Dan Lewis, co-founder and CEO of Convoy did not start Convoy because he had a life-long passion for supply chain and trucking. Instead, his experiences in consulting and product management at companies such as Oliver Wyman, Google, and Amazon set him up to spot a massive problem in the trucking industry and rally a group of engineers to solve it.

Dan grew up in Seattle at a time when the city was flourishing as Microsoft began to emerge and take center stage. This sparked his interest in technology early on. He eventually went to study Cognitive Science at Yale and joined Oliver Wyman as a Strategy and Operations Consultant after graduation.

Dan’s time at Oliver Wyman heavily exposed him to the interesting world of supply chain and logistics. During his 4 years at the company, he had the opportunity to support supply chain strategy and operations for clients such as Boeing, the Panama Canal, and several airlines.

A notable project he had was with Vueling Airlines in Spain where he was in charge of running and optimizing its procurement process. His responsibilities included designing the specs for how the company underwent maintenance for aircraft engines, working with 30+ vendors across a 6-month procurement process, and ensuring every detail was aligned through collaboration with internal stakeholders. He attributed these types of projects to Oliver Wyman’s focus on operational work and believes it prepared him for his time at Convoy as he’s now working with the procurement team of large businesses all the time. In addition to being exposed to the world of supply chain, Dan credits his ability to rapidly understand new spaces and get projects off the ground to his experience in consulting at Oliver Wyman—an ability that would pay many dividends as he progressed in his career.

Despite having a fulfilling career in consulting, Dan sought to land in the world of technology and startups.

Growing up, Dan always wanted to do something in tech. He got his first computer at 10 and taught himself how to program. As he grew older, his interest in tech became more of a side gig as he spent his free-time building websites and doing IT support throughout college to earn extra cash. It wasn’t until his fourth year doing consulting that he finally got the urge to leave the gig and began applying to early-stage tech companies. To his dismay, he received plenty of rejections as a lot of these early-stage companies were not interested in ex-consultants and were looking for individuals with more technology experience.

However, Dan was not one to give up so easily. He decided to spend all his time hustling and networking. After more than a week of doing so, he was able to network his way into joining Skydeck, a mobile services startup doing general product management and business development. His time at Skydeck lasted only a year but it spearheaded his career in tech and product management as he went on to lead product at Microsoft, Wavii (which was acquired by Google), and Amazon.

Dan’s time at Amazon proved to be extremely fruitful as he met his founding CTO, Grant Goodale, who, at the time, served as one of Amazon’s Engineering Managers. Dan also had a unique situation where he wasn’t assigned to a particular team in Amazon. Instead, the leadership team encouraged Dan to go build a team, do some research, and figure out what Amazon should be doing and why. With that, Dan wrote six six-pagers (the classic Amazon document used to present a project) in the next two-to-three months and pitched it to an internal leadership group. He ended up getting funding for three projects and went on to build three new organizations and products within Amazon.

Dan eventually left Amazon in 2015 intending to start his own startup. He decided he was going to apply the same technique he used at Amazon to identify what to build for his new startup. He ended up looking at various categories such as mobile retail, data management, and trucking. But, of all the businesses he looked at, transportation logistics has been the one that seemed the most complicated and interesting. His curiosity in the space pushed him to go out in the field and talk to industry veterans to better understand their pain points. Funny enough, during his first visit, Dan drove up to an electronics distributor in Seattle. He walked in, panicked, asked where the bathroom was, went to use the bathroom, and left. With time and repetition, he eventually transformed this feeling of awkwardness into comfortable conversations and ended up talking to a lot of brokers, shippers, and carriers. Dan started noticing a similar theme and pattern each time he had one of these conversations: heavy trucking was a major challenge. There was a love-hate relationship between the participants in the freight network and everything was offline. This is where Convoy’s story began.

Dan convinced Grant and 4 other engineers to embark on this exciting, yet challenging venture with him as they built out the first iteration of their digital freight marketplace product. Fast forward to today, Convoy now works with about 80K registered carriers and is now on track to earn more than $1B in revenue this year.

To better understand the significance of what Dan and Grant have built, we must explore Convoy’s market.

Freight trucking is one of the largest revenue streams for the US economy equating to $800B spent annually on trucking services. The industry is responsible for transporting more than 70% of all goods in the country. In addition to being the dominant method of moving goods, trucking is also one of the most common jobs in the US. There are approximately 8M trucking-related workers, 3.5M of which are truck drivers in the US today.

