Flexport’s Third Act: Winning in a Broken Global Trade System

0:00I'm very fortunate like logistics is the best business in the world, global logistics especially. because you're like, we see the flow of the goods. I'm like, how does every company work? People hire Flexport to move products around the world, move inventory businesses. You don't want to have to deal with all those different vendors. You just hire Flexport, and we execute the transaction end-to-end. We have reasonable confidence that tariffs are going to be high and probably higher than they are today on goods coming from China. The tariffs are going to have a real impact. Certain companies will fail.

0:25You're seeing companies get hit with, in some cases, a 50 % increase in their duty. Like who?

0:42Welcome to Grit. I'm Jubin, partner at Kleiner Perkins, a show where we go beyond the highlight reel and explore the personal and professional challenges of building history-making companies. Today, we have Ryan Peterson, CEO and founder of Flexport, a company he started in 2013 to modernize global trade, one in which he left about six to nine months ago and then rejoined to go and take over global logistics, working with over 10 ,000 companies and moving billions of dollars of merchandise across 145 different countries. Enjoy the episode. What's up, man? Good. What's up? How are you? Thanks for doing this.

1:17My pleasure. So what's your role here? So I come from startups and company building. So I have a team of operating partners across sales, marketing, finance, engineering, product, and we actually go and help our companies build their companies yeah by the way you know my cousin who's like my little brother i mean he is he's my first cousin he's like my little brother he's the man i grew up with him he's awesome uh uh he's he i probably worked closely with him closest with him you did because he's in there every day yeah me and him were grinding yeah i was he he loves you too and he's like yeah me and me and peterson would be at the office late yeah and then he's like at some point it turned into like ryan's like grinding on flexport like late yeah and the next thing i know he's back on the saddle Yeah, yeah.

2:02He and I were working harder. I like venture. I loved meeting all the smart people and seeing the world through that lens. I am not convinced that more effort leads to better results. I like to work really hard, and I don't know that that actually translates in venture. Like if you put in 15 hour days at the office every day, like I'm used to doing, like, right. Might be a mistake. You might be overworking, overthinking things or like looking at too much crap or something. I don't know. So I'm not sure I had the temperament for being that patient and waiting for the fat pitch and then hitting it out of the park.

2:42Yeah. I've always said like the because especially in the type of investing that Kleiner Perkins or Founders Fund does, it's like each partner is doing one to three deals max a year. Right. So one to three deals. One deal. Imagine doing one deal a year. Yeah, it's kind of boring. That's a different temperament, to your point. Logistics is always on 24-7. It's better suited. How long were you actually at Founders Fund for? I'm still a venture partner, so I'm trying to help them out. But I'm so focused on Flexport right now. and until Flexport's back where we need to be, which hopefully is this end of this year where we're really throwing off a lot of cash and in an awesome place.

3:29I think it's like fiduciary responsibility to just spend all my time on Flexport and not look at other stuff. So probably like full, full time, about three months at Founders Fund. Pretty short little stint. Yeah. And then what happened? Like what actually happened? Like did you freak out? Like did you have a moment where you were like, oh my God, the business environment changed? Yeah. Yeah. Well, it's all the business environment. It's always changing. We don't blame that. There was definitely a few moments. So, you know, it's not a coincidence. So I joined Founders Fund. So I hired the CEO.

4:04We were co-CEOs, but really I was kind of letting him run the show for about six months. And then I didn't do much of anything for about three months. And then Founders Fund was kind of recruiting me during that process. So eventually I agreed and joined. So I did about three months there. But once I joined Founders Fund, I had all kinds of people from Flexport reaching out to me. Because I had board-level visibility of what's happening at Flexport, but not operating level anymore. It kind of pulled me back from meetings and cadences and things like that. So I had a bunch of different people reach out to me like, Ryan, did you know about this, this customer, this metric, this churn rate, these things that weren't board-level visibility.

4:45And so I started to get wind of like, oh, man, there's some real issues here. And then we had a board meeting that was pretty bad. Your first board meeting. Yeah. Not as the CEO. Yeah. Second board meeting, not as CEO. And the missed forecast pretty bad. The results were just like, whoa, what's going on? And that's when the board asked me to come back. How unnerving was it in the period of time where all of a sudden other people have to tell you about your business because you're no longer in those meetings? and now you're like a board member how weird was that feeling uh bit yeah i mean man i haven't thought about a while it's it was tough obviously like you just you built we built this business over a decade right and so like hearing about customers that loved us forever and are churning you're just like what's going on like we had we had a few big problems um quality i basically i came back with you know you can see what the problems were based on what the priorities were when I came back to the company 18 months ago, which was step one was quality.

5:46Like we had, in pursuit of efficiency, we had really, we had taken our operators and got them hyper-focused on individual tasks and do the same task over and over again across everybody's shipments, kind of like treat people like robots type activity. And nobody was taking ownership of the shipments or the customer accounts. It was like a bunch of people just pushing buttons and that doesn't work in logistics. So step one was like kind of reorganize around the customers, get our operators dedicated to each customer and then get operator on each task, on each shipment. Like do all the tasks on the shipment instead of one task over and over across all the shipments.

