[00:00] Radu Palamariu:
Hello and welcome to the leaders in supply chain podcast. I am your host Radu Palamariu Managing Director of Alcott Global. Our mission is to connect the supply-chain ecosystem globally by bringing forward the most interesting leaders in the industry and it’s my pleasure to have with us today Mike Zayonc, who is the founder of Plug and Play supply chain and logistics innovation platform, out of Sunnyvale, California-based platform has become the world’s largest supply chain business accelerator in the world, and they basically work with 30 Corporate Partners and a lot of startups to help them build their businesses. Some of their work with lines and innovation supporters include Schneider Electric, Lufthansa, Prologis, Adidas, Walmart, DHL, FedEx, Shell, DB Schenker, and Mike’s innovation platform belongs to the widest network of Plug and Play, which also spans across startups in a few other verticals including FinTech, InsurTech, Mobility, Internet of Things, FMCG, etc. They had about over 6,000 start-ups and 280 official corporate partners, they created the ecosystems in many industries and many companies and have raised over $7 billion in funding, and successful portfolio exits including Dropbox, PayPal and SoundHound. Mike, thanks for making the time. It’s a pleasure to have you with us today.
[01:26] Mike Zayonc:
Thanks, Radu. I really appreciate taking some time to chat with you today.
[01:30] Radu Palamariu:
Let’s start with the first question. How did you end up at Plug and Play? Why specifically supply chain and starting the supply chain practice in Plug and Play?
[01:43] Mike Zayonc:
So, I started out Plug and Play around five years ago, where I was hired to work with different corporate partners in a variety of different industries. Some of the ones you mentioned, like mobility and IoT and insurance. After two and a half years of being there, I realized that there was definitely a need for innovation in the supply chain, a logistics industry and that there’s a huge market opportunity to invest in startups and scale in this sector. And at the time we saw a lot of start-ups like Flexport, for example, that presented at one of our first events before they raised there very large round of funding from Softbank, where we saw a ton of kinds of activity in the space, and I saw a lot of interest from corporate partners like Lufthansa Cargo and ExxonMobil around areas like “Where’s my stuff?” Looking at visibility in the supply chain, looking at traceability, IoT tracking, but also trends like Blockchain in the supply chains. So, a ton of activity there and just basically have the opportunity to start this in the logistics program early on with a few corporate partners and now it’s grown into a very large program with a global presence. So, we have offices primarily in Silicon Valley, is our largest headquarter office, and then we also have our office here in Bentonville, Arkansas. We’re we support Walmart, Tyson Foods, J B. Hunt and Georgia Pacific and then our office in Hamburg, Germany, where we support partners like Shell, DB Schenker, Chevron and quite a few other European 3PLs and other corporate partners. So we’ve now opened up our building, our stronger presence in Shanghai, Singapore and Asia, and are really excited to kind of be a leading player in the global supply chain, connecting both corporations and start-ups together from all around the world.
[03:45] Radu Palamariu:
I know that your selection process is quite an interesting one and also it’s a mind-boggling one in terms of the number of startups. I was reading that you get on average about 2,000 startups that come to you guys to be part of the acceleration process and anything from artificial intelligence analytics, supply chain optimization, warehouse automation, Blockchain, traceability, all of that. Now, when you have 2,000 startups and for all the people listening to us, what are your criteria in terms of getting a start-up on the program?
[04:26] Mike Zayonc:
Plug and Play were very corporate-focused. So, we like to see kind of work with our corporate partners to find out which technology areas are important to them. So, whether it’s around some of the areas we discussed, like machine learning or analytics or just different ways to automate or optimize within the supply chain or provide better visibility or tracking, those were some of the big trends that we look at and essentially, our job is to do is to make it easier for our corporate partners to filter these startups to find startups that will solve a media challenge for the corporate partners and provide them quick wins because it’s very difficult for all of these corporations To filter thousands of startups. So, that’s where we can come in and do the long that heavy lifting and meet all the start-ups. In Plug and Play, we have a very large team, so we have, across all of our different verticals. We have about 600 people, 100 of whom are Ventures Associates. They analyze and meet startups on a day-to-day basis and look at them for investment, they also look at making introductions to our corporate network of now over 300 major corporations from around the world. Essentially, we want to always analyze and figure out what the trends are and make the best connections we can possible. And when we’re looking at these startups, one is we validate the companies that they solve the challenge for the corporate partners that we have, and then we evaluate their team. We see that if it’s a strong founding team. That’s where we’d want to invest our money into. And then also, we look at things like how much traction they’re getting in the market and also like, Is it a specific pipe proprietary technology? So, we kind of away all these things and see, and test them out and see if they’re going to get attraction among the corporate partners that we have. And if they do, then we normally bring them into the program and then a handful of startups that get accepted into our program also get funding from us and our venture.
