Strategy: KLog.co

Unit 3, Professor Juan Alcacer's Strategy course, KLog.co – Charting the Course of its Future.

The last one, Axel Springer, was an old company selling off newspapers it loved in order to buy a new world. This one runs the other way: a Chilean freight forwarder keeps its old business as a cash cow, builds the new world into a lock, and then asks — should the next dollar go into making that lock deeper, or into planting five new flags?

Here goes — enjoy:

Case Summary

Santiago, December 2023. Janan Knust holds an espresso and stares at the mural by the headquarters entrance. The mural tells KLog's first eleven years, and the staff are proud of it. He hopes there will be room on it for the next eleven.

The company is no longer the impulse of that day in 2012 at the dinner table. His father ran logistics for fish exports and asked him to meet the people from Kerry Logistics. His father turned down the Chinese side's proposal, and he cut in: I'll represent you in Latin America. When KLog started out, it was simply Kerry's broker in Chile. By 2023 it provided both freight and software to more than 1,500 importers and exporters across Latin America: the forwarding business handled 13,834 shipments a year, its home-built SaaS reached US$500,000 in annual recurring revenue just over a year after launch, and it had always been profitable and never raised outside money. Several term sheets were already on the table. He kept asking himself the same set of questions: keep growing on our own cash, or take the first outside money? How should resources be split between forwarding and software? Would each decision damage the layer that makes KLog KLog?

Knust's path doesn't look like a freight forwarder's. Born in Israel, with dyslexia and ADHD, he was cut from his football team at 17, went to Switzerland to study hotel management, and worked his way up from dishwasher to head of food and beverage at high-end hotels worldwide. He brought the hotel industry's obsession with service into an industry that doesn't put the customer at the centre. For the first three years, the brand and the relationships were there; the numbers weren't. The debt owed to Kerry piled up to the edge of bankruptcy, and he flew to China to secure a line of credit. As he later put it: good relationships aren't enough in a low-margin, highly commoditised industry; the new principle had to be "who we are," not "what we do."

Freight forwarding is structurally unattractive. Global logistics is worth about US$10.7 trillion; forwarding itself about US$176 billion, growing at a compound rate of around 4.1% a year over the next five years. DHL has 6%, Kuehne + Nagel 4%, and small players together hold 60%. In Knust's words: barriers to entry are basically zero; anyone can do it. Customers use different forwarders for different routes and choose the cheapest. The industry's average cost of sales is 82%, and EBIT is 5%. Documentation is still almost entirely paper. The pandemic turned that into an accident: if the bill of lading can't get through, the cargo just sits there. Freight rates, meanwhile, turned everyone's revenue into a rollercoaster — the industry was +30% in 2021 and -11% in 2023; KLog's own revenue per shipment crashed from US$7,819 to US$2,764.

He decided not to do it the way the industry does. In 2017 he kept Álvaro Serrano, CTO of a company he had invested in, and built a platform from scratch, first for internal use: purchase orders, instant quotes, sailing schedules, tracking, documents. At the end of 2020 Serrano said he couldn't go on — six developers, almost all in their first jobs, and no product, design or marketing. They wrote a plan to "make technology the main value proposition" and kept him. Customers began voting with their feet. A purchasing manager at a large Latin American home-goods retailer said: we switched to KLog because the platform adapts to how we operate; with anyone else, one change takes forever. The CEO of a Chilean sports distributor said: beyond the freight, what we like is that we can track, store documents, see historical costs, compare prices, and still talk to an account manager.

One feature of the platform matters more than the feature list: customers can add shipments moved by other forwarders too. Documents are centralised even when KLog isn't the one moving the box. To get people to move in first, they created K4All — ship one load with KLog within a window and the platform is free. Software-only customers pay by container volume. The platform also comes with fully transparent quotes and a three-click Book & Pay, so sales can be bypassed. The information asymmetry traditional forwarders feed on was dismantled by KLog itself.

The pandemic was an unexpected validation. Freight rates soared, and importers often didn't know where their cargo was. The technology investment proved right in the chaos, and revenue was lifted to about US$80 million. Flexport was at one point valued at US$8 billion, and Nowports at US$1.1 billion. Knust knew the tide would go out. He strengthened his team, opened offices in Peru, Bolivia and Mexico, and hired a Mexico CEO from Rappi. He met investors and got term sheets, but in the end decided to keep rolling on cash. He later said that bootstrapping this way kept them clear-eyed about costs.