6:27So quality, we had to cut costs like crazy. So we reduced, cut about$300 million worth of fixed costs out of the business and then unit economics. and we had gone from being around a 15 % take rate business to zero. Now we're back to 18. Why? Primarily, it was on the audit side. So freight forwarding, global logistics, big accounting problem, honestly. It's like, I wish I'd appreciated this when I started the company because I never really found accounting to be very interesting. But on a given transaction, you have like 10 different vendors and you have to, that are each performing some service.

7:07That's the job of the forwarder is to coordinate as the container or the pallet travels across the world, all these different vendors, like moving it from a truck from here to this warehouse. The warehouse is doing something to the port, right? Onto the ship, end to end, government fees, everything like that. And so you've got to account for all those bills, take them in, audit them, make sure they build you the right amount, attach them to the right shipment and then build them through correctly to the customer. And so we are a bunch of those processes has been outsourced to the Philippines again in pursuit of efficiency instead of quality.

7:39And what's Flexport's role in this whole? Yeah, people hire Flexport to move products around the world, move inventory. Businesses help. We help businesses ship cargo all over the world. So and it is that complex coordination. So if you're a brand, you're a company that makes these glasses, you don't want to have to deal with all those different vendors. You just hire Flexport and we execute the transaction end to end. And unlike a traditional forwarder, we're doing all that coordination, not by email. We actually have built integrations and processes to technology to make that simple. And so you get a single pane of glass.

8:13Where's my stuff? When is it going to arrive? Better estimates for your transit time, SKU level, inventory level visibility. Where's my stuff? And great pricing now because of our scale. So coming back to the problems that emerged, we basically like all in on efficiency. And maybe Amazon's world, that's the name of the game, is just like have workers who are kind of robotic. But in global logistics, freight forwarding, it's a very service-oriented business. Like you've got to take ownership of the customer accounts. And there's a lot more variability because it's not all inside the four walls of our building.

8:50We don't own the trucks. Like we're coordinating. So you've got to have like kind of problem-solving, creative people. It's not a pure tech business. It's not a pure robotic kind of asset heavy service business, execution business. So a lot of these things that we built over a decade started to fall apart pretty quickly, like take, you know, margins eroded, et cetera. Good news was we got it back also really quickly. So our net promoter score had fallen to about 17. Net promoter score is kind of, it's a pretty brutal metric, actually. It's pretty low. I know, it's pretty low. It was always in the 60s.

9:26the pandemic really took it pretty bad down to like 17 last month it was 72 so we really turned it around through the quality work that we were doing uh listening to customers more like building what they asked for etc so um but yeah it was a uh it was i would i lost some time probably at the end of my life will be a little bit shorter because of the six months that uh of how hard i worked and how much stress i went through to turn this thing around can i ask like um why did you were you tired like why did you leave in the first place no i wasn't um i love i love this job so i i wanted to find a partner we're an operations company like we're operations as a service so i was looking for a partner like you had a coo search right yeah it started as a coo it was a coo search um and i kind of caught a whale i hired the guy ran ops for amazon so it seemed like man this guy and then pretty quickly i kind of convinced myself that he would be better as the ceo right you started talking and you thought this guy's not going to take the coo job and then you thought man maybe he's better suited to take the ceo job and i started thinking like what what would i be better at and i just like i don't know maybe like some sales marketing and hype man type stuff like that's not a job like what are we talking about like uh well it turned out be better at most of the things so i come back with more confidence and like my own ability um and i really changed my mindset quite a bit.

10:54I'll probably know like five times more people at the company now. I'm like way more involved in all the details of everything than I was before. So some of that's confidence and some of that's just like, yeah, changing attitude of like, okay, I got to go get out there. And Ryan is the confidence comes from you hold this guy that is the preeminent expert on logistics, ran it at Amazon in such high regard. And then he comes into a business like yours struggles and all of the doubts that you thought about your ability to operate maybe started to go away yeah some of that for sure when you were doing the co-ceo thing at that point did you not ask yourself like like wasn't that the point of the co-ceo thing to see like how is this going to work together yeah there were definitely uh did you feel like you're in too deep maybe uh yeah yeah there were moments where it's interesting you know someone's very confident and competent resume wise you're like extreme confidence at some point someone's really credible seems competent seems like they know what they're doing and is very certain you're like can can make you feel make you ignore a lot of red flags or make you ignore a lot of problems it's dangerous thing actually when you see someone who's supremely confident you've probably hired other executives that have that same characteristic no um no everybody i mean everybody's different but i i would say that confidence it's interesting you know i don't i think extreme comp extreme confidence is kind of a very dangerous attribute in the world uh i don't see myself as extremely confident because i know how little i know and like it's a more it's a better approach i think paul graham wrote about this recently like that the best people are always um approach the world as a true beginner i'm like asking i forget exact language he was using but it's sort of like just like be constantly curious and it's the one attitude that will a lot that will always persist and you can never you never have to give that up because if you're a true beginner you just admit it and you and you just be curious and learn and then by the way if you continue to maintain that you'll be smarter and you know you'll know more than everybody and that's the best way to live uh that's always how i've been but there's a certain you know flex sport um culture we were always we always used to call it uh try to hire insecure overachievers who like didn't have supreme confidence but we're actually like incredibly good um so yeah try to get we're trying to get back in that mode of like hey we're not looking for the know-it-alls of the world and logistics is kind of full of them actually people who they've spent 20 30 years in the business so they think they know everything but nobody knows everything about logistics do you think that you get mischaracterized as overconfident because you're charismatic yeah i do um i don't know i I don't pay that much attention, but I do have like a legion of haters on LinkedIn.

