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The World is a Supply Chain

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Lisa Morales-Hellebo, and Brian Laung Aoaeh. Kicking off #SCIT2019, June 19, 2019 in NYC. Photo Credit: Ray Neutron.

Originally published at www.refashiond.com on Friday, October 18, 2019.

Note: 3,749 Words, 14 Minutes Reading Time

Authors: Brian Laung Aoaeh, CFA, and Lisa Morales-Hellebo

The world is a supply chain. It’s that simple. 

But what does that really mean?  Whether we like it or not, current economic, political, social, and technology trends will compel more people to think about the implications of that statement more consciously each day.

In this blog post we;

  • Share a definition of supply chain,
  • Put the challenges confronting supply chains in context,
  • Discuss why socio-cultural forces will act as the leading catalyst for the innovations that will define supply chains of the future,
  • Explain why the refashioning of supply chains matters,
  • Explain why the technological transformation of supply chains is an economic issue, as well as one driven by evolving consumer preferences,
  • Describe the role that early stage technology venture capital can play in the transformation of supply chains,
  • Describe how individuals, private sources of capital, and governments can play a role in the transformations that will lead us to the supply chains of the future. 

What Is A Supply Chain?

First, let’s answer the question: What is a supply chain? 

A supply chain is a network of organizations that work collaboratively to move products and services from producers to consumers. At a high level, the business of supply chain can be subdivided into: 

  • Supply chain management;  which is about supply chain network design and management; 
  • Supply chain logistics; which is about the storage, transportation, and movement of physical goods from one place to another;
  • Supply chain finance; which is about ensuring that producers, and other supply chain participants and intermediaries get paid for the value they create and deliver to consumers.

Supply chains play two critical functions: 

  • First, they enable the flow of goods and services from producers to consumers. 
  • Second, they facilitate the transfer of information about the movement of goods and services between every entity that is part of the supply chain network.  

The world we’ve become accustomed to will not exist without supply chains.  And further, the world is a mechanism for providing humanity with the resources we need to survive on Earth.  We know this to be true — “when supply chains function, societies thrive”.

The Challenges Confronting Supply Chains

Today, we face an inflection point as our world confronts some big crises. If current trends hold, between 2015 and 2050 the world’s population is expected to increase by about a third, to roughly 10 billion people. According to Our World in Data, the world’s population stood at about 190 million people in the Year 0, and approximately 4 billion in 1975. In other words, the world’s population will jump by about 6 billion people over the 75 years between 1975 and 2050 after having only climbed to 4 billion people over the previous 1,975 years. This is happening, according to Our World in Data, despite the world’s population growth rate peaking at 2.2% per year in 1962 and 1963, and then declining to its current rate of about 1% per year. 

While this rapid increase in the world’s population is occuring, global supply chains face some big challenges: 

  • An ongoing increase in the frequency of severe weather events that cause large-scale disruptions to local and global supply chains. 
  • Trade disputes threaten to dismember the system of world trade established following the end of World War II. 
  • The growing world population has created a critical need for significantly better dynamic resource allocation throughout supply chain networks in every industry around the world. 
  • Changes in consumer behavior are putting the world’s supply chains under increasing strain and business competitiveness is increasingly tied to supply chain mastery.

Socio-cultural Attitudes Will Be The Catalyst For Supply Chain Innovation

Perhaps counterintuitively, innovation in global trade and supply chains will be driven most immediately by changing social attitudes towards climate change. A recent poll of adults and teenagers in the United States conducted between July 9 and August 5, 2019 by The Washington Post and the Kaiser Family Foundation offers some early evidence of the changes taking place. 

When asked if human activity is causing climate change, 79% of the adults polled responded yes, while 86% of teenagers responded yes. When asked if reducing the negative effects of global warming and climate change would require major sacrifices, more than 30% of adults, and more than 40% of the teenagers surveyed said yes. Also, at least 70% of adults and nearly 80% of teenagers said that technological advances will be able to reduce most of the negative effects of climate change. 

There are more conversations than ever about decarbonizing supply chains. At about the same time this poll was published, Quartz reported that two states in India have said they will not build new coal power plants. Earlier this year, governments in Europe called on the fashion industry to tackle its waste and pollution problems more aggressively and some are looking at passing legislation to that end. In Asia, more governments are moving to address issues around plastic waste imported from abroad. Starting in January 2020, the International Maritime Organization will begin adopting new regulations to curb harmful emissions from the container shipping industry. 

Another example of the rapidly evolving social and cultural attitudes that will drive innovation in supply chains and global trade is the growing movement led by young people such as Greta Thunberg, Jamie Marglois and others like them. Political, business, and technological leadership is shifting into the hands of a generation of men and women who do not want to leave a more inhospitable planet as their legacy to their children and grandchildren.

What does this mean? 

In the next half-decade or so we will see political and business leaders facing increasing pressure to adopt policies and business practices that reflect how voters and consumers feel about climate change. Those who do not risk losing political power and market share, respectively, to their opponents and competitors who do. As this social and cultural movement gains strength, it will accelerate the economic drivers of innovation, which in turn will propel the drivers of technological innovation in global trade and supply chain. 

In his August 2011 article, Why Software is Eating The World, Marc Andreessen said: “Companies in every industry need to assume that a software revolution is coming.” The process he described has only accelerated over the intervening 8 years, and that statement is more true now than it was then. As information technologies that were pioneered in the 1950s have reached maturity, technology startups around the world are developing new innovations to solve some of the supply chain problems that seemed intractable in the recent past.

Why The Refashioning Of Supply Chains Matters

However, before we can understand why the confluence of software and hardware engineering is going to be transformative to the supply chains on which the world runs, we must understand why that matters.