[06:30] Radu Palamariu:
Understood. Basically, when you speak about, let’s talk about team development, how do you define a strong founding team?
[06:43] Mike Zayonc:
So, by a strong founding team, it’s very difficult to build a startup, so that’s the most important thing that we can really lookout is, does this founding team showed resilience? Are they able to find product-market fit, pivot their business models if needed? Are they going to give up when things are tough? And ultimately we really want to find teams that are passionate about their products that will kind of do anything to make sure it’s successful, and those are the ones that ultimately get the most funding. But there are a lot of things that we need to look at around the team is one, do they have a good technical background? Does the CTO stand above other technical founders and cannot actually build a strong technology? But then do they also probably even nowadays, more importantly, have a strong business background? Can they actually articulate their product to investors and customers and grow their product from a business development perspective? So, we want to see teams that can complement each other that did ultimately work cohesively. It’s kind of like also building a sports team where you don’t want to have everyone doing the same thing. You want to have people with the synergy that can ultimately complement each other and really make sure that the team wins instead of just having a few individual strengths.
[08:05] Radu Palamariu:
Tell us a little about the collaboration with corporate and the whole financial model of Plug and Play. How do you sustain? Do you get a company and invest in the business? Do you also get obviously, the corporates to contribute for them to be a member? From the financial member perspective, who gives the funding?
[08:34] Mike Zayonc:
We have a very developed corporate engagement model where we bring on a variety of different corporate partners. So generally those economies of scale by bringing on multiple corporations, it’s more effective because they’re able to ultimately engage with more start-ups from the corporate perspective. And then it’s also more affordable for everyone involved. We like to diversify the costs and just make it affordable for everyone and make sure there’s buying from the corporate perspectives. But then, from the startup perspective, we ultimately have a unique model where we do not charge the startups anything. We realized after years of doing this, that startups are not the best customer, that it’s not always easy to charge them financially to be in these programs, and then we also realized that it’s most effective to not also take equity from any of the startups, just for being accepted into the program. So, oftentimes we get these start-ups that come into our program, and they say things to us like, “How did I get involved with this?” “This is too good to be true” or “This is like something that’s really changed our business” because we’re all ultimately making these introductions to the largest companies in the world and finding the right people within these organizations to pilot and implement their solutions so we can save them a lot of time and which is kind of our ultimate goal is even though startups don’t pay us, we see them as our customers because ultimately we want their time, and we want them to be engaged. And we do have this large corporate network where we want to make sure that we’re showing value to them. So, it’s kind of this win-win model and in addition to that, because we don’t take equity. If a startup does want an investment throughout the right stage for us, which is generally to see their series A level, then we can negotiate on investment case by case within the startup because each of the startups has different requirements. They’re all at different stages. Some of them have, they need a larger amount of funding. Some of them don’t really want to have that much funding, but they might want us to contribute a little bit just to put our name on it. It’s always a case by case thing that we can negotiate with each of the founders, and then we find that we make a lot of the best investments by doing that.
[10:53] Radu Palamariu:
In terms of the most interesting startups that you’re supporting at the moment and it may not be a fair question, because I don’t want necessarily want you to discriminate. Tell us some examples of companies that you are supporting, what do they do, the ones that have gained the most traction, just to let our listeners in the idea.