13:59I block them all. But people tell me about them. I block them because I just don't need that kind of stuff in my life. And I use LinkedIn for like sales and stuff sometimes. I do go on there. But people tell me, how do you deal with all the hate? I'm like, I literally don't see it. So I don't know what you're talking about. I think I do. Yeah. Yeah. I definitely think I get typecast as that, like overconfident. And I've been asked the question before of like, what's the one thing that most people think about you? that you disagree with. And I would actually say that I'm very confident. I think it's like, I am far more insecure than people would believe, maybe because I'm charismatic externally.

14:35And I think it's easy to pinpoint the charismatic person as the overconfident person. And I think if you're both charismatic and overconfident, that's a really dangerous combination. Yeah, interesting. Do you know what I mean? I just try to say, I don't know. I mean, confidence is a good thing. It should emerge naturally if you're actually good at something. but uh i overconfidence is always the line and and we're um i'm very fortunate like logistics is the best business in the world global logistics especially to learn about other businesses because you're like and maybe banking is comparable or something you see the money flows but we see the flow of the goods like how does every company work and it's just an endless landscape for curiosity to just figure out like and no one knows how it all works like i was saying before there's always like layers you thought you were working with the like how how everybody makes money and how there's just endless layers to it all yeah and when the executive when when the ceo co-ceo came in then became the sole ceo at that point the burn of the company was pretty high right yeah well it kept going up and up and up so it went yeah like you guys hired we and i proved a lot of these plans i mean i approved the plan so it was like i read it went from 450 people at the beginning of 23 and then when you got back this is this is software engineers yeah 450 engineers to 1300 yeah we hired like 900 software engineers in a year um that that's why i actually kind of cost it pretty easy because those folks had not really got in and started to be right right contributors like it takes a long time oh yeah yeah i proved it and like man i want to live in world where that was the right move it was badass like we built this insane great engineering team and our roadmap is really compelling it remains to be like it's so exciting the stuff that we can do with tech for this industry and the industry is so massive that like it there is there is a future where that was the right move to make and like maybe i'm just like reined it in too fast because it would be incredible to accelerate our product roadmap by three or four years yeah but uh It was not financially the place that Flexport needed to be.

16:47Capital markets changed on us. Freight markets changed on us. Can you talk about what happened in that time with the freight and capital markets? Capital markets, you know, because you're working at a VC fund. So, I mean, it's just like environment for late-stage startups. It turned. Everybody else was cutting costs. It's 2022. 2023 was not 21 and 22, right? So, it was very clear you're not going to be able to raise more money. And we've raised plenty of money. We shouldn't, we don't need to. And then the freight markets really turned on us because you, COVID kind of unwound. When COVID was hitting ocean freight prices, it was at the margin and the spot market was like$20 ,000 to ship a container.

17:29And we're taking a percent of that. So we were making, we were profitable in 2022 and, you know, full on profitable as a company. And then prices came way down. And so that confluence of those two things, but like, we can't blame external. We just like overhired. We didn't hit our sales forecast. We were churning business. Like I was saying, our unit economics turned upside down. So there was just like a bunch of things that were own goals that weren't going to blame the market for it. This was a serious process to bring on a new CEO. Like you did it pretty methodically. Like you brought on a co-CEO, then it becomes the sole CEO.

18:07Then you extract yourself. then you like i don't know are on the beach for a few months then you go to founders fund become a partner there right like this is like quite a extraction process how long did it take you to be like oh my god i think i need to unwind all of this yeah like mentally was that a hill that you had to climb yeah i mean it's all flashbacks right now i put this out of my mind for a while is um i forget the exact details of it all but yeah it was definitely i mean it was not an overnight decision it wasn't honestly it wasn't just a me decision the whole board was unanimous uh in saying hey ryan we need you to come back and step back in and i was like yeah i'm honor bound to go you know it's my whole life's work i'm not gonna let this go aside you know fall off cliff um but i don't think it wasn't something that the board came to lightly right there was several months of deliberation a little bit of deliberation not everybody got there at the same speed some board members had to convince other board members and or at least talk them through it and the timing of it all so make sure there was good governance there was good process behind it all it wasn't like me make i didn't have the board power to make that decision it was a board level decision um but yeah it was a couple months of active discussion before they really pulled the trigger and were you chomping at the bit then like were you like you saw the car driving off the cliff and you're like i gotta get back in there but driving off a cliff's a bit too strong but yeah certainly like long-term trajectory wasn't where we needed a company to be and yeah i saw it and i felt like a sense of urgency um i also did think it was important that we be a company with like great governance and there's a process for these things and um not be reckless around it so So it was a pretty healthy balance.

