by Y Combinator8/30/2018
Flexport is a global freight forwarder powered by software and analytics. They are making international trade easier for over 10,000 companies in 70 countries. They were part of the YC Winter 2014 batch.
00:00 – What is a freight forwarder?
2:45 – Selling electric scooters on eBay 15 years ago
5:30 – Ryan’s business school experience
10:00 – Amazon competing with their vendors
13:00 – Matt Susk asks – What were the most important takeaways from Columbia Business School? Would you encourage entrepreneurs to pursue a MBA?
16:40 – Tyler Hogge asks – How did you get your first three clients at Flexport?
19:40 – Being a solo founder
22:45 – Varun Khurana asks – What’s your strategy for rapidly hiring the best talent in so many different global hubs?
25:30 – Challenges of scaling Flexport
27:15 – Some of Ryan’s favorite books
29:20 – Scaling culture
34:00 – Jassim Ali asks – How has the Trump policy on foreign trade affected your business so far?
39:00 – PowerDecal asks – How do you poach clients from legacy providers?
46:00 – Automation in freight forwarding
49:00 – Jason Yannos asks – If you weren’t operating Flexport and had to source a new idea to work on, where would you start?
53:00 – Derisking product ideas
56:30 – Biggest lessons learned at Flexport
Craig Cannon [00:00] – Hey, how’s it going? This is Craig Cannon and you’re listening to Y Combinator’s Podcast. Today’s episode is with Ryan Petersen. Ryan is the founder and CEO of Flexport. Flexport is a freight forwarder built around an online dashboard. They were part of the YC Winner 2014 batch. You can find Ryan on Twitter @typesfast. All right, here we go. Ryan Petersen, 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.
Ryan Petersen [00:31] – 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 and at a lower price. We use technology to automate a lot of the labor. Freight forwarding is really interesting. We’re all used to, the analogy that people want to go towards is a FedEx or a UPS, which are parcel shippers and the difference between parcel and freight is actually a very simple one. 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. The moment its is, 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 scanners at each node, at each node in the network, they can give you that nice user experience with the milestones telling you where your stuff is. In the freight world, because of the size, there’s no company big enough
Ryan Petersen [01:34] – to keep it in their own network from door-to-door. You would 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,
Craig Cannon [01:42] – Right.
Ryan Petersen [01:43] – Or you’d have to have a ship rather, 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 you 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. What a 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 and then 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. 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.
Craig Cannon [02:31] – What’s an example customer? To contextualize this for someone.
Ryan Petersen [02:36] – 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.
Craig Cannon [02:53] – They’re going directly to Amazon warehouses or what are they doing?
Ryan Petersen [02:57] – 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.
Craig Cannon [03:05] – You were selling through Amazon, 10 years ago, 15 years ago, something like that?
Ryan Petersen [03:10] – Yeah, 10, 15 years ago, actually back in my day, eBay was the bigger platform than Amazon.
Craig Cannon [03:16] – Oh.
Ryan Petersen [03:16] – 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 bucks a month I could become an Amazon merchant and add products to their catalog.
Craig Cannon [03:26] – Just full on. With the photos, everything?
Ryan Petersen [03:29] – I don’t know if you can still do that but I could just, yeah I could make up, yeah I’m sure you can still do that.
Craig Cannon [03:33] – That’s how we sell the book.
Ryan Petersen [03:34] – Yeah, but I would just make up my own brand name and create it, I thought it was amazing. Like oh wow, I’m on Amazon, this is live, this is legit.
Craig Cannon [03:41] – Were the margins the same back then?
Ryan Petersen [03:43] – I think they were higher. Capitalism works and sort of people see someone making profit where they shouldn’t and then other people pile in until the profits are gone and that was probably, that was the problem. Our business was importing motorbikes from China as well as electric scooters. The scooter mania that’s happening is so fascinating for me because 15 years ago my brother and I and our other business partner, Michael Kanko, we were importing electric scooters. Almost the same form factor, similar price point and in fact I saw one for sale on eBay Mexico a month ago, just checking out to see what happened to our old brand that we invented.
Ryan Petersen [04:19] – And there’s one for sale for 125 bucks on eBay in Mexico, which maybe these things hold value better than we thought they would.
Craig Cannon [04:26] – This is the 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 smartphones.
Ryan Petersen [04:38] – 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.”
Craig Cannon [04:45] – Obviously, the scooter thing didn’t work out, or just kind of was fading, you decided to do something else, right?
Ryan Petersen [04:53] – 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 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 anyone who was trying to make money, that year. I’m sure there’s some business school students who weren’t trying, but I was trying hard and not succeeding. 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. 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 it.
Craig Cannon [05:45] – Really, did you graduate with debt?
Ryan Petersen [05:47] – I did, yeah.
