#92 - Ryan Petersen

Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinators Podcast. Today's episode is with Ryan Peterson. Ryan is the founder and CEO of Flexport.

Flexport is a freight forwarder built around an online dashboard. They were part of the YC Winter 2014 match. You can find Ryan on Twitter at TypesFast. All right, here we go.

Ryan Peterson, thanks for coming in for the podcast. Let's start with a brief explanation of what Flexport is, because many people might not know what a freight forwarder is. Yeah, so, well, Flexport is a freight forwarder, first and foremost, and that means we help businesses ship cargo around the world. We're also a technology company, so we use technology to give companies more visibility and control over their freight at a lower price.

We use technology to automate a lot of the labor. Freight forwarder is really interesting. We're all used to, the analogy that people want to go towards is like a FedEx or UPS, which are parcel shipers. And the difference between parcel and freight is actually a very simple one.

It's like, is the product too heavy for the driver to lift up and put in the truck? And the moment it is, now it's freight. And it needs a whole different network to move it. It can't go through those same trucks.

The conveyor belts are too narrow for freight, for pallets. And what fundamentally happens that's different is in the parcel business, it's from end to end one company. And therefore, they can have like scanners at each mode, they can have each node in the network, they can give you that nice user experience with the milestone telling you where your stuff is. In the freight world, because of the size, there's no company big enough to keep it in their own network from door to door.

You'd actually have to be the biggest company in the world by far. You'd have to have a port leaving every port going to every other port every day. Right. You'd have to have a ship rather leaving every port going to every other port.

You'd need the same for airplanes. And then when that ship arrives, remember that these big container ships now, you need 10,000 trucks to meet the ship. So you would need 10,000 trucks in every port every day. You just couldn't do it.

It would be too big. So what the freight forwarder does in the freight network is you're moving this freight as a relay race, being handed off from a trucking company in China to the warehouse, to another trucking company to a port, to an ocean carrier, right in the mirror image on the other side, door to door. That process looks like a bunch of unstructured data being handed off in a relay race. And so what's different about Flexport is we're taking all that data, structuring it, creating a platform so that each of those parties can get what they need to do their job or give us what we need to pass to the next party in the chain.

What's an example of customer? So to kind of contextualize this for someone. One of our bigger customers is Georgia Pacific. We also have Sonos as a customer.

So we ship all the speakers. Georgia Pacific is the biggest paper company in the world. But we also, I think, are the best way to ship stuff to Amazon. So we have about 2,000 merchants that sell on Amazon that use us.

And they're going directly to Amazon warehouses? Or what are they doing? So probably about 10% of Flexport shipments get delivered to an Amazon warehouse. And that's small companies doing that, as well as big companies that sell for Amazon.

And you were selling for Amazon 10 years ago, 15 years ago? Yeah, 10, 15 years ago. Actually, back in my day, eBay was a bigger platform than Amazon. Amazon introduced the third-party seller.

I remember I was one of the first people to sign up for it. And I thought it was amazing that for $40 a month I could become an Amazon merchant and add products to their catalog. Just full on. You can just have the photos and everything.

I don't know if you can still do that, but I can make up. That's how we sell the book. But I was just going to make up my own brand name and create it. Importing motorbikes from China, as well as electric scooters.

The scooter mania that's happening now is so fascinating for me because 15 years ago, my brother and I and our other business partner, Michael Kenko, we were importing electric scooters. Almost the same form factor, a similar price point. And in fact, I saw one for sale on eBay in Mexico like a month ago. I was just checking out to see what happened to our old brand that we invented.

And there's one for sale for $125 on eBay in Mexico, which maybe these things hold value better than we thought it would. I mean, this is like a classic Silicon Valley story, right? Where people find something that's good, but not until the market is ready for it will it really take off. It also obviously required a smartphone.

I think you needed a smartphone. And so I even tweeted about this. I'm like, if only I would have invented the iPhone, I could be rich with the scooter business I had. And so obviously the scooter thing didn't work out or it just kind of was fading.

You decided to do something else, right? It was a tough business. I lived in China for a couple of years. Actually, it was a good business.

It went along for a while. We never considered it a startup. We were never trying to like change the world. It was like a couple of guys trying to run a living.

I moved to China for two years running supply chain for that business and then kind of used my story as an entrepreneur with international experience in five languages and told that story to get into business school. I wasn't making a lot of money. In fact, the year before business school, I only made $17,000, which I'm almost certain was the lowest of anyone who was trying to make money that year. I'm sure that some business school students weren't trying, but I was trying hard, not succeeding.

And I thought business school would be a path for me to at least have some sort of backup plan in life and I could get a job. Yeah. I never really had a job in my whole life. I've worked for Domino's Pizza, making pizza when I was 15, and that's more or less really bad.

Did you graduate with that? I did, yeah. Yeah. Do you feel that that affected your decisions?

I mean, obviously you're working for yourself now, but. I didn't let it. It did affect my decisions, but I was determined. So I went to business school.

I graduated about $140,000 in debt. I was pretty determined. I knew that, like I looked at my classmates and I could tell that I was a little bit different than them. Like I'd never had a job.

I'm an entrepreneur. And I looked at the recruiting cycles and processes and the types of jobs that were available to MBAs. I just knew I'd be bad at them. Like, you would fire me if you hired me to do this management job.

Like, I'm not, that's not, I'm not cut out for it. Yep. And so what I did to manage the debt was actually I got a bunch of part-time jobs. So I, one of them was writing case studies for.

For Columbia? Yeah. So I wrote, I wrote the first published business school case study about an African company. So I went to Nigeria and wrote a case study about a tech company in Africa.

And that was paying me like $40 an hour. And then I had a job, like I started a little SEO consulting firm to help businesses with their search engine presence. Yeah. So I had three totally flexible on my schedule jobs.