20:01We moved as quickly as you could on something of this magnitude. And like, are you married? Yeah. And like, your wife obviously like, I mean, you're like addicted to the game. Like you can't sit still at Founders Fund. Like you love working, right? When you were sitting at home, like during the period where you were not at Flexport, was she happy for you to go back? Or was she like, are you sure you're ready for this? she's she's uh i couldn't do without her she's been super supportive um she knows that flex sports my life's work i i was doing flex for well before i met her so she already know like where how important flex board is to me so yeah it was never a doubt um i never had doubt that that's where i have to go and do i'm honor bound to to make flex board successful and in your mind like before you came back the first day did you think like you were gonna have a hero's welcome back and like you know the founder has returned and then like real i have no idea i had no idea um there were standing ovations all over flex board offices when i came back and gave a speech and announced it like people went crazy i uh maybe there were some other people were less happy and they were quiet in the back or something i don't know but um they were there was definitely people knew that hey things weren't quite right um we had lost our mojo in terms of being customer focused like it's a b2b business is really different than consumer logistics like in consumer logistics if you talk to the customers like something went terribly wrong like you shouldn't be talking to these people like why are they you know why is your amazon customer calling in like something went wrong b2b like you should talk to your customers constantly i've met where are we middle of march i've met um my goal for end of march is for q1 was to meet 200 customers in person i think i'm at 150 so my i don't know if i'm gonna do it okay i got 25 i'm meeting next week that gets me to 175 with a week to go but um it's that's not because things are wrong right it's just like that's the nature of being ceo of a b2b company is like you have to be really engaged because our customers spend biggest customer i think last year spent over 100 million dollars with us wow so like they need to talk to the CEO or they're not going to trust, you know, they need to know that.

22:18And that's how this business is too. Whatever size of the company it is, this is like they're either their biggest or it's probably their second biggest line item. Now with customs, it might be their first. Like you have the cost of the products and the cost of logistics and then the cost of people is like third probably for most of our customers. So it is a massive line item. So even if you're a small company, you're spending more on your logistics than any software, you know, probably by an order of magnitude. So they got to talk to this leadership. And not just me. I can't meet every, we have thousands of customers.

22:50I can't meet all of them. But I can meet everybody who's talking to the customers, right? So I've spent time with all of our salespeople, finding out what the needs are, what are they saying, right? Being in tune with the market. And that's the nature of this job. Yeah. it's um it's not for everybody and obviously in life like there are no such things as redos but like if there was you would just hire a great coo and stay in the business like i don't know try not to entertain hypotheticals the world is vexing enough as it is that's what that was the goal that was the original i was trying to hire yes a great coo why um Well, we're an operations business.

23:35So I think what Flexport does is try to do the same thing in one part of our business, which operations, like moving the cargo, is do the same thing we did yesterday a little bit better. Like just have super dialed processes, KPIs, do all this kind of Lean Six Sigma stuff that I've now become really attuned to, but I'm much more of a creative product type person, sales oriented, creative product developer than I am dialed the same exact process over and over again. Like I can't do the same thing two days in a row personally. That's not my skill set. So I was looking for someone who loves that.