Supply chains exist to connect producers and consumers in an ongoing exchange of value. As a result, innovations in supply chain drives innovations in the rest of the economy. Given that supply chains are about the back-and-forth movement of physical goods, services, and information, it is easy to understand why advances in information technology must necessarily precede cycles of innovation in supply chain.

Because innovation in supply chain acts as an accelerant for increases in production and consumption, supply chain innovation acts as an economic multiplier. Every dollar of innovation in supply chain innovation leads to more than a dollar of total economic output. It is not a coincidence that countries ranked highest on the Worldbank’s Logistics Performance Index tend to have the most developed economies, while those ranked lowest tend to have the least developed economies. 

Supply chains are to human civilization what oxygen is to life; When they work well, no one notices them. It is only when they start to fail that we realize there’s a problem. It is easy to assume that there’s no room for innovation in global supply chains and trade, but this is simply not true. Here are four examples. 

  • As governments and people around the world awaken to the issues posed by climate change, there’s a growing social, regulatory, and economic push for innovations in supply chain logistics that will significantly reduce the amount of pollution created by the transportation industry. Some of these innovations involve the application of machine learning to the analysis of data obtained from connected devices in transportation and supply chain networks in order to make the operation of such networks more efficient and optimized. This needs to be done in a way that ensures that the transportation of people and merchandise does not destroy the environment. 
  • There is an ongoing shift away from linear supply chains in which the materials that remain after consumption has taken place are discarded, and more towards circular and regenerative supply chains that place an emphasis on using post-consumption waste as raw materials for new products. This shift relies on advances in materials science – both in the creation of new materials that did not exist before, and in the processing of materials that we have become accustomed to, but which we now recognize pose a growing threat to the environment as waste accumulates in quantities that the world can no longer sustain. In order to reduce or eliminate waste and pollution, the focus here is on developing supply chains around the repair, renewal, regeneration, and recycling of materials and products.
  • Manufacturing is undergoing a transformation of its own, one which will make the changes happening in transportation and materials that much more impactful. With the recent shift in political attitudes towards global trade, more companies are beginning to consider regionalized and localized manufacturing as a path towards avoiding costly tariffs. Such a transformation will rely on a mix of emerging and mature manufacturing techniques in order to keep costs within a manageable range. These advances in manufacturing will rely heavily on manufacturing goods to fulfill actual demand, rather than manufacturing goods in anticipation of future demand.
  • Invariably, software is being used more than ever to create new methods of collecting, storing, and analyzing data to augment human decision making in every industry. These technologies are being applied in industrial supply chains as distinct as: Pharmaceuticals and industrial chemicals – to simulate new compounds and test them more quickly and inexpensively; They’re also used in agriculture – to manage the production, storage and distribution of food and other agricultural produce in order to minimize food loss and food waste; And in energy – to aid in the production, storage, and distribution of energy from increasingly complex power grids that incorporate renewable and non-renewable sources of electrical power. 

The way we make things, the way we consume things, the way we move things, and the power that is required to make all that possible is changing dramatically thanks to advances in software and hardware technologies. Solving the foundational problems that plague global supply chains is a daunting task. Moreover, global GDP, most recently estimated at about $88 trillion, rests on our ability to solve these problems. 

Technological Transformation of Supply Chains: An Economic Problem, An Economic Opportunity

In our conversations with other people, we are often asked the question; “Wouldn’t this be easier if the transformation of supply chains were driven more by economic forces and consumer needs?”

In The Supply Chain Economy: A New Framework for Understanding Innovation and Services, Mercedes Delgado and Karen Mills state that; “The U.S. supply chain contains 37% of all jobs, employing 44 million people. These jobs have significantly higher than average wages, and account for much of the innovative activity in the economy.” 

Similar conclusions hold true in every other region of the world, and there is ample evidence to support that belief thanks to work by a number of global. Multilateral organizations like the World Economic Forum, The World Bank, The International Monetary Fund, various agencies of the United Nations, and others.

For example;

  • According to Growing Better: Ten Critical Transitions to Transform Food and Land Use, a September 2019 report by the Food and Land Use Coalition;  “The hidden costs of global food and land use systems sum to $12 trillion, compared to a market value of the global food system of $10 trillion.”
  • According to Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis, a July 2019 paper by researchers at the University of Southern California (USA), the University of Cambridge (UK), Trinity College (UK), the International Monetary Fund (Washington DC, USA), and National Tsing Hua University (Taiwan); “Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100.” Furthermore the authors state; “We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labour productivity and employment.”
  • According to Impact of the Fourth Industrial Revolution on Supply Chains, an October 2017 report published by the World Economic Forum; “Disruptive technologies are transforming all end-to-end steps in production and business models in most sectors of the economy. The products that consumers demand, factory processes and footprints, and the management of global supply chains are being re-shaped to an unprecedented degree and at unprecedented pace. Industry leaders who were consulted believe that new technological solutions heralded by the Fourth Industrial Revolution – such as advanced robotics, autonomous systems and additive manufacturing – will revolutionize traditional ways of creating value. As the costs of deploying technology continue to fall, international differentials in labour costs will no longer be a decisive factor in choosing the location of production.” 

Other examples are not difficult to find. 

A company’s supply chain is an integral part of that company’s customer experience, and consumers all over the world will continue to become more demanding, not less. The supply chains of the future will become a reality precisely because the refashioning of global and local trade infrastructure is an economic issue that is driven by consumer preferences.

That being said, it is important to recognize why conversations about the transformation of supply chains are less straightforward than one might hope.

In Disaster Mitigation is Cost Effective, a world development background note by Ilan Kelman, he states that it is easier for politicians who tend to seek visibility for themselves to pursue after-the-fact measures rather than pursue prospective and preventative measures related to disaster risk reduction. After-the-fact measures are more visible, while prevention is intangible and difficult to quantify, resulting in less of a boost for the personal ambitions and ego of individual politicians.