Craig Cannon [05:48] – Do you feel that that affected your decisions? Obviously, you’re working for yourself now, but…
Ryan Petersen [05:55] – I didn’t let it, it did affect my decisions, but I was determined. I went to business school, I graduated about $140,000 in debt. I was pretty determined. I looked at my classmates and I could tell that I was a little bit different than them. I’ve 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. It wasn’t that I was too good for them, it was I’m not good enough, you would fire me if you hired me to do this management job, like– I’m not cut out for it.
Ryan Petersen [06:33] – 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–
Craig Cannon [06:42] – For Columbia?
Ryan Petersen [06:43] – I wrote the first published business school case study about an African company. I went to Nigeria and wrote a case study about a tech company in Africa. That was paying me like 40 bucks an hour and it was quite flexible, so I could work a few hours a day on that. I also had a job teaching the GMAT which pays 100 bucks an hour.
Craig Cannon [07:07] – Totally solid.
Ryan Petersen [07:08] – Then I had a job, like I started a little SEO consulting firm, to help businesses with their search engine presence. I had three totally flexible, on my schedule jobs.
Craig Cannon [07:18] – 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 letting all these other projects consume all of your time and energy?
Ryan Petersen [07:34] – I didn’t know what business exactly I was going to do and so I just needed to make sure I had some money and then free up, make sure I had, I’m kind of obsessive so I’ll have, I’ll make time for hacking on things and creating things. I had three or four different businesses going at the same time, ideas, plus my, and there are, what’s a business? It was just a website and I’m trying to drive traffic and see if anyone signs up.
Craig Cannon [07:56] – It was mostly just like landing pages, for ideas?
Ryan Petersen [08:00] – Yeah, that’s what I would do is create landing pages and then see if anybody buys.
Craig Cannon [08:04] – What were the ideas?
Ryan Petersen [08:05] – Well a couple of them have merged. One of them was an ERP for importers that would manage your inventory. 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. I had a few and you know 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 that, like sockbankruptcy.com so if you run out of socks, you just declare sock bankruptcy and we’ll send you 50 packs of socks.
Craig Cannon [08:47] – Nice, that’s great. That’s so good.
Ryan Petersen [08:50] – I mean that’s my form of entertainment is create a little landing page and see if anyone comes and buys.
Craig Cannon [08:55] – I’m going to do the same thing. All the t-shirts I wear I had custom made. 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’m just going to do a bulk order and have mediumgreytshirt.com or something and just sell them all.
Ryan Petersen [09:19] – There’s a misconception that entrepreneurs are just like huge risk takers but I see myself quite the opposite. I wanted to see that there’s real traction, people want the thing that I’m going to do. In fact that was many years later. My first business after business school was called ImportGenius.com and it’s a search engine for shipping manifests. Helping any time you import something the shipping manifest is a public record, it tells you who imported the product, who sold it. You can look up any company and see all their factories, you can look up any factory, see all their customers. Used by hedge funds but it’s really used by importers, Amazon merchants, who are trying to research factories overseas.
Craig Cannon [09:54] – Well isn’t that the concern. If Amazon starts paying attention to where people are making stuff and they just make their own?
Ryan Petersen [10:01] – Amazon’s doing that relentlessly right?
Craig Cannon [10:04] – Yeah, as they get into shipping right?
Ryan Petersen [10:06] – Yeah, well they already just do it. That’s how they look at their sales data and then be like which products should we clone? Go make an Amazon Basics version of that product. They have like 400 different brands now that you don’t even realize are Amazon. Competing with your platform. I think platforms should be neutral and so the idea that you compete with your vendors to me, a business needs to keep all of its major stakeholders happy and your vendors are one of your key stakeholders. You have to be the counter party of choice for your vendors and Amazon doesn’t that’s the one mistake I would say that they make. That’s 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 are your customers who pay you money, your vendors, your employees, your investors, your regulators, and then the communities where you operate in. You have six stakeholders and if you can keep all six of those, you’ve got to be the counter party of choice for all six. You’ve got to get yourself in their head and be like what do those companies, those partners want? If you keep all six happy that’s the definition of winning, nobody loses, and it’s like you’re playing poker
Ryan Petersen [11:15] – and you know everybody’s hand because 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.
Craig Cannon [11:29] – That’s an interesting point. Would you bet against Amazon at this point?
Ryan Petersen [11:34] – No.
Craig Cannon [11:35] – What do you think happens?
Ryan Petersen [11:37] – They’re already enormously successful. Now as for their stock, whether it’s overvalued or not, I don’t have an opinion. I sold my Amazon stock two years ago when I bought a house and literally I was crying. Maybe not literally but I was like, this is the dumbest thing I’ve ever done. Why am I selling this stock? My house is up 10% and Amazon’s up like 4X. 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 that makes everything. I’m like we all have two choices, you want the black version or the white version of your products?
Craig Cannon [12:14] – Yep.