By 2023, the report card was split. Revenue fell from a peak of US$78.1 million to US$38.8 million, with US$50 million budgeted for 2024. Volumes were still growing: full containers rose from 5,256 TEU to 14,718, a three-year compound rate of 41%; the number of transactions grew 35% in the very year revenue per shipment was cut in half. Overall customer churn fell from about 55% in 2017 to about 40% — still typical of the industry. But once customers got onto the platform, retention followed a different curve: about 80% or more, back to 100% by year seven; for those not on the platform, it dropped to 51% in year one, and only about 20% remained after five to seven years. In mid-2023, platform users were only 26% of active customers. Forwarding had a gross margin of about 22% and an operating margin of about 11%; SaaS had 90% and 35% — and only US$500,000 of annual recurring revenue.

The culture was written down as AFIRE: fun, focus, discomfort, resilience, learning. Knust says culture has been the single most important success factor so far. Hiring deliberately avoids people from the forwarding industry; at the same time, he has known most of his senior executives since he was three. The office has a nap area, on-site massages and draught beer.

Four things in front of him, and US$15 million of cash over two years. Geographic expansion — Brazil, Colombia, Panama, plus China and Miami — about US$20 million; the digital platform plus a SaaS sales team, about US$12 million; trade credit, inventory finance, payments and insurance, about US$11 million; adding a CMO, a CRO and a chief of staff, about US$2 million. About US$45 million in total. The illustrative term sheet is US$50 million at a US$200 million pre-money valuation, a 1.5x liquidation preference, the right in year seven to redeem or force a sale, and a board seat with veto rights over audit and compensation.

Sitting at his desk, Knust has to answer:

1. Is freight forwarding an attractive industry?
2. What is the latest version of KLog's model? Does it solve the industry's problems?
3. What is its competitive advantage, and can it be defended?
4. Where is this growth curve strong, and where is it weak?
5. Should it go deep next, or go wide?
6. Should it use outside money to pay this bill?

My Thinking

Freight forwarding is unattractive — and that is exactly where this case starts

In Alcacer's strategy course, the first question is almost always about the industry itself. Answer it with "forwarding is growing, so it's attractive," and the next five answers all go off course.

Zero barriers to entry, zero switching costs, price is the product, average EBIT of 5%, and the top two players together hold only 10%. Big companies already negotiate directly with the shipping lines. What decides revenue is often not skill but freight rates — KLog's own revenue per shipment can halve within a year.

Unattractive is not a reason to stay out; it is a reason not to scale up this industry as it is.

My own take is that strategy in an industry like this isn't "we move boxes better than anyone else," but "we make it hurt when customers leave." That pain isn't in lower freight rates. Anyone can copy freight rates.

The boldest move is dismantling the information asymmetry you live on

Traditional forwarders live on three things: relationships, negotiation, and customers not being able to see clearly. KLog put its quotes on the table and added three-click booking, so its own salespeople can be bypassed.

That isn't a product manager's feature. It's an old advantage that a founder chose to give up. In the short term it looks like tearing down your own brokerage; in the long term what it buys is trust — and that forked retention chart.

The same thinking shows up in one more place, which is easy to dismiss as merely "open-minded": the platform lets customers add shipments moved by other forwarders. A forwarder that builds its own booking tool is competing for a button; one that becomes the place where the customer's documents and history live is competing for memory.

"Customers will stay and keep letting KLog move their boxes, because competitors are still moving boxes with pen and paper."

Knust's line puts two things together: the one moving the boxes is still the forwarder; what makes people not want to switch is the system.

My own take is that once the old information rent becomes a stranded asset, the earlier you give it up, the cheaper it is. Give it up too late, and someone else will give it up for you — and walk off with the memory.

The moat isn't the software; it's software and forwarding growing up in the same system

Serrano didn't stay because of the technology itself. In his own words: technology alone isn't enough. The platform grew up together with the operations team, and what employees use is what customers use. That's why customers say other people's tools are thin and rigid, and one change takes forever.

The culture is written down as a layer alongside the software. The two words in AFIRE I care about most are discomfort and learning. The first forbids the company from relaxing just as things start getting easier; the second forbids relying on cleverness and improvisation. Add one hiring rule: deliberately don't hire from the forwarding industry.

This three-piece set — live operations, one shared system, and a culture that is still filtering — can't be copied by copying a feature list. Copy a single screen, and the big forwarders are already doing it; Flexport acted that out at a far higher valuation.

It isn't finished, either. Only 26% of active customers live on the platform. US$500,000 of annual recurring revenue, backed out using the case's average software revenue per customer, means roughly twenty-some paying accounts. K4All's free tier is lifting retention, but the software company hasn't been born yet.

My own inclination is to treat "moving in" as the strategic metric first, rather than ARR. If 26 becomes 60, the nature of the forwarding book changes; if 500,000 becomes 5 million while 26 stays at 26, nothing changes.