We observe a similar pattern of behavior among corporate executives, who tend to pursue highly visible, customer facing, short-term, tactical initiatives at the expense of long-term strategic initiatives that will help their companies develop and gain mastery over their backend supply chain operations. On the other hand, we observe that the companies that have become globally dominant are also those that have developed superior supply chain mastery within their respective markets and industries. We believe that companies with inferior supply chain operations will continue to fall victim to a degraded customer experience. We also believe that companies with inferior supply chains will lose market share to established, and new, competitors with superior supply chain capabilities.

Early-Stage Technology Venture Capital Will Play An Important Role

Surprisingly, the men and women who set out to tackle these problems usually find a lack of sufficient early-stage venture capital to support their efforts at the earliest and riskiest stages of their work – as they take that work out of academic research labs, or small apartments and houses, and start the often arduous process of commercialization. 

That is when there is the greatest need for venture capitalists who understand the nature of the problems, who recognize the potential commercial opportunities, who have a willingness to do the necessary hard work required to help these entrepreneurs succeed, and who have developed relationships with prospective commercial partners willing to investigate new technological innovations for long-standing supply chain problems.

This is changing, but it is not changing fast enough. The world needs much more risk-seeking capital to fund these entrepreneurs – the market opportunity is enormous. As we have already pointed out, global GDP rests on a foundation built entirely on physical and digital supply chains.

For these innovations to succeed, governments and traditional industry must become more open to partnering with venture capitalists and technology startups. Unlike innovations in information technology, the technological innovations that will transform global supply chains and trade interact with the real world. As a result, it is not enough for policies and regulations to lag innovation by years. Instead, regulators and policy makers must work hard to create regulatory frameworks that help to nurture innovation rather than assist in suffocating it. Correspondingly, venture capitalists and entrepreneurs must partner with community organizations, politicians, and regulators to help them keep up with advances in technology and innovation. 

One might ask: “Are there really enough opportunities for early-stage investments in supply chain?” Yet, once one understands what a supply chain is, a few minutes spent thinking about that question illuminates the misconception. 

The recent success of funds like Lux Capital – which announced that it raised a billion dollars distributed across two funds, and DCVC – which announced a $725 million fund, suggests that there are significant financial returns to be harvested by limited partners who have the foresight to invest in the small handful of venture funds that are now choosing to focus on funding early-stage startups solving the sorts of problems we have already described. 

The longevity of Supply Chain Ventures, established in 2001 by Dave Anderson, also suggests that this is a market that is ready for more early-stage venture capital, not less. This is assertion is based on how many advances in computational and information technologies have occurred since 2001, and how much easier it is now for such technologies to be implemented in physical supply chains. That observation is also based on the rising interest, relatively speaking, in issues surrounding supply chains within the general population.

Our conversations with corporate executives responsible for meeting demand from customers suggests that there is a growing appetite for new technology to enable companies to meet the expectations of an ever more impatient and demanding customer base. Also, our conversations with government officials point to a growing desire by public servants to seek new innovations geared at solving the problems that plague large and growing urban communities, and the suburban communities that surround them. 

What Can You Do?

There is a lot that one can do to participate in the coming transformation of supply chains;

  • Individual Consumers: As individual consumers we can all continue to become more active and engaged about understanding how our consumption affects the finite world around us. Social media and information technology makes it easy for attitudes and beliefs about consumption, production, sustainability, the environment, and climate change to spread. In Consumer attitudes towards sustainability and sustainable business: An exploratory study of New Zealand consumers., a 2015 master’s thesis by David Anthony Thompson at Lincoln University in New Zealand, he states; “From a purely pragmatic perspective, this study has indicated that consumers are generally likely to be supportive of not just purchasing sustainably produced goods and services, but that they feel positively towards companies that demonstrate sustainable social and environmental behaviour. This has implications for reputation building for organisations and in turn hints at benefits when it comes to securing supply contracts, recruiting staff and relationships with their physical communities. The study also suggests that understanding and knowledge play a – 56 – contributory role in forming these attitudes, therefore supporting the value in education and information strategies for sustainably run businesses.”
  • Sources of Private Capital: As we have already discussed previously, investing in early-stage innovations in supply chain transformation is an opportunity that remains largely under-resourced in terms of risk-seeking capital relative to the size of the opportunity. It is an area that is ripe for increased allocations of capital within the private equity asset allocation targets of family offices, endowments, foundations, and pension funds.
  • Governments: During #SCIT2019, The Worldwide Supply Chain Federation’s inaugural global summit on supply chain, innovation, and technology held in NYC on June 19 – 20, 2019, Samuel Chan, Regional Vice President, Americas, at the Singapore Economic Development Board provided attendees with a sense of how the Government of Singapore is thinking about the role that supply chain, innovation, and technology can play in Singapore’s economic development. Supply chain occupies a central position in Smart Nation Singapore, and specifically in its Smart Logistics initiative. As we have stated previously; It is not a coincidence that countries ranked highest on the Worldbank’s Logistics Performance Index tend to have the most developed economies, while those ranked lowest tend to have the least developed economies. Increasingly, the countries and regions of the world that will continue to experience the strongest economic growth will be those that are quickest to embrace and deploy the still nascent and emerging engineered systems that reflect a tight integration of computation and physical supply chains, in every area of economic activity.

If by now, the reader is beginning to conclude that the future of supply chains will be driven largely by supply chain enthusiasts, we agree.

We Will All Be Supply Chain Enthusiasts

So who is today’s supply chain enthusiast? A supply chain enthusiast is;

  • Someone who recognizes that the world is a mechanism for providing humanity with the resources it needs to survive. 
  • Someone who recognizes that each of us has a responsibility for ensuring that this supply chain that we are part of is managed in a way that ensures that humans continue to thrive. 
  • Someone who understands that collectively, we must summon the political will to begin the effort of arresting, and then reversing, the harm that we have caused to the environment. 

