Lessons to learn?
Entrepreneurs often write postmortems after shutting down or selling their companies, but it is less common for these lessons to be drawn by their acquirers as well. Yet, that’s what happened to Convoy, a failed digital freight unicorn whose tech backbone — including a few team members — is being acquired by Flexport.
In a memo quoted by FreightWaves, Flexport CEO Ryan Petersen made it clear that while he was keen on buying Convoy because of the “incredible tech stack” it built, he was not buying its strategy.
“Our strategy for the trucking business unit will be very different from Convoy’s or other large truck brokerages who have focused on driving immense scale by pursuing the biggest Fortune 500 FTL accounts,” Petersen wrote. (Full truckload, or FTL, is a shipping modality in which a truck’s journey is reserved for one shipment only.)
Petersen has a theory as to what can go wrong with this approach, especially now. “With that scale came complexity and burn, and in a highly competitive market with low barriers to entry, even with all of Convoy’s incredible tech, they were not able to reach the scale required to turn a profit. Their operating position was made much worse by the current freight recession.”
In a LinkedIn comment before the Flexport deal became news, Convoy CEO Dan Lewis said the company had prospective buyers, but “a freight recession adding to burn and weakening our suitors played a role” in ultimately making it impossible for the company to fully sell itself on time.
Unlike previous suitors may have, Flexport isn’t buying Convoy’s business or liabilities. Neither will it rescue most of its laid-off staff. It is unclear exactly how many former Convoy employees Flexport is hiring, but it will be a small number, and even smaller than some had hoped.
“For two short weeks after the Convoy collapse and associated layoffs, I was one of the 20 software engineers selected to be on the transition team. However, towards the end of the deal-making process with Flexport, Convoy Go (our Drop & Hook program) was not considered a desirable asset in the acquisition and my team was left out,” former Convoy employee Neha Deshpande revealed.
Recapping the recent context at Flexport, my colleague Rebecca Bellan helped me understand why the company was showing restraint and not hiring all available talent:
When Petersen took back the CEO title in October after his successor was pushed out, the executive’s big message was about getting Flexport’s finances back in order. He had criticized former CEO Dave Clark for overspending on hiring and expansion. Since stepping back into the CEO role, Petersen has overseen a plan of cost cutting, including laying off about 20% of its workers, or around 600 people.
Why bother buying Convoy at all, then? Per Petersen’s memo: “We have heard from our customers that they want Flexport to be a one-stop shop for all their logistics needs.”
While there is some spending involved, offering a full range of trucking services to customers could be a winning strategy. As Rebecca noted: “With [its] cost cutting also comes a need for Flexport to claw its way back to profitability, and offering a better service is one way to do that.”
But I am no freight expert, so I reached out to one: Luis Fernando Ortiz, the Bolivian entrepreneur who runs DeltaX, one of the Latin American freight-forwarding startups I wrote about in 2022.
In his view, not pursuing solely the Fortune 500 FTL accounts has pros and cons. “The strategy of targeting medium or small businesses/shippers makes sense to diversify the portfolio and improve gross margins, but on the other hand it represents an operational risk that can damage the carriers’ experience due to the low level of process standardization that companies/shippers have in those segments, which results in delays or cancellations for the carrier,” Ortiz told me (translation mine).
Would a one-stop-shop strategy like Flexport’s be a fit for Latin America, too? For Ortiz, this approach makes sense in his region as well, but in a second phase that hasn’t started yet. “At the moment, most of the players like DeltaX are still focused on building the technology and liquidity of cargo and trucks, to later optimize by type of customers, commodities or routes.”
If Flexport truly wants to let its clients “ship any product, in any quantity, between any two places in the world,” more acquisitions may eventually be in order — beyond North America, and beyond tech stacks. But that will likely have to wait until Petersen’s company is back to profitability.