Ryan Petersen [12:15] – And that is exactly what a philosopher in Germany in the 1860s predicted would come to be is 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. I see a big part of Flexport’s role is enabling and 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.
Craig Cannon [12:43] – I have been seeing a lot of friends start these… 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?
Ryan Petersen [12:59] – About 10% of our shipments are bound to Amazon. 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 of the world, you know of e-commerce.
Craig Cannon [13:17] – Let’s do an MBA question before we go further into Flexport. So Matt Susk asks, “What are your important takeaways from Columbia Business School? And would you encourage other entrepreneurs to do the same?”
Ryan Petersen [13:29] – 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 with MBAs. But there’s a bias, certainly in the founding, founder/venture community against like founders and they 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 is not a great founder, they’re meant to be a middle manager. But if you take someone who is a good founder and they spent two years studying business full-time, surely that would make you better at business?
Craig Cannon [14:03] – Yeah, hopefully.
Ryan Petersen [14:04] – But it’s the average person going in is not cut out for that, but it doesn’t mean, it has nothing 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 real basic, fundamentals, finance, cap tables, discount rate and discounted cash flow. These are core principles of a modern business person to let you thrive and it helped me tremendously. Now worth the 140K in debt that I graduated with? Probably not. I tend to recommend business school to people who are rich and your family’s going to pay for it.
Craig Cannon [14:44] – Or a giant scholarship.
Ryan Petersen [14:46] – Then it’s a great experience, but if you’re going to graduate 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. I don’t like to live with permission from other people much less some bank that I have to decide what job I’m going to get based on some anonymous financial institution who lent me money? That’s kind of crappy.
Craig Cannon [15:08] – Yeah, if you need to kick in two or three grand a month, a lot of people can’t start companies.
Ryan Petersen [15:12] – That’s a huge amount of money, right? Especially after tax. 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 I’ve written an article about this if you Google like MBA debt, Ryan Peterson. It’s on the internet somewhere about how, 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. Even Flexport, I don’t know what timeframe we’ll be successful but I know that if we stay in the fight, we’ll win. That you just want to make sure you’ve set yourself up in a way that you can’t lose because you’re in the fight, in perpetuity and, you’ll just keep finding new hacks. I didn’t know what business I was going to make successful but I knew that I would do it as long as I could make those debt payments, make my rent and afford some food, then I’d buy myself an indefinite period of time to experiment.
Craig Cannon [16:09] – Right and so what was the point at which, because you, the idea of Flexport kind of was in a holding pattern for 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?
Ryan Petersen [16:27] – March 31st of 2013 is when we were granted the license by U.S. Department of Homeland Security Customs and Border Protection. I started working on the idea in like 2010. Flexport, there was three years there waiting for the government to approve the FBI background check.
Craig Cannon [16:43] – Any income at that point, no revenue?
Ryan Petersen [16:48] – It was not a business yet. I was still working on my previous business. And Flexport was a side project.
Craig Cannon [16:53] – Gotcha.
Ryan Petersen [16:53] – And then after three years, finally got granted the license and made it a full-time job like basically the next day.
Craig Cannon [16:58] – Right on. There is a question then about your first, so this is from Tyler Hodge, he asks, “How did you get your first three clients?”
Ryan Petersen [17:08] – The earliest customers for Flexport we got via Google AdWords and SEO and just signups. People just finding us on the internet and signing up for the service.
Craig Cannon [17:18] – Really?
Ryan Petersen [17:19] – Yeah, in fact pre-launch, so when I was still experimenting and I’d built the landing page for the service that is now Flexport and we had not yet launched anything. We hadn’t received the license yet, I was just figuring out would people buy this service if it existed? It was just a marketing page website and we got, Foxconn signed up. Who makes the iPhone. Cargill signed up, 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 going to be a big company I need to get this licensed.”
Craig Cannon [17:57] – Oh man, that’s so true. Did you jump the gun and just start emailing them?
Ryan Petersen [18:01] – No I didn’t because I wasn’t licensed, it was just an experimental thing. I didn’t know how to do the business, I was just seeing would people buy this service if it existed. Again, 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.
Craig Cannon [18:16] – 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?
Ryan Petersen [18:25] – Totally. Flexport emerged out of… I had this business selling shipping manifest data but that actually evolved and emerged out a business that my brother and I and our same business partner, Michael Kanko, ran buying scooters and buying products in China. I had felt the pain first hand 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 had felt the pain firsthand of this whole industry. Back in early 2000s, when I was still selling stuff on eBay and Amazon. 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. I’d only seen the tip of the iceberg, what’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.
Ryan Petersen [19:48] – But it was enough to set us off on the track and say hey, let’s go. My hypothesis is simply like software could teach the importer more about this, what documents are needed, et cetera.
Craig Cannon [19:57] – Are you a competent programmer… because you’re a solo founder, right? What did the product even look like? Three years, you get your license, what do you do?
