Investing in the Future of the Supply Chain: Elements of Startup Success
From harvest to consumption, or pickaxe to reseller, the supply chain represents every step and process that materials and products go through along their paths — from being raw materials to ending up in the hands of consumers.
At Wittington Ventures (WV), we’re fortunate to partner with some of Canada’s largest and most iconic brands stretching across industries related to commerce, healthcare, and food. What all of these brands have in common is that they rely on a well functioning supply chain to work. As such, we are constantly looking for — and eager to learn about — innovative teams that are developing world class supply chain technologies in a multitude of sectors.
The supply chain sector is a portion of WV’s overall landscape for the evolution of commerce. As shown in the image below, we have split the world of commerce into a handful of primary sectors. These include the evolution of e-commerce, technology for retailers, marketing, supply chain, and back office. In a series of articles over the coming months, we’ll be exploring our thinking as it relates to the supply chain sector, and diving into all of its respective sub-sectors. These include: supply chain management, innovations in warehousing, freight, and last mile delivery.
Sub-Sectors of the Supply Chain
Supply Chain Management (SCM)
The Supply Chain Management sector covers startups building software to optimize the flow of goods through each node of a logistics network. As the digitizing of the supply chain continues – with businesses and consumers demanding greater visibility into tracking their purchases – and as supply chain disruptions are becoming more prevalent, this market is expected to grow from USD $13.6 billion in 2020, to USD $24.5 billion by 2025. We’re excited about high-tech startups solving compelling problems in the inventory management, procurement, demand planning and supplier collaboration spaces – particularly as new innovations emerge in the omni-channel environment.
Warehouse Management is often characterized by warehouse management systems (WMS) – software to manage a warehouse. However, the category goes far beyond that. This sub-sector includes intelligent automation and robotics to assist with dangerous and laborious tasks, or to increase throughput and accuracy in order fulfillment. It also covers the rapidly growing area of warehousing-as-a-service – giving larger retailers the ability to scale their e-commerce operations, as well as giving Amazon Prime fulfillment capabilities to digitally native vertical brands (DNVBs). Driven by the rapidly growing demand for e-commerce, the revenues in this sub-sector are expected to grow from USD $390.0 billion in 2020 to well over USD $500.0 billion by 2025.
The Freight sub-sector encompasses the software, hardware, and intelligence technologies to create safer, greener, and more optimized fulfillment operations. Whether it’s autonomous vehicles that reduce the risk of driver-related accidents, software platforms that optimize truck utility, or intelligent route planning to make fulfillment more efficient, there are many exciting developments in freight. Accelerated by the impact of the COVID-19 pandemic, freight revenues globally are expected to grow from USD $4.2 trillion in 2020 to USD $5.2 trillion in 2025.
Last Mile Delivery
Last Mile Delivery is a relatively new area that feels like there will be ongoing opportunities for innovation – whether it’s new business models and workflows for gig economy couriers or safer and more advanced hardware + AI for robotic solutions. The accelerating consumer demand to get goods sooner, as well as the growing demand for faster B2B delivery, is expected to drive revenues for the last mile sub sector from USD $346.8 billion in 2020 to $578.8 billion by 2025. We’re excited about startups blending best-in-class unit economics with a high quality customer experience, all while balancing the continuously developing regulatory environments that can differ from city-to-city, state-to-state, and country-to-country.
Core Elements of Startup Success, Applied to Supply Chain Startups
As our team has explored the supply chain space over the past two years, we’ve re-framed our views on some of the common elements of startup success to better suit innovators in this industry. The common elements include an exceptional team, a large serviceable market, clear traction, and a competitive moat.
The supply chain sector is still heavily relationship-driven, and having great technology will not necessarily be enough to win. An exceptional team should include leaders with significant experience working in logistics, and who have a strong network and position of thought leadership in the industry.
Large Serviceable Market
As outlined above, the supply chain industry is large – trillions of dollars large. Freight Trucking alone is a USD $700.0 billion dollar market. The industry is also built from many disparate sectors. Successful startups will find the largest, obtainable sectors to disrupt, or they’ll work to build technologies that bridge, and address multiple sectors at once.
Supply chain is traditionally an industry with deeply entrenched processes; a clear ability to break-in is a critical proof point for success. A potential, clear sign of early traction is being able to prove that customers – especially enterprise clients – are willing to alter their existing workflows because your product/service is that compelling.
As with many industries, a competitive moat can come in multiple forms. For example, a barrier to competition can come from a difficult to replicate, next-generation technology (e.g. autonomous driving). It can also come from access to unique and disparate data sources, which when combined, maximize the potential of optimization software (e.g. AI to guide demand-planning operations). Or, it could come in the form of exclusive relationships with leading industry partners (e.g. OEMs, System Integrators, etc.).
What gets us excited at WV
On top of the common elements listed above, our team at WV has outlined four additional criteria that we believe are critical to success for supply chain startups specifically. This list has been derived through the help of countless conversations with our industry partners — speaking from the C-suite and SVP positions, all the way through to people operating equipment and processes on the warehouse floor. To succeed, supply chain startups require (in no particular order):
- Ability to easily plug into existing workflows, while providing a sticky value proposition. This means the product/service is convenient to adopt, but cannot be easily replaced by the “next new thing”. An example might be having exclusive access to unique, external data that makes a client’s processes run better — such as AI for process optimization. It can also come in the form of cross-selling additional products/services which strengthen the ties between a client and your “platform”.
- Ability to easily operate pilot deployments, to allow for quick testing and iteration within prospective enterprise clients. Supply chain teams are busy, and their processes and existing infrastructures are often unique. Having a clear understanding of your ROI, and a simple way for supply chain teams to test your product/service is critical to getting your foot in the door with key decision makers. Examples include easily deployable trials or hassle-free site visits to existing clients.
- Ability to efficiently target large, enterprise clients is critical in an industry with traditionally long sales cycles. Our observation is that the speed of the sales cycle will largely be driven by the acuteness of the pain enterprises are feeling across their supply chains; it’s up to startups to identify and speak to this pain directly and offer an immediate solution.
- A clear understanding and path through any regulatory environment is necessary to prove that a solution can work beyond the pilot phases, and broadly to work at scale. When it comes to food safety, digital privacy, and physical safety around equipment, it’s critical that we know a startup is taking the necessary precautions, and speaking with the right regulatory bodies early, to ensure that future growth will not be hindered by unexpected legal roadblocks.
Stay tuned as we release further articles covering WV’s view of the Supply Chain. If you have any comments, recommendations, or just want to speak with us about all things supply chain, feel free to reach out to Jim Orlando firstname.lastname@example.org, Qasim Mohammad email@example.com, and Darian Zigante firstname.lastname@example.org.
Market sizing metrics sourced from Pitchbook.