[11:21] Mike Zayonc:
There are many ways that you can define traction with the startups, whether it’s raising funding or whether it’s raising additional customers. We’ve had a lot of success in all these different areas from the supply chain and logistics startup that we work with. And again, we’re working end to end across the supply chain. So looking at technologies all the way from the mind to last-mile deliveries after consumer’s doorstep and everywhere in between in the supply chain. So, it’s a very broad array of companies I’ll name just a couple that I think are specifically interesting that are getting along at attraction right now. One of them is a company that was founded in Silicon Valley that we actually invested in along with Google’s AI fund, which is called Gradient Ventures, and they’re called Cogniac. So, essentially they provide this AI computer vision solution where you can essentially do these inspections and tag into any kind of camera system, and they can do a real-time inspection. They’re able to train this, AI to inspect for many different things. They’re also doing kind of bill of Lading and trade documents at this point as well as doing inspections for a lot of railroads. So, a lot of the railroads have utilized them to inspect in real-time whether the train’s breaking down and there’s a need for predictive maintenance. There have also been major rollouts across America about with their technology, where they can essentially scan people on trains that might be hiding. In Mexico, for example, there was a problem where people actually jumped onto the trains or camouflage. People don’t see them, so they would normally hire people to watch out for this. But their computer vision technology can actually inspect this better than a human, which ultimately saves costs for the different corporations as well as does the scanning for people more effectively. So, that’s a really interesting company that spot in a very significant amount of traction for us and just really working with a lot of our corporate partners. As well, there’s another company called Shoof Technologies, which we also invested into essentially their founding team built the Silver Spring Network Company, which is the smart grid utility meter that you see on the side of every house. And what they’re building is a new kind of wireless standard for connectivity. So, they’re able to make these inspections within ports, warehouses, manufacturing facilities and able to detect these objects very accurately have 10-year battery life and do this through a completely new kind of connectivity standard that they have developed. The vision is to kind of build this solution so that it’s as common as Wi-Fi is when whenever you walk into a house or an office, for example, they want you to be tagged into any kind of porter warehouse whenever you’re tag in to track your stuff. So, those are two start-ups that I really like from, a kind of traction and growth perspective that we’ve engaged a lot over the last few years. But then another company that did really well from a venture capital perspective at least the funding perspective is a company called Rappi, which is the last mile logistics company from Bogota, Colombia. So, they were initially founded under a different business model but pivoted to making these last-mile deliveries. And they have these red Backpackers that kind of used bicycles to make last meal deliveries across Latin America, and they actually received a $1 billion funding from Softbank just last year. So, from a venture capital perspective that was very successful, and they’re experiencing quite a lot of growth. And we’re really proud to kind of co-invested in all those companies with pop venture firms like Sequoia but also companies like I mentioned Kleiner Perkins and Google’s AI Fund, which is Gradient Ventures.
[15:17] Radu Palamariu:
Rappi obviously, is a big story for sure. I might ask you for an introduction to getting them on the podcast. I think it is the biggest funding in South America.
[15:28] Mike Zayonc:
I am more than happy to introduce them. We work with the CEO for many years.
[15:34] Radu Palamaiu:
Super. That’s quite a success story and hopefully, in many years to come, they’ll growth even more. I wanted to ask, coming back a little bit to the corporate, and you mentioned that your kind of doing that around the filtering, so you get the corporate needs and what they want to achieve what they were trying to achieve, change about the business, and then you try to match-make them with the right start-ups that may have a solution for that. A little bit more into that process, how does that happen? Are there specific areas where corporate partners are more interested in working with a startup as supposed to others? How do they decide which area they want to work with? Because also, when you get start-ups, of course, you’re talking about a DB Schenker, DHL or Walmart, It’s a huge company. So, to start implementing a solution, you need to start small. How does this whole process or how do they decide? From a corporate perspective, how do they decide? Which area do I want to work with?