So, okay. So I've been in experiences like this before. How do you manage your time such that you give your best energy to your business that you want to start rather than like letting all these other projects consume all of your time and energy? Well, so I didn't know what business exactly I was going to do.

And so I just need to make sure I had some money and then free up, make sure I, I'm kind of obsessed. So I'll have, I'll make time for, for hacking on things and creating things. But I would, I had three or four different businesses going at the same time. Ideas plus my, and they're, what's a business?

It was just a website. So it was mostly just like landing pages for ideas. Yeah, that's what I would do is create landing pages and then see if anybody buys. What were the ideas?

Well, a couple of them have merged. So one of them was an ERP for importers that would manage your inventory. And then we'd sell you freight, which is actually kind of what Flexport's becoming. And one of them was an online customs brokerage and freight forwarder.

That became Flexport. We've had so many dumb ideas. They're not really worth talking about. Not because I'm embarrassed, but I don't even remember any important ones.

But I had a few. And Flexport, what became Flexport. And actually, by the way, this is years and years. I'm always doing this.

I still have some random projects like stockbankruptcy.com. So if you run out of stocks, you just declare stockbankruptcy and we'll send you 50 packs of stocks. That's great. That's so good.

That's my form of entertainment is like create a little landing page and see if anyone pays and buys. I think I'm going to do the same thing. So all the t-shirts I wear, I had custom made. But I basically tricked the company that made them the first time into ordering me a test run.

And I only ordered like 10 or 20. And I'm going to eventually wear all of them out. So I think I'm just going to do a bulk order and have mediumgrade t-shirt.com or something and just sell them all. Yes, I think there's a misconception that entrepreneurs are just like huge risk takers.

But I see myself by the opposite. It's like I wanted to see that there's real traction. So you can look up any company and see all their factories. You can look up any factory and see all their customers.

Used by hedge funds, but it's really used by importers, Amazon merchants who are trying to research factories overseas. Wasn't that the concern if Amazon starts paying attention to where people are making stuff and they just make their own? Amazon's doing that. Yeah.

As they get into shipping. Well, yeah, they already just do it. That's how they look at their sales data and be like, which product should be cloned? I'm going to make an Amazon basic version of that product.

They have like 400 different brands now that you don't even realize they're Amazon. Competing with your platform. I think platforms should be neutral. And so the idea that you compete with your vendors, to me, you've got to, a business is to keep it's all of its major stakeholders happy.

Yeah. And your vendors are one of your key stakeholders. If you don't treat them like you have to be the counterparty of choice for your vendors and Amazon doesn't, that's the one mistake I would say that they make, like as the company I respect the most in the world, but they don't seem to respect their vendors. And that, to me, it's not sustainable unless you keep, your six stakeholders as a business or your customers who pay you money, your vendors, your employees, your investors, your regulators, and then the communities where you operate.

And you actually have six stakeholders. And if you can keep all six of those, you've got to be the counterparty of choice for all six. You've got to get yourself in their head and be like, what do those companies, those partners want? You keep all six happy, that's the definition of winning.

Nobody loses. It's like, and it's like you're playing poker. You've got, and you know, everybody's hand. You can see through their eyes.

You won't lose. And so when you see a business that's like failing on one of those, often it's the regulator or the community or the employees, et cetera, but your vendors are too important to alienate them. It's an interesting point. So would you, would you bet against Amazon at this point?

No. So what do you think happens? Well, I think that they can be, they are enormously successful. As for like their stock, whether it's overvalued or not, I don't have an opinion.

I, I, I, I sold my Amazon stock two years ago when I bought a house and I literally, I was crying out. I was like, this is the dumbest thing I've ever done. Why am I selling the stock? My house is up 10% and my Amazon, Amazon's up like 4X.

So obviously I was right. I wouldn't bet against the company. I do think however, if Amazon wins and they seem to be winning, then there's only one global megacorp that makes everything. And like, we all have two choices.

You want the black version or the white version of your product. And that is exactly what a philosopher in Germany in the 1860s predicted would come to be, is that there's one global megacorp and the proletarian must overthrow it and take it back. And I don't want to live in that world. You know, so I think there's, I see a big part of Flexport's role is enabling, empowering all the other brands in the world, all the other great makers and creators to make products and have the infrastructure to compete and thrive in the Amazon world.

Yeah. I haven't seen a lot of friends start these. I mean, they're not necessarily small scale companies, but they're all kind of going for that premium angle, right? So they're not selling on Amazon.

They're selling through their own e-commerce site. Are you seeing more of that on Flexport? About 10% of our shipments are bound to Amazon. And probably more than that are sold via Amazon because some people do fulfillment not using Amazon's fulfillment, even though they're sold on Amazon.

I don't know the trends. If anything, Amazon's taking more and more market share from the world of e-commerce. Let's do an MBA question before we go further into Flexport. So Matt Susk asked, what are your important takeaways from Columbia Business not we, I do not have this bias.

I love MBAs. We've hired a lot of great people with MBAs. But there's a bias, certainly in the founding, founder of venture community against like founders and you think MBAs don't make great founders or something. It's probably true, but it's a sample bias.

Like the average person going to MBA to do a business school degree is not a great founder. They're meant to be a middle manager. But if you take someone who's a good founder and they spent two years studying business full time, like surely that would make you better at business. But it's the average person going in is not cut out for that, but it doesn't have to do with the business school degree.

Having a business school degree has helped me immensely in understanding the principles of accounting and revenue recognition and, you know, like real basic fundamentals, finance cap tables, discount rating, discounted cash flow. These are like core principles of a modern business person that you drive and help me tremendously. Now, worth the $140K in debt that I graduated with? Probably not.

