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By Anna Heim

Sunday, March 03, 2024

Welcome to the TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. 

Does freight logistics need a one-stop shop? That’s Flexport’s take, and maybe that’s one of the reasons why Convoy didn’t work out; however, it might be too early for this approach in Latin America. On a different note, investors still seem willing to support startups that help people drink less alcohol, as long as there’s AI involved.

By the way, this newsletter will be taking a break next week, but I’ll be back December 2.— Anna


Image Credits: Justin Sullivan / Getty Images

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.

TechCrunch Early Stage returns to Boston

If you are in the early stages of growing your company, have built a product but don’t know how to monetize it, or might have an idea but aren’t sure where to find the resources to turn it into a viable business, you’ll want to join us on April 25 at this one-day founder summit. Buy your ticket today!

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Saving booze money

If you fear waking up on Black Friday more hungover than you wished, you are not alone. Out of the 146 million U.S. adults who drink alcohol, 47% want to cut back, according to Sunnyside, a startup that promises to help people reduce their drinking “with no pressure to quit.”

Also known as mindful drinking, this approach is not designed to treat alcohol use disorder. However, Sunnyside promises that while it focuses on small changes, it brings benefits such as “improved sleep, a healthier diet, money saved and an overall improved sense of well-being.”

In order to save money, users will have to spend some; Sunnyside’s basic subscription tier costs $99 per year, a similar price range to its competitor Reframe, a Y Combinator Summer 2021 alum that also supports alcohol intake reduction. But Sunnyside suggests it’s worth the cost, with subscribers saving some $50 in their first month of signing up.

Investors, too, seem to think the value proposition makes sense: Sunnyside raised an $11.5 million Series A round of funding, TechCrunch reported. The funding will support the launch of Sunnyside’s AI mindful drinking coach, ChatGPT-based Sunny, which will generate recommendations for its human coaches.

Reframe had secured a similarly sized round in 2021, but considering how much the market has changed since then, it is reassuring to see that there is still capital available for sobriety-focused bets with a dose of AI. Let’s hope it can help those who wish to keep their drinking under control this holiday season, or support them through Dry(ish) January.

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