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On Sunday, March 29, I spoke with Lina Jasutiene, managing director and co-founder of Recoupex. Lina was interviewing me for a week-long online master class focused on cargo transportation that was released in daily instalments starting on Wednesday, April 1. Also, on Friday, April 3, I was one of four general partners of emerging venture funds participating as speakers in a webinar organized by VCInclude and the Skoll World Forum.
On both occasions the interviewer addressed the same question to me: What can supply chain technology startups do to survive the crisis caused by COVID-19?
In this commentary I expound on my answer.
Defining the problem
COVID-19 has caused a severe slowdown in economic activity all over the world. I will not rehash too many details, but, for example:
● In his annual letter to shareholders, among other things, Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co points out that the bank must “…be prepared to operate under extremely adverse circumstances.” The extremely adverse conditions the bank is anticipating include a decrease by as much as 35% in U.S. GDP in the second quarter of 2020, with unemployment going as high as 14% in the fourth quarter.
Moreover, according to this article in the New York Times:
● Half the world’s population, or about 4 billion people, are under a lockdown regulation of one kind or another that requires people to practice social distancing
● More than one million people in 172 countries have tested positive for SARS-CoV-2
● About 90% of the world’s students have had their classrooms closed – I have taught my Operations Management course at the NYU Tandon School of Engineering as an online class since March 11
● More than 10,000 people have died in the U.S., and as of April 7, New York City had recorded more than 3,200 deaths, reflecting a breathtaking increase of 727 over the preceding 24 hours. As of the morning of April 8, more than 82,000 people have died around the world according to Worldometer.
The world is confronting a global health crisis that is made worse by a shock to global and local supply chains. That has led to a precipitous fall in economic productivity all over the world.
This is the context in which the question “What can supply chain technology startups do to survive the crisis caused by COVID-19?” is asked.
The message for supply chain technology startups – arise and shine
Let’s look first at startups with no customer traction and little runway. For those startups, the leaders have to make some tough choices and in this environment, failure might just be inevitable. An idea worth considering for such startups is to find a COVID-19 supply chain-related project for which their technology is well-suited, and to use that as a means to test the product, and perhaps gain some visibility and relevance within their markets. Such startups need to focus on finding ways to make potential customers care about the value proposition that the startups offer because if potential customers do not care, death is inevitable. This is an approach The Worldwide Supply Chain Federation itself is pursuing.
Another idea for such startups to consider is doing some consulting work to earn enough income to help the team tide itself over until this crisis ends. This will be challenging to pull off given that the global economy is cratering all at once.
But for other supply chain startups – those that have recently closed a round of financing and that had decent and perhaps accelerating customer traction coming into 2020, this is really their time to shine. Why? Supply chain innovations are really about two things – increasing throughput and increasing profit. That’s it. Needless to say, except in industries that have completely cratered, every executive is looking for ways to wring overlooked inefficiencies out of his/her company’s business operations.
This can happen in at least three different ways:
● First, supply chain technology is about optimizing operations. About doing more with less. That’s a message that should resonate with customers at any time, but especially as we navigate this crisis.
○ So I advise startups to show their existing customers how their products can optimize operations beyond what their customers are already doing. This will require a consultative selling approach which may require a bit of learning for some startup founders.
● Second, supply chain technology is about reducing waste and increasing efficiency. If customers were wasteful and inefficient before 2020, they surely will be rethinking that wastefulness now.
○ So I urge startup founders to highlight how their innovations can greatly reduce waste in operations, and even turn such waste into profit.
● Third, by helping their customers optimize operations and reduce waste, supply chain startups can also help their customers identify and target new sources of revenue and profit without making new capital investments, and relying on their existing labor force.
So the bottom line is that I am advising the startups to focus more keenly than ever on their customers, and to home in, now more than ever, on creating significantly more value for each customer than they extract in revenues generated per customer. This is not the time to pursue new customers. That would be a waste of time. Rather I am exhorting startup founders to focus more intensely than ever on existing customers and to focus on helping those existing customers survive this crisis, and hopefully to come out on the other side stronger, fitter and more ready than before to win market share.
That’s how supply chain startups will rise to this occasion, by stepping up to the plate and creating value for their customers as those startups and their customers navigate this crisis together.
Insights from the field
In recent conversations with the founders of startups building blockchain-related products for the supply chain, I am hearing that these startups are fielding a lot of calls from companies that now want to revisit the idea of digital document management and information transmission between counterparties that belong to different organizations. In some cases those startup founders say their teams are busier now than they have ever been.
Supply chain logistics startups also seem to be doing well. One founder I spoke to last week said the startup had its best month ever in March and that April is off to a very strong start. The company is raising a round to capitalize on the momentum. Another startup I have written about in the past is closing a round in the midst of increased interest in its software. The founder of an ocean freight logistics software startup told me he’s inundated with calls from people who need help shipping personal protective equipment from abroad.
As I said earlier, for supply chain technology startups, it’s time to step up to the plate on behalf of their customers. A crisis such as this one compels executives to rethink how they have been running their businesses. It focuses minds on the handful of activities that generate demonstrable and measurable returns on investment.
The table below is taken from Chapter 11: Supply Chain Management, in the 13th edition of Operations Management: Sustainability and Supply Chain Management by Jay Heizer, Barry Render and Chuck Munson.
The insight to take away from the data is that improvements in supply chain optimization will always beat a comparable improvement in sales. Why? The supply chain optimization strategy does not require accompanying increases in operating costs and the benefits flow directly to the bottom line. The sales increase strategy requires increases in operating costs. As such supply chain costs need to shrink by a smaller percentage than sales need to increase in order to yield a comparable increase in profit.
Supply Chain Costs as a Percentage of Sales
This crisis takes me back 12 years ago, to 2008 when I was managing two turnarounds in the depths of the financial crisis, and then through the process of building a seed-stage fund from scratch. And, coincidentally, I am now using this crisis as an ongoing case in the Operations Management class I teach at NYU.
There’s no minimizing the COVID-19 crisis. Layoffs.fyi very clearly shows that startups are being hit hard by the crisis. The difficult environment that confronted trucking companies in 2018 and 2019 does not appear to be abating anytime soon. In addition, according to Sea-Intelligence, shipping companies could experience losses ranging from $800 million to $23 billion as a direct result of the impact SARS-COV-2 and COVID-19 are having on global economic productivity. Analysts who cover restaurants in the U.S. express concerns about the industry’s ability to survive an extended period of social distancing, or what could be worse, waves of social distancing rules and lockdowns due to successive outbreaks of COVID-19.
Having said that, every crisis brings with it a kernel of opportunity. I believe this crisis holds promise for supply chain technology startups.If you are a team working on innovations that you believe have the potential to significantly improve business operations in any industry during SARS-COV-2 and COVID19, 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 email@example.com.