Ryan Petersen on Building Flexport, a Modern Freight Forwarder

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.

Yes, 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. Mm-hmm. And at a lower price, we use technology to automate a lot of the labor for a freight forwarder. It's really interesting.

We're all used to the analogy that people want to go towards, like FedEx or UPS, which are parcel shippers, and the disparity 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? 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 or pallets.

What fundamentally happens that’s different is in the parcel business, it's from end to end one company, and therefore they can have scanners at each mode, they can edit node in the network, they can give you that nice user experience, what the milestones tell you where 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.

Hmm. You would actually 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 leaving every port going to every other port. You would need the same for airplanes. And then, when that ship arrives, remember that these big container ships now need 10,000 trucks to meet the ship. 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 like 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? Door to door. That process looks like a bunch of unstructured data being handed off in a relay race.

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.

Host: What's an example customer, to kind of contextualize this for someone?

Ryan Peterson: 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 two thousand merchants that sell on Amazon that use us.

Host: And they're going directly to Amazon warehouses, or what are they doing?

Ryan Peterson: Okay, yeah. So probably about 10% of Flexport shipments get delivered to an Amazon warehouse. Yep, and we have small companies doing that, as well as big companies that sell through Amazon.

Host: And you were selling through Amazon 10 years ago, 15 years ago?

Ryan Peterson: Yeah, 10, 15 years ago. Actually, back in my day, eBay was the bigger platform. 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 catalogue just full-on. You could just with the photos and everything. I don't know if you can still do that, but I could just... Yeah, I could make up, I'm sure you can still do. I mean, that's how we sold the book.

Host: Yeah, but I would just make up my own brand name, and yet create it. I thought it was amazing like, wow, I'm on Amazon! It’s live, it’s legit.

Ryan Peterson: So where were the margins the same back then?

Host: I think they were higher.

Ryan Peterson: Used to capitalism work, right? Since there are sort of people who see someone making profit where they shouldn't, and then other people pile in until the profits are gone.

Host: And that was probably the problem.

Ryan Peterson: So our business was importing motorbikes from China, as well as electric scooters. The scooter mania that's happening, I was so fascinated 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 and similar price point. In fact, I saw one for sale on eBay Mexico like a month ago, just checking out to see what happened to our old brand that we invented.

Yeah, and there's one for sale for 425 bucks on eBay in Mexico, which maybe these things hold value better than we thought they 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. Like, it also obviously required smartphones, I think you needed the smartphone. And so, you know, I even tweeted about this, I'm like, if only I would have invented the iPhone, I could be rich with this business I had.

So, obviously, the scooter thing didn't work out or just kind of was fading. You decided to do something else, right?

Ryan Peterson: It was a tough business, so I lived in China for a couple of years, actually. It was a Giga 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 earn a living. I moved to China; I lived there for two years running supply chain for that business, and then kind of used my story as an entrepreneur with international experience.

I speak 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 everyone who was trying to make money. 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 that I could get a job.

Yeah, I never really had a job in my life. I've worked for Domino's Pizza making pizza when I was fifteen, and that's more or less it.

Host: Did you graduate with that?

Ryan Peterson: I did, yeah.

Host: Do you feel that that affected your decisions? I mean, obviously, you're working for yourself now, but...

Ryan Peterson: 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. I'd never had a job; I'm an entrepreneur.

I looked at the recruiting cycles and processes and the types of jobs that were available to MBAs, and I just knew I'd be bad at them. Like, it's clumsy—wasn't I? I was too good for them. I'm not good enough; you would fire me if you hired me to do this management job. Yeah, I'm not cut out for it.

And so what I did to manage the debt was actually I got a bunch of part-time jobs. So one of them was writing case studies for Colombia. Yeah, so I wrote—I'm—I wrote the first published business school case study about an African company. So I went to Nigeria and wrote a case study by the tech company in Africa.

Mmm, and that was paying me like 40 bucks an hour; it was quite flexible, so I could like work a few hours a day on that. I also had a job teaching the GMAT, which pays 100 bucks 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 scheduled jobs.

Host: 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?

Ryan Peterson: Well, so I didn’t know what business exactly I was gonna do, and so I just needed to make sure I had some money and then free up. Make sure I’m kind of obsessive, so I’ll have—I’ll make time for hacking on things and creating things, but I had three or four different businesses going at the same time. Ideas, plus my...

And what’s a business? It was just a website, and I'm trying to drive traffic and see if anyone signs up.

