia

Note: Simon Ručigaj, PR & Communications Manager for CargoX, was one of the speakers at The New York Supply Chain Meetup’s (#TNYSCM) Blockchain + Supply Chain Meetup in January, which led to Commentary: What is the state of blockchain in the supply chain? That commentary ran on FreightWaves.com on January 31. CargoX was also part of the startup showcase during #TNYSCM’s one-year anniversary celebration in November 2018.

BLA: What does CargoX do?

SK: The CargoX Platform enables blockchain document transfer (BDT). This allows companies to send and transfer ownership of original documents in a highly secure, reliable, fast and cost-efficient way. It also enables companies to prove the ownership of the documents, as required in logistics, financial and other adjacent industries. The platform is built atop the public neutral blockchain Ethereum network.

BLA: What have you been experiencing in 2020, and especially since COVID-19 became a global issue – say in late February?

SK: We have noticed a boost of digitization efforts in the supply chain segment, with clear demands for contactless original document and document ownership transfers in logistics and financial industries. Before the COVID-19 pandemic, companies were relatively slow in their digitization efforts. We have seen a boost especially in the governmental segments, which was traditionally lagging behind the corporate technological advancements.

BLA: Is this very different from your experience before COVID-19?

SK: Yes, the difference is quite visible, but with a good reason. The dangers of virus transmission have a great impact on the digital transformation, and supply chain participants wish to eliminate potential health risks while benefiting in other ways as well.

BLA: What are you hearing from your existing customers, from potential customers and from other startups?

SK: The digitization efforts that have been postponed or slow to build-up until now, have taken on a new dynamic. Digitization is becoming a necessity, caused by an external event. Companies first needed to perform their crisis management functions, to take charge of the new cash-flow reality, resolve delivery issues, blockages, order changes, business reductions, and the sheer inability to receive or provide services and goods. The next step for them is the optimization of their processes that have sometimes been untouched for decades.

BLA: Anything else you think readers of FreightWaves should know?

SK: We can only comment on the startup environment situation. We see a purge coming ahead, just like in all the economic crisis events of this type. The companies that have built a large enough customer base, who have good brand recognition, and who have been recognized as trustworthy by the market, and who already developed, tested and launched a working proven product, have a chance to succeed and maybe even grow faster than expected.

Name: Pratik Soni (PS)

Title: CEO & Founder

Startup: OmniChain (Founded in 2016)

Location: Los Angeles, California

Note: Pratik was one of the speakers at The New York Supply Chain’s Blockchain + Supply Chain Meetup in January, which led to Commentary: What is the state of blockchain in the supply chain? That commentary ran on FreightWaves.com on January 31.

BLA: What does Omnichain do?

PS: Omnichain provides a forward and reverse intelligent supply chain management software. Our solution connects disparate stakeholders through distributed ledger technology, creating a connectivity layer for our in-house artificial intelligence and machine learning models to run predictive analytics and execution. The result of which is holistic orchestration, transparency and proactive decision-making across the supply chain.

BLA: What have you been experiencing in 2020, and especially since COVID-19 became a global issue – say in late February? Is this very different from your experience before COVID-19?

PS: With regards to our day-to-day operations, our main office is located in a building with numerous other innovative companies. Early on, when COVID-19 was still a developing issue in the United States – particularly in California – we recognized the risk it posed for community transmission to our employees. We were quick to mobilize, restrict business travel and shifted everyone to working from home, where they would be safe.  We’re relying heavily on our numerous virtual communications and productivity tools such as Slack, GoToMeeting, Monday and others keep the team aligned, communicating and productive.

We’ve been fortunate that COVID-19 hasn’t hurt our business because the majority of companies we serve are in the consumer goods industry, including food & beverage, retail and health & beauty. Products within these industries are more important now than ever, with heightened demand on essential items such as toilet paper, hand sanitizer and food products. Currently, we’re actively working with customers to stabilize their supply with demand and drive efficiencies to ensure the availability of necessities and supplies for consumers and our communities.