We will all become supply chain enthusiasts, not because it is the fashionable thing to do, but because with every year that passes it will become an issue of increasing and critical necessity. As more people become aware of, and start to understand that how we produce, store, transport, and consume things has a profound impact on our environment, enthusiasm about supply chain, innovation, and technology will become more socially and culturally mainstream. 

At that point, “The world is a supply chain.” will become a rallying cry everyone innately understands.

Note: “The world is a supply chain.” is a trademark owned by The New York Supply  Chain Meetup.

About The Authors: Brian Laung Aoaeh (@brianlaungaoaeh) and Lisa Morales-Hellebo (@lisahellebo) are co-founders of REFASHIOND Ventures, an early-stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. They are also co-founders of The Worldwide Supply Chain Federation, a growing network of grassroots-driven communities focused on supply chain, innovation, and technology.

#UserManual – Send Us All The Early-Stage Supply Chain Technology Startups

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Brian Laung Aoaeh and Lisa Morales-Hellebo, at #SCIT2019, June 19 – 20, Microsoft, Times Square, NYC. Photo Credit: Ray Neutron.

Author’s Note: This blog post is an updated version of User Manual: The Early Stage Startups I Want To Hear About Most in 2016 and 2017 and User Manual: The Early Stage Startups I Want To Hear About Most in 2017 and 2018. Certain portions of this version may be exactly the same as in the prior versions. However, there are significant differences between the prior versions and this one.

About REFASHIOND Ventures

REFASHIOND Ventures is a seed-stage venture fund that Lisa Morales-Hellebo and I are building to: invest in startups developing technology innovations to refashion global supply chains – across different industries. 

We are in the process of raising our first fund. Once we raise the fund, we will be based in New York City. 

While we are raising the fund, we are collaborating with a family office to make some early investments that fit our investment thesis, and the family office’s investment interests.

The three philosophical pillars of our investment thesis are;

  1. The world is a supply chain.TM
  2. Software is eating the world.
  3. Disruption creates opportunity.

Our working definition of a supply chain: “A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.”

– Martin Christopher, Logistics & Supply Chain Management: Creating Value-Adding Networks, 4th ed, Pearson Education Limited 2011, p4

We believe that a perfect storm of irreversible social, economic, technological, and environmental forces, has created an urgent and critical need to refashion global supply chains. This process presents the biggest investment opportunity of the next half-century. We are building a fund to invest in that opportunity.

We’ll invest in startups in the following areas; Supply Chain Management, Supply Chain Logistics, and Supply Chain Finance – across industries.

Our initial focus is on startups based in the United States, and Canada.

About The Worldwide Supply Chain Federation

The Worldwide Supply Chain Federation, which we founded in August 2017, is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. Each chapter is a community of practice that connects the builders of technology innovations for supply chain with the buyers of technology innovations for implementation in real world commercial supply chains. The New York Supply Chain Meetup is its founding chapter.

The Worldwide Supply Chain Federation is the world’s first, largest, fastest growing, and most active network of grassroots driven communities focused on supply chain, innovation, and technology. You can learn more here: The Worldwide Supply Chain Federation.

You can check out our Youtube Channel here. Join our community here. Follow @tnyscm on Twitter.

Characteristics We Look for in Teams, and Founders

We look for – we will not learn this until we actually interact with you. But this is what we will be looking for;

  • Teams in which the founders have known one another for a considerable amount of time prior to launching their startup; We look for teams in which the level of trust and respect between the co-founders is high. This reflects our belief that at the earliest stages of a startup’s life, team risk is the greatest risk we must worry about.
  • Teams that will not have difficulty attracting other great people to join the startup; We look for founders who inspire confidence and loyalty from others because they are good at what they do, the kind of people we could picture myself working for. We look for people that others outside the startup can come to look up to as thought leaders in their chosen area of expertise.
  • Founders for whom solving the problem that their startup is solving has become their life’s mission and they will work to solve that problem with or without help from outside investors; We look for founders who have an unconventional opinion about the market opportunity they are pursuing, and can explain their position is with evidence that investors can analyze independently. We look for founders who are focused squarely on solving their customers problems.
  • Teams that can focus on building a simple product that their initial customers love, and who can focus on a niche within which to launch that product. We look for teams that are judicious and frugal in how they deploy the startup’s resources.
  • Founders who value teamwork, and who can become great leaders if they desire to do so; We value transparency, honesty, and openness. We value self-awareness. We like people who are determined and tenacious, who do not give up just because the going gets uncomfortable and things seem bleak.
  • Founders who have a hard time doing something simply because it is what someone else expects them to do; We do not like obedience. We detest arrogance. We admire confidence. We look for founders who are not afraid to be different. We look for founders who have prior demonstrable experience of good decision-making when things are uncertain and information is incomplete. We are not looking for perfection.

Characteristics We Look For in Markets

We look for;

  • Large markets that could ultimately be served by the startup’s product, even though the initial target might be a small portion of the whole. We look for customers capable of and willing to pay for the product, and who are looking for and eager to find a solution to their problem.
  • Markets in which the pain is acute because the problem suppresses customers’ profits significantly, or because the problem makes users far less effective and efficient than they could be.

If currently the addressable market is between $1B and $10B, we want to see evidence that it is growing quickly enough to support the startup’s future goals, and the competition that we assume will quickly follow if the team is successful.

Characteristics We Look For in Business Models

We look for products and business models that:

  • Will benefit from network effects as time progresses,
  • Can scale efficiently and quickly once product-market-fit has been established, and
  • Can eventually benefit from an economic moat as the startup matures into a company, and the business model becomes established.