Host: Okay, so that—oh, so it was mostly just like landing pages?

Ryan Peterson: Yeah, that’s what I would do, is create landing pages and then see if anybody buys.

Host: What were the ideas?

Ryan Peterson: 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 tell 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 them.

Yeah, any important ones? But I had a few, and you know, 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 sockbankruptcy.com, so if you run out of socks, you just declare sock bankruptcy, and we'll send you 50 packs of socks.

I mean, that's my form of entertainment, is like create a little landing page and see if anyone comes and buys.

Host: I think I’m gonna do the same thing. I am—all the t-shirts I wear, I had custom-made, but there's like—I basically tricked the company that made them the first time into ordering me like a test run. And I only ordered like ten or twenty.

I'm going eventually to wear all of them out, so I think I’m just gonna do a bulk order and have like mediumgrayt-shirt.com or something.

Ryan Peterson: Yes, I think there's a misconception that entrepreneurs are just like huge risk-takers, but I see myself quite the opposite. It's like I wanted to see that there's real traction; people want the thing that I'm gonna do.

Yeah, in fact, that was many years later. My first business out after business school is called Import Genius.com, and it's a search engine for shipping manifests. Helping anytime you import something, the shipping manifest is a public record. It tells you who imported the product, who sold it, 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 and Amazon merchants who are trying to research back the reserve.

Host: Yes, well isn’t that the concern if Amazon starts paying attention to where people are making stuff and they just make their own?

Ryan Peterson: Amazon's doing that, yeah, right? Yeah, they've—as they get into shipping, right?

Well, yeah, they already just do it. That's how they look at their sales data and then be like, which product should we clone and go make an Amazon Basics version of that product?

They have like 400 different brands now that you don't even realize are Amazon.

Yeah, competing with your platform, I think platforms should be neutral. And so the idea that you compete with your vendors to me—this company I respect the most in the world, but they don't seem to respect their vendors, and that to me is not sustainable unless you keep your six stakeholders as a business—or your customers who pay you money, your vendors, your employees, your investors, regulators, and then the communities where you operate it.

And you 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 you’re playing poker, you've got to know everybody's hand. If you can see through their eyes, yeah, you won’t lose.

When you see a business that’s like failing on one of those, it’s often the regulator, or the community, or the employees, etc.

Host: But can't your vendors be too important to alienate them?

Ryan Peterson: It's an interesting point. So would you bet against Amazon at this point?

No, and I—what do you think happens?

Well, I think they can be—they're already enormously successful now as for their stock, whether it's overvalued, and I don't have an opinion. I sold my Amazon stock two years ago when I bought a house, and I literally was crying—maybe not literally, but I was like, this is the dumbest thing I've ever done.

Yeah, why am I selling the stock? My house is up ten percent, and my Amazon—Amazon stock like Forex, yeah. 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 mega-corp, and that’s everything. Like, we all have two choices: do you want the black version or the white version of your product?

Yeah, and that is exactly what a philosopher in Germany in the 1860s predicted would come to be. That there's one global mega-corp, and the proletarian must overthrow it and take it back. And I don't want to live in that world, you know?

So 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 an Amazon world.

Yeah, I have been seeing 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 like 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 that trend. If anything, Amazon's taking more and more market share from the world of e-commerce.

Host: Let’s do an MBA question before we go further into it. So Matt S. asked, what are your important takeaways from Columbia Business School, and would you encourage other entrepreneurs to do the same?

Ryan Peterson: Yeah, and so I think here in Silicon Valley we have a bias—not we; I do not have this bias. I love MBAs; we've hired a lot of great people who are MBAs.

There's a bias, certainly, in the founding founder-venture community against like founders, and you think MBAs don’t make great founders or something—and it's probably true, but it’s a sample bias. The average person going to MBA to do a business school degree, it's not a great founder.

They're meant to be middle managers, but if you take someone who's a good founder and they spent two years studying business full-time, surely that would make you better at business, hopefully.

But it’s that the average person going in is not cut out for that, but it doesn’t mean that there’s nothing to do with the business school degree.

Yeah, I think having a business school degree has helped me immensely in understanding the principles of accounting and revenue recognition and all. You know, like real basic fundamentals, finance, cap tables, discounted cash flow.

These are like core principles of a modern business person to let you thrive.

Um, helped 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 gonna pay for it, so you've got an experience, but like if you're gonna 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 like, 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 gonna get based on some anonymous financial institution that lent me money.