24:15You know, just like statistical process control, W.E. Deming, quality costs less mindset, like just drive that. And I think if you talk to people who understand industrial processes, the company, Toyota was kind of the original pioneer of a lot of this stuff, the Toyota production system. and the two companies in the U.S. who have done the best job of putting the Toyota production system to work are Amazon and Donaher, which is more manufacturing, but Amazon's logistics. So it just seemed like natural fit. Now, I don't think they call it that. They've got their own Amazon lingo and stuff, but ultimately, you're talking about really good statistics and measurement metrics of the full end-to-end flow and look for variability and eliminate outliers and waste and that's a whole genre of business philosophy and process execution that i don't know it's not certainly not my background i've become really good at it and something i'm obsessed with now but i was looking for someone who just owned that part of our world for me so i could focus on what i like what i'm better at yeah but um in hindsight we actually have a lot of those people at flex force i should have just had more confidence to promote folks from within this like the ultimately always the lesson is promote from within you think so yeah i do pretty convinced now you sometimes have to hire from outside um i just i recently hired a guy um senior exec in asia but i told him you're not allowed to make any decisions for 60 days and after that you got to show me your plan and i'll approve it before and then we'll go execute it together right um and that was i think he was a little taken aback but in the end absolutely loved it because his plan he told me on day 50 day 60 i was when i literally kept him to that like day day 60 i was like all right now you can show me your plan what do you want to do he told me that if he had written the plan on day 55 it would have been different wow much less on day one yeah and so you know maybe we should still slow roll it and figure out what's going to be different in 30 days or whatever but getting someone to come into a senior role with that humility because he just went and learned from he knew he wasn't going to change anything so just spend 60 days asking everyone questions learning um so that was i wish i'd done that all along in all my hiring i think is like get awesome people but then force them to stay humble and learn and not just come in and try to why do you think what they learn why do you think that lesson is to promote from within um it is just so hard for people every company is so different it and unless they've done that exact same job in that same industry and then they won't have done it in your culture and your company and your people your processes like they're bringing a lot of baggage a lot of stuff that might just not work a lot of stuff that you've tried like no one's that i mean i'm we're a group of really smart people who've been obsessed with this company for a decade like what are the odds that some person smarter than all of us combined like no stuff like can think of stuff that we none of us thought of you know it's like probably pretty unlikely yeah um so most of the better off doing the job yourself finding out who's awesome that you can teach how to do it promote them into that yeah so and this idea of like playing to your strengths right like oh what i really want to be doing is sales and marketing product what i really don't want to be doing is things like six sigma and optimizing and tweaking like now maybe is the lesson that you draw that actually i can get into that stuff and i do enjoy it more than i thought and i have to enjoy it or is the lesson like no no no like i still think that i should just play to my strengths and really there are competent people they just happen to be internal i should promote them and they can like augment some of it's it's a bit it's a bit in between those last two things i mean it's definitely like i can't do all the things and i'm not i'm not like a i'm taking a bunch of statistics class and i find it interesting uh but you're better off finding good people who you i need to understand the base level so i can not delegate uh complete abstain from understanding you can't delegate understanding you got to understand what they're doing uh but empower good people to go execute so and then yeah man i mean i just think you find people who are ready to grind and put in the time and the work and the energy and the and the commitment to the company are just like worth so much more than some big exec who thinks they need you know just to put in a nine to five why get back it's just like there's no substitute for passion and being able to outwork people um you know my my uh i have a chief of staff now i i like having like a good right hand working he outworks me uh and just getting people like that who will be everywhere i was looking at um slack lets you see how many messages different people send my chief of staff has sent more messages he's he's no one's even sent half the number of messages he sent in the last 30 days like i don't know what this guy he's slacking everybody in the company keeping everybody on their toes like working with and i'm i'm right i'm this guy who's number two in the company so um that's worth more than somebody who's like 20 years of experience in my opinion someone who's gonna work work their ass off uh and you have to be super smart but there's a lot of really smart people in this world but if you're not committed willing to outwork everybody yeah and then this is gonna be a tough question you don't have to answer it but can you steel man what the now gone ceo would say like if he was sitting here oh would he have a very different point of view yeah of course of course uh and and you know there's the truth is probably somewhere in between i think um he has said some of these things publicly so we don't need to dig it up but um probably that i'm a uh renegade uh cowboy startup guy who doesn't you know deserve to have such a great professional ceo run his company for him or something like that i don't know yeah there's something there's something to that um and that you signed off on the on the burn oh yeah for sure that's just true that's just true yeah um i did sign off like i i didn't think we were gonna burn that much money which is how much is it oh we won't get into it it's not out there but uh we're we're close i've turned it around we're gonna be profitable god willing here at the end of the year we should be in the right back to profitability so uh i say god willing because there's some things like way outside of our control do you think you could have made the co-ceo thing work for a while i'm not sure i think you want to have one leader i'm pretty skeptical i don't know uh companies that have really made that work work there are a few yeah i mean brex did it for a while yeah they did for a while they had a very unique relationship those two i actually have i have pedro coming in tomorrow yeah yeah you ask him i mean they they i don't know i know them but i don't know that much about how they organize it but um i think in hike uh spent most of his time externally and pedro ran everything internally it's like kind of weird pedro's the man for putting up with that i'll be like wait what you get to have all the clamor and i gotta do all the work yeah yeah yeah yeah yeah yeah that's right but it worked for them i mean no criticism yeah uh but those guys have also been friends since they were like 10 or 17 yeah so like no not even like 12 12 yeah exactly like so that's a little different that's a lot different um i didn't have my co-founder was my brother actually uh but in the beginning yeah but he wasn't he never really worked on flexport full-time made it was like for both of us a part-time project for a few years while we were trying to get licensed by cb customs and border protection um so although he's a co-founder he was never like what were you doing what were you doing we ran uh import genius.com so we still own that it's another startup you and your brother yeah previous to this yeah and your brother started that company yeah and then you worked for him i worked for my brother we started a company before that even so we were partners at import genius i worked for him at the previous company okay so yeah um so he's my he's my co-founder but with flexport it was sort of like he never really was full full time once once i went full time he was actually had done y combinator for a different company that he was full time on so we both kind of like advised each other's companies and had shares in them and like we're we're co founders but uh not that business relationship of like working together every single day we did that in the past it's uh and how old were you when you first started working together oh i mean 13 we would sell uh sell stuff at the flea market like in maryland so yeah we've always been like And he's older than you?

33:18Yeah, he's my older brother. And does he feel like your older brother? Yeah. Do you have the older, younger brother thing? Yeah. Yeah, yeah. He's definitely my mentor. He's someone who's supremely confident, actually. And he's usually right. So confident and right is good. Confident and not right is dangerous. So you started working together young. Yep. How much older is he than you? He's three years older. We might have started before that. I took over one of his businesses when I was nine or 10 years old. My mom is an entrepreneur and she had us, we would stock this snacks and sodas in her office and then send her an invoice and we'd go to this grocery store and buy the stuff in the market up 2X, sell it to her.

34:06So that was like how she taught us to run a company. So he did that for a few years and then I don't know, he did other stuff and I took that business over. and my dad's a computer programmer so he taught us how to like write code to generate the invoices and check the uh file our tax returns and stuff oh my gosh yeah and then so you did that then what then what like when did when did the next business like so they were all kind of side projects um when my brother graduated from he's a few years older like i said so uh he when he graduated from college his college roommate and him started a company he was working at intel as a computer programmer uh and his college roommate and him had this side project that he was taking his nice salary from intel and investing and buying um motorsports products from china and selling them on the internet and he built all the software for that so it's kind of like honestly it was pre-shopify so e-commerce checkout software inventory management invoicing payments yeah we should have built a company selling the software rather than the crappy chinese uh motor scooters motorcycles um because we could have it was in the cloud like my brother's a genius programmer so we'd you know in 1999 had cloud-based software for doing all this stuff but we weren't we never heard of or thought of like selling subscriptions to the software we just used it to run our e-com business so i joke when i graduated from college i joined that company uh working for him doing what did uh built the websites marketing seo e-com then i moved to china did sourcing uh ran the supply chain found the goods uh customer service sales just like whatever around the startup um so i did that for a few years then And then we started Import Genius together.