So I tend to recommend business school to people who are rich and like your family's going to pay for it. So that's a great experience. But like if you're going to graduate with $140K in debt, it's pretty brutal. It'll really limit your future opportunities.

And I hate to see people make life choices because they're in debt and they need to make, you know, it's kind of, I don't like to live with permission from other people, much less like some bank that I have to decide what job I'm going to get based on some anonymous financial institution and let me money. That's kind of crappy. Yeah. I mean, if you need to kick in two or three grand a month, like a lot of people can start companies.

That's a huge amount of money, right? And so, especially after tax. So I think it's, I think it's very important for people to have a pretty good plan. Like I didn't have a great plan, but I worked one out.

And every article about this, if you Google like MBA debt, Ryan Peterson is on the internet somewhere about how to, what I did, which was find these part-time jobs and generate some income while I was, so that I could, I don't know timeframes, like even Flexport, I don't know what time frame will be successful, but I know that if we stay in the fight, we'll win. And you just want to make sure you set yourself up in a way that you can't lose because you're in the fight in perpetuity and like, you'll just keep finding new hacks. So I didn't know what business I was going to make success, but I knew that I would do it. And if I, as long as I could make those debt payments, make my rent and like afford some food, then I'd buy myself an indefinite period of time to experiment.

Right. And so what was the point at which, because you, the idea of Flexport kind of was in a holding pattern for like three years, I think you said, until you were approved for a certain license. At what point did you commit to doing Flexport? When did you know it was going to happen?

So March 31st of 2013 is when we were granted a license by U.S. Department of Homeland Security, Customs and Border Protection. And so I started working on the idea in like 2010. Yeah.

Flexport, there were three years there waiting for the government to approve. So any, any income at that point, no revenue. It was not a business yet. I was still working on my previous business.

Okay. And Flexport was a side project. Gotcha. And then after three years, I finally got granted the license and made it a full-time job like basically the next day.

Right on. So there is a question then about your first, so this is from Tyler Hoge. Yes. How did you get your first three clients?

The earliest customers for Flexport we got via Google AdWords and SEO and just signups. People just finding us on the internet, signing up for the service. Really? In fact, pre-launch, so when I was still experimenting and I built the landing page for the service that there's enough Flexport and we had not yet launched anything.

We hadn't received a license yet. I was just figuring out like would people buy the service if it existed? It was just a marketing page. It was like, and we got Foxconn signed up, mixed with the iPhone, Cargill signed up, like one of the biggest ad companies in the world.

And then one day Saudi Aramco signed up. The national oil company of Saudi Arabia signed up for my fake website. I'm like, oh man, this is going to be a fake company. I need to get this license.

Oh man, that's so true. Did you jump the gun and just start emailing them? No, I didn't because I wasn't licensed. I was just like an experimental thing.

I didn't know how to do the business. I was just saying would people buy the service if it existed. I'm not a big risk taker. I was just like, I don't want to start this hard business unless I know people are going to want it.

Yeah. And so how did you verify that people actually wanted it? I mean, they're giving you their email, but that doesn't necessarily mean they're going to pay you. Well, I knew.

So Flexport emerged out of, yeah, I had this business selling shipping manifested, but that actually evolved and emerged out of a business that my brother and I and our same business partner, Michael Kanko, ran buying scooters and buying products in China. And so I had felt the pain firsthand of freight forwarding that there's this information asymmetry and the forwarder, global trade's kind of a black box and the freight forwarder knows how it works and you don't. And they use that against you. They use that to make money off you.

I knew from first principles from having experience that it was a good idea. I didn't know that big companies had the same problem, right? So when they started signing up, I was like, oh, this is even bigger than I thought. But I already kind of knew just from firsthand experience that this was an ugly industry and that software could make it better.

It was kind of like the only real principle that I had. I didn't know that much about the underlying problems. I'd never been a freight forwarder. So I'd only seen the tip of the iceberg that's customer facing as a problem.

I didn't know why, the reasons why the forwarders acted the way they did and the other parties involved. So, but it was enough to set us off on the track and say, hey, let's go. My hypothesis is like software could teach the importer more about this, what documents are needed, et cetera. Totally.

But at that point, so you're. Are you a competent programmer? Because you're a solo founder, right? Yeah.

So what did the product even look like? So three years, you got your license. What did you do? Three years, got the license, immediately hired three Rails developers.

And so I had made money in previous business and was able to hire some programmers. And I was kind of first PM and had some programmers working for me. Yeah. And so you just built it out from there.

Were you thinking about bringing in your brother and a separate business partner to be co-founders? So my brother actually, and I really like sort of biological analogies in business. I think that I think a business as a, you know, each business is kind of an organism and an ecosystem and a competitive environment around it and needs to buy and sell from vendors, just like any organism needs to find sources of nutrients out there in the wild, right? And so in the evolutionary tree of Flexport, it kind of goes back to importgenius.com, which is this data service for global trade.

And before that, the importing business that we ran together. And I think at the importgenius stage, which is taking public record, making them searchable and selling subscriptions, the tree kind of works. And so my brother, who's my co-founder there, left before me even and started a company taking public data. So we had found this public data, found interesting ways to make it useful and make money off of it.

He said, what are the public data out there? And found the building permit for every remodeling project and every construction project in the United States is a public record. And so are the permits, so are the licenses for the contractors. And so he built this search engine for contractors that shows you dynamic profiles of their work and went to YC and got into YC with that.

So he actually did YC before me one year prior. I saw BuildZoom, kind of the Flexport remodeling. And so he had left to do that. I tagged along with him, came to Palo Alto.

He was in YC. I lived in the apartment. I was helping him. I snuck into YC a couple of times in South Paul speak and was like, I want to do YC.