[16:42] Mike Zayonc:
That’s a good question and something we’re very well-positioned at. At Plug and Play, we really are at the forefront of what the industry trends are and what these corporations are actually asking for. We really like it when the corporations have this pole within the corporation that they need to solve this challenge because then it’s easy for us to set up a session where we can recommend startups, and when we introduce these startups, it’s more likely that the business units they’re going to pilot and actually move forward with these companies. So that’s kind of rather than pushing them too much around the startups, where would wish we also do, because sometimes the corporations don’t know what they don’t know, and they trust us as kind of, leading innovation provider to say, “Okay, this is a start-up that’s getting a lot at attraction. This you might want to take a look at it”, but generally we really like it. To kind of have these structured sessions where we’re really solving challenges on behalf of the business units of the corporations and I mean, we really look at a lot of different challenges. We see some big trends, like visibility, is a really big area, for example, there were a lot of startups that we’ve worked with that got a lot of attractions like Project 44, FourKites, Ocean Insights, Ocean tracking, and ClearMetal. For example, are some just the start-ups that we’ve engaged with, but, there’s a lot of different startups around different areas where we might bring in around very specific sessions and ultimately always thinking, How can we solve these corporations a challenge I mean, there are quite a few areas, like whether it’s how to automate within a warehouse or how to track kind of stuff, whether it’s in the truck or a warehouse or port, for example. And ultimately, we really wanted just no kind of which startups will solve these challenges so, we can best recommend them and keep the good faith with our corporate partners.
[18:32] Radu Palamariu:
I’m just wondering, did you ever get in the position where a corporate plant bought a startup by themselves?
[18:40] Mike Zayonc:
Yes, there’s actually been a few acquisitions that sometimes we get asked from buy over partner, like less than 1% of the time that, “Hey, we want to buy this technology”. Obviously, that was a long process. Where we really focus on is 70% of the time we want to introduce pilots and potential business development engagements or POCs to the corporate partners so they can test and implement the technology. And then I would say, minor percent of the time. Some of the corporates also want to invest in startups, which is something we can always discuss with them as well. But generally, the first step before acquiring or doing a new investment or a corporate investment into the startups is really to just pilot and test the technology invalidated. That’s where a lot of our more successful partners have done it. And I know that’s kind of the mindset of, like Prologis Ventures, which is an active partner of ours, the largest owner of industrial warehouses in the world. And they were very active investors from a corporate perspective in the start-ups but generally, they like to get things started with the pilot.
[19:47] Radu Palamariu:
How about in terms of making the difference and what tells you whether the startup is going to make it versus, some start-ups that may not make it? And I mean at the end of the day, in reality, no matter the way and accelerations and everything, it’s still a numbers game? So most of the startups do fail. In this journey, and you’ve seen a lot of start-ups and you worked with a lot of startups, what do you see makes the difference between the ones that will make it ultimately and the ones that will fade along the way?
[20:22] Mike Zayonc:
That’s a really good question, and it’s really hard to say, there are a lot of factors like everything needs to line up for a startup to really be one of the home runs that we’re looking for as a venture capital investor. We need to make sure that the team is fully engaged, that they’re really passionate about the product and that they won’t give up and ultimately, I would say it takes 7 to 10 years for us a lot of times as an early-stage investor to see a return from these investments because we only make money as an investor when they get acquired or when they IPO, which is a super long term thing. So, I think we’ll see a lot more kinds of success stories down the road. But obviously we want to make sure that kind of all the metrics add up and sometimes we’re surprised. I think being opportunistic from the startup perspective is really important. Being flexible and willing to pivot and find product-market fit is something that we see in a lot of startups. Because they may not have the perfect product in the beginning. But if they can validate that and work very closely with their customers, they can be successful in the long term.
[21:34] Radu Palamariu:
Let me flip the question. In terms of the mistakes, you’ve made. We also sometimes select the start-ups that don’t work out. So maybe there’s a pattern there that you could share for all of the founders and corporate innovation people listening to us. What could they watch out for?
[22:01] Mike Zayonc:
I would say that there are definitely mistakes that we make. I’d say a lot of start-ups, they don’t kind of give us the returns that we want- return our capital for making an investment. It’s very hard to say what went wrong over time. But I would say just kind of looking for those general trends around having a very passionate team that we really believe could address a very large market and ultimately potentially, hopefully even disrupt or have an enormous impact on the industry. We are really looking for this kind of big vision type of entrepreneur. But generally, obviously, some of them are going to fail and not be successful. But it’s hard to point fingers. We do like to work with these serial entrepreneurs as well as they don’t give up too easily that they don’t have a Plan B. They ultimately going to make this startup succeed. Otherwise, there they have no other choice. They don’t even think about the kind of other options. And those are the kind of founders that we really want to work with.
