A founder’s journey: ‘You have to bootstrap, figure out how to make money’

Interviewed by FreightWaves CEO and founder Craig Fuller in a fireside chat, Leto talked about being a founder of multiple companies and how he reinvented freight procurement. Leto also offered insights into the volatile freight markets and strategies to compete in a tough business environment.

After Leto founded GlobalTranz, the company quickly became one of the top truckload and less-than-truckload brokers in the U.S. He also founded 10-4 Systems, a truckload and visibility platform sold to Trimble in 2016. Since being formed in 2017, Scottsdale, Arizona-based Emerge has seen rapid growth and innovation, Leto said.

“There’s 3,400 carriers in our system that have 20 trucks or more, and we have 400 shippers using us now, all the big carriers,” Leto said. “I felt like giving away this free [procurement] platform, and then how we monetize it at Emerge is we open a door for carriers outside the shippers’ network to connect with them, and the shipper can connect with new carriers.”

Leto said the majority of freight brokerages still have a business model that relies heavily on making profit margins from carrier sales representatives calling trucking companies every morning to book trucks for shippers.

“Everyone thought the carrier sales rep model would be gone by now, but about 98% of loads are still booked by a carrier sales rep for the $100 billion brokerages in the industry,” Leto said. “It’s a person, it’s not digital; it hasn’t been digitized at all.”

Profit margins at brokerages have fallen from around 15% to 20% to below 10%, Leto said.

“As a big broker, it’s getting worse and worse every year, but we always knew that was going to happen,” Leto said. “Your biggest cost is that person that’s calling and booking the truck, that person is about 5% of that 12% margin. If you still have that, in five, six years, where you’re relying on a carrier sales model, and your margins are only 9%, your admin costs are about the other 3%, how do you survive as a company?”

Leto also discussed digital freight brokerage Convoy Inc.’s failure. Convoy announced in an Oct. 19 letter to employees that it was shutting down operations due to the “massive freight recession.”

“Convoy and digital freight brokerages realized that you need so much scale, you need … probably about 5,000 loads a day, 4,000 loads a day to have a carrier audience,” Leto said. “The only companies that have carrier audiences that size are maybe the top three or four brokers. The only way to digitize freight is to have enough scale in your marketplace, meaning enough loads, that you don’t need a carrier sales rep to be calling all these trucks in the morning. Otherwise, you need to still keep that, and they never got to scale.”

Fuller asked Leto what advice he would give to others who aspire to build a business.

“It was much easier three years ago, but the digital brokerages took all the investment money,” Leto said. “Right now, investors are kind of shy about this industry. There’s still so many ways that you could start a business in this industry and do something big. It’s just harder than it’s ever been because there’s no money, you have to bootstrap, figure out how to make money without burning money. It’s back to what it was 10 years ago to make a profit.”

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