That's kind of crappy.

Host: Yeah, I mean if you need a kick in two or three grand a month, a lot of people can’t start cutting; that's a huge amount of money, right?

Then, so especially after tax.

So I think it's very important for people to have a pretty good plan. I didn’t have a great plan, but I worked one out, and everyone—there's an article about this if you Google MBA debt Ryan Peterson; it's on the internet somewhere—about what I did, which was find these part-time jobs and generate some income while I was, so that I could...

I believe in Flexport. I don’t know what timeframe we'll 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.

Oh, I didn’t know what business I was gonna make successful, but I knew that I would do it. And if as long as I could make those debt payments, yeah, make my rent and like afford some food, then I’d then I buy myself an indefinite period of time to experiment.

Right?

Host: And so what was the point at which—you said the idea of Flexport kind of was in a holding pattern for like three years until you were approved for a certain license. At what point did you commit to doing Flexport? When did you know it was gonna happen?

Ryan Peterson: March 31st of 2013 was when we were granted a license by the US Department of Homeland Security Customs and Border Protection, and so I started working on the idea in like 2010. Yeah, Flexport—there was three years there waiting for the government to approve the FBI background check and any income. At that point, no revenue, and it was not a business yet; I was still working on my previous business.

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

Host: So there’s a question then about your first—this is from Tyler.

Ryan Peterson: Hoje, yes. How did you get your first three clients?

The earliest customers for Flexport—we got via Google AdWords and SEO and just sign-ups. People just found us on the internet, signing up for the service, really.

Yeah, in fact, pre-launch; when I was still experimenting and I'd built the landing page that is now for the service, that is now Flexport, and we had not yet launched anything; we hadn’t received a license yet. I was just figuring out, like, yeah, would people buy this service if it exists? It was just a marketing page; it was a website.

Host: And we got Foxconn signed up.

Ryan Peterson: It makes the iPhone; Cargill signed up, like one of the biggest AG 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 gonna be a big company; I need to get this license.

Oh man, that's so cool. Did you jump the gun and just start emailing them?

No, I didn't, 'cause I wasn't licensed. I was just like experimenting, like I don’t know how to do the business. I was just seeing, would people buy this service if it exists?

Again, I think I’m not a big risk-taker who's just like, I don’t want to start this hard business unless I know people are gonna want it, yeah, and so how did you verify that people actually wanted it?

A sigh... I mean they're giving you their email, but that doesn't necessarily mean they're going away.

Ryan Peterson: Well, I knew, so Flexport emerged out of—I had this business selling shipping manifest data, but that actually evolved and emerged out of a business that my brother and I and our same business partner, Michael Kenko, 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 in the world of forwarders. Global trade is 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.

And so I had felt the pain firsthand of this whole industry back in the early 2000s when I was still selling stuff on eBay. So I knew from first principles, from having experienced 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.

Yeah, 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 had only seen the tip of the iceberg, yeah, that's customer-facing as a problem. I didn’t know the reasons why the forwarders acted the way they did and the other parties involved.

So I had—but it was enough to set us off in the track and say, hey, my hypothesis is simpler: like software could teach the importer more about this, but any documents are needed, etc.

Totally, but at that point, so 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 get your license; so what do you do?

Three years—I got the license and immediately hired three Rails developers.

And so I had made money in the previous business and was able to hire some programmers, and I was kind of the first PM and had some programmers working for me.

Yep, and so you just built it out from there. Were you thinking about bringing in your brother and a separate business partner—they're co-founders?

So my brother actually—and I really like sort of biological analogies in business. I think of business as a—you know, each business is kind of an organism in an ecosystem and a competitive environment around it and needs to buy and sell from its vendors, just like any organism is defined by finding sources of nutrients out there in the wild, right?

And so for in the evolutionary tree of Flexport, it kind of goes back to Import Genius.com, which is this data service for global trade, and before that the importing business that we ran together.

And I think at the Import Genius stage, it was taking public record, making them searchable, and selling subscriptions. The tree kind of forked. My brother, who is my co-founder there, left before me even and started a company taking public data.

So we had found this public data and found interesting ways to make it useful and make money off of it. He said, what other public data is 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 permit 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. It's called BuildZoom.

It's kind of the Flexport of 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; it was helping him.

I snuck into YC a couple of times and saw Paul speak, and I was like, I want to do YC, and so kind of following in 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 in the way.

