Business Rx: Logistics company needs advice on which way to go
By Harry Geller,
Geoffrey Milsom was a college student when he first learned transportation management and logistics by pedaling a bike around Washington delivering DVDs, cigarettes and grocery items fulfilled from Web orders. The business — “think 7-Eleven meets Amazon,” said Milsom — ultimately failed, but gave him a taste of the huge world of logistics. He joined a logistics company in Rockville, and learned the sales and information technology side of the business. Milsom saw an opportunity to go off and try it on his own, starting 10G Systems in Northwest Washington in spring 2011.
“10G Systems is a third-party logistics and technology company with Web-based transportation management software to help shippers, manufacturers, wholesalers and distributors make shipments and reduce their transportation costs on a day-to-day basis. The transportation industry is very fragmented, which makes it very difficult for shippers to contract with the best carrier for the best price. We use our logistics expertise and our transportation software in order to make it easier for a shipper to work with well-qualified low-cost carriers.
“We target small- to mid-size manufacturers, wholesalers and distributors that are having trouble managing and want to switch over to something automated. Typically, these customers do not have ample time to create the most cost-effective supply chain, nor do they have the resources to implement a strong transportation IT solution. For many, managing the volume of shipments becomes unbearable from a paperwork perspective, or they are managing millions of dollars in shipments through a spreadsheet or something that can be deleted or not protected.
“Shippers are receptive to the software, but many want to outsource the management of the system to us. We’re willing to do that because that’s what customers tell us they want. It’s more work for us — we may need to add more people to service accounts — but we’re willing to do that because money in the door today is better than money in the door tomorrow.
“We can scale the business focusing on providing transportation management services, or we could focus on the software implementation. With transportation management, it’s more time-consuming and a lower-margin sale, in addition to being a different type of customer than one that is just going to implement our software and allow us to be more hands-off. What is the best approach to grow 10G Systems — should we focus on the software or our transportation management services?”
Harry Geller, executive-in-residence, Dingman Center for Entrepreneurship
“I used to be in this industry, so I know it well. In many ways, the shipping industry is still stuck in the 19th century — with Rolodexes and sticky notes and 20 different trucking providers. The folks you are targeting often will just take the path of least resistance and call a transportation provider who may not necessarily be the best. Given this, you have a great opportunity to add efficiency to your client base.
“For growth, it’s a push-pull on which business model to pursue. There is no real right or wrong answer on the software vs. inside person servicing client accounts. I would continue to pursue both tracks until it is very clear which is the strongest avenue for 10G Systems.
“Be wary of the vulnerability of the software side on the one end and the profitability side on the other end. Your risk on the software side is that you are a third-party administrator on the software. Short of developing your own software — which I’m not necessarily recommending — you’re always going to be in that vulnerable position. On the transportation management side, your risks aren’t as great.
“Transportation management with a representative managing the software for a client can be a profitable way to go. Every decision you make, as long as it is in the best interest of your clients, adds to your profits. Constantly test and model your balance sheets to come up with the right solution. Don’t take on business unless it’s profitable or will lead to something profitable.”
“You’re right about our vulnerabilities; if something happens to our software, we would essentially be brought to our knees. On the transportation management side, if we lost one carrier we work with, there are countless other carriers out there to replace them and the customer would never know the difference.
“At the end of the day, as long as we can keep providing value to customers, they will keep telling us what they want.
“One of the biggest things we’ve learned in the past year and half is the importance of balancing the accounts we have to make sure the effort we put in to each client is a rewarding relationship for us and for them.”