Ryan Petersen [20:11] – Three years, got the license I immediately hired three Rails developers and so I had made money in a previous business and was able to hire some programmers and I was kind of first PM and had some programmers working for me.
Craig Cannon [20:22] – Yeah, and so you just built it out from there. Were you thinking about bringing in your brother, a separate business partner to be co-founders?
Ryan Petersen [20:29] – My brother actually, and I really like sort of biological analogies in business, I think of business as 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 an organism needs to find sources of nutrients out there in the wild, right. In the evolutionary tree of Flexport 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. At the Import Genius stage is just taking public record, making them searchable and selling subscriptions, the tree kind of forked and so my brother, who was my co-founder there, left before me even, and started a company taking public data. We had found this public data and found interesting ways to make it useful and make money off it, he said, what other public data’s 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 were the permits, so were the licenses for the contractors. 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. Actually did YC before me, about 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
Ryan Petersen [22:00] – 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 along the way.
Craig Cannon [22:11] – Are you based in New York at that point or are you full on moved to California?
Ryan Petersen [22:18] – 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 in our sales service center to replace and I didn’t want Flexport, I 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. 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.
Craig Cannon [22:54] – Do you hire most of your engineers here?
Ryan Petersen [22:57] – All of them.
Craig Cannon [22:57] – All of them, okay, because there were a bunch of questions about you guys being all over the world.
Ryan Petersen [23:02] – Yep.
Craig Cannon [23:03] – So just one, is Varoon Kurana asks, “What’s your strategy for rapidly hiring the best talent in so many different global hubs?” Because you guys have five offices?
Ryan Petersen [23:14] – No, we’re in 11 offices.
Craig Cannon [23:14] – 11 offices.
Ryan Petersen [23:16] – We’re all over the world. We’re in two offices in Europe, Hamburg and Amsterdam. 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, Flexport has, 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–
Craig Cannon [24:00] – I’ve heard this on multiple occasions from people who are sayig… Kind of like the state school mentality versus like going to Columbia, for example. You find the smartest kid from like UMass, and they don’t even know that they’re a diamond in the rough.
Ryan Petersen [24:14] – We’re happy to hire, you can find these people at the top schools too. Around the world, I don’t know how different it is in everywhere. We do hire local recruiting people. We like to have a very decentralized org structure. It’s very entrepreneurial, rather I think entrepreneurs get more done and they’re 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 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. That’s the way we tried to organize and I think that’s true for most functions.
Craig Cannon [25:09] – And then culture-wise, do you bring a few people over to start a new office?
Ryan Petersen [25:12] – Yeah, I do, 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.
Craig Cannon [25:18] – Oh wow, for a year, for whatever?
Ryan Petersen [25:21] – 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 love to encourage people to move, try different jobs and part of that is launching new offices.
Craig Cannon [25:44] – What have been some challenges in scaling because you said you were 400 in SF.
Ryan Petersen [25:48] – 400 in SF, 850 worldwide.
Craig Cannon [25:51] – What have been the challenges in scaling to almost 1000 people?
Ryan Petersen [25:55] – The core challenges at Flexport and they never go away today because we’ve had epic product market fits since before we even launched. Saudi Aramco’s signing up and Flexport 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, it’s literally, logistics is 12% of global GDP. 12% of every dollar made by every person on planet earth goes into logistics and I think much of the back pressure against the rest of the economy is the fact that this industry, which is the circulatory system for global trade is inefficient and so all the other companies are therefore made inefficient because their circulatory system’s got a lot of cholesterol in it. We’ve never had a problem with demand but we have a problem fulfilling that demand, actually doing a good job. Operations is hard, logistics is tough. If product market is epic, that gives you the market demands that you respond, that you hire enough talent to do it and the people will come. They’re attracted to that growth and the product market fit. The remaining problems are almost all culture, closely related is compliance, following all those regulated industries, 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 and then just the complexity of the network, of the business that we’re building. How do you make sure that we can keep things simple,
Ryan Petersen [27:23] – defined, that’s all culture related. Defining decision rights, who’s allowed to make, how do you keep people out of each other’s way? How do you resolve conflicts in the company?
Craig Cannon [27:34] – Have you been just talking to other entrepreneurs, reading books, what’s been the most influential thing for you in terms of–
Ryan Petersen [27:39] – Always books, I read a book every week at least.
Craig Cannon [27:43] – What’s good?
Ryan Petersen [27:45] – Well my favorite book in the world is called Origin of Wealth, which is about the evolution and biology in business. I actually think, this’ll be controversial in some circles here in Silicon Valley, but one of my favorite business books in the last five years is Good Profit, by Charles Koch, from the Koch Brothers, Koch Industries.
Craig Cannon [28:02] – Yeah, of course.