Host: And so at what point do you guys—are you based in New York at that point or are you full-on moved to California?

Ryan Peterson: I moved to California to start Flexport. I didn’t—I think that was one of the better things I've done, the import.

Yes, 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—we didn’t think that we could stand out. We didn'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 we—I think Flexport could only be founded in Silicon Valley. We’ll see if that’s true in ten years from now, but I think that’s still true today.

Do you hire most of your engineers here?

All of them, yeah.

Host: Okay, because there were a bunch of questions about you guys being all over the world.

Yeah, so just one is: Varun Kaku Rana asks, what's your strategy for rapidly hiring the best talent in so many different global hubs?

Because you guys have five offices?

Ryan Peterson: No, we're in 11 offices.

Host: 11?

Ryan Peterson: We're all over the world. We're in two offices in Europe, Hamburg and Amsterdam; we're in Shenzhen and Hong Kong in China, and then kind of five offices plus warehouses in the US. 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, as my CEO, my business partner calls it, 'insecure overachievers.' These are 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 forum for us, yeah.

It's hard to identify, but I swear this on multiple occasions from people who are saying like the kind of like the state school mentality versus like, you know, going to Columbia, for example.

There’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 everywhere. We do hire local 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 in one expert function, I’d rather have a generalist recruiting reporting to the head of that office, and tag-team it like that.

That would be better than even the best recruiter who's totally specialized in one function, like sales, sitting in one place.

I’d rather have an entrepreneur with a recruiter paired up; we’ll do better than like a totally specialized recruiting organization. So that's the way we try to organize, and I think that's true for most functions.

And then, culture—do you bring a few people over to start a new office? How do you do it?

Yeah, we'll always send—now we try to send eight people to a new office and watch it and get them to actually move there.

Oh, wow, so for a year, or 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 rotations, whether it's geographic rotation, moving to a new office, or rotation to a new function within the org. So we've what we love to encourage people that move and try different jobs.

Mmm. And yeah, part of that is launching new offices.

Host: What would have been some challenges in scaling? Because you said you were 400 in SF.

Ryan Peterson: Runner—that's how many 850 worldwide. Man.

Yeah, what would have been the challenges in scaling to almost a thousand people?

The core challenges of Flexport never go away today. We’ve had epic product-market fit since before we even launched, right? Like Saudi Aramco—that’s great. And that has never had a problem with demand; people want what we do.

We’re creating a better way and cheaper way to ship freight, which is a trillion-dollar industry; literally, logistics is 12% of global GDP. Twelve percent of every dollar made by every person on the planet Earth goes into logistics.

And I think much of the back pressure against the rest of the economy isthe fact that this industry, which is the circulatory system for global trade, is inefficient.

Mmm-hmm. And so all the other companies are therefore made inefficient because their circulatory systems got a lot of cholesterol in it. And so we’ve never had a problem with demand—we have a problem fulfilling that demand.

Actually doing a good job, like operations is hard; logistics is tough, and so it’s getting—so private market is epic; that gives you the market-demand. You respond, you hire enough talent to do it, and the people will come because they're attracted to that growth in the product-market fit.

So the remaining problems are all almost all culture closely related—compliance, following all this very regulated industry, a lot of people not from the industry, to teach them all the rules. Make sure you have good checklists and processes to avoid ever breaking them, 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? It’s all culture related—defining decision rights.

This is who's allowed to make... How do you keep people out of each other's way? How do you resolve conflicts in the company?

Host: Have you been just, you know, talking to other entrepreneurs, reading books? What's been the most influential thing for you in all these books?

Ryan Peterson: I read books. I read a book every week at least.

Host: What's good?

Ryan Peterson: Well, my favorite book in the world is called "Origin of Wealth," which is about the evolution, biology, and business.

I actually think this will be controversial in some circles here at Silicon Valley, but one of my favorite business books in the last five years is "Good Profit" by Charles Koch, brother of Koch Industries, of course.

But it’s an incredible book about the role of business in society and how to define culture within a company and to define decision rights and allow people to make... to move fast and be what he calls up principled entrepreneurs.

They get all your employees to have principles and be entrepreneurial, but yeah, culture is our biggest challenge as a company.

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 a 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 that hedonic treadmill and get used to that.

Yeah, 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? There are opportunities for you to grow, and I'm sure there's some intangible things too, like what's your office environment, is it comfortable, etc.?