And so kind of following my brother's footsteps, as I always have, I came and did it. But we were kind of spiritual co-founders helping each other with our businesses along the way. And so at what point do you guys, are you based in New York at that point? Or are you full on with California?

I moved to California to start Flexport. And I think that was one of the better things I've done. Import Genius, I started in New York and then moved to Arizona when we put a call center and our sales service center in place. And I didn't want Flexport.

I didn't think that we could stand out. We don't want to be a freight forwarder. We're a technology company that's making freight better with technology. And I thought that story would be hard to recruit the talent and the capital in Arizona.

But in Silicon Valley, as part of YC, it makes sense. So I think Flexport could only be founded in Silicon Valley. We'll see if that's true in 10 years from now, but I think that's still true today. Do you hire most of your engineers here?

All of them. All of them. Okay. Because there are a bunch of questions about you guys being all over the world.

Yeah. We're in Shenzhen in Hong Kong, in China, and then kind of five offices plus warehouses in the U.S. We have three warehouses. We have a 747.

We have our own plane. Our strategy for hiring talent is, well, what we look for, we like Flexport, my COO, my business partner calls it insecure overachievers is our profile. We want people who are like really hungry, but humble. And they want to prove something to the world and they're super smart, but they don't necessarily realize how great they are.

And that's been a great formula for us. It's hard to identify, but. I've heard this on multiple occasions from people who are saying like kind of like the state school mentality versus like, you know, going to Columbia, for example. Yeah.

It's like you find the smartest kid from like UMass and they don't even know that they're a diamond in the rough. Yeah. I mean, we're happy to hire. You can find these people at the top schools too.

Around the world, you know, I don't know how different it is in everywhere. We do hire local recruiter, recruiting people. We don't, we like to have a very decentralized work structure. I think it's very entrepreneurial.

I think entrepreneurs get more done and are better. So rather than having one recruiting team here that's totally specialized and expert in each function, I'd rather have a generalist recruiting reporting to the head of that office in tag team. Like that would be better than even the best recruiter who's totally specialized in one function like sales. Yeah.

Sitting in one place, I'd rather have an entrepreneur with a recruiter paired up will do better than like a totally specialized recruiting organization. So that's the way we try to organize. I think that's true for most functions. And then culture wise, do you, do you bring a few people over to start a new office?

Yeah. Yeah. We'll always send, now we try to send eight people to a new office and launch it and get them to actually move there. Oh wow.

For a year, for wherever? Hopefully forever. Although I don't think there is forever in the modern world. We get people, we really encourage generalists and that requires rotation.

So it's geographic rotation, moving to a new office or rotation to a new function within the work. So we love to encourage people to move, try different jobs. And yeah, part of that is launching new offices. What have been some challenges in scaling?

Because you said you're 400 in SF. 400 in SF. How many of you globally? 450 worldwide.

Man. Yeah. What have been the challenges in scaling to almost a thousand people? The, the, the, the core challenges of Flexport, and they never go away today.

So we've had epic product market fits since before we even launched, right? Yeah, that's great. Flexport has never had a problem with demand. People want what we do.

We're, we're, we're creating a better way and cheaper way to ship freight, which is a trillion dollar industry. It's literally logistics is 12% of global GDP. 12% of every dollar made by every person on planet earth goes into logistics. And, and it's, I think much of the back pressure against the rest of the economy is the fact that this industry, which is a circulatory system for global trade is inefficient.

And so all the other companies are made inefficient because the circulatory systems got a lot of cholesterol in it. And so we never had a problem with demand. We have a problem with filling that to it. Actually doing a good job.

Like operations is hard. Logistics is tough. And so it's getting, um, so product market fits, that gives you the market demands that you respond, that you hire enough talent to do it, that you, um, and the people will come because they're attracted to that growth and the product market fit. So the remaining problems are all, almost all culture, closely related to compliance, following all this regulated industry.

A lot of people not from the industry, we have to teach them all the rules, make sure you have good checklists and processes to avoid ever breaking them. Um, and, and then just the complexity of the network, the business that we're building. Like how do you make sure that we can keep things simple to find this? It's all culturally.

Yeah. Um, defining decision rights. Just know who's allowed to make, how do you keep people out of each other's way? How do you resolve conflicts in the company?

Have you been just, you know, talking to other entrepreneurs, reading books? Like what's been the most influential thing for you? Always books. I read books.

I read a book every week at least. What's good? Uh, well, my favorite book in the world is called Origin of Wealth, which is about evolution in biology and business. Um, I actually think, um, this will be controversial in some circles here in Silicon Valley, but one of my favorite business books in the last five years is a Good Profit by Charles Cope.

Okay. Cope, brother. Yeah, first. Um, but, uh, it's an incredible book about, about, uh, the role of business and society and how to define, uh, culture within a company and define decision rights and allow people to make, um, to, to move fast and be what he calls a principal of entrepreneurs.

They get all your employees to have principles and be entrepreneurial. Um, but yeah, culture is our biggest challenge as a company. The, uh, my definition of culture, of good culture is that you have engaged team members, like that everybody there is engaged with their work. And what engagement means is you're getting more out of your job than you're putting in.

It's very high bar to clear. Yeah. But you, to do it, it's compensation, of course, but you get pretty quickly, we're all on the hedonic trend and get used to that. So then it's, do you feel like you're creating value at work?

Do you like the people that you're working with? Are you learning? Do you see a career path? Are there opportunities for you to grow?

Um, and I'm sure there's some intangible things too, like what's your office environment? Is it comfortable, et cetera, but those tend to matter less too. I did see those, uh, room phone boxes that you have. Did you help start that?

Or you're like, you have a room? Yeah, yeah, yeah. I started, um, a company, I, I helped to start a company that makes phone booths. The offices of getroom.com.

