We just turned down a million euros. Here’s why.
European trucking market is broken — fragmented and inefficient. There are
2 000 000 trucks and 600 000 trucking companies in Europe. The average company size is 3 trucks while 80% of the companies have less than 10 trucks. All this fragmentation leads to huge inefficiencies — 25% of the trucks on the road are empty while the rest are loaded to only 59%.
We started Palleter in November 2015 believing the fragmented trucking market presents a huge opportunity and that with clever technology Palleter could increase the efficiency of trucking.
The above is a nice narrative. It’s a story investors buy easily. It’s a story we ourselves bought easily. In fact it was so good we managed to convince ourselves to work 1.5 years with no salary in order to make our dream — a truly efficient trucking marketplace — a reality. A platform where cargo is matched in real time with nearby trucks moving the same way as the freight.
Unfortunately, as you’ll soon see, the reality proved to be a little different than the narrative.
Based on the above data about the trucking market we formed three hypotheses:
- Trucks have on average ~25% of spare cargo space available while driving around. Interviews with trucking companies also confirmed that the trucks do have spare space
- Trucking companies are willing to pick extra loads on vehicles routes
- Trucking companies offer competitive pricing for such last minute offers since available space in a moving truck is a perishable good — if you don’t sell it out the opportunity is forever gone.
To validate the hypotheses we built a MVP (Minimum Viable Product) marketplace that is super easy to join. Trucking companies just hook their GPS telemetry provider to Palleter and they are ready to go. It takes less than 3 minutes for a carrier to join with their entire fleet regardless if they have 3 or 300 trucks. It doesn’t matter if they use Mercedes, Scania, Volvo, etc or some aftermarket telemetry — Palleter supports it all. Palleter then starts tracking the vehicles and automatically learning the routes that the trucks service. We had more than a thousands trucks joining the platform in a matter of 4 months.
Shippers just need to enter a freight offer, say from Berlin to Tallinn. It takes Palleter a fraction of a second to find all trucks near Berlin on the way to Tallinn now, tomorrow, the day after tomorrow and so forth. We then hook up the shipper with the trucking companies and facilitate the dealmaking through Palleter. It’s all automated — no people involved whatsoever. It’s technologically the most advanced logistics marketplace out there — predictive algorithms, react-UI, browser push notifications, live chat — you name it.
Unfortunately it made no difference. Two months after launching the platform we started to learn that our core hypotheses were just not correct.
- Trucks have much less available space than the Eurostat data leads to believe. Firstly the data only considers cargo weight. So lightweight cargo skews the data. Secondly reporting the data to Eurostat is an annoyance for the trucking companies — so who knows what’s in those reports.
- Even if the trucks have spare space and are close to the pickup location of the cargo they more often than not are not willing to pick up the loads in reality. That was a big and nasty surprise. The trucks are running on such a tight schedule for their existing clients that they just cannot afford to spend time on extra loads. They might miss a deadline and lose a loyal customer.
- Even when the trucks were willing to pick up the loads they quoted prices higher than regular logistics operators such as DSV or Dachser. Basically trucking companies were willing to drive thousands of kilometers partially empty instead of filling up the truck by offering a competitive price. Literally it was cheaper for the shipper to contract DSV who dispatches one truck to bring the freight to a terminal, a second truck to do a terminal to terminal line haul and a third truck to make the last mile delivery. The risk of losing time by sending a big truck to pick up partial loads from unknown loading places pushed up the price.
In parallel to validating our hypotheses we were also looking for funding. By the time we decided to wind down the business there was a fully worked out investment agreement for 1 000 000 EUR waiting for us. It just needed our signatures. Instead of taking that money we chose to fold. We felt it was the responsible thing to do given all our hypotheses were invalidated and we were back to square one.
So this is it. Startups are hard. They take grit and stamina going against all odds. But they also take well articulated hypotheses and brilliantly executed MVPs for testing them. And most of all they take hard decisions if the time comes.
Paying it forward
Even though we are moving on, we are happy to help all startups and investors in the trucking space. We received so much advice from many startups that wanted to modernize logistics before us. Here’s to Jussi from Loadbro, Balthazar from Fleet Impact, Carson from Pivot Freight. We also received much support from our current investor Techstars Ventures and investors in our would-be round: Spring Capital, Innovationnest, Dotmatrixgroup, Alexander Selegenev and Allan Kaldoja — thank you guys.
If you’re an investor, incumbent or startup in the trucking space or if you’re interested in the IP that we’ve created feel free to reach out to us firstname.lastname@example.org
As for us, we haven’t yet decided what’s next. We’ll keep you posted. And make sure to keep us posted in case you think we can help you.
Let’s truck ‘n roll!
Priit, Märt, Magnus and Tõnu
UPDATE: over the past week we’ve contacted by dozens of fellow startuppers and logistics specialists from around the globe. Thank you all for the kind words, great feedback, ideas & proposals! Catching up to send answers to everyone — hold on!
UPDATE 2: 8 months later we have some exciting news to share: https://sixfold.com/news/tpg-and-palleter-launch-sixfold