36:01So that's the company. Import Genius takes data on global trade and sells subscriptions. So we have subscription access to bills of lading. If you import something by ocean freight, the bill of lading is a public record in the United States and 13 other countries. So that has a tremendous amount of data on it, but it's all locked up in ways that you have to make this data searchable. So we built the search engine for that and sell subscriptions to it. so that's a nice business we've had it for 15 years now it's still a nice business yeah yeah it's a great little company like it like spits out cash yeah to the two of you three of us uh michael kanka is the third partner yeah it just kind of runs on its own no no no there's a team behind it but i uh from my perspective i'm not i was the ceo there for like five years but then i left to start flexport so did you ever think that that was your life's work i wanted it to be my life's work um but you know there's something it is a great business i think it had kind of reached it's still grown nicely what's nicely it grows like five or ten percent a year on what base ish uh millions yeah yeah millions of dollars a year in profit um it's a good business um but in profit it's amazing yeah yeah that's great uh honestly if i'd known that that business would last i mean it's been 15 years growing five to ten percent on millions of dollars of profit you There were some years where it didn't grow that much, but it's been growing about 10%.

37:22You could get rocks. My brother still works on it quite a bit to get the marketing working and get it growing. So it's probably, yeah, I mean, we didn't, part of why I think people were attracted to Flexport is like, I didn't need to do Flexport. My first head of sales was like, he met me and I told him about Import Genius and that I had left to start Flexport. He's like, man, you left that company to start this one? Like, I got to join this guy. This guy's kind of crazy. It must be a good idea. I think investors also saw that I wasn't just trying to make a quick buck. I don't need the money. Of course, I want more money.

37:53I love money, but it's not what motivates me to start the company. At some point, Import Genius, I think it can continue to grow and have a bright future, but it wasn't... Some companies kind of reach their potential... There's niches in the world. It's not meant for world domination. There's a niche of buying and selling this type of data. it's not tam matters right like it's not an unlimited tam of companies that need that data and are willing to spend lots of money on it um and uh at some point i got pretty frustrated that i was like trying to make it grow and turned out i was spending more money but not getting enough results so i was actually reducing you know a lot of my energy and effort was like work working against us working against the p l like and just frustrated with myself like try to direct mail try email marketing telemarketing hire more sales people invest more in customer service and you're like well the expenses are going up but you can't drive the bottom yeah i didn't see the profit i didn't see the results that we wanted it and so started iterating thinking of like ideas in this space which was like you know you think i just love the internet and i love global trade we put those two things together um and that's the experience of shipping motorbikes um we were the first dealer in the united states for gili which is the chinese car company that bought volvo um we were they we weren't selling their cars we're selling their motorbikes their motorcycles and we were very very frustrated by the experience of working with freight forwarders but they just no tech and they always wanted to rip us off just those two things basically and so just eventually as we're doing import genius started realizing like running out of energy on this uh how much more can i put into the thing when i'm not seeing results for my work started to think about other ideas in the related space and that's where the experiments that became flex board came from which is like start off and see if people would want a service which is we started as a customs broker so tech to clear customs make that paperwork simple kind of turbo tax for u.s customs was what we in fact i don't know if i literally use that but our y combinator pitch was customs uh not freight forwarding not global logistics just customs and did that take off yeah like we've never been able to keep up with the demand basically um you've been swimming yeah ever since well what happened you know i would say certainly yeah basically we we we had about 300 customers sign up before we got before we launched we're like right 300 company nice sign up is whatever they filled out a lead form like but there was strong indications of demand then what would happen is the biggest ones just like enterprise sales cycle.

40:53I knew nothing about how to close like a big enterprise deal. That was like not my world back then. This was 15 years ago. And then the small ones, as we explored with them, they didn't want to separate their freight forwarding from their customs. That tends to be small companies don't want the complexity. They're just like, the company that ships the ocean freight should also clear customs. And so that pulled us, we wanted to just do customs and be the best at customs and let other people deal with the freight. And eventually we were going to do freight. once we were the best in the world at customs that's sort of like business dogma you sort of like right core competency don't do too much um but like the other business dogma i believe in even more is like listen to your customer and do what they tell you like so we got pulled pretty quickly into air and ocean freight forwarding and then that's where you like demand we just can't keep up um both because there's a lot of demand for what we do and because what we is really hard like all of a sudden you're now have to be in all kinds of geographies like in year two flexport opened in europe and in asia wow most companies do that in like year eight right something but like honestly we should have done it from day one how do you do global logistics without having people on all over the globe um and then you're building a lot of tech for every mode of transport different geography so a lot of surface area that we had to build technology for and is your brother still in picture at this point yeah yeah i mean he's a pretty decent sized shareholder at that point i meant no not as full-time but we shared an office together for so he has a company called build zoom yep uh which is a yc company also he did yc before me um the year before so and then when flexport came out got some funding we like shared an office together so build zoom and flexport but there was never a point where he was going to join you or you were going to join him and i could have convince him i mean he was he was pretty all in with build zoom they'd raised i forget how much money they raised millions of dollars for their own thing so he was committed to his investors and his build is a cool company so he was committed on that but um so and i we're better as like arm's length like collaborators i don't know you said you have an older brother younger brother the competitiveness there's some element of uh it's very hard for me he's my older brother it's very hard for him to listen to what i say he's he's usually right but uh you know i was always going to be the ceo of black sports so i'm not sure my brother wants to have a boss he doesn't need to have a boss especially he's like too successful especially his younger brother he's too successful to have his younger brother be his boss so yeah we're better he's we're better as partners like he's he's that said um being a founder can be incredibly lonely you know you know this and have it you don't want to tell all your employees all your problems uh that's a bad idea uh and your anxieties and your fears um and you probably don't want to dump that on your like your wife or your spouse or whatever else you have uh that's like not not a great place for that stuff either so having uh like my brother who deeply understands entrepreneurship he taught me how to be an entrepreneur so he's my spiritual uh yeah and my and vice versa he doesn't have problems so I think I feel like he's good.