Ryan Petersen [28:03] – But it’s an incredible book about the role of business in society and how to define culture within a company and define decision rights and allow people to make, to move fast and be, what he calls, principled entrepreneurs. Get all your employees to have principles and be entrepreneurial. Culture’s our biggest challenge as a company. My definition of good culture is that you have engaged team members that everybody there is engaged with their work. 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, but to do it, it’s compensation of course, but you get pretty quickly, we’re all on the hedonic treadmill 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? 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.
Craig Cannon [29:04] – I did see those room phone boxes that you, did you help start that or do you just own one?
Ryan Petersen [29:10] – Yeah, yeah, yeah I started a company, I helped to start a company that makes phone booths for offices called, GetRoom.com although I named it PhoneBooths.com and bought the domain for the company which we also own, but they’re like, oh it’s too generic. They needed a fancier name but I really like the PhoneBooths.com, let’s keep it simple. I think offices are too loud.
Craig Cannon [29:33] – I 100% agree.
Ryan Petersen [29:34] – And so, every office needs a phone booth where you can go and make a quiet phone call, so we made those and we sell them on that website.
Craig Cannon [29:41] – Nice, 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? How do you measure that?
Ryan Petersen [29:51] – Well this is why culture’s 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, great 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 850 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? That’s why culture is really hard to scale because the more people you have, the more equations you have to keep track of.
Craig Cannon [30:23] – How many direct reports do you recommend having for an average person?
Ryan Petersen [30:28] – Average person should not have any reports, just chill. For the average manager, maybe eight. You want to be able to meet with each of your reports for an hour a week you know, one-on-one and beyond if you’re doing more than eight hours, that’s 20% of your time right there for a week and so more than that is probably not good. 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 one of the things I’ve been fortunate at Flexport in that I’d never been a freight forwarder so there was never a moment at Flexport where I could tell everyone what to do. I never knew, 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, trade is the thing 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. I’m giving you my ideas.
Ryan Petersen [31:35] – This is what allowed humans to defeat all the other hominid species because we could work together effectively and specialize, and they couldn’t. It’s really 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 of, 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. That was my guiding principle. It was 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 was five years. Four years of which it was just me and no other employees and so had I known everything about logistics and I’d been a freight forwarder, we’d have had revenue in the first year, we would’ve got licensed right away, we would’ve gotten to some scale much faster but it would’ve depended on me and stop scaling because it would’ve been like, the director trying to tell everyone what to do instead of like, the grandpa saying like, “Well let’s see if I can help us organize and teach you the lessons of my career.” That’s a much better place for a company to try to scale long-term
Ryan Petersen [33:08] – to build a culture is a leader like that. 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.
Craig Cannon [33:21] – 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 many of your employees freight industry veterans?
Ryan Petersen [33:34] – About 20%, we try to hire one out of every five or six people from the industry, we need that expertise. My principle is five or six people because most teams 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 you want one to make sure you’re not making 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 rather just hear the voice. They’re often right, but not always. You want to challenge those assumptions.
Craig Cannon [34:08] – Let’s do some Twitter questions, you have a ton. I mean you were the first podcast guest to proactively answer all of them.
Ryan Petersen [34:15] – Hope I didn’t ruin that.
Craig Cannon [34:16] – No, no, no, we got some good stuff. I’m curious about this last one on the first page, Justine Ali asks, “How has the Trump policy on foreign trade affected your business so far?”
Ryan Petersen [34:26] – It’s tough to see our customers get wrapped up in it. It was only about 2% of our shipments were affected by the first round of tariffs by commercial invoice value. About 2% of our total shipments got slapped a 25% tariff on them. It’s not really material for us yet, as a business and yet if you’re one of those 2%, it’s super material. We had a company, makes an air purifier, great company, female entrepreneurs, been to her office, hung out with us, done sessions teaching our team about their business and stuff, they got hit with this and it’s like, ugh, it’s brutal. Millions of dollars of extra charges, totally out of their control and these supply chains especially for electronics, can’t move. South China’s 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. That’s brutal, I hate anything bad for our customers, I hate. On Flexport’s perspective 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 in one SQL query, we’re able to tell every customer exactly who’s affected, how much, what is this going to do to you. It let’s 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 crazy because we’re a big business already
Ryan Petersen [36:06] – 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, this is a huge surge for August is not supposed to be a time of year when your business goes on fire. Usually it’s closer to 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. We’ll see how it plays out. We’re not getting too excited about the growth.
Craig Cannon [36:30] – This is sort of a tangential question, but I heard you mention on another podcast, the holidays and shipping prices, can you go over that because I was fascinated. You said at some point, there’s a 10X increase on freight? How does that break down?