Although I named it phone booths.com and bought the domain for the company, which we also own, but they, they like, oh, it's too generic. They need a fancier name, but I really like the phone booths.com. It's super simple. I think offices are too loud.

I 100% agree. And so every office needs a phone booth where you can go make a quiet phone call. So we made those, um, and we sell them on that website. Uh, how, um, how are you actually measuring this?

What was the metric? You didn't say engagement, but it's like getting more out of your job than you put in. Yeah. How do you measure that?

Well, it's, this is why culture is so hard to scale because it's done, it's not a formula and it's done through conversation. It's done through great management, you know, leadership, but management, like talking to the people, caring about them, listening to their challenges. And you can't do that. I can't do that for 150 people.

So you've got to have great managers up and down the chain. There's a lot of training, a lot of understanding people. What do they want? What are they trying to get?

Are they getting it? And, and that's why culture is really hard to scale because the more people you have, the more equations you have to keep track of. How many direct reports do you recommend having for an average person? Average person should not have any reports.

For the average manager, uh, I don't know, maybe eight. You want to be able to meet with each of your reports for an hour a week in a one-on-on-one and beyond. If you're doing more than eight hours, it's 20% of your time right there for a week. It's more than that.

It's probably not, not good. Um, scaling that culture is just like the key challenge of any business. Once you get product market fit, the world will demand it of you. And I think one of the things I've been, well, I've been fortunate at Flexport in that I'd never been a freight forwarder.

So there was never, never a moment at Flexport where I could tell everyone what to do. Yeah. I never knew like you should do this, you should do that. So at no point did the company ever depend on what Ryan told people to do.

I knew that global trade is an incredibly important thing in the world. In fact, I think it's the trade is the thing that separates us from the animal kingdom that we were, we figured out how to trade. And therefore all the collective learning that goes into that. If I make a product, I know all the ideas that go into that product.

I'm exchanging with you. I'm giving you my ideas. This is what allowed humans to defeat all the other hominid species because we could work together effectively and specialize and they couldn't. Yeah.

So it's really in the human experience, it's intricately related to the rise of humanity. And, and nothing in the last 50 years lifted more people out of poverty than, than the opening of adoption of free market economic policies in the East in particular, China and India and other places. And, and yet trade is still too hard. You're talking about the most, possibly the most important trend in the world economy.

And it's anyone who's tried to do it will tell you it's a nightmare. And so that was my guiding principles. Like here's something incredibly important to humanity. That's way too hard.

Let's attract a bunch of super smart people, show them the problem, help them organize themselves and let them make the decisions. And that's, that's really helped us. Now it took five years from the first time I had the idea to the first dollar of revenue was five years, four years of which it was just me and no other employees. And, um, and so we, had I known everything about logistics and I'd been a freight forwarder, I think we'd had revenue in the first year.

We got licensed right away. We would have gotten to some scale much faster, but it would have depended on me and stopped scaling. Cause I, it would have been like, you know, the train, the director trying to tell you what to do instead of like the grandpa saying like, well, let's see if I can help us organize and to, you know, like teach you the lessons of my career instead of, and that's a much better place for a company to try to scale long-term to build a culture. Right.

Is it like a leader like that? Um, so I think my naivete around forwarding actually turned out to be a good thing in the long run. Cause I can focus on culture, on recruiting, on org design instead of on telling people what to do. Right.

Yeah. I mean, you could, if you were coming from the industry, have all these preconceived notions that may have set you up for failure if you didn't realize, but are, are many of your employees, um, freight industry veterans? About 20%. Um, we try to, we try to hire one out of every five or six people, uh, from the industry.

We think we need that expertise. My, my principle is five or six people. Cause like most teens should have five or six people on it. And I want one person in the room who's done it before, but not two, because then they'll gang up and, uh, and you know, you want to make sure you're not making really stupid decisions, but you don't want to, because then they'll form a coalition and convince people that they must do it that way.

And it's like, rather just like hear the voice. Um, they're often right, but not always. Okay, cool. We want to challenge those assumptions.

Let's, uh, let's do some Twitter questions. You have, I mean, you were, you're the first podcast guest to proactively answer all of them. Oh, I didn't know that. No, no, no, no.

We got, we got some good stuff. Um, so I'm curious about this last one on the first page. Uh, Justine Ali asks, how's the Trump policy on foreign trade affected your business so far? Yeah.

Um, it's tough to see our customers get wrapped up in it. We've had, uh, a lot of, it was only about 2% of our shipments were affected by the first round of tariffs. Uh-huh. So by commercial invoice value.

So about 2% of our total shipments got slapped a 25% tariff on them. So it's not really material for us yet as a business. And yet if you're one of those 2%, it's super material. Yeah.

We've had, we had a company, um, makes an air purifier, great company, female entrepreneurs in our office, hung out with us on like, you know, sessions teaching our team about their business and stuff. They get hit with this. And it's like, oh, that's brutal. You know, you're like millions of dollars of extra charges, totally out of their control.

And these supply chains, especially for electronics, can't move. Like South China is where you're going to produce that stuff. There's not infrastructure and subcontractors and other vendors to make consumer electronics outside of the Shenzhen, Guangdong province. There's just not, and you can't go to another country.

Yeah. So that's brutal. I hate anything bad for our customers. I hate on Flexport's perspective.

I think one, we've got to be the best. I think we are in responding to that because we have a database within five minutes and one SQL query. We're able to tell every customer exactly who's affected, how much, what is this going to do to you? I think it lets us differentiate from our competition and, um, and then help them plan around it.