But those tend to matter less to—

Host: I did see those room phone boxes that you did. Did you help start that, or...?

Ryan Peterson: Yes, I'm one-room yeah. Yeah, I started a company that makes members, yeah, offices called GetRoom.com, although I—I named it PhoneBooths.com, and bought the domain for the company, which we also own.

But they were like, oh, it’s too generic; they needed a fancier name, but I really like PhoneBooths.com. Just keep it simple.

Yeah, I think offices are too loud and it under-centrates, and so every office needs a phone booth where you can go make a quiet phone call, so we made those, and we sell them on that website.

Nice!

Host: How are you actually measuring this? What was a metric you didn't say engagement, but it’s like getting more out of your job than you put in. How do you measure that?

Well, it's... this is why culture is so hard to scale because it's not a formula, and it's done through conversation. It's done through great management, great leadership, but management—like talking to the people, caring about them, listening to their challenges.

You can't do that for 800—I can’t do that for 850 people, so you've got to have great managers up and down the chain.

There's a lot of training, yeah—a lot of understanding people, what do they want, what are they trying to get, are they getting it? That’s why culture is really hard to scale because the more people you have, the more equations you have to keep track of.

Host: How many direct reports do you recommend having for an average person?

An average person should not have—for the average manager, 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-one, and beyond—if you're doing more than eight hours, it’s 20% of your time right there for a week.

If it’s more than that, it’s probably not good.

Scaling that culture is just like the key challenge of any business. Once you get product-market fit, the world demands of you, and I think one of the things I've been—well, I've been fortunate at Flexport in that I had never been a freight forwarder.

Mmm-hmm.

So there was a never—never a moment at Flexport where I could tell everyone what to do; I never knew like you should do this, you should do that; and 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 trade that separates us from the animal kingdom: that 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, so 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 innate in the human experience; it’s intricately related to the rise of humanity, and nothing in the last 50 years lifted more people out of poverty than the opening adoption of free-market economic policies in the East, in particular, in China, and India, and other places.

And yet trade is still too hard; you’re talking about possibly the most important trend in the world economy, and anyone who's tried to do it will tell you it's a nightmare.

And so that was my guiding principle: was 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 really helped us.

Now, it took five years from the first time I had the idea to the first dollar of revenue; five years, four years of which it was just me and no other employees.

And so we had—I had 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 because I—it would have been like, you know, the director trying to tell me what to do instead of like, right there, saying like, well let’s see if I can help us organize and to, you know, 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?

So I think my naivete around forwarding actually turned out to be a good thing in the long run because I can focus on culture, on recruiting, on org design instead of on telling people what to do.

Right?

Host: 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.

Are many of your employees freight industry veterans?

About 20%. We try to—we try to hire one out of every five or six people from the industry. We think we need that expertise.

My principle is five or six people because I've got much—my team should have five or six people on it, and I want one person in the room who has done it before, but not two because then they'll gang up and, you know, you want one to make sure you're not doing really stupid decisions, but you don't want two, because then they'll form a coalition and convince people that they must do it that way.

And it’s like—I’d rather just like hear their voice; they’re often right but not always.

Okay, cool.

Host: You want to challenge those assumptions.

Let’s do some Twitter questions; you have a ton. I mean, you were the first podcast guest to proactively answer all of them.

No, no, no, we have—we got some good stuff. So I'm curious about this last one on the first page.

Just seemed a li asks: how has the Trump policy on foreign trade affected your business so far?

Yeah, it’s tough to see our customers get wrapped up in it. We’ve had a lot of—it was only about 2% of our shipments were affected by the first round of tariffs.

Uh-huh, so to buy commercial invoice value.

So about 2% of our total shipments got slapped with 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 that makes an air purifier; great company, female entrepreneurs have been to our office, hung out with us, and like, you know, sessions teaching our team about their business and stuff that got hit with this, and it's like, it's brutal, you know?

You're like millions of dollars of extra gauges that are totally out of their control, and these supply chains, especially for electronics, can’t move—like South China is where you're gonna produce that stuff; there's not the infrastructure and subcontractors and other vendors to make consumer electronics outside of the Shenzhen district or Dong Province; it'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, and 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 this is going to—I think it lets us differentiate from our competition 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 lazy because we’re a big business already.

But 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 is not supposed to be a time of year when your business goes on fire; it's closer to the holiday season.

Yeah, but we think a lot of businesses are pulling their imports forward to import the stuff before the tariffs get slapped on it, so we will see how it plays out. We're not getting too excited, right?