44:08What do you mean? No, no, no. I'm joking. He doesn't share them with you. I'm joking. I'm joking. He's good. But Flexport's more stressful than his company's. Do you feel lonely now? No, I'm good, man. I have a great team. Do you actually? Are you actually good? Well, I mean, look, there's always a loneliness that comes from being the founder of a company. You go through things that others don't see and have to deal with. Like what? Well, you're the one ultimately on the hook who, you know, I've got, I've had to raise the money or make the hard calls, make some of the judgment, some of the difficult judgment calls.

44:47But basically I've done it with the team. My, my core team been with me seven or eight, nine, a couple of them for 10 years now, Flexport. So, but the team has expanded. I've got 15 people reporting to me. So. Is that high relative to what it was? I think that's about the maximum that anyone should probably have healthily. It's not healthy even at 15, but I haven't found a better structure. But it's, yeah, being the CEO of a big company, I don't know, being the founder of a big company, you'll see others talk about this. It's just difficult. like i would say um if you look like one of the things that you get from perspective in time is i've been i'm here i'll still be at this company in 10 years 20 years 30 years like i'm gonna be here for the rest of my life i don't know that you could say that about anyone else in the company in the beginning you kind of believe that oh this whole team we're gonna we're all in it together.

45:55But when you've been through the cycles, you see people come and go, had to fire a lot of good people. And some of my friends I've had to part ways with, hired some people that didn't work out, plenty of those as well. You get that longer term perspective. There's a bit of loneliness that comes with that. You're like, well, I'm definitely going to still be here in 20 years. It also gives me a lot more confidence too, because like if there's an argument and I'm certain that I'm right, I'm right. because i'm definitely going to be here in 20 years or in 10 years and you might not be so we're going to go in my direction uh and not everybody likes that but that is just the nature of the thing right um and i think five years ago i would is way more like let me try to get everyone to agree and like okay i'll let this one go even though i'm certain i'm right i'll let them make their decision because they now i'm like i'm not letting someone make a decision if i'm certain that they're wrong you know whereas in the past i'm like because you're gonna have to i'll be here to clean it up hold the weight of that decision yes in a decade but it doesn't work in five years and i'm running your department because you failed like that is i'm gonna have to suffer through the consequences and you won't so there's a there's a bit of a loneliness that comes with that now i'm not that's not like a but i'm pretty open with my team about it all like it's it's um it's all good i hope that all my team members will stay for the next five ten twenty years i hope they will i mean it's an amazing business but that's probably in reality people have different life's paths it's not i don't know that there's other people there's a few of us at flex for to consider this our life's work and we're just like we know we're all in forever but i don't know if that's everybody and that's i wouldn't expect that right it's a try to get more people to be like true missionary zealots but that's the founder that's what comes with being the founder and you don't just get that it's everybody else in the company yeah it's crazy to think that like i mean i completely believe you that this is your life's work but for a six to nine month period it wasn't your life's work you know isn't that crazy it is kind of well i know it was still gonna be my life's work i remember um no no i i don't know if i've told this story publicly uh hopefully he forgives me i don't think he cares but um when i told paul paul graham the Y Combinator founder founder of Y Combinator is a good friend of mine uh early first Flexport's first investor and no one no one has ever been more disappointed in me in then when I told PG that I you know that I was hiring a CEO like he was just like what did he say he said um oh and I said well I just I think he's gonna be better at the job than me because he asked me is this your life's work I'm like yeah he's like well then why would you ever leave he's like I well i think he's going to be better for the company than i am and he said uh that's like saying some other guy's going to be a better husband for your wife it might be true but you don't act on it he was so pissed he was actually upset yeah he was i don't yeah he was definitely upset he was like man i think just i thought flexwords a great company now i'm thinking you guys must be in distress it must be failing something must be wrong like why would you do this uh no he is he's a wise man um and uh what he told me it was pretty profound he was like okay well if this is your life's work and you think he's better than you you need to go learn all the things that he's better than you at so that you can come back and do the job like that's fine if you actually think he's better than you but like you should spend the next few years learning all those things so that you can come back and run the company uh as it turned out it happened much faster than that but um yeah it was profound I think profound knowledge there what do you think he understood about the situation or you that you didn't at the time when you told him that you're leaving I just think he's like extreme founder bias and um that founders yeah they're fused in their company in a way that a professional manager never can be and you know at some point there does have to be a handoff because people don't live forever so So you see these, a lot of what like private equity funds do is like try to take these companies where the founder's long gone and it's become a bit of a bureaucracy.