Right now, our business, it's August, our business grew 50% in the last two weeks, which is crazy because we're a big business already. Um, but right. And we're not getting too excited because we think a lot of that, there are new tariffs coming. And we think a lot of that business that we're seeing now, there's a huge surge for August.

It's not supposed to be a time of year when your business goes on fire. Usually it's culture of the holiday season. But we think a lot of businesses are actually pulling their imports forward to import the stuff before the tariff gets slapped on it. So we will see how it plays out.

We're not getting too excited. Um, this is sort of a tangential question, but I heard you mentioned on another podcast, uh, the holidays and shipping prices. Can you go over that? Because I was fascinated.

You said it was like at some point there's a 10 X increase on freight. It was in particular. Okay. Well, it's one of the reasons I love this industry is because it is so tied.

Trade is so deep in economics. Yeah. And you have, uh, you have supply and demand balances on all these things. And air freight in particular is a fascinating one because an airplane, people don't realize, but 50% of all the air cargo in the world is actually moving on passenger planes in the belly of the passenger plane.

This is why they have a luggage tree because they actually have an opportunity cost. They're going to put someone else's cargo in there if they don't put your bag in. And that, that's a really interesting situation that you don't often see where the supply for the market of air freight is actually totally disconnected from the demand. It's disconnected to the demand for passenger tickets.

Yeah. And so that's going to always lead to fundamentally imbalances in the air freight markets. And what will happen, the air freight is quite a seasonal business. It's, it's run, the economy runs on Christmas.

The air freight on average is about five times more expensive than the notion of freight. So right before Christmas season is you want to bring everything in and get it in and sell it. And if you don't get it in those two week period, you might never sell it. So it's worth it to fly over even if it's five times more expensive.

Okay. Now the moment that that plane is full, which, which happens every November and every October, really planes get full. Now the price goes to whoever's got the highest marginal value out of that last kilo of space, which tends to be, you can probably guess which company is making the most per rectangle about this size. And they're willing to be, you know, if you make 600 bucks on an iPhone, I think their margin, I've seen the breakdowns, they make like 400 bucks or something according to that iSupply company.

And it costs a buck to ship it. Do you really care if it costs five bucks to ship it? So all of a sudden the price can go crazy. And the price, this is classic economic theory.

The price set in the market is, goes to the marginal value of the last person, whoever's willing to pay the most. So the air freight market will spike every kind of Q4. It just goes out of control. So that growth that you guys are seeing right now, are these pre-existing customers?

These are new customers signing off? Is it everything? It's pre-existing. Pre-existing.

New customers for us. Our customer base is so big now that the new customers, it's not really material in any given period. It takes a long time to build up a base. We have like about 3,000 bank customers now.

Okay. Yeah, because we were talking before recording about your outbound sales. And there was another related question. So PowerDecal asks, how do you poach clients from legacy providers?

And just in general, in terms of your revenue, like I'm curious about how the sales cycle works for you, how it happens. Yeah, so Flexport got to $200 million in revenue without having a marketing team. And that was done. That was a great lesson for me because I consider myself a growth hacker and a marketer.

And that was the one area of the business where I didn't go out and hire people better than me soon enough to do the job. Because you were just blogging, right? I thought I was blogging. Really, I didn't do much.