Host: This is sort of a tangential question, but I heard you mentioned on another podcast the holidays and shipping prices. Can you go over that? Because I was fascinated; you said it's like at some point, there’s a 10x increase on freight, and in particular—okay, well...

Ryan Peterson: It’s the one of the reasons I love this industry is because it's so tied—the trade is so deep in economics, yeah, and you have—you have supply and demand balances on all these things.

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 moved on passenger planes in the belly of the passenger plane.

Well, this is why they have luggage for you because they actually have an opportunity cost to put—they 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 connected to the demand for passenger tickets.

Yeah, and so you—that's gonna always lead to fundamentally imbalances in the air freight markets, and what'll happen: air freight is quite a seasonal business.

It's run—the economy runs on Christmas; air freight, on average, is about five times more expensive than ocean freight.

So, right before Christmas season, you want to bring everything in and get it in and sell it, and if you don’t get it in this two-week period, you might never sell it; 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 happens every November, every October, really—the planes get full; now the price goes to whoever's got the highest marginal value out of that last kilo of space.

Yeah, which tends to be—yes, which company is making the most for—yeah, you rectangle about this size, and they're willing to—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, based on that Supply Company. What, 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.

Yeah, and the price—this is classic economic theory—the price set in the market goes to the marginal value of the last person we’re willing to pay the most.

And so the air freight market will spike every kind of Q4.

Mmm-hmm, 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 up; is that...?

Ryan Peterson: Every thumb is pre-existing.

Pre-existing new customers for us; our customer base is so big now that in new customers, it does not really material in any given period; it takes a long time to build up a base.

We have like about 3,000 paying customers now.

Host: Okay, yeah, because we were talking before recording about your outbound sales, and there was another related question.

So, Power DeCal asks, how do you poach clients from legacy providers?

And I 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 two hundred million dollars in revenue without having a marketing team, and that was dumb. That was a great lesson for me because I consider myself a growth hacker, a marketer, and that was the one area in the business where I didn’t go out and hire people better than me.

Yeah, soon enough, yeah, to do with the job. I thought—

Host: Because you were just blogging, right?

Ryan Peterson: Like I was blogging, like SEO really. I didn’t do much; I just thought that I knew this space, and so I didn’t invent—it’s really silly; it’s a good lesson for you as an entrepreneur.

You gotta take yourself out of the things, and that was the last one I removed myself from.

So Flexport is a 98% outbound sales model, maybe it's 95% outbound sales model.

Like, we build lists of companies importing things—happens that I started the business that has all the lists of people importing things—and we call them, and we show them our value proposition.

So how we poach customers from legacy clients is 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 scamming, yeah, at some point that becomes irrational.

Not if it's better service and price, and eventually, we will be better and cheaper; we often are, but not always.

Mmm-hmm.

That’s a—it’s irrational not to move your business as long as you can trust us on.

Is there a lot of compliance involved? These are complex processes; you’re running a supply chain; you are turning over your circulatory system for an e to a new provider, you know?

It's not without risk, and the sales cycle is not easy by any means.

But if we can, you know, prove that we're not going to totally screw up your business, and you’ll get more visibility—where’s my stuff, when is it gonna arrive, more data, what you’ve shipped—we’re the single best view into all the economic activity inside your own company.

Yeah.

Host: 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 is kind of arcane.

How did you, 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 will make it out?

I don’t know, we had smart people, um, great early sales, entrepreneurial sales. An entrepreneur needs an entrepreneurial salesperson; usually, it's the entrepreneur themselves, but you've gotta have that.

And a lot of it’s underrated. I think a lot in Silicon Valley where we think it’s just about engineering talent and who’s the best engineer, and they forget that you’ve got to have someone—what entrepreneurial sales is very different from 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.

You want to get to know if within five minutes, ideally.

Yeah, that’s great if someone hangs up on you; cool, I can go to the next one; totally.

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 and engineering teams and say these guys will ship with us if we can...

Yeah, and 95% 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 like custom features for every, you know, quote big client, but all of a sudden the big client is now like your tiny client, and it just eats them up.

Totally. And so we would— we would get 'yes if' from, and we would always get a 'yes, but'—yeah, ninety-nine—ninety-five to ninety-nine percent of the time.

I was something you couldn’t do or didn't—or wouldn’t do, right?

So you may have no 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 anyway, so let’s pull it forward.

