Delivering the Goods: Opportunities in Vertical Supply Chain
Last year brought supply chain issues into sharp focus: The ongoing pandemic and geopolitical unrest combined to buckle traditional systems for global trade and logistics, highlighting the need for innovation.
But there is no single solution for today’s supply chain woes. That’s because what we refer to as the supply chain in the singular is in actuality an amalgam of networks we rely on to move physical goods around the world, each with tens of hundreds of independent nodes in need of synchronization and coordination: Producers, vendors, warehouses, transportation companies, distribution centers, retailers, and more. Adding to this complexity is the staggering variety of goods being moved through these networks—each category with its own specific requirements and concerns.
Yet if you boarded a container ship today, you would find construction materials, fresh food produce, and electronic goods all sitting next to each other. And while they share similar routes, each group of goods has its own dynamics and needs, vastly different from those of the ones sitting immediately adjacent.
Almonds that get stuck in a container ship lose half their value, while electronics don’t. Fresh produce needs to make its way from grower to packer to distributor before ending up on retailers’ shelves, while electronics take another route—from manufacturers to distributors to retailers. Perishable foods need cold chains with refrigerated trucks, while construction materials utilize open deck trucks.
It makes little intuitive sense that a single supply chain solution should satisfy each of these verticals and even less economic sense. Each of these goods play in verticals that are independently large and vital segments of the economy of the United States. Agriculture, food, and related industries contributed $1 trillion of GDP of $20.9 trillion total US GDP. Comparing this number to $1.8 trillion GDP from technology drives home their cumulative impact on our economy.
That’s why we see a valuable opportunity for supply chain startups to innovate through verticalized solutions a segment that, despite its potential for massive scale, consists primarily of a patchwork of decades-old logistics infrastructure today.
A new generation of buyers and sellers is entering the market with expectations of Amazon-like experiences and instant gratification; existing solutions are failing to deliver. In the face of these heightened expectations, the imperative for technology has become a must-have.
Already, leaders in this new wave of supply chain innovation are driving radically different solutions from their predecessors (many of which date back to the 1990s). These next-generation solutions go beyond automating workflows to facilitate collaboration with other supply chain participants. They are enabling payments, answering industry-specific fulfillment needs, and fueling growth through capital solutions. They are building toward multi-billion dollar outcomes in trillion-dollar industries with the following playbook:
Get in the Trenches
Because the supply chain is characterized by highly specific and nuanced complexities, founders who have “lived the problem” and bring both experience and expertise have an edge. We love founders that have felt the pain points of a specific industry and couple that experience with a deep product knowhow. Ashton Braun and Antonio Bustamante are case in point. The two co-founders started Silo by taking a cargo van to hand-deliver pallets of farm-grown food, developing a deeply nuanced understanding of the food market through their firsthand experience.
Enter with a Wedge
Supply chain leaders are obsessed with hard and measurable ROI. The key to quickly inserting a new solution into an otherwise slow-moving supply chain is to target an industry-specific task that needs to be performed hundreds of times, and address it with a solution that translates into cost savings or revenue upside.
Paperless Parts did just this when they realized that custom part manufacturers were still using paper and spreadsheets to quote parts. Now, the company provides customers with a high-fidelity quoting solution that helps machine shops reduce time per quote from nearly an hour to less than five minutes—helping the businesses focus on building rather than paperwork.
Become the System of Record
While wedges enable swift entry into the customer base, they aren’t enough to build gigantic businesses. Capturing critical data about relationships, transactions and financials will increase stickiness in accounts and deepen relationships with customers. It’s the reason why ERP systems that were built in the 1990s are still being used today. Wedges only grease the entry point and provide opportunity to replace decades-old solutions.
Switch to Multiplayer Mode
It is important to move the product from single-player to multiplayer by adding collaboration features and placing the product at a critical node. As other participants of the supply chain use the product and reap the benefit, the solution will spread like wildfire. Enable, a Menlo portfolio company, provides rebate management software primarily sold to distributors. Distributors invite and collaborate with their suppliers on the platform which create a product-led growth sales motion for Enable to expand into other trading partners.
Stack up the layer cake
Commanding customer mindshare happens through workflow automation. Once solutions are embedded in these core workflows, they can provide smarter solutions for transacting, factoring, lending, or managing logistics, engraining themselves further in the organizations. Simply put, the second act of these supply chain solutions will be very similar to what Square and Toast did in the retail and food service sectors—creating a one-stop-shop for workflow and financing activities.
We are excited about the next generation of vertical supply chain solutions—a category that sits squarely at the intersection of our domain expertise. If you’re an entrepreneur in this space, we would love to hear from you.