I just thought that I knew that. space and so i didn't it's really silly it's a good lesson for you as an entrepreneur you gotta like take yourself out of the things yeah and that was the last one i removed myself from so is a 98 outbound sales maybe it's 95 outbound sales model like we build lists of companies importing things it happens that i started the business that has all the lists of people important things and and we call them and we show them our value proposition and so how we put customers from legacy clients to show them we're gonna give you more visibility and control over your freight over your international freight at the same price point and so at some point as long as you trust that we're not scammers yeah at some point that becomes irrational not if it's better servicing price and eventually we'll be better and cheaper we often are but not always that's it's irrational not to move your business as long as you can trust us on there's a lot of compliance involved these are complex processes you're running a supply chain you are turning over your circulatory system for a new to a new provider so it's not without risk and the sales cycle's not easy by any means um but if we can you know prove that we're not going to screw up your business and you'll get more visibility where's my stuff when is it going to arrive more data what you shipped we're the single best view into all the economic activity inside your own company yeah how do you create trust like that in the beginning because i could i mean it's not just these legacy customers working with legacy providers it's across the whole this whole industry it's kind of arcane how did you um i mean i guess you had this license but how did you project that like confidence to say like oh you can trust us we'll make it i don't know we have good smart people um great early sales entrepreneurial sales and every entrepreneur needs an entrepreneurial sales person usually it's the entrepreneur themselves but you've got to have that and a lot of it's underrated i'll think a lot in silicon value we think it's just about engineering talent and who's the best engineer and they forget that you've got to have someone but entrepreneurial sales is very different than regular sales regular sales you want to get to know as fast as you can so you stop wasting your time and get to the next person who will say yes but you want to get to know within five minutes ideally yeah that's great someone hangs up on you cool i can go to the next one entrepreneurial sales is the opposite you want to get to yes if you're saying yes i will ship with you if and then what's that if statement and you don't promise it you just get now you can bring that back to your product engineering teams and say these guys will ship with us if we can yeah and 95 percent of the time it'll be absurd and you can't do it well this is a huge challenge that breaks a lot of businesses they end up building all these custom features for every you know quote big client but all of a sudden the big client is now like your tiny client yeah and it just eats them up um totally and so we would we would get yes if from and we always get yes but yeah 99 95 99 percent of the time you couldn't do or didn't wouldn't do right so you have a little discipline of what you're gonna do and make sure it's something that yes this makes sense this will make sense for lots of our customers this is on our roadmap anyways but pull it forward um and so we did that for the head of supply chain for a major watchmaker and we went down whiteboarded it with him showed him he whiteboarded it for us this is what i want from my dashboard i want to see all my shipments anything that's going to be late by at least 24 hours i want to turn red and i want to know why and if there's any action i need to take i want that to be elevated in the system show me what i need to do to fix it um we're like that's brilliant that's cool a month later we came back and this is when i knew we had a good company because i was on vacation and i usually when i go on vacation i neurotically check my email the whole time but on this vacation i was in caribbean island with no service and i just was like i'm out i came back and they had built this they'd gone down there talked to this guy built the map built what he wanted yeah and i came back and like our whole user interface was different i was like that's a good company they're like willing to just change the whole product and we went back down to meet the client again and he said you all turned me into a computer programmer i've got to ship some freight with you so he said yes if i will ship with you if you can get me this price and at that time that price was half of what we were paying so we couldn't do it but we now had a target and we could go back to the ocean carriers and say i will bring you the world's you know one of the largest watchmakers as a customer if you can get me this price which is a market price we just weren't paying market pricing because you were too small and didn't know people but now we're like oh okay yeah i'll give you the market price and so it took a couple months went back and won this business and then there's kind of like lots and lots of those cycles we won't build custom software for anybody but if your idea is normal is like something that we want to build reasonable and it's good it makes good for all of our customers we'll do it right and so because you guys still compared to like the biggest freight forwarders what's your relative size we are now we last month we passed fedex and panel pina which are we're now number 17 oh out of about 20 000 freight forwarders in the world in four years so and that's um we are still one-fifth of the largest right on the trans-pacific which is asia to us now the largest in the world only has two percent market share so we it's not enough to be number one i think then you we don't get to number one and install out like they did our goal is to get to 20 or 40 percent market share if you do that you're the biggest company on earth yeah like full stop like bigger than sadio renko what you figure they installed out why lack of technology that it's all people you know the biggest has two percent share and 60 000 employees and so if they want to 20 share and they don't have any technology driving scale and efficiency what you end up with is 600 000 employees and these are knowledge workers these are not these are troubleshooting consultants they're not um foxconn factory workers selling instructions yeah so i they just reach the limits of what human organization can scale to where do you see automation in the next you know like obviously like i know it most directly from container ports um but uh where do you see automation having the largest effect in your in your business um for us automation is often about delegation it's about getting the work to the right person to do it so the forwarder is kind of the coordinating layer in this relay race of unstructured data yeah and their job today and our team's job is to go out and get the data and then put it into our system you much what you need to do is build interfaces so all those companies can directly pass it to you whether it's our api or on our web interface right and so it's delegating that task instead of our team doing it let's have the customer do it right now our customer calls though our employee might have to call a customer ask for some document then put it into our system right i don't want to create automation tools to make them better at calling customers right i want to create a great interface so that customer just automatically just uploads it themselves and makes it more pain-free so that's like pretty specific to our industry which is this relay race of unstructured data um there's a great paper that i read about industries that are most susceptible to automation and freight forwarding was the number one on the list it was like 99 of the work should be that would be better done by software uh it's like academic paper do you agree i don't know it's pretty hard there's a lot of human intelligence and tribal knowledge and things but um even that should be unlocked right like our competitors know more things than us they have 60 000 employees like have tons of expertise the biggest one was found in 1890 somewhere in that building they know how to ship cargo using telegrams and steamships it's like you know it's impressive and but you don't like that it's living in people's heads yeah and what you want to do is put it into databases and make it instantly queryable so your customer can get the answer to whatever question they want instantly instead of like having to find the right expert and talk to them on the phone so do you when you talk about like all these entrepreneurial ideas you have on the side do you have other ideas boiling in your head all the time for okay yeah because there's always recruiting founders and if great we've had a few great people leave flexport not too many most people stay forever but a few great people believe it i'm always trying to convince them to like do one of my ideas with me on the side dude yeah this is like with me a lot of time i spend a maximum like the phone base company they hate me to kick me off the board because i really hate me to kick me off the board because i have no time to spend on it i'm all in on flexport okay but um uh yeah i have a lot of good business ideas most of which will work i now i now know from the phone base.com is like crushing it they make so much revenue even though yc rejected them but it happens i'll have to read the notes uh because yeah this is a question that i love i mean so many people do at yc do the same thing that to the extent that i think it should be like a page on your book face profile uh the network where it's like these are ryan's like white whale ideas like if he tries to convince you to like pivot your company into this like you are forewarned uh but uh yeah someone else jason yannis asked if you weren't operating flexport and had to source a new idea to work on where would you start yeah um i always start