Revenue halved while volumes kept growing: a report card and a warning

Read only revenue, and KLog looks like it's shrinking: US$78.1 million down to US$38.8 million. Read only 2021, and it looks like a tech company that ought to be worth US$200 million. Both readings are wrong.

Volumes are growing, customers are growing, prices per shipment are collapsing. In 2023 transactions were +35% and revenue per shipment -60%. This is a company taking share in an ugly industry, with its income statement torn open by a freight-rate chart. The 2024 budget of US$50 million and 15,000 shipments is a recovery, not a moonshot.

The warning is on the other side. Overall churn is still about 40%. The four cultures haven't fully grown together — Serrano almost left in 2020, technology is replacing manual work, and Knust can already see that "if we don't grow exponentially, our people will run out of work." He has known most of his senior executives since he was three: at two hundred people that means speed; when you need to add marketing, a head of revenue and a whole credit function, it's a blind spot. The geography is still thin, weighted heavily to Chile. AFIRE and draught beer can't be exported as a toolkit.

Make the platform sticky enough first, then go into Brazil

The four-item menu adds up to about US$45 million, against US$15 million of cash over two years. The platform plus the team is US$14 million, which fits in their own pocket. Brazil, Colombia, Panama, China and Miami are US$20 million, and fintech is US$11 million; those don't fit.

I would spend the cash on the first two. Push geography back, and when the time comes, go in with the software first, not the warehouses. Put fintech on hold — trade credit is a third business, they have only just survived a 60% drop in revenue per shipment, and there is no reason to start lending at this point.

The growth menu is not four equal items. The ordering is the capital structure.

The cost is clear: in São Paulo, for a while, they will look smaller than rivals who have raised money. The other path costs more: before 26 turns into 60, turning yourself into a more respectable regional forwarder — on someone else's clock.

DHL and K+N grew by buying the local top students. KLog shouldn't copy that path before it has something those top students don't.

I wouldn't sign this term sheet

US$50 million at a US$200 million pre-money valuation, 20% dilution. A 1.5x liquidation preference, the right in year seven to redeem or force a sale of the company, and a board seat that holds audit and compensation in check.

On 2023 revenue, that's about 5x. Even valuing the software at ten times annual recurring revenue, it's worth only a few million. The investors are underwriting a forwarding book that has just been cut in half, plus a story. The case itself says it: the Flexport kind of hope has cooled.

The useful part of fundraising, they've already had once. The process got the company understood and left relationships behind, and they didn't take the money. In the boom, that was right. After the tide went out, if growth means only the platform and the team, it is still right.

My own take is that outside money is only for a moat that cash can't cover. In this round, KLog's cash can cover the moat. What the terms would rewrite is precisely the moat — how people get paid, what gets measured, and what kind of story must be told in year seven. The next panel of the mural shouldn't be in someone else's handwriting.

Takeaways for Arcus42

Reading this case, what came to mind wasn't shipping containers, but any company that sells both "service" and "system" at once: the old business pays the bills, while the new system decides whether the customer will still be there tomorrow.

First, ask whether the industry is attractive before asking whether you should grow the way it does. In an industry with low barriers, price wars and customers who can leave any time, expanding territory just replicates churn. The first job of strategy is to change how much it hurts to leave, not to open a few more doors.

Second, what you're really competing for is the customer's memory, not the booking button. If a system can only hold what you yourself sold, it's still a forwarder's website. If a system can hold what happened to the customer elsewhere, it starts to become the source of truth. When a person leaves and the customer follows, it's often because the memory still lived in that one person's head.

Third, give up the old information rent voluntarily. Not being able to see clearly is the source of profit for many intermediary industries. Lay it out in the open and in the short term it looks like you're dismantling your own sales; don't, and someone will do it for you. Stickiness is the new profit; opacity is a stranded asset.

Fourth, rank the growth menu; the ranking is the capital structure. Four things that all look right will, added together, force a term sheet that rewrites your culture. Do first the thing that makes it hurt for customers to leave. If your cash can cover the moat, don't buy someone else's calendar for the sake of more flags.

Fifth, culture is strategy only while it is still filtering. Words on the wall, plus "we don't hire veterans of this industry," make a filter. Words on the wall, plus finding the next hire only among people you know, plus an outside compensation committee, make an atmosphere.

Sixth, whether fundraising is right isn't about whether you raise, but whether the money covers the layer cash can't. Going through a full round and then setting the terms aside can be the most valuable stretch of all. Raise when you should; when you shouldn't, the process itself is already enough.

Final Words

Before class, the line I agree with most is: "The growth menu is not four equal items. The ordering is the capital structure."

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These are pre-class reading notes, compiled from Harvard case classroom materials, and do not constitute investment advice on any company or transaction.