And so we did that with the head of supply chain for a major watchmaker, okay?

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 gonna be late by at least 24 hours, I want it 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.

We’re like, that’s brilliant; that’s cool! A month later, we came back and this was 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 on a Caribbean island with no service, and I just was like—I’m out. I came back, and they had built this—they’ve gone down there, talked to this guy, built the map, built what he wanted; yeah!

And I came back, and my whole user interface was different. I'm like, that is a good company; that’s willing to just change the whole product when the CEO is out.

This is the right thing to do, 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 then he said, you will ship with you if you can get me this price.

Mmm-hmm.

And at that time, that price was half of what we were paying, so we couldn't do it, mmm-hmm.

But now we had a target, and we could go back to the ocean carriers and say I will bring you the world’s, you know, the one of the world’s 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.

We were too small and didn’t know people or the relationships, but now we’re like oh, okay, yeah, I’ll give you the market price.

And so it took a couple of months, we went back and won the business, and then it’s kind of like lots and lots of those cycles. We won’t build custom software for anybody, but if your idea is normal, it’s something that we—something reasonable, build reasonable, and it’s good, it makes good for all of our customers, we’ll do it.

Right?

It’s okay because you guys still, compared to like the biggest freight forwarders, what's your relative size?

We are now—we last month passed FedEx and Panalpina, which are—we’re now number 17 of about twenty thousand freight forwarders in the world, well in four years.

So, and that’s, we are still one-fifth of the largest freight forwarders on the trans-Pacific, which is Asia to us.

Mmm-hmm.

Now, the largest in the world only has 2% market share. So we—it’s not enough to be number one. I think then you—we don’t want to get to number one and then stall out like they did.

Our goal is to get to 20 or 40 percent market share, and if you do that, you're the biggest company on planet Earth.

Yeah, like full stop, like bigger than Saudi Aramco.

What you figure they stalled out—why?

Lack of technology.

That's—all people, you know? The biggest has 2% share and 60,000 employees, and if they want to go 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 Foxconn factory workers following instructions, yeah.

So they just reach the limits of what a human organization can scale to.

Where do you see automation in the next—you know, like obviously, I know it most directly from container ports, but where do you see automation having the largest effect in your business?

Mmm-hmm.

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'd much—you need to build interfaces so all those companies can directly pass it to you, whether it's through our API or on our web interface.

Okay? And so it's delegating that task instead of our team doing it; let's have the customer do it. Give us—right now our customer calls our employee; it 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 to that, and that customer just automatically uploads it themselves and makes it more pain-free.

So that’s pretty specific to our industry, which is this relay race of unstructured data. 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, mmm-hmm, and it's like an 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 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 founded in 1890; somewhere in that building they know how to ship cargo, using telegrams and steamships.

Time to, you know, yeah, depressive.

But we need to unlock 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, yeah?

Of like having to find the right expert and talk to them on the phone, so do you—when you talk about all of these entrepreneurial ideas you have on the side, do you have other ideas boiling in your head all the time for okay?

Yeah. 'Cause there was always recruiting founders and if great—we've had a few great people leave Flexport, not too many. Most people stay forever, but we’ve got a few great people leave, and I'm always trying to convince them to like do one of my ideas with me on the side, dude.

Yeah, this is with me! I don’t have time; I spend a maximum—like the phone-based company, they hate me. They kicked me off the board because I didn’t hate me, but they kicked me off the board 'cause I have no time to spend—one of them.

Okay. I'm all in on Flexport, but I, yeah, I have a lot of good business ideas, most of which will work.

Now I now know from the phone booth arm—it’s like crushing it; they make so much revenue. Yeah, even though I see you rejected them, it happens.

I’ll have to read the notes because yeah, this is a question that I love, and 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—the network where it’s like these are Ryan's like white whale ideas.

So like if he tries to convince you to like pivot your company into this, like you are forewarned, but yes, someone else has—Jason Janes asked, if you weren't operating Flexport and had to source a new idea to work on, where would you start?

Yeah, I always start with water pains that you experience. Again, in that schlep blindness article, Paul Graham's schlep blindness is where your conscious brain won’t actually allow you to think about a problem.

It's like there’s no possible way I could solve this problem, it’s too big of a problem; I’m not gonna go there.

And that training yourself to allow yourself to get annoyed by the annoying things in life.

Yeah, like that’s something I’m—you know, people who know me well know I just complain about [ __ ] all the time.