BLA: What are you hearing from your existing customers, from potential customers and from other startups?

PS: From brands and manufacturers in the marketplace, we’re hearing about significant disruption to their supply chains. Upstream, many are struggling with production bottlenecks and increased transportation lead times due to lack of parts or materials from overseas suppliers. To protect employees within production sites and distribution centers, some facilities are operating with reduced staff sizes and thus reduced operating capacity. Further downstream, the sudden and unexpected spikes in demand for certain items have diminished supply and created difficulties with demand forecasting and timely fulfillment and replenishment.  Many of our potential customers have identified significant gaps across their supply chains and are prioritizing supply chain connectivity and transparency as leading initiatives to help drive real-time and accurate decision making and intelligent process automation with the help of Omnichain.

Seeing these challenges, we are enabling organizations and the operators that manage these complex supply chains achieve higher productivity levels across their supply chains. We made the decision to offer our software solution free for three months – post-implementation – to quickly help organizations struggling to manage their supply chains during COVID-19. We want to give them the end-to-end visibility necessary to make smart decisions around supply availability, meeting demand and the efficient transport of goods. It’s our way to do our part to minimize disruptions caused by COVID-19 and stabilize the supply chain – both for the sake of the economy and to build resilience in face of uncertainty.

While putting the finishing touches to this article, I spoke to James Coombes, CEO & Co-founder of Vector on Tuesday, April 21 about what he and the rest of the team are experiencing. Vector has been in business since late 2017 and is based in London, U.K. Coombes echoed many of the points that the other startup founders have already made.

Vector transforms logistics and trade-finance paperwork and workflows with machine learning. Coombes said there’s increased interest in Vector’s ability to act as a universal adapter for the many different nodes that participate in global trade and supply chain finance. With the workplace adaptations imposed on companies all over the world because of COVID-19, Vector is finding greater interest in the productivity-boosting aspects of the platform. Lastly, he emphasized that Vector’s customers are gaining a deeper appreciation for the fact that the platform does not seek to eliminate human expertise, but rather keeps human experts in the loop while making them significantly more effective and efficient in processing information and data, enabling them to focus on those decisions where human judgement is irreplaceable. He reiterated the point that the ethos that matters most during this crisis is helping customers successfully navigate this pandemic, by eliminating or augmenting archaic processes and systems that limit their ability to operate with fully remote teams if that is possible. Once the pandemic is behind us, the focus can return to growth and winning new business.

 That is a sentiment that has been expressed by other people I have spoken to about this topic.

 Wrapping things up – there’s more to the story, this is just a starting point

There are at least two very valid critiques of a commentary like this one.

First, it is not comprehensive enough. It would be great if I gathered insights from a much larger sample of startups for input about these questions. That is a function of constraints due to a lack of time and other resources that are required to conduct a more comprehensive study.

Second, articles like this can suffer the distorting effects of survivorship or survival bias. FreightWaves readers should not assume that the information highlighted here tell the whole story. The landscape of supply chain, innovation and technology (#SCIT) that is my focus in this column is much too complex and dynamic for this to be the whole story.

This is a difficult time for everyone. Supply chain tech startups are not immune to the hardships that SARS-CoV-2 and COVID-19 has forced on companies of all types and sizes around the world. Undoubtedly there are some supply chain tech startups that will struggle and fail as this crisis unfolds, compelling their founders and investors to accelerate difficult decisions that would have been postponed during more profligate times. Such is the reality of creative destruction, especially during a global pandemic.

That being said, analysis of this sort is useful in helping us determine where to look for signals that suggest emerging answers to questions that we are still in the process of correctly formulating. Analyses of this sort can also serve as useful leading indicators of where more rigorous and comprehensive research should be focused. 

If you are a team working on innovations that you believe have the potential to significantly improve business operations during SARS-COV-2 and COVID-19, we’d love to tell your story in FreightWaves. I am easy to reach on LinkedIn and Twitter. Alternatively, you can reach out to any member of the editorial team at FreightWaves at media@freightwaves.com.