with what are pains that you experience again in that schlap linus article paul graham um schlap linus is a schlap is a use word for an arduous journey and so schlap linus is where your conscious brain won't actually allow you to think about a problem it's like there's no possible way i can tell this one it's too big of a problem i'm not going to go there and that training yourself to allow let yourself get annoyed by the annoying things in life yeah like that's something people know me will know i just like complain about bullshit all the like what the hell is why does this company hate money so bad like you do that all the time oh yeah um and i'm someone who lets myself get frustrated by that and keeps lists of like wow i could make a ton of money if i just solve this problem um and so what's the question that paul asked it's one of pgs essays called schlap blindness i highly recommend it and the question that he says is rather than asking what problem should i solve what company should i start you should say what problem i wish someone else would solve for me and then that's probably a good idea if there's enough people like you then that's a good idea so i would ask that question uh what the problem and so example the office phone booths i think offices are way too loud and i get really annoyed by all the people talking i want a quiet place and i also on craigslist to make phone booths for me they were terrible they were hot you would sweat they were dark it was like kind of creepy in there and yet at flexport we had people in those booths all day every day they would come out sweaty it was people make fun of it and it was used all day i'm like the product is this bad yeah and people are still using it this is a good thing so um i pulled together some team members the founders of that company and said hey let's make this thing super cheap a flat pack so you can assemble it uh cool so it's not too hot but cool temperature wise yeah yeah look good and boom these guys are selling millions of dollars worth of booths so it's find that annoyance in your life and for flexport it's uh well most of the good business that i have today will just be offshoots of flexport cargo insurance is a great new business we now have a business that makes loans to our customers uh trade finance um loans for any anything to buy inventory to buy inventory which we secure with the inventory that's that they already yeah if you don't pay us back i'll just sell your stuff i started my career um so yeah but it's always about finding what you know if it's not something that's annoying you you gotta really talk to your customers and what's annoying you talk to potential customers right and yeah just another like because because yeah you've done all these landing pages how are you talking to your customers at the time you know like were you putting money down on you know se like adwords uh facebook ads at the time and then just emailing them to see if they're really interested or you're just good at like creating a landing page um 10 years ago when i first started designing pages for flexport eight years ago i was seo was different easier i think and i would like i knew how it worked and now i don't know that much about how to rank in google for things but we were pretty good at ranking for keywords um and would get traffic that way our first customers for flexport were all um google adwords customers but that was like once i had a product to sell okay because i think this is like such a common challenge for people where they're like oh man say say they are particularly attuned to the problems in their lives then it's like how do i like launch in a way where i can validate and like de-risk this venture whatever it might be and you know you can only do it to such an extent but i'm just wondering if you have pro tips i it takes some sense like some people have you got to not believe your own bs yeah and make sure that other people agree with you that this is good and like so the fun was for example i had that idea and i'd seen it i built some really crappy ones like with a carpenter hired on Craigslist i told you about so i knew it was a good idea and i just talked about it all the freaking time at parties okay and everybody i ever talked to was like i will buy five of those i mean i could i probably sell five boosts to yc right now if i walk down we have ones and they're terrible they smell weird they're hot so everyone i've ever talked to who has a startup would buy one of these and so there's only someone you can go before you're like everybody wants to buy this product right and eventually one of my friends who i did yc with was like ryan let's do that business i want to do it i'm like okay i'll put in money i will spend a maximum of five hours total because i have a really big important company to run yeah um but um and yes success compounds too like i don't think i could just spun that up on the side if i wasn't um yeah of course flexport similarly like when you were getting started like you had the cash around to hire developers yeah which came from my previous exactly i think uh i actually spoke once on a fundraising panel at yc and they've never invited me back because i think i was too real and i was like look if no investors want to invest in your business that's your fault you should do a different business like there's lots of businesses that don't need any investor money yeah do that and then earn the credibility success compounds like build up you know or use your own money to fund it because there's plenty of businesses like go start a consulting firm to help people with seo i promise you people will pay you to do that if you don't like go find a way to make money in this world and not don't wait for investors to give you permission to start a business it's kind of a lame way to live and i hate that when founders are like oh if only this investor would give me money then i would make it my full-time job like just pick a different idea totally it's one of the biggest downsides of the vc industry as it exists right now it's created all these like thought leaders around businesses that have that require venture capital funding and it's like pigeonholed people to create businesses that need it and therefore if they can't figure out how to be the darling in the startup vc mind their business will never work yeah and success compounds you know i did startups and we never called them startups we're just trying to make money for 10 years before i raised my first venture capital dollar and i didn't know what the first thing about venture capital uh until i got into yc even then you know and so um i think that that is a it's a bit toxic i know that people in yc should raise money and go do that so i know why my advice is controversial to people but at the same time it's like also investors want to invest in things where they're like this guy's gonna do it with or without me totally she's like she's got this i better invest now before she runs off and makes it you know like that's the best case scenario where there's so much fomo they're like listen like ryan's making money hand over fist like he doesn't need me at all therefore that's the best possible investment because they're trying to de-risk now you don't want to be a faker but like on some way you've got to believe that you're gonna do this with or without the investors and then all of a sudden the investors will line up totally all right we uh we're almost out of time but um you've now been doing flex for it for quite a while uh we have a lot of early founders that listen to this podcast what would you tell yourself at the beginning what are the biggest lessons learned you know one of the most interesting lessons learned and i used to say this wasn't useful um but i think more and more i think it is is the degree to which success compounds and the reason i said i used to think that's not useful like well what does it say you should be more successful and you were going to do that anyways but as i've reflected more on it i actually think it's an extremely important lesson because if success compounds well we know the nature of compound interest and it means you should save small amounts of money and put it in your bank account and let it compound yeah and that that speaks very much to agile development methodologies customer development getting that yes if getting the little wins that they matter much more than it seems because they don't compound themselves and that you know the way it looks like this is like a decade of small wins and successes they got us into y combinator y combinator got us google ventures to invest which got us our cto which got you know sort of like which got built the product they got the customers and it's just this eventually you can unlock these crazy lalapalooza effects of compounding success yeah um but it does speak to like being agile getting small wins celebrating them as you go instead of trying to make this master plan for the future let it evolve let it go with like little wins at a time um that the humanity could not have existed at the big bang we would have been killed under the pressure right and like you need to like sort of slowly evolve the thing and eventually you'll get where you want to be also de-risk things like venture capital is quite risky these people need a return never take debt unless you're profitable right like these are uh you got to live up to your expectations of all those six times kind of stakeholders and if your investors are getting screwed by something you're doing that is not going to work so don't raise more money than you need to like make sure everybody's winning in the process yeah except your competitors and then you're golden golden all right if people want to follow you online where should they go uh well i don't know if that's a good idea my twitter is fast yep cool all right thanks man okay thanks a lot thanks for listening so as always you can find the transcript and video at blog.ycom and if you have a second it would be awesome to give us a rating and review wherever you find your podcast see you next time