However, freight trucking is also extremely fragmented. On one side of the marketplace, you have the long tail consisting of millions of small trucking companies (”carriers”) who, on average, own about three trucks. On the other side of the marketplace, you have about 100K companies that ship truckloads of freight (”shippers”). In between both parties, lies over 15K freight brokers which are made up of both independent-owned brokers as well as brokers that are attached to an asset-based carrier. This fragmentation makes the logistics and operations process for moving goods extremely difficult.

While most industries have shifted to cloud-based software over the years, the trucking industry is still relies heavily on phone calls, text messages, emails, spreadsheets, and random Craigslist-like load boards. This is a common workflow/process inside a brokerage.

The process relies on a broker coordinating between carriers and shippers to determine a shipping price and fulfill the designated order. The broker would first build relationships with carriers and then go to the shippers to receive loads. For instance, a shipper may need 50K pounds of goods transported from the Port of Houston to Chicago and are willing to pay up to $1K for the task. The broker would then accept the job, find potential carriers willing to do the job, collect bids, and present the best match to the shipper. If the broker gets a carrier willing to do the job for $800, they will keep the remaining $200.

There are several attributes a broker must take into account when matching shippers to carriers including origin, destination, type of truck, load, shipper, facility, seasonality, price per shipment, cost per mile, and quality of truck carrier. The number of variables that must be considered makes it practically impossible for a human broker to optimally work through the process.

This outdated process leads to a series of problems such as:

Why did it take so long for someone to take action? Enter the widespread adoption of smartphones back in 2014. The Samsung Galaxy S3 was just released, becoming the first Android phone that telecommunication providers gave out as part of a two-year upgrade plan. This enabled everyone including truck drivers to start adopting smartphones and become accessible online. With this tailwind, Convoy was able to take an offline, antiquated industry into the digital world; and its product did just that.

Convoy’s core product is a digital marketplace that brings shippers (demand) and carriers (supply) onto one seamless platform. A shipper who wants to ship their goods can easily upload their offerings and manage their freight through Convoy’s platform or a TMS integration. The carriers can then use Convoy’s mobile app to find, bid on, and get matched to loads that give them the best opportunity to maximize earnings.

What truly differentiates Convoy’s product is its ability to automate and optimize the matching process, replacing brokers and slow operations with efficient algorithms. Back in December 2019, Convoy announced that it achieved 100% automation for brokering loads to carriers in its top market. They have also built algorithms to batch shipments on both headhauls and backhauls while optimizing for the shortest trip possible.

All the workflow optimization and automation efforts have lead to an increase in productivity amongst stakeholders, a lower operating cost per load, and higher long-term cash flows.

In addition, Convoy’s digital marketplace has created a network effect that drives efficiency and value for all parties as the platform grows. As more shippers join the network, drivers have a diverse selection of options which results in fewer empty miles and fewer wasted hours increasing daily earning potential. As more carriers join the network, capacity increases and shippers see lower prices per mile with a higher degree of service. Finally, as the network grows, insights emerge from data analysis that can help shippers and carriers improve their businesses.

Convoy’s economies of scale and network effect have helped them create a defensible moat in the market. Incumbents such as Coyote Logistics who rely on hundreds of personnel to pick up phone calls and manually match shippers to carriers are not capable of matching Convoy’s operating cost; while new entrants lack the scale and network to match the cost.

Convoy has become a major proponent of cutting empty miles and helping all its stakeholders achieve sustainability goals. But sustainability and reducing carbon emissions have always been a huge focus for Convoy and a KPI that Dan Lewis and the team has taken seriously since the beginning. After all, the mission statement does reflect just that—"Transport the world with endless capacity and zero waste.”

Consider that 35% of trucks on the road today are empty. By optimizing appointments and combining shipments into batches, customers can save approximately 45% on empty miles. To date, the company has used its efficient matching and dispatching process to save over 6M pounds of carbon emissions.

By bringing shippers and carriers into one platform and using technology to automate the matching process, Convoy collects an enormous amount of operational data that can be shared with shippers to help them understand potential inefficiencies in their supply chain, benchmark how their operations compare with others in their industry, and improve the entire experience for both shippers and carriers.

