Dan Lewis, co-founder and CEO of digital freight company Convoy, didn’t start his company because he had a deep and abiding passion for trucking. At least, not at first.
The executive has a background in strategy and management consulting that progressed into a career in product development for top tech companies like Google and Amazon. But when he was struck by the urge to start a company, he researched the money-attracting industries of the world, and then, using AngelList, saw how many companies were trying to disrupt those industries.
His search yielded thousands of companies that were working on industries ranging from telecommunications and fashion to video games and food. Billions of dollars were going into trucking each year but fewer than 30 startups showed an interest in the field.
“I saw a massive opportunity and few people going after it,” Lewis told TechCrunch.
Lewis and Grant Goodale co-founded Convoy in 2015, and since then, have brought on a series of high-profile investors. A couple of years after Convoy was founded, in a pivotal turn of events, the company secured its Series B from YC Combinator’s Continuity Fund, a fund that was usually geared toward earlier-stage companies.
More recently, Convoy secured a $260 million Series E, led by Baillie Gifford and T. Rowe Price, that brought the company’s valuation up to $3.8 billion. To date, the company has raised almost $1 billion to scale its platform, which connects the fragmented network of shippers, carriers and brokers across the United States.
Speed is a big feature of building a startup, and it’s also a big feature of not getting diluted, because you can show immense progress and then raise at a higher valuation based on that. Dan Lewis, co-founder and CEO of Convoy
We sat down with Lewis to talk about the importance of being customer-obsessed when starting a company, why compensation packages in the early days can help you avoid diluting your company too much in future fundraises, and how to set boundaries on the compromises you’ll make as a founder.
The following interview, which has been edited for brevity and clarity, is part of an ongoing series that focuses on founders in the transportation sector.
TC: YC’s investment in your Series B was notable because Convoy at the time was outside the Continuity Fund’s range of portfolio companies. What do you think made Convoy stand out?
Lewis: The YC culture is a really curious one, so they didn’t feel like they needed to stay in a particular lane, especially with the Continuity Fund, which was geared toward early growth-stage companies. When we met, I think the breakthrough was just the unique story. People don’t usually realize how fragmented, how large, how offline the trucking industry is. So YC viewed this as a major disruptive play.
We were excited to work with them because they’re an incubator and accelerator, so their whole system is designed around helping founders succeed. They had so many unique programs that helped us be successful and grow that I had never seen from other investors at the time.
You mentioned that a good way to decide on a direction for a startup was to compare industries where there’s lots of money against companies that are trying to disrupt those industries. Is that still a good method?
I think it is a really good method. It would be interesting to pull a list of industries and find out how much money is spent in those industries, and then see how many companies are going after those industries. AngelList is a great resource to find the newest, most innovative companies that are going after these spaces.
Before I ever started the company, I wrote this article in Quora that went viral and was published by Forbes. It was an answer to the question: How to come up with a startup idea. I wrote this really extensive theory, basically a playbook. So when I was going to start my own company, I was like, I should eat my own dog food. I went back and used my own process, and I can now say it’s credible because it works.
One of the things it talks a lot about is thinking about specific customers to understand the needs. Who is the customer you’re building for and what is the specific business model you’re going to use?
Many startups pivot a lot. Has Convoy had to evolve at all over the years?
The core business we’re going after has stayed true. We’ve changed the type of trucks that we run most of our freight on, and maybe some of the details of what types of trucking jobs we do. But we didn’t have to have a major pivot.
I think we were able to do that because I just went out and talked to everybody in the market before we started, which actually helped me get a lot of these great investors from day one.
I talked to everybody I knew in the supply chain space from my work as a consultant. I looked up everyone I grew up with who are now in the trucking industry — my mom’s an ESL teacher, so a lot of Eastern European immigrants would come to my house. We helped them get jobs, and many of them became truck drivers.
I went to warehouses everywhere, got kicked out of a few Whole Foods because I walked around asking things like how they hired truck drivers. I started intercepting truckers at truck stops and talking to them. What sucks about being a truck driver? What sucks about being a shipper? Why is being a broker hard?
That all led to like 100 conversations, so when I started pitching angel investors, they were kind of blown away that I had conversations with real customers and written all this research data — it wasn’t just an idea that I was pitching. I got a lot of credibility early on with some really powerful investors, because they weren’t necessarily used to seeing someone put that much groundwork in before they started pitching.
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How has your background in product informed the way you’ve gone about founding a company?