Like, what the hell is—why does this company hate money so bad?

That all the time, oh yes, yeah.

And I'm someone who lets myself get frustrated by that and then keeps lists of like, wow, I could make a ton of money if I just solve this problem.

And so, what's the question that Paul asked?

It's one of PG's essays called Schlep Blindness; I highly recommend it.

And the question that he says is rather than asking what problems should I solve, what company should I start, you should say, what problem do 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: what are the problems?

And so, example: the office phone booth—I think offices are way too loud, and I’d get really annoyed by all the people talking, and I want a quiet place, and I also like privacy when I talk on the phone.

Yeah, so I wanted a quiet room; I hired guys 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 yeah, that Flexport, we had people in those booths all day, every day; they would come out.

People would make fun of me; that was used all day.

I’m like, if the product is this bad and people are still using it, this is a good thing.

So, I pulled together some team members, so the founders of that company, and said, hey, let's make this thing super cheap, flat pack so you can assemble it cool, so it's not too hot, like cool temperature-wise.

Yeah, look good, and boom! These guys are selling millions of dollars with the biz, so it's finding that annoyance in your life.

And the other Flexport—most of the good businesses that I have today will just be offshoots of Flexport.

Cargo insurance—does it create new business? We now have a business that makes loans to our customers, trade finance loans for anything to buy inventory to buy it, okay?

Which we secure with the inventory that they already...

Yeah, if you don't pay us back, I'll just sell your stuff, 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?

Yeah, just another like because—because yeah, you've done all these landing pages.

How are you talking to your customers at the time?

And you don’t like? Were you putting money down on, you know, SEO? Like AdWords, Facebook ads at the time?

And then just emailing them to see if they're really interested?

Ryan Peterson: 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've 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 phone booth thing, for example, I had that idea, and I'd seen it; I’d built some really crappy ones with a carpenter I hired on Craigslist.

I told you about this, so I knew it was a good idea.

And I just talked about it all the freaking time at parties, okay?

And everybody ever talked to was like, yeah, I will buy five of those.

I mean, I could—I probably sell five booths to YC right now if I walk in.

We have ones in there, terrible; they smell weird, they're hot, totally.

So you got everyone I've ever talked to who has a startup would buy one of these?

And so it’s only so long 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 important company to run, yeah?

But—and yes, success compounds too.

Like I don’t think I could have just spun that up on the side if I wasn't—

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 business, exactly.

And I think 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!

If 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—and there’s plenty of businesses that—like I started a consulting firm to help people with SEO.

I promise you people will pay you to do that if you, you know, are 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.

And 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 of these thought leaders around businesses that are—that require venture capital funding.

And it’s like pigeon-holed 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, then success compounds, you know?

I did startups, and we never called them startups; we were just trying to make money for ten years before I raised my first venture capital dollar.

And I know what the first thing about venture capital—I do not until I got into YC, and even then, you know?

And so I think that that is a bit toxic now.

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 got this; I better invest now before she runs off and makes it, you know, and leaves me behind.

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.

Like now you don’t want to be a faker, but like on some level, you've got to believe that you’re gonna do this with or without the investors.

And then all of a sudden, the investors align up, totally.

All right, do we—uh, we’re almost out of time, but you’ve now been doing Flexport for quite a while. 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?

I—you know one of the most interesting lessons learned—and I used to say this wasn’t useful, but, but I think more and more I think it is—is the degree to which success compounds.

And the reason I say that, I used to think that's not useful because like, well, what does it say, you’re more successful, and you were gonna 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're gonna compound on themselves.

And that, you know, the way it looked in Flexport’s cases like a decade of small wins and successes that got us into Y Combinator.

Y Combinator got us to Google Ventures to invest, which got us our CTO, which got us, you know, sort of like this, which got built the product, they got the customers.

And it’s just this law, eventually, you can unlock these crazy Palooza effects of compounding success, yeah?

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, and 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 that unless you're profitable, right?

Like these are—you've got to live up to your expectations of all those six kinds of stakeholders, and if your investors are getting screwed by something you're doing, that is not gonna work, so don’t raise more money than you need to.

Like, make sure everybody is winning in the process, except your competitors, and then you're golden. Golden!

All right, if people want to follow you online, where should they go?

Well, I don’t know if that’s a good idea; my Twitter is theisfast.

Host: Cool! All right, thanks, man.

Ryan Peterson: Okay, thanks a lot! Thanks, Rosie!