[23:14] Radu Palamariu:
Burn your bridges. That’s a good strategy to make sure that the person carries on, no matter what. What are the main principles that you want to instill in your startup’s culture? So culture is a big thing, it’s intangible but it’s a big thing to make or break the company. So, are certain principles that you want to make sure they have in terms of the way they operate their businesses? You’ve mentioned just now that “Don’t have a Plan B and make sure you work until you make it? But are there some other principles that you want to see in your start-up’s culture?
[23:54] Mike Zayonc:
Yes, definitely. We like to have things like integrity being part of the startup’s culture. For example, if they’re telling us they have these numbers, we expect them not to be lying and for them to be telling the truth and for them to be respectful of people’s time and just a kind of have that strong business knowledge. Obviously, prioritizing what meetings were the most important, but trying to stay true to their word and following through on what they promised. That’s something that’s very important for us. We also like to have, as I mentioned, very hard working teams. So building a startup is not easy. It requires a lot more effort than a traditional job or even working in a large corporation. All we want is for these entrepreneurs to be very hardworking and put an extra effort to make sacrifices, to do everything they can to make sure the business is successful. We also like to have, as I mentioned, passionate teams. So, teams that didn’t really believe in this. They believe that this will change the world. They believe that this will be a very successful company. And ultimately, once they have this passion, I think you can kind of see it when you meet the founding teams, and it just gives them a bit more of an engine. So, when times get hard that they’re able to have that underlying passion to make sure that they keep going and then collaborative team environment is really important that they work well with others that they have good interpersonal skills, that people want to work with them. So, they’re not too cocky, but they still have some sort of humility where they people want to do business with them and ultimately enjoy kind of their experience working with the company. There are a lot of things that we think will make the company successful. But then again, we’re sometimes wrong, sometimes founder doesn’t have one of these things, and they still are successful. But I would say more often than that, those were some of the things that we look for when we’re putting money and investing into these startups.
[26:02] Radu Palamariu:
Look, if you had found the silver bullet that works for all startups, I think you would be a multi billionaire. I think a lot of people have been looking for that silver bullet that for all but unfortunately there’s no such thing. Sometimes it’s just a combination and sometimes, like you rightfully said, you might not have all the different ingredients, but it still works sometimes. It’s a good one. Moving on to the talent recruitment, attracting people side. So once it starts on grows, they begin to have more and more traction. They have more and more success, they need to start recruiting and hiring, and especially the first hires. The first 5 to 10 people to add in the business can be or are usually critical. Are there certain patterns, advice or principles that you think are critical when it comes to hiring the first members of the team?
[27:08] Mike Zayonc:
Yes, definitely. I mean, I think we really believe in ‘hire slow and fire fast mentality.’ So, if people aren’t meeting their objectives then it’s best to not have them on the team and then to really be careful about who we bring onto the founding team and how your kind of incentivize the team. So, those are really important things and especially when we look at startups like, how is the equity distributed in the company. The cap table can tell you a lot about the kinds of the foundation of the company. So, I would say having kind of culture that resonates with each other that people ultimately kind of believe in the vision of the whole culture. I think that’s really important and then ultimately it’s good to also have a diverse team. So, as I mentioned teams that complement each other, they have different skill sets, but they have the same vision at the end and working towards the same goal.
[28:04] Radu Palamariu:
In terms of training and sort of more formal type of skills that you may want your founders to acquire, it can be financial skills or financial acumen, it can be anything. Are there certain core business or management training or courses you want them to go through to make sure they have the fundamentals in place in terms of running a business?
[28:31] Mike Zayonc:
I think overall, the biggest thing is to have an open mind as an entrepreneur is that a lot of times you have to have flexibility that it’s, very agile environment that you have to be able to learn how to fly and just be proactive about things. So, if you do something that you think could improve the business just to go out and do it, and it’s kind of better, we believed to have this kind of act now apologize later, a type mentality where, as a start-up you have to make moves and even take some risks. But it’s better to move quickly than not move at all. So, that’s the game, I would say overall of being a startup is just really, be opportunistic, like one of the quotes our CEO, Saeed always says, his father apparently used to always say to him was, “When opportunity knocks open the door.”