Early on, I worked in management consulting, where I figured out how established companies could start a new business. For that, I’d go talk to like 30 to 40 people in a space and figure out where that was broken. So I had a lot of experience just cold-calling and hacking my way in.
The product experience is being obsessed with customers. You have to understand who that customer is, what they don’t like and what they want. If you do that really well and you’re good at hunting and cold calling, you’re going to come up with something.
The worst thing to do is to stop with an idea you have just because you think it’s interesting, or imagine it could be cool but not understand that there’s a customer who’s actually interested in that. I think that’s where sometimes people get a little bit hung up. They get personally passionate about something, but there’s not really a customer or a problem.
You’ve had a series of really large fundraises, some of which happened early on. How do you balance getting the funds you need to grow and not diluting too much too early?
I think we were really productive as a company. A lot of the compensation was around equity, which I think isn’t that abnormal. We biased toward optimizing to increase the value of the company versus generating cash in the early days. This meant everybody at the company didn’t want us to be diluted, everybody had an incentive to create value and drive the company’s success quickly so that we could raise money without diluting further.
So the speed at which we moved was crazy. I remember one of our first investors showed up and wrote on the board, “CTFU” — catch the fuck up. Think about that as your mindset. Pretend that you are way behind everybody else. Speed is a big feature of building a startup, and it’s also a big feature of not getting diluted, because you can show immense progress and then raise at a higher valuation based on that.
You have to show material progress in the business quickly, and that will justify valuation without burning a lot of cash.
How do you think about consolidation in the trucking tech industry?
I think there will absolutely be consolidation in this industry. A lot of people have asked me why there are 18,000 freight brokers and almost a million trucking companies in the country. And the reason is there’s no efficiency of scale in this industry because most of the companies are run manually without technology.
They don’t automate the process. They don’t build algorithms that automatically generate the price or workflow automation that makes it so you don’t have to scale linearly with people to do the task. They don’t get more efficient with scale. In fact, they get less efficient with scale, because they have so much overhead and have had to open dozens of offices around the country to support this massive scale.
When you have systems that use data, algorithms and technology to make decisions faster, to automate the steps, to make it self-service for the users, then it can scale in a non-linear way. So that is what Convoy is doing, and that’s where the consolidation will happen. It’s a better model, and it will grow and take more share.
Is that consolidation or is that just disruption?
I don’t mean consolidation as in mergers and acquisitions. Shippers will start to consolidate their spend. It’s not unusual for a large shipper in this country to work with hundreds or dozens of trucking companies.
What about M&A with other trucking software companies, like CloudTrucks or SmartHop?
I think you’re gonna see less of that happening over the next few years, because all the new technology-led trucking companies can all scale 100x within the existing market. Instead, you’re gonna see hundreds of billions of dollars of freight-spend shift from offline, manual ways of doing business — growing linearly with more people — to digital, data-led companies that scale non-linearly and have massive advantages at scale and network effects.
Thoughts on going public?
I guess I’m glad that our plan was not to go public right now. I think it’s a good thing for our business to fully realize the potential of the company. I don’t feel pressure to do it, and I feel less urgency to do it now that I see where the markets are going.
When you start a company, it’s probably impossible to find a work-life balance. Have you found it easier now that you’re further along in the startup journey?
When I started the company, I was a bit older; I had two kids. It was something I put a lot of energy into, but I wasn’t willing to compromise on my life completely. I like my family. I have friends. I like being active. I coach my daughter’s basketball team.
So when I started I made some promises. I promised my daughters when you’re 10, 14 and 18, I promise I’ll take you on a one-week daddy-daughter trip anywhere you want to go in the United States your first time, anywhere in the Americas your second time and anywhere in the world your third time.
I work hard, and it has definitely gotten a little easier, but I just went into this with the knowledge that there would be some things I would have to compromise on but not work and family. I talked to another CEO who said he won’t travel for more than two nights if he can help it, and I was like, I’m adopting that one.
You’ve got to just write down your limits and boundaries around what you’re gonna do, how many nights a week you’ll be home and then you build your world around that.
Where do you expect Convoy to be in a year?
In the next year, the way Convoy has changed the industry is going to become a lot more mainstream. The industry is going to contract differently. Brokers are going to think about digital capacity and how they get access to that; they’re going to be comfortable using a platform like Convoy for that.
I think we’re going to become much more of a platform. The approach we’ve taken for doing annual RFPs, building a universal shareable trailer pool, building an open platform for other brokers to run on the Convoy platform, our transparent contracting system — all of those AI platforms that can scale are going to become more mainstream, and we’re going to see the industry be more transparent.