4 min read
Convoy (2015 – 2023) was a freight brokerage that aimed to disrupt a high-volume, low-margin space by applying advanced automation and dominating demand. Founded by two former Amazon.com executives, Dan Lewis and Grant Goodale, the company’s unique and sophisticated approach to solving a complex problem drew A-list investors and world-class brands as customers.
In early 2022, Convoy reached a $3.8B valuation – who would have expected they would be gone 18 months later?
Not investors like Bill Gates, Al Gore, Bono and The Edge from U2, the investment arm of Google parent Alphabet, or Jeff Bezos. Not customers like Anheuser-Busch InBev, Home Depot, Procter & Gamble, or Unilever.
To them and to many others, Convoy was a digital darling. All of them were wrong.
A New Kind of Freight Brokerage
Convoy’s goal was to disrupt the freight brokerage space using automation to increase the efficiency of largely transactional freight arrangements. They planned to automate the least profitable freight decisions, where there is very little difference between carriers.
Freight Brokers are middlemen; they match shipper demand with available capacity. Convoy’s competitors included Uber Freight and Transfix, as well as many less consumer-known freight brokers and large carriers who provide other logistics services as well.
Traditionally, freight brokerage was used for sudden demand surges or shipments that are too low margin for others to take on. That said, the space has been undergoing changes for a while. Investments in technology and improved customer service have allowed freight brokers to expand their share of the market, bringing them into competition with other carriers and making them a more appealing option than in the past.
Freight brokerage went from being 6% of the trucking industry in 2020 to handling over 20% of all trucking freight in 2023. And yet… Convoy was not able to succeed.
In my opinion, Convoy’s downfall was caused by a lack of supply chain expertise made fatal by poor timing. That unfortunate timing was internal and external – with a freight recession going on and the long runway associated with profitability based on scale, Convoy was up against more than they realized.
Suffering from Lack of Supply Chain Expertise
Dan Lewis and Grant Goodale may have worked at Amazon, but that does not mean they had supply chain expertise.
Dan Lewis was Amazon’s General Manager of New Shopping Experiences. “What does that mean?” you might ask. (I did.) According to his LinkedIn profile, Lewis was responsible for “various product development teams that improve Amazon shopping by pairing technology with the opinions, experiences, contributions, and preferences of people in the Amazon community.”
Grant Goodale was a software development manager at Amazon. Incidentally, he left his operational position and stepped into an advisory role in June of 2023. By then, the writing was on the wall, and the company chose not to replace him.
Lewis and Goodale took roadtrips to experience what drivers deal with firsthand, and they deserve credit for that. Their previous experience taught them to understand the importance of experience, and to leverage technology to the fullest, but not to reach profitability in the timeframe they had available to them.
Running Short on Time
The Convoy team didn’t have enough time to fully master the economics and scale that would have allowed them to seize their vision. They may have also underestimated the complexity and fierceness of the supply chain space.
And the team didn’t give up easily. They looked for additional investors, including UPS and C.H. Robinson, and continued to tweak their tech stack and reduce headcount in an effort to stay afloat.
Unfortunately, VCs aren’t known for their patience. They don’t care if the economy is tough, or supply chains are complex, or anything else. They want their money when they want it, which is usually ‘now.’
Investment is an interesting side theme in this story. Apparently, it is a bad idea to take investment advice from famous people – even when they have been successful in business. I wouldn’t expect Bono from U2 to be a logistics startup expert, but I would have thought Jeff Bezos would be a better judge of opportunity and feasibility. It reminds me of the sadness I felt when I found out that Shark Tank’s Kevin O’Leary was among those taken in by Sam Bankman-Fried at FTX. Mr. Wonderful is my favorite shark by far… how did he miss what seems so obvious in retrospect?
In addition to these internal challenges, the timing of the freight recession could not have been worse. Freightwaves CEO Craig Fuller has said that we are in the midst of the worst freight recession since 2008, and he thinks we are only about halfway through.
Convoy needed high freight volume to succeed, and that volume was based on demand where carrier differentiation didn’t matter. That put Convoy on the same playing field as the other 531,000 carriers operating today, according to the U.S. Department of Transportation. Their statistics show that 99 percent have 100 trucks or less – and almost 97 percent have fewer than 10 trucks. Convoy had to compete with each and every one of them – making the same margin but carrying much higher overhead and ROI expectations.
In Memoriam
The best lessons are often learned in retrospect, and while it is too late to do Convoy much good, the rest of the market can certainly benefit from their mistakes.
Liz Ward, who worked as Convoy’s Director of Business Development from 2016 to 2018, recently spoke on stage at The Future of Freight Festival. She said, “We were really dialing into that, like, ‘we will be your ultimate backup option, whenever your primary secondary carrier fails, we’re there.’ We would take on a lot of freight that probably wasn’t the best freight to take on. There was a reason why it was being rejected by all sorts of carriers. That was one way that we were able to kind of grow our wallet, grow our share with these customers. It was good and bad. It was good for early on, but where we maybe went wrong was trying to be rectified with more than contract rates to spot.”
As logistics investments dry up, and investors become a bit more discerning, all of us need to learn from Convoy’s mistakes.
It takes time to build profitable scale in a thin margin situation. Sometimes you have to take on elevated risk in order to do that – and that risk puts you in a precarious situation relative to external forces beyond your control. Keep one eye on the horizon, because an opportunity can go from $3.8 Billion to bust in as little as 18 months.