Ryan Petersen [36:45] – Well one of the reasons I love this industry is because it is so tied, trade is so deep in economics and 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 moved on passenger planes in the belly of the passenger plane. This is why they have a luggage fee because they actually have an opportunity cost. They put someone else’s cargo in there if they don’t put your bag in and 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 and so that’s going to always lead to fundamental imbalances in the air freight markets and what’ll happen, air freight is quite a seasonal business. The economy runs on Christmas. Air freight, on average, about five times more expensive than ocean 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, 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. Now the moment that that plane is full, which happens every November and 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 which tends to be you can probably guess which company is making the most per rectangle about this size
Ryan Petersen [38:22] – and they’re willing to, 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? All of a sudden the price can go crazy and this is classic economic theory. The price set in the market goes to the marginal value of the last person, whoever’s willing to pay the most. Air freight market’ll spike every kind of Q4. It just goes out of control.
Craig Cannon [38:53] – That growth that you guys are seeing right now, are these pre-existing customers, are these new customers signing up, is it everything?
Ryan Petersen [39:01] – It’s pre-existing.
Craig Cannon [39:02] – Pre-existing.
Ryan Petersen [39:03] – New customers for us, our customer base is so big now that a new customer’s not really material in any given period. It takes a long time to build up our base. We have like about 3000 paying customers now.
Craig Cannon [39:15] – Okay yeah because we were talking before we were recording about your outbound sales and there was another related question, so Power Decal asks, “How do you poach clients from legacy providers?” Just in general, in terms of your revenue, like I’m curious about how the sales cycle works for you, how it happens.
Ryan Petersen [39:34] – Flexport got to $200 million 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 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, I thought I could–
Craig Cannon [39:53] – Because you were just blogging, right?
Ryan Petersen [39:55] – Did a lot of blogging, a lot of SEO. Really, I didn’t do much, I just thought that I knew this space and so I didn’t, it’s really silly, it’s a good lesson for you as an entrepreneur, you got to like take yourself out of the things and that was the last one I removed myself from. Flexport is a 98% outbound sales, maybe it’s 95% outbound sales model. We build lists of companies importing things. Happens that I started the business that has all the lists of people who import things, and we call them and we show them our value proposition. How we poach customers from legacy clients is show them, we’re going to give you more visibility and control over your freight, over your international freight at the same price point. At some point, as long as you trust that we’re not scammers, 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. It’s irrational not to move your business as long as you can trust us, there’s a lot of compliance involved. These are complex processes. You’re running a supply chain. You are turning over your circulatory system to a new provider so it’s not without risk and the sales cycle’s not easy by any means, but if we can 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 going to arrive, more data of what you shipped. We’re the single best view into all the economic activity inside your own company.
Craig Cannon [41:21] – How do you create trust like that in the beginning, because it’s not just these legacy customers working with legacy providers, it’s across this whole industry, it’s kind of arcane. I guess you had this license, but how did you project that confidence to say like, “Oh you can trust us, we’ll make it happen.”
Ryan Petersen [41:39] – I don’t know, we had smart people, 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 it’s underrated 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. 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. If you want to get to know, within five minutes ideally, that’s great if someone hangs up on you, cool, I can go to the next one.
Craig Cannon [42:14] – Totally.
Ryan Petersen [42:16] – 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. You don’t promise it, now you can bring that back to your product and engineering teams and say, these guys will ship with us, if we can, and 95% of the time, it’ll be absurd and you can’t do it.
Craig Cannon [42:37] – Well this is a huge challenge that breaks a lot of businesses. They end up building all these custom features for every quote big client, but all of a sudden, the big client is now your tiny client and it just eats them up.
Ryan Petersen [42:50] – Totally and so we would get yes if, from, and we’d always get a yes, but 99, 95 to 99% of the time it was something that we either couldn’t do or wouldn’t do. You’re going to have real discipline in what you’re going to 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, let’s pull it forward. We did that for the head of supply chain for a major watch maker and we went down, white boarded it with him, showed him. He white boarded it for us. This is what I want for my dashboard. I want to see all my shipments. Anything that’s going to 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 usually when I go on vacation, I neurotically check my email the whole time, but on this vacation, I was in a Caribbean island with no service and I just was like, I’m out. I came back and they had built this, they had gone down there, talked to this guy, built the map, built what he wanted and I came back, I’m like our whole user interface was different. I was like, that is a good company. They’re willing to just change the whole product when the CEO’s out knowing this is the right thing to do. We went back down to meet the client again
Ryan Petersen [44:12] – and he said, you all turned me into a computer programmer. I’ve got to ship some freight with you. Then he said, yes if, I will ship with you if, you can get me this price. 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 one of the world’s largest watch makers, as a customer, if you can get me this price which is a market price. We just weren’t paying market pricing.
Craig Cannon [44:39] – Because you were too small.
Ryan Petersen [44:40] – We were too small and didn’t know people and didn’t have relationships but now, its’ like, “Oh yeah, I’ll give you the market price,” and so it took a couple of months. We went back and won his 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, is something that we would want to build.
Craig Cannon [44:55] – Something reasonable.
Ryan Petersen [44:57] – Reasonable and if it’s good for all of our customers, we’ll do it.