The Themes We Are Focused On

Notes:

  • These themes cut across different industries and sectors. That is a deliberate choice in the way we are designing REFASHIOND Ventures.
  • The technology sector evolves constantly. Accordingly, our team’s interests might adjust in response. The themes we have described below should serve as a rough guide to how we think about the universe of startups in which REFASHIOND Ventures will invest. It is not comprehensively exhaustive, nor is it mutually exclusive of themes we have not described. If the innovation you are working on fits our definition of supply chain and the descriptions above, please reach out to us.
  • We anticipate that REFASHIOND Ventures first fund will be a pre-seed and seed-stage fund. Our current collaboration will primarily focus on startups raising an institutional seed round, or raising a round between a previous institutional seed round and a series A round.

Our current investment themes;

  • Next Generation Logistics: Platforms or applications that significantly improve how logistics and transportation networks are operated and managed.
  • Advanced Materials: Platforms or products that make it possible to research, invent, and create new types of materials at scale. We are especially interested in the conversion of large quantities of waste of different types into new materials. 
  • Advanced Manufacturing: Platforms or applications that make it possible to integrate advances in software engineering into manufacturing processes. 
  • Data & Analytics: Platforms or applications that help people or other machines to manage, analyze, interpret, make decisions, and take actions based on vast and growing amounts of centralized or decentralized data from disparate sources. Such platforms or products enable large numbers of different types of connected devices, machines, apps, and websites to communicate with one another seamlessly, and with the people managing or using them, within a secure environment. 

Connecting With Us

If you know someone who knows us, an introduction would help. If you do not, never hesitate to communicate with us directly. We are both very easy to reach on the major social networking platforms. 

The best time to start communicating with us is before you are raising a round because we believe it is important to build trust and understanding before entering into the kind of working relationship that exists between startup founders and their early stage investors.

That also gives us sufficient time to understand the problem you are solving, so that if REFASHIOND Ventures invests, we are doing so with conviction. Time enables us to become a more effective advocate on your startup’s behalf when we have discussions about you with other investors we know, and who we feel would be a good match for the round you are raising.

Communicating With Us

If we are not meeting through an introduction, we will respond quickest to founders who get straight to the point, and explain why we should speak with them in 250 – 400 words in their first email to us. We try our best to respond to founders who initiate communication with us. However, depending on what else we have going on, we may not respond if we feel the startup is outside REFASHIOND Ventures’ areas of interest. 

Follow up with us once or twice if you believe we have made a mistake by not responding.

Things We Believe Are Red Flags

  1. Exploding rounds: An exploding round comes with a caveat like “Seed round in ground-breaking tech startup closing in 1 week!” We need time to do our own homework.
  2. Meetings led by an advisor: We prefer our first few interactions with a startup to be with the team of co-founders, not with an advisor or an investment banker. It is okay for an introduction to come from an advisor if that advisor is someone we already know. We do not like to have advisors or mentors micro-manage our interactions with startup founders. That does not inspire confidence.
  3. Lack of control over core technologies: We try to avoid situations in which the startup has a product that has launched to the public, but the startup’s team has no primary responsibility for actually building the core product. If there’s IP we’ll spend some time trying to understand who owns the IP.
  4. Founders who are mainly focused on invention: Some founders are born inventors. In and of itself, that is not a bad thing. However, as investors we have made a choice to invest in founders who want to build potentially big businesses. 

Our Commitment To Startup Founders

Based on Gil Dibner’s VC Code of Conduct;

  • We will be transparent.
  • We will respect your time.
  • We will not ask you for material we do not need.
  • We will not string you along.
  • We will let you know about any competitors in our portfolio.
  • We will be transparent about conflicts of interest.
  • We will not share any of your material without your permission.
  • We will not speak with your customers without your permission.
  • We will educate before we negotiate.
  • We will be honest about what standard terms are.
  • We will not issue a term sheet unless we have made a firm decision to invest.
  • We will reflect the term sheet in the final legal documents.
  • We will not seek an unreasonable equity stake.
  • We will avoid surprises.
  • We will always act in the best interests of the startup.

Without doubt, there will be times when we fail to live up to these ideals. When that happens we hope founders will let us know. That is the only way we can get better.

Key Supply Chain Innovation Issues to Consider as the World Becomes More Volatile, Uncertain, Complex, and Ambiguous

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Note: A version of this story was first published on June 11, 2019, at FreightWaves.

For a couple of years now, I wake up each morning thinking to myself; “I wonder what insane thing happened while I was asleep.” Initially, it was an enervating experience. Now, I have become accustomed to it, and I do not feel the same sense of dread when I wake up, or of being drained of energy even before my workday has begun.

In the same way that I have adapted to a less serene world, people who buy, build, or operate new technology and innovations for supply chains must adapt and adjust to a world that is characterised by instability and chaos.

This article will briefly touch on 3 approaches for doing so. It is based on observations I made during The National Retail Federation’s Big Show 2019, when my co-founder, Lisa Morales-Hellebo, and I led 9 different groups of visiting executives on tours of the expo hall to learn about innovations in supply chain that they might buy for their respective companies. Being a tour guide gave me a great opportunity to listen to them describe their problems in their own words.

What are the origins of the acronym VUCA, and what are its implications?

The term VUCA first appeared in the US Army War College’s curriculum in 1987. Subsequent attempts to trace its origins in the curriculum suggest that it may have resulted from a synthesis of ideas in the book “Leaders: The Strategies for Taking Charge” by Warren G. Bennis and Burt Nanus.

VUCA is an abbreviated description of a world that is simultaneously

  • Volatile — change happens more often than usual and the accompanying swings become more extreme with the passage of time,
  • Uncertain — our ability to make predictions of any meaningful nature deteriorates dramatically,
  • Complex — the number of variables we have to track, analyze, and interpret increases beyond our ability to synthesize the accompanying deluge of data and information for decision-making, and
  • Ambiguous — even when we can synthesise data and information, it can appear to lead us towards meaningless and even contradictory conclusions.

It is debatable if the world in general is more VUCA now than it has been at any time in the past. What is not open to debate, however, is that due to the evolution of information technologies, we now become more quickly aware of events around the world. The speed with which news of unexpected and destabilizing events travels contributes to our sense that the world we live in now is more unstable than it was in the past.

Observation #1: Supply chains are becoming less centralized, more distributed, and more integrated.

The days of centralised distribution appear to be well behind us. The trend now is towards more decentralized and localized distribution, and less reliance on centralized and massive distribution centers. This is happening because companies want to increase their responsiveness to changes and disruptions within their supply chain. To accomplish this companies seek to more tightly integrate local stores with one another, as well as to more tightly integrate existing centralized distribution centers with local stores. To accomplish this companies are looking for;

  • Increased automation — freeing human experts to focus on complex cases and issues that arise in the supply chain,
  • More sophisticated forecasting and network optimization capabilities, and
  • The potential to eliminate central distribution centers altogether, so that suppliers ship product directly to local stores.

Observation #2: Supply chain visibility is becoming a more pressing concern.

Supply chain visibility enables customers, producers, and other participants in the supply chain, to track and trace goods as the goods travel through the supply chain from a producer to a customer. Supply chain visibility is a problem of information creation, storage, transmission, retrieval, and delivery. Supply chain visibility is also an issue of information security. It depends on data standardization between organizations. This is something that has been rather difficult to accomplish in the past. However, the push for supply chain visibility will only increase as former arch-rivals and competitors move towards integrating certain aspects of their supply chain operations in order to collaborate more closely with one another.

Observation #3: Simplicity is a virtue to the users of supply chain software.

This thought occurred to me as I listened to the executives ask questions at each of the stops on the tour; The consumerization of enterprise software is now affecting people’s expectations of how supply chain technology should function.

What does this mean?

  • First, people now expect supply chain software to be as intuitive to use as the software they rely on at home. They expect unnecessary complexity to be abstracted away.
  • Second, people expect supply chain software to be always available, and ubiquitous. That is, it must be seamlessly available across computing platforms, with no degradation in experience or efficacy.
  • Third, customization and personalization are key. In this context, customization means that the software is easily configured to match an organization’s unique business operations and structure. Personalization means that within that customized organizational configuration, each user has an experience that is further configured to that individual user’s role and responsibilities within the company, in a way that maximizes the individual users on-the-job effectiveness.
  • Fourth, more so now than in the past, buyers of supply chain software expect speed, responsiveness, and redundancy.

It is clear the trends I have described create an opportunity for early-stage startups building new software-enabled innovations to help businesses simplify and streamline supply chain operations. What remains unclear is the degree to which switching costs will hinder the adoption of new software products from young startups in a world in which VUCA is the norm.

Disputes Will Disrupt Global Trade and Supply Chains

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Note: A version of this story was first published on June 04, 2019, at FreightWaves.

The United States is now in the midst of well publicised trade disputes with China, and Mexico, two of its biggest trading partners. There are also simmering trade tensions between the European Union and the United States. Supply chains are networks of interdependent organizations that cooperate and collaborate with one another to move goods and information between producers and consumers. Global trade has become more complex as supply chains have become increasingly more global. The current tendency towards raising barriers to trade will be disruptive to supply chains, global trade, and economic well-being.

My upbringing, having grown up in Ghana and Nigeria, and then attending college, graduate school, and pursuing professional credentials after that in the United States, coupled with my professional experience since college, and my past decade pursuing a career in early-stage investing, hopefully gives me a unique perspective on this topic.

Today, the most accurate way to think of supply chains is in three ways;

  • First, information and data supply chains are non-physical and typically traverse national borders.
  • Second, conventional supply chains used to move physical goods can’t function effectively or efficiently without tightly integrated information and data supply chain infrastructure.
  • The production of the most valuable physical goods that people consume today relies on complex supply chains that source raw materials in certain parts of the world. Then manufacturing into finished goods, or parts, occurs in other parts of the world. Finally, the goods are shipped to consumers for final consumption in yet other parts of the world.

In sum; Modern supply chains are complex systems which are susceptible to cascading unintended consequences. These consequences may arise due to policies pursued by national governments that do not take a holistic view of global trade and supply chains, and which are not guided by or based on a common understanding of the basic principles of economics.

Barriers to trade affect consumers directly and indirectly. The direct impacts arise when businesses that have pricing power pass 100% of the financial burden that barriers to trade create onto their customers. The indirect impacts arise when businesses that do not have pricing power absorb some or all of the increase in operating expenses, forcing them to make some employees redundant as these businesses attempt to maintain their profit margins. In both cases, it is not difficult to understand how the broader economy starts to buckle; Lower consumer consumption leads to reduced business sales. Lower business sales and increased operating costs lead to reduced production. These interact to create a reflexive spiral of negative business and consumer sentiment about the state of the economy.

Here are some highlights from Tracking the Economic Impact of U.S. Tariffs and Retaliatory Actions by Erika York, Kyle Pomerleau, and Robert Bellafiore of the Tax Foundation, based on the Tax Foundation’s Taxes and Growth Model, as of April 2018. If all the tariffs announced by the Trump Administration as well as other national governments as of April 2018 were fully implemented;

  • United States GDP would fall by 0.79%, a reduction of $196.77 billion, over the long run.
  • Wages would fall by 0.51%.
  • Employment would fall by the equivalent of 609,644 full-time jobs.

Given this administration’s tendency towards belligerent and ad-hoc decision-making on these issues, one may safely assume that April 2018 represented the optimistic scenario.

Concurrently, according to data on Global Government Bonds as of May 31, 2019 at the Wall Street Journal’s Market Data Center, yield rates and spreads over U.S. Treasurys of 2-year, 5-year, and 10-year maturities are respectively below their levels over the previous month, and the previous year. This is the case for government bonds in Australia, Belgium, France, Germany, Japan, the Netherlands, Portugal, Spain, Sweden, and the U.K.

Furthermore, according to data on International Stock Indexes as of May 31, 2019 at the Wall Street Journal’s Market Data Center; The Global Dow, The Global Dow Euro, the DJ Global Index, and the DJ Global ex U.S. each closed the session an average of 3.8% below their level 52 weeks ago.

If that is not persuasive enough, the June 3rd 2019 J.P. Morgan Global Manufacturing PMITM produced by J.P. Morgan and IHS Markit in association with ISM and IFPSM says; “Global PMI surveys signalled that manufacturing downshifted into contraction during May. Business conditions deteriorated to the greatest extent in over six-and-a-half years, as production volumes stagnated and new orders declined at the fastest pace since October 2012. The trend in international trade continued to weigh on the sector, with new export business contracting for the ninth month running. Business optimism fell for the second month in a row and to its lowest level since future activity data were first collected in July 2012.”

While this data is interesting, and relevant, the real issues of concern are those that aren’t adequately captured in data, the information about hardening attitudes and perceptions towards economic-cooperation and free-trade amongst countries. In what I consider an unexpected and unusual move, the Government of China has published a white paper: China’s Position on the China-U.S. Economic and Trade Consultations. Readers of the white paper can agree on one thing; We are entering uncharted waters as far as global trade is concerned. How will current disputes affect how countries interact with one another as it relates to global trade? Will the progress of the past few decades be eroded due to political sentiments around the world which have led us to these specific trade disputes between the United States and its most important trading partners?

Coupled with the trade disputes between Mexico and the United States, prior disagreements between Canada and Mexico on one-hand, and the United States on the other, about NAFTA, this dispute between China and the United States, as well as other trade related disagreements that appear to be simmering just beneath the surface, one can only conclude that the global economy is in for bumpy 18–36 months.

There’s extreme turbulence ahead. Buckle-in your seatbelts.

Our Trash Is Creating A Coming Supply Chain Crisis

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Note: A version of this story was first published on May 22, 2019, at FreightWaves.

News reports about the 2019 Copenhagen Fashion Summit (May 15 — May 16, 2019) highlighted current efforts by the French government to encourage fashion companies to establish sustainability goals for the industry. French President, Emmanuel Macron, has appointed Francois-Henri Pinault, CEO of Kering SA to lead the charge. This is part of increasing concern around the world on the issue of waste, and waste management. Initiatives like the one in France, and others around the world, are also shifting focus from our past of linear supply chains to a future of circular supply chains.

Putting things in context

According to the World Bank Group’s “What A Waste 2.0: A Global Snapshot of Solid Waste Management to 2050”;

  • In 2016, 2.01 billion metric tonnes (4,431.3 billion pounds) of municipal solid waste was generated globally. If nothing changes, this is expected to increase to 3.4 billion metric tonnes (7,495.7 billion pounds) by 2050.
  • Food and green waste make up about 50% of waste in low-income and middle-income countries. In high-income countries, this proportion is 32%.
  • Recyclables — paper, cardboard, plastic, metal, and glass, makes up about 16% of the waste stream in low-income countries, and up to as much as 50% in high income countries.

Assuming that a full garbage truck weighs 23 metric tonnes or 50,000 pounds, this means that global waste produced in 2016 was the equivalent of about 87,391,304 garbage trucks a year, or 239,428 garbage trucks per day. If nothing changes, in 2050, global waste will be the equivalent of 147,826,087 trucks, or 405,003 garbage trucks per day.

What are the biggest culprits in post-consumer waste?

Fashion, apparel, & textiles is attracting a lot of attention. The following data and information in Figure 1 — Figure 6 below, from The Ellen MacArthur Foundation’s “A New Textiles Economy: Redesigning Fashion’s Future” report proves instructive. In summary, the problem is growing and solving it will require a new way of thinking, and concerted collaboration to create systemic solutions rather than isolated solutions.

Figure 1

Figure 2

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Figure 4

Figure 5

Figure 6

Plastic waste has also been attracting a lot of attention. Here too, The Ellen MacArthur Foundation’s New Plastics Economy initiative is uniting companies, governments, and multilateral organizations in an effort to curtail and reverse the adverse impact plastic pollution is having on the world. To properly understand the problem posed by plastics, consider that reports suggest that popular everyday items made from plastic can take anywhere from 10 to 5,000 years to decompose through biodegradation. Figure 7 and Figure 8 below put things in further context.

Figure 7

Figure 8

The gravity of the problem posed by plastics especially is captured by media reports that;

  • May 2019 — The National Geographic reported that “more than 180 nations agreed in Geneva to add mixed plastic scrap to the Basel Convention, the treaty that controls the international movement of hazardous waste.” This has become an issue of growing international concern ever since China stopped buying non-industrial plastic waste in 2018 — China is the biggest importer in the $200 billion global market for non-industrial plastic waste. It is becoming increasingly difficult for wealthy countries to export their trash to poor countries.
  • May 2019 — National Geographic and CNN reported that plastic debris was discovered at the bottom of the Mariana Trench, at a reported depth of 35,849 feet (6.79 miles) or 10,927 meters (10.93 kilometers).
  • March 2019 — The New York Times and The Washington Post reported that a dead whale was found on a beach in the Philippines with 88 pounds (39.92 kilograms) of plastic in its stomach.

News media reporting, and statistics, on other categories of waste paint an equally damning picture: For example, according to the United Nations’ Food and Agriculture Organization, about one third of the food produced in the world goes to waste every year.

So, what’s being done about this problem?