[29:29] Radu Palamariu:
It’s a good one, and It’s not always easy to do even if it sounds very common sense. You Project 44, and we actually had Jett, their CEO on the podcast and some successful startups you had, Specifically Project 44 and you mentioned a few other names like FourKites, and all that. They managed to attract a lot of interest of other clients. Obviously this ability is something that’s really big for a lot of the corporate moment. I wanted to ask you also from a process perspective from one of these big clients like you have a Walmart. For example they pilot the startup X, it works and they have some good results. What is the typical implementation and adoption process in a big corporate? How they typically go about trying to make that startup as an organizational wide type of an initiative?
[30:40] Mike Zayonc:
Generally, like the way we work with these companies is we try to bring in the relevant champions from they can bring in business units of the companies that would actually work with that specific solution or technology area. And then normally the corporation would go through the process of signing some sort of NDA or legal agreement, which for some corporations can be a very tedious process. A lot of corporations sometimes have these 50 page for example, MSA agreements which they would put on a startup, which doesn’t work because the startup doesn’t have the legal resources to actually go through all this legal paperwork. But generally we like to make sure that they have a short MSA or legal agreement in place with the start-ups that is very startup friendly. And after that process has gone through, we really encourage the pilot that there to be pilots between the corporations and startups, and if it works, the pilot works then they should scale it up more and ultimately rolled it out across a larger area of the company. But if it doesn’t work, then to just end it and move on quickly. So, we really encourage this kind of test and pivot type of methodology, and ultimately cutting it out if it doesn’t work at all.
[31:54] Radu Palamariu:
Final question, what would be the best piece of advice that you would give a Founder, Co-founder or their founding team in terms of making their idea successful?
[32:09] Mike Zayonc:
My advice is probably the most important thing for a start-up, assuming they’re already passionate and really care about their product and working hard on it is to be opportunistic just keep an open mind and, for example, always listen to your customers. If you’re finding a lot of traction in a market segment that you didn’t think was a fit initially, just be open to kind of pivoting your business and ultimately scaling it and focusing on it where you actually driving revenue because it is a business that’s hoping to scale. It’s really important to generate that initial traction, and things like revenue are kind of number of users or whatever the attraction metrics are. Those things are really important and to built to demonstrate that to be seasoned investors, that’s something that will really help them from a metrics perspective when they’re trying to grow.
[33:01] Radu Palamariu:
Mike, thank you so much has been them is being extremely insightful. I’m sure a lot of the people listening to that want to go into the startup world are already there or as well as people from the corporate side. I know there’s a lot of them in this time of changed that very much interested in innovation and making this transformation happen. Found a lot of interesting examples in your sharing and good luck at Plug and Play, continue to grow in supply and chain, startups and help the overall ecosystem to innovate and it’s been a pleasure to have you with us.
[33:40] Mike Zayonc:
Yes, thanks a lot Radu. I really appreciate the time and getting some exposure for our program and for any corporations, start-ups or any anyone kind of innovation ecosystem, Plug and Play, We’re am open innovation ecosystem, kind of like you, where we want to work with a broad array of startups and just kind of know what startups run the market. So feel free to reach out to me through LinkedIn or my email, which is [email protected]
[34:07] Radu Palamariu:
Thank you for listening to our podcast. If you liked what you heard, be sure to go to www.alcottglobal.com and click the podcast button for all the show notes of the interview. Also subscribe to our mailing list to get our latest updates first. If you’re listening through a streaming platform like iTunes, Spotify or Stitcher, we would appreciate a kind review. Five stars work best to keep us going and our production team happy and of course share it with your friends. I’m most active on LinkedIn, so feel free to follow me, and if you have any suggestions on what to do and who to invite next, don’t hesitate to drop me a note. If you’re looking to hire top executives in the supply chain or transform your business, of course, contact us as well to find out how we can help.