The Logistics tech industry has been booming in the last decade. Still, many of them are struggling, and even those who seem to be unicorns are starting to struggle; you can read more on why digital freight forwarders are failing here.
Profitability and fast growth are huge issues with all start-ups, and logistics tech is not an exclusion. Unfortunately, most start-ups struggle to be profitable for many years, and they even struggle to reach the required growth indicators by their investors. Now I think that as money becomes a scarce resource again, many of them receive notices from the investor’s statin grows or dies.
And from another side, we have worked with and seen some start-ups that haven’t received any outside funding but created great products and became profitable on their own. This kind of company is rarely seen, sorry, we can’t disclose names, but those companies understand the pitfalls to avoid when scaling supply chain tech companies and make more good decisions than bad ones.
And to avoid pitfalls, one needs to start by understanding why scaling such a business is complicated. Below you can find the reasons why scaling is so hard and a few pieces of advice on how to grow faster.
1. No clear ROI.
With some rare exceptions, most tech entrepreneurs can’t provide a clear ROI. And it’s normal not to have a clear ROI when one starts the business, but the far bigger problem we see often is that the benefits are not so obvious even in later development stages. And in most cases, the benefits are related to decreased workloads, error rates, or solving minor deficiencies in a process. That’s why many of today’s existing start-ups fall in the category “Nice to have” instead of “Can’t live without.” And “nice to have” is harder to sell, limiting the growth potential.
2. Many decision makers.
Usually, any digital improvements involve many stakeholders. So instead of convincing a few decision-makers, one usually must convince a whole department. Convincing one decision-maker is hard enough, but convincing an entire department is challenging. Moreover, today when employees are scarce resources, no leader wants to force them to do anything they do not wish to. In addition, many employees fear digital solutions because they believe this threatens their existence. Dealing with all the above objections takes time, effort, and resources.
3. Teaching about the benefits takes time.
Entrepreneurs who offer new solutions quickly start to understand that there is a market knowledge gap preventing them from generating new customers fast. The best way of closing this gap is through marketing activities. One strategy that works best for new products is creating case studies and other educational content that forces buyers to rethink their processes. Teaching your prospects is also crucial because if you have a novel product for many of them, it’s hard to understand at the beginning what problems the solution solves. This kind of marketing works well but building a strategy and achieving momentum on various channels takes time and dedication.
4. An advanced sales and marketing strategy is needed for selling supply chain tech.
Legacy sales strategies don’t bring in results for logistics tech start-ups, as you need to deal with many decision-makers, long buying journeys, and convincing to change processes to something new. Logistics tech organizations must choose one of the modern sales approaches for this to happen. Moreover, the sales strategy must be aligned with the marketing strategy, as marketing activities can reach more stakeholders faster and cheaper than a sales team alone.
Many start-ups in this field, only in the later stages of development, start to understand that legacy sales strategy doesn’t work here. And this later realization burns a lot of cash flow and limits further growth potential because they have less capital to invest in future sales development.
5. The market landscape changes fast.
Every new logistics tech company usually brings out a solution that has more functionality than existing market players. Or they solve some bugs that the previous market players haven’t considered. In other words, each new arrival threatens the existence of prominent players and takes its part of the pie. This kind of competitive environment limit’s growth potential
6. No money and bad investment decisions.
As funds are scarce initially, many start-ups fell trapped in a mouse wheel. They want to scale faster but need more funds for hiring SDRs, developers, marketing staff, etc. Moreover, many start-ups start by investing in functionality, only to understand in later stages that this functionality is not seen as necessary. Furthermore, they look for superstar employees that could speed up the process and spend big coins on them to understand that building processes that could be executed with the least capable employees and in the fastest possible way is more critical than depending on superstars.
In conclusion, I want to draw your attention to the fact that growing a logistics start-up is the same as growing any business. Success follows those entrepreneurs who make better decisions more often than bad ones. One of the crucial recommendations here is to avoid trying to build a perfect product and introducing it to the market. Instead, create an MVP, go into the market fast, hear out market thoughts, make improvements, and go back again.
The other crucial recommendation is to build a best-fitting sales and marketing strategy; if you can’t do this alone, look for help because you will quickly notice that even if you have the most promising product, you will not be able to sell it with legacy strategies. And generally, do not be afraid to seek outside help and outsource some activities to professionals. In such a way, you will make lesser mistakes, save funds and grow faster.
And lastly, building your operations around or for superstar employees is risky. Instead, create processes that could be executed using cheap labor from third countries and least capable employees. It’s important to understand that most of the superstars are already working elsewhere, and you will not be able to offer something interesting for them except stocks in your company. And even if you attract them, there is a big chance they will not be prepared for the start-up environment and challenges. Moreover, superstars can quickly leave you if they receive a better deal.
About the Author:
Thomas Ananjevas is a supply chain professional with 15 years of experience purchasing and selling Logistic services and building a supply chain from scratch. He founded a consulting, training, and staffing company that works exclusively with the logistics industry. Tomas is helping logistics companies implement the necessary changes to ensure business growth and continuity. You can set up a time to talk with Thomas about possible synergies by clicking here.