Companies, national governments, and multilateral organizations are teaming up to try to tackle the problems posed by increasing amounts of waste. For example: News reports about the 2019 Copenhagen Fashion Summit (May 15 — May 16, 2019) also highlighted Nike’s creation of an open source design guide aimed at nudging the fashion industry towards a future of circular and sustainable supply chains.

There are a few difficult problems in relation to the creation of circular and sustainable supply chains;

  • First: There is a dearth of voices from supply chain logistics in the discussions so far. How we move post-consumer waste to sorting and recycling centers will be a key component of creating circular supply chains.
  • Second: A clean and sustainable environment fits the definition of a public good. So efforts to build circular supply chains could very easily be susceptible to the free-rider problem unless political and economic structures are put in place to prevent that from happening.
  • Third: The success of circular and sustainable supply chains will rest on big behavioral changes for people all over the world — from a linear culture that glorifies consumption and generates a lot of waste, to a cyclical culture that minimizes unnecessary consumption, minimizes waste and maximizes sustainability and the reuse of products.

On the bright side, there are several startups creating innovations to tackle the problem of waste, in different industries. Social movements like #FridaysForFuture could potentially gain strength, and drive the tougher political action that may be required to spur private industry into taking more concrete steps to bring circular supply chains out of the lab and into the real world, at scale.

Is disruption finally underway in the freight brokerage industry?

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Note: A version of this story was first published on May 10, 2019, at FreightWaves.

On April 25, Amazon announced that it was making an investment of $800 million to reduce delivery times, from two days to one, for members of Amazon Prime. The next day FreightWaves was first to report that, without any fanfare, Amazon had also launched a digital freight brokerage website at freight.amazon.com. Before that, on February 5, Convoy, a startup in Seattle that operates a digital freight marketplace, announced that it can now automatically match 100% of loads to carriers, without human intervention.

These announcements have pushed us farther along a curve tracing the evolution of the freight brokerage market, one that has historically operated on the basis of personal relationships, trust, and phone calls.

What is a market disruption?

A market disruption occurs when new entrants into a market supplant incumbent companies within that market in terms of market share and market power, leading to financial distress for some incumbents.

In his book, The Disruption Dilemma, author Joshua Gans distils what we know about disruption into two major categories;

  • The Demand-Side Theory of Disruption (Demand-Side Disruption) is the more popular and widely known version of disruption because it is the process described and explained in Clayton Christensen’s book The Innovator’s Dilemma. A Demand-Side Disruption is driven by changing customer demands and expectations.
  • The Supply-Side Theory of Disruption (Supply-Side Disruption) is much less well known, and results from research by Rebecca Henderson and Kim Clark. A Supply-Side Disruption is driven by a change in the architectural knowledge that forms the basis by which suppliers satisfy market demand for a service or product.

The freight brokerage market is being attacked on two fronts

Amazon’s entry into the freight brokerage business threatens to shift the basis on which the services of a freight broker are delivered to the market from one reliant on personal relationships, trust, and telephone calls to one that relies on a combination of software, cloud computing, connected devices, stochastic optimization, and automation. These platforms will automatically match carriers to only the most profitable loads, and they will minimize operating costs by automatically optimizing delivery routes. A relatively small number of people trained and licensed as freight brokers would be required to handle complex, unusual, and exceptional situations on an ongoing basis. Such a platform would be tightly integrated through application programming interfaces with all the other supply chain management software that customers rely on, as well as other external sources of relevant data. These platforms will eventually surpass the performance thresholds achievable by the best human freight brokers, and they are already being tested by some of the world’s largest companies. If they pass the preliminary tests and become widely adopted by shippers and carriers, they will represent a supply-side disruption.

Simultaneously, there is already a sizeable population of startups building on-demand digital freight marketplaces with the goal of cutting freight brokers out of the picture. For now, these marketplaces mainly fulfill the function of automatically matching loads to carriers, and they typically target the 10% of the carrier market that is made up of owner-operators. Given the razor-thin profit margins that characterize the trucking market, and the reality that brokers can command fees as high as 40% or more of each transaction, it is not difficult to understand why such marketplaces could potentially win market share from some incumbent freight brokerage businesses as time progresses. These marketplaces also compete directly with load boards. If these digital freight marketplaces succeed, they will represent a demand-side disruption.

There are two wildcards

There are two conditions that have to be met before freight brokerage confronts disruption;

  • First, new entrants have to solve the trust problem. Shippers interests are aligned with those of their freight brokers, and freight brokers act as arbiters of trust between shippers and carriers. Conventional wisdom among industry professionals is that this trust relationship cannot be replicated with software.
  • Second, new entrants have to overcome the cognitive and psychological switching costs that keep carriers and shippers firmly locked into the old way of doing things.

Even just a few years ago it might have been difficult to see how these problems could be solved systematically and satisfactorily with a software-centric approach. Conventional wisdom among industry professionals is that the trust relationship between shippers, carriers, and brokers cannot be replicated through software. I am not so certain. Carriers and shippers have the fundamental need to increase throughput, increase efficiency, and improve profit margins. The new entrants can gain market share by proving that they can satisfy those fundamental needs better than their incumbent counterparts on an ongoing basis.

To be clear, none of the innovations I am describing is a perfect replacement for the best freight brokers. Not yet. That said, venture capitalists have already invested $1.6 billion in FreightTech during the first quarter of 2019. This exceeds the $1.3 billion that was deployed in 2017 and is already 55% of the $2.9 billion invested over the course of 2018. Moreover, REFASHIOND Ventures’ analysis showed that Amazon had $31 billion of cash and marketable securities on its balance sheet as of August 26, 2018. That is more than enough capital to fund a sustained push to redefine the basis of competition in freight brokerage — the $800 million investment it announced is just a beginning.

No industry can escape turmoil if a supply-side disruption occurs within the same period as a demand-side disruption. Fasten your seat belts. We’re embarking on a long and bumpy ride.