Craig Cannon [45:00] – Compared to the biggest freight forwarders, what’s your relative size?
Ryan Petersen [45:07] – We are now, last month, we passed FedEx and Panalpina, which we’re now number 17 out of about 20,000 freight forwarders in the world in four years. We are still 1/5th of the largest on the Trans-Pacific which is Asia to U.S. Now the largest in the world only has 2% market share so it’s not enough to be number one. 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% market share. If you do that, you’re the biggest company on planet earth, full stop. Bigger than Saudi Aramco. You figure they stalled out why? Lack of technology. It’s all people, you know, the biggest has 2% share and 60,000 employees. 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 trouble shooting consultants. They’re not Foxconn factory workers following instructions. They just reached the limits of what a human organization can scale to.
Craig Cannon [46:24] – Where do you see automation in the next, obviously I know it most directly from container ports, but where do you see automation having the largest effect in your business?
Ryan Petersen [46:36] – For us, automation is often about delegation. It’s about getting the work to the right person to do it. The forwarder is kind of the coordinating layer in this relay race of unstructured data and their job today and our team’s jobs have to go out and get the data and then put it into our system. What you need to do is build interfaces so all those companies can directly pass it to you whether it’s through our API or on our web interface. 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 or our employee might have to call a customer and ask for some document, then put it into our system. I don’t want to create automation tools to make them better at calling customers. I want to create a great interface so that customer just uploads it themselves and makes it more pain free. 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 would be better done by software in this academic paper.
Craig Cannon [47:50] – Do you agree?
Ryan Petersen [47:51] – I don’t know, it’s pretty hard. There’s a lot of human intelligence and tribal knowledge in things but even that should be unlocked. Our competitors know more things than us. They have 60,000 employees, 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.
Craig Cannon [48:11] – Yeah, vacuum tubes.
Ryan Petersen [48:12] – You know, yeah it’s impressive but we need to unlock that. It’s living in people’s heads. 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 having to find the right expert and talk to them on the phone.
Craig Cannon [48:29] – When you talk about all these entrepreneurial ideas you have on the side, do you have other ideas boiling in your head all the time for–
Ryan Petersen [48:37] – Of course, of course.
Craig Cannon [48:38] – Okay yeah.
Ryan Petersen [48:39] – I’m always recruiting founders and we’ve had a few great people leave Flexport, not too many. Most people stay forever, but we’ve had a few great people leave and I’m always trying to convince them to do one of my ideas with me on the side.
Craig Cannon [48:49] – Dude, yeah this is the–
Ryan Petersen [48:50] – Not with me, I don’t have time. I spend a maximum, like the phone booth company, they hate me, they kicked me off the board, because I–
Craig Cannon [48:55] – No really?
Ryan Petersen [48:56] – They don’t hate me but they kicked me off the board because I have no time to spend on it. I’m all in on Flexport.
Craig Cannon [49:00] – Oh okay.
Ryan Petersen [49:03] – Yeah, I have a lot of good business ideas most of which will work. I now know from the PhoneBooths.com it’s like crushing it. They make so much revenue even though YC rejected them but it happens.
Craig Cannon [49:13] – I’ll have to read the notes. This was a question that I love and so many people at YC do the same thing to the extent that it should be a page on your Bookface profile, the network, where it’s these are Ryan’s white whale ideas. If he tries to convince you to pivot your company into this you are forewarned, but someone else asked. Jason Yanis asked, “If you weren’t operating Flexport and had to source a new idea to work on, where would you start?”
Ryan Petersen [49:42] – I always start with what are pains that you experience. Again in that Schlep Blindness article, Paul Graham, Schlep Blindness is, a schlep is a Yiddish word for an arduous journey and so a Schlep Blindness is where your conscious brain won’t actually allow you to think about a problem. There’s no possible way I could solve this problem, it’s too big of a problem. I’m not going to go there and that training yourself to let yourself get annoyed by the annoying things in life. People who know me will know I just like complain about bullshit all the time. What the hell is, why does this company hate money so bad. You see that all the time in life 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 solved 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 problem 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. The example of the office phone booths, I think offices are way too loud and I 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, so I wanted a quiet room.
Ryan Petersen [51:10] – 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 yet at Flexport, we had people in those booths all day, every day. They would come out sweaty. People would make fun of it and yet it was used all day. I’m like if a product is this bad and people are still using it, this is a good thing. I pulled together some team members, 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, but cool temperature-wise and look good,” and boom, these guys are selling millions of dollars worth of booths. It’s find that annoyance in your life and for Flexport, it’s well most of the good businesses 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, trade finance.
Craig Cannon [52:06] – Loans for anything?
Ryan Petersen [52:08] – To buy inventory which we secure with the inventory–
Craig Cannon [52:11] – That they already, yeah.