50:10And can you get someone who knows how to behave and make some decisions and come in here and execute as if they're a founder to mix results? But that's what they're trying to do. Yeah. Um, and I just think PG deeply believes that founders are better for their companies. That professional manager, I mean, he has that whole essay of founder mode where he writes a little bit about this. It was pretty surface level, to be honest, cause I was, I was there the day when Chesky gave his talk and PG good, great essay, but he kind of covered it at the surface level. But, uh, the, the, the, the crux of it is that, that a founder is fused.

50:49They know their company inside and out they know all the things that are very specific to that company and how it should run successfully and a professional manager knows generic things about how any company should run and those two are not um how could the generic one ever be better than the specific one that's kind of his point of view i think when chesky gave the talk at yc were you back yeah yeah just come back i forget the timing of it i think i've been back for like nine months or something and now this talk is in like silicon valley lore is like his realization that he needs to be basically in so many words way more in the details yeah than he thought he had to be i was i've never been more pumped up in my life than hearing brian give that like three hour rant it was like everything i needed in life because it resonated so deeply with you resonated really deeply and then very tactical like good advice i took a bunch of things and implemented them the next couple weeks um i reorg design to to get like we had federated design under product and uh across the company and we like brought it together so there's like what one design team um that that thinks end to end about the whole experience instead of like per yep per unit um um uh that was one two was I created this uh summit of the top 150 people in Flexport and it's a moving group if you weren't there it doesn't mean you're not great uh change every year but uh we do that now at least once a year I'm aiming to do it twice here we bring these people together in person for like four days to go deep dive on the roadmap and what are we building and why and make sure everybody's super committed to what the company's culture and vision and everything that we're executing uh that was that was incredibly good for our culture did that just recently six months ago three months ago um and then um third was take all of our tech and group it in these launches once every six months instead of incrementally shipping tech every couple weeks as you build something it's just like bundle it and every six months do a big launch um and that we just did that a couple weeks ago and that was just like huge for our and one we got what got work done way faster some of the timelines were probably three months faster than they would have been without the deadline people worked their ass off um and uh got great coordination internally between marketing and tech so i come together and properly tell the story of what tech was building and why what we were building why and then um and got great narratives like landed positive tech crunch article about flex board i haven't seen a positive tech crunch article about us in a long time um so not that not that it's all negative but like you know actually like a great piece that you read it you're like damn this is awesome um yeah so a bunch of that uh bunch of positive like kind of narratives out there so yeah but those are a few of the things um brian also said a bunch of good management advice about like just being way more in the details building connections with way more frontline employees our business is very different than theirs so for me talk to way more customers than i was ever before um and meet with i probably talk to 30 or 40 flex board employees every day wow um the accounting slack and text message and phone calls and video calls and everything yeah and in person and do you think the message that really hit home for you was like the same feeling that you had when you came back to the business, which was like, actually, I am the right person for the job if I operate in a way that is far deeper than I had thought I should be operating.

54:36Yes, that's the core. That was his core message that I had kind of independently discovered and not to... Toby from Shopify is another good friend, an investor of Flexport, an advisor for me. And he's the first person I heard say this. is that one of the worst, I don't remember his language, but one of the worst mistakes of business is this idea, one of the most pernicious ideas in business is this idea that micromanagement is a bad thing. that being, you know, there's always two words for the same thing. One that's good and one that's bad. The good one is attention to detail. You know, everyone, oh, that's good.

55:17Micromanagement's only a bad, micromanagement's only a bad thing if your boss is an idiot and doesn't know what he's talking about and is telling you to do the wrong thing. But like, if your boss is involved in your work and he's helping you with it and he knows what he's talking about and that's awesome. Like, you guys are, have a good collaborative relationship. I mean, I think, it goes hand in hand with like, you hire an outside, you hire some exec, you can't just like, delegate understanding and let them run the department hands-free and i that's what chesky was describing that he went through and realized that i did the same which not just with the previous ceo but other exec hires before that is like i would manage the company through them uh and kind of treat their whole org as like this black box and get reports from them and what's happening with that and like now i'm like great i'll still talk to you still work with you and like i'm gonna go talk to anybody i want to anywhere in the company and if you don't like it like i'm not gonna have a good it's not gonna be a good fit like you should welcome that i'm involved um and so i'm now skipping levels all the way to the front line and to the customer like 10 times more than i used to and why didn't you do that before were you worried about like oh autonomy and empowerment for the manager probably i didn't want you didn't want to disenfranchise the functional leader yeah maybe um probably some degree of advice that you got like micromanagement is a bad thing just get a great leader set them you know that it's also convenient if i just like hire this person and your problems go away i hired them to solve the problem so now i don't have to think about that problem i can work on these other problems over here there's always some problem for you to work on it's not that i'm not working uh but that's next thing you know you've actually got much worse problems festering that you know i was running around putting out fires instead of being like constantly involved putting out forest fires instead of like hey put the fire out while it's tiny instead of wait till it flares up right in the forest fire analogy uh so now i'm way more like fire extinguisher putting out a little tiny uh right you know dustbin fires instead of wait till the whole house on fire right and in many ways don't you think that the like this person will solve my problem was the original charter of hiring the coo in the first place yeah yeah yeah exactly uh instead of kind of got you into well i would instead of like yeah trying to treat the whole org almost as a black box and like put this person on top of all of it they'll solve that like that was a huge mistake like you just got to go dig in and find the individual, you know, break things down into smaller.