To enable quantitative data collection, carriers on the platform use Convoy’s mobile app which is GPS-enabled. The app gathers data at every step—from the moment the carrier gets matched to a shipper and pulls up to its facility to the instant they deliver the load to its destination. This includes information on the type of truck (reefer or dry-van) and the type of shipment (live or drop). It also includes time stamps documenting the moment the load is accepted, the moment the carrier pulls into the dock and begins pickup, and the moment the truck pulls away from the cross-dock. The app also tracks wait time at the drop-off facility, the type of program (primary contract, backup contract, or spot), to-the-minute on-time performance and delivery (OTP and OTD), the distance of the route, the driving duration, and more. On the qualitative side, Convoy’s mobile app collects feedback from carriers that provides shippers insights into their experience including facility wait times, cancelation rates, and facility ratings on yard space, parking, service communication, and amenities.

Once Convoy collects the data, they turn it into operational insights for the shippers. Through automatically generated reports and customizable dashboards, Convoy provides full visibility into the shippers’ supply chain and alerts them of any trends or anomalies that may warrant further investigation. Convoy’s data scientists are also on standby to provide personalized consulting services to help shippers improve data analysis and uncover hidden inefficiencies.

To date, Convoy has collected and analyzed approximately 1M carrier ratings across 25K locations.

To continue growing and winning market share, Convoy has built innovative products and services that complement its core marketplace product and network effect such as:

Convoy started out focusing on the local freight businesses in Washington where they would match carriers to loads that could be picked up and dropped off in the same location. Early geographic expansion was slow and methodical to ensure high density of loads and trucks.

To further concentrate density, Convoy focused solely on dry van and reefer loads which, fortunately for them, make up the majority of truckloads being shipped across the nation. By focusing on local shipments of dry van and reefer loads, Convoy was able to achieve high matching and engagement rates between shippers and carriers which led to an exceptional growth rate in its home state; this also emerged as a key competitive advantage. Convoy’s dominance in Washington led to its $16M Series A round led by Greylock.

Post-series A, Dan Lewis and his team shifted focus to scaling operations. So they took a play out of their old playbook: talk to customers. Through conversations with shippers, they identified that the biggest pain points are related to the shipments that have to go between different geographies. These shipments are also the ones that have the most cash flow. Therefore, the team decided to scale on a region-by-region basis. By scaling region-by-region, they were able to maintain and grow a high-density network of carriers (instead of starting from scratch in an entirely new geography), while allowing customers with more sophisticated supply chains to ship between geographies. This allowed them to scale from Washington, to the Northwest region, to the entire West coast, and now nationwide.

Through these growth strategies, Convoy has rapidly grown to become the digital freight marketplace of choice for both shippers and carriers. The company currently works with some of the largest shippers including The Home Depot, P&G, Unilever, LG Electronics, Wayfair, and Land O’Lakes. They have been hailed for their technology-first approach, quality of service, sustainability efforts, and cost savings from these world-renowned shippers.

On the supply side, Convoy currently has 80K registered carriers which equates to approximately 400K trucks on its network, ready to dispatch freight. According to the company, its revenue surpassed $750M in 2021 and is on track to exceed $1B in 2022.

In the past couple of years, Dan and Grant have assembled an all-star leadership team at Convoy which includes:

Convoy has raised a total of $1.1B from investors such as Greylock Y Combinator Continuity Generation Investment Management (Al Gore’s sustainable investing firm), and CapitalG. In April 2022, the company announced its latest $160M Series E round led by Baillie Gifford and T. Rowe Price at a $3.8B valuation as well as a $100M venture-debt investment from Hercules Capital. It also secured a new $150M line of credit from J.P. Morgan. When asked if an IPO is potentially in the cards, Dan responded by saying there is no specific plan in the works yet.

Convoy plans on using the funds to scale its product offerings and accelerate development. In particular, the company is looking to expand its Convoy Go service (which has been consistently sold out) by adding more pre-load trailers and building routing technology. It’s also looking to scale its Convoy For Brokers product, as Dan believes having more brokers in the marketplace can lead to more stabilized trucking rates.

In a conversation with an ex-Convoy team member, when I asked about their thoughts on the future of Convoy, they shared:

Nevertheless, Dan and his team have continuously kept the mindset of being behind everyone else and that they should “CTFU” - catch the f*ck up. This mindset is also likely the reason that this startup has become a frontrunner in supply chain innovation.

Dynamo takes an active interest in surface transportation. If you’re a founder with a great idea for how to solve a problem in supply chain, reach out to us at hello@dynamo.vc.

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