Ryan Petersen [52:13] – If you don’t pay us back, I’ll just sell your stuff on eBay, very credible. That’s where I started my career. it’s always about finding, you know, if it’s not something that’s annoying you, you got to really talk to your customers and what’s annoying you, talk to your potential customers.
Craig Cannon [52:28] – 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, like AdWords or Facebook ads at the time and then just emailing them to see if they’re really interested or you’re just good at creating a landing page?
Ryan Petersen [52:49] – 10 years ago when I first started doing these landing pages for Flexport or eight years ago, SEO was different and easier. 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 and we’d get traffic that way. Our first customers for Flexport were all Google AdWords customers but that was like once I had a product to sell.
Craig Cannon [53:11] – This is such a common challenge for people. Say they are particularly attuned to the problems in their lives, then it’s how do I launch in a way where I can validate and de-risk this venture whatever it might be. You can only do it to such an extent but I’m just wondering if you have pro tips.
Ryan Petersen [53:35] – It takes some sense. You got to not believe your own BS and make sure that other people agree with you that this is good. The phone booths thing for example, I had that idea and I’d seen it. I built some really crappy ones with a carpenter I hired on Craigslist like I told you about so I knew it was a good idea and I just talked about it all the freaking time at parties. Everybody I ever talked to was like, “Yeah I will buy five of those.” I could probably sell five booths to YC right now if I walk out of here–
Craig Cannon [54:03] – We have ones and they’re terrible. They smell weird, they’re hot.
Ryan Petersen [54:07] – Totally so you got, everyone I’ve ever talked to who has a startup would buy one of these and so there’s only so long you can go before you’re like, everybody wants to buy this product 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.” Success compounds too. I don’t think I could’ve just spun that up on the side if I wasn’t CEO of Flexport.
Craig Cannon [54:39] – Yeah of course. Well Flexport similarly, when you were getting started, you had the cash around to hire developers.
Ryan Petersen [54:45] – Yeah which came from my previous–
Craig Cannon [54:46] – Exactly.
Ryan Petersen [54:47] – 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. There’s lot of businesses that don’t need any investor money, do that, and then earn the credibility. Success compounds, build up or use your own money to fund it and 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, or like, go find a way to make money in this world and don’t wait for investors to give you permission to start a business. That’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.” I’m like, just pick a different idea.
Craig Cannon [55:30] – Totally, it’s one of the biggest downsides of the VC industry as it exists right now. It’s created all of these like thought leaders around businesses that require venture capital funding and it’s 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.
Ryan Petersen [55:51] – Yeah and success compounds. I did startups and we never called them startups. We were just trying to make money for 10 years before I raised my first venture capital dollar and I didn’t know the first thing about venture capital until I got into YC and even then, you know, and so I think that it’s a bit toxic. Now I know that people in YC should raise money and go do that and so I know why my advice is controversial to people but at the same time, it’s also investors want to invest in things where they’re like this guy’s going to do it with or without me.
Craig Cannon [56:24] – Totally, totally.
Ryan Petersen [56:25] – She’s got this, I better invest now before she runs off and leaves me behind.
Craig Cannon [56:30] – That’s the best case scenario where there’s so much FOMO, they’re like listen, “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.
Ryan Petersen [56:41] – Right, now you don’t want to be a faker but on some level, you’ve got to believe that you’re going to do this with or without the investors and then all of a sudden, the investors will line up.
Craig Cannon [56:49] – Totally, all right. 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?
Ryan Petersen [57:05] – One of the most interesting lessons learned, and I used to say this wasn’t useful, but more and more I think it is, is the degree to which success compounds. The reason I say that, I used to think that’s not useful because it’s like, “Well, what does it say? Be more successful,” and you were going to do that anyways. 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. 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 going to compound on themselves. The way it looked in Flexport’s case is a decade of small wins and successes that got us into Y Combinator. Y Combinator got us Google Ventures to invest which got us our CTO, which got us, you know, you sort of like, which got and built the product, that got the customers and it’s just this, eventually you can unlock these crazy lalapalooza effects of compounding success but it does speak to 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 little wins at a time. That humanity could not have existed at the Big Bang. We would’ve been killed under the pressure and you need to sort of slowly evolve the thing
Ryan Petersen [58:34] – and eventually you’ll get where you want to be. Also de-risk things like, venture capital’s quite risky. These people need a return. Never take debt unless you’re profitable right. You 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 going to work so don’t raise more money than you need to, make sure everybody’s winning in the process except your competitors and then you’re golden.
Craig Cannon [59:05] – All right, if people want to follow you online, where should they go?
Ryan Petersen [59:08] – Well I don’t know if that’s a good idea. My Twitter is @typesfast.
Craig Cannon [59:11] – Yep cool, all right, thanks man.
Ryan Petersen [59:14] – Okay, thanks a lot, thanks for hosting me.
Craig Cannon [59:16] – All right, thanks for listening. As always, you can find the transcript and video at blog.ycombinator.com and if you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon