Ryan Petersen: Building Flexport

25:31You get out of YC 2014. Walk me through the major beats and milestones up until the SoftBank investment, which was 2019. There's a lot. Actually, one of the funniest things, one of our other investors is Ron Conway. And he saved Flexport at one point. I don't know if I've ever told this story, but we had a license from Customs and Border Protection, but it was issued, oddly enough, in the port of Houston, which is like the whole story. But it was like, that's where we got our license for. And it's fine. You have a national license. One of the things that made Flexport possible was that in 2007, I think it was, the customs will change the rules to allow for electronic filing of customs entries.

26:15and it used to be that you had to have a license at each port where you wanted to clear goods. So a startup could not possibly enter unless you were just like a little mom and pop help the local companies. But like there's no point in doing an Internet company to serve one port. And so that changed in 2007. We started applying for licenses in like 2009 or something. Markets aren't totally efficient, but kind of. And, okay, so we had this license, but it was in Houston, and we wanted to be in San Francisco after YC. And in order to transfer it, it's just an administrative process, but you have to have a business license from the city of San Francisco.

26:53Simple, right? It's just a business license. Well, the city of San Francisco had an IT problem and was unable to issue business licenses. And this was in 2014. They had not been issuing business licenses for several years. they could issue a letter that says you have a business license but customers wouldn't accept that they wanted the license and they printer problem i don't know what the it problem was they wouldn't accept a letter on city letterhead saying yes this company has a license on file with us they wanted to see the actual license it was a kind of like kafka ass at some point we just weren't going to be able to operate i mean we were like operating remotely in houston And it just wasn't going to work.

27:37And customs was kind of clear. Like, you need to, you can only transmit entries physically sitting in Houston. So I told Ron Conway about this situation. And he emailed the late Ed Lee, who was our mayor. And Ron was, like, one of his big donors and friends. And we got the license within six hours. They, like, went down. I don't know what happened at City Hall. They got the license printed. And we, you know, sent it to customs. It all got moved. But, like, there was a moment there where, like, Flexport was not going to be able to operate in san francisco uh if it was and it was just crazy can't issue a license that's insane so anyways that was very early days um many things happened i would say like the summary of it all is we had product market fit just like insane from the get-go to the point of it being a problem like more demand than we could keep up with asking us to do more things than we were capable of doing just sort of run away it was not all success lots of mistakes and bumps in the road but um I guess the big, a couple of big milestones on there.

28:36One is we started out, when we went through Y Combinator, Flexport was just a customs brokerage. We didn't do freight forwarding. And we said, hey, we're going to do freight forwarding someday. But we wanted to just focus. The kind of dogma in startups is like, be really good at one thing. Really focus. You've written about this, like the need to focus. We also, the other dogma is talk, you know, Y Combinator, talk to users and make something people want. And when we were just doing customs, we get customers, but like we get the worst kind. We got a lot of rough types of customers. One of the first things we ever imported was a tuk-tuk, which is like from Cambodia.

29:10Some guy went to Cambodia and bought like one of those little jeepney kind of scooters with the seats in the back. Like Berkeley professor wanted it for the nudist parade in Berkeley. He was only going to do one of those in his life. Not a great customer. So we had like a lot, a lot of customers for customs brokerage, but like rough customers doing things that they were amateurs. They know what they were doing. They weren't probably going to recur. Some guy bought like a bouncy house for his kid's birthday party in China because he was too cheap to buy one locally, like stuff like that. Is that because people want to deal with one interaction from a freight forwarding and customs brokerage point of view?

29:48Exactly. And so like whenever we talk to real companies that were doing repeat transactions, they're like, we didn't want to separate customs from the freight. And if they did, they were going to give the customs to like the best customs brokerage in the world with the best reputation for compliance. And like we were not to the startup. Now we actually have a lot of big companies that use Flexport for customs only because we've built our brand and our reputation and our technology systems to actually we can say, hey, we're the best. If you want to separate your customs from freight, there are good reasons to do so.

30:17So like it's a hub for your compliance data. You don't want to shop it out, you know, and have all this compliance records living in 10 different freight forwarder systems. Right. People are much more likely to have a single customs broker and many forwarders that move the freight. But when we were starting out, like that wasn't us. And when we only did customs, we were not getting like the legitimate companies that we wanted to build a business around. So that was the first kind of, it's not really a pivot. it we always knew we'd go into freight but we went there much faster than we wanted to in the moment we did that it was again like back to couldn't keep up with the demand and it became a much harder problem like customs like okay cool i self-contained there's a contained environment here i gotta collect the data gotta transmit it to u.s customs freight forwarding all of a sudden i'm like unconstrained i'm out here in the freaking wild giant round world you're dealing with multiple parties different interfaces to each party because you're trying to computerize things at this point and i don't imagine there's api like how does that even work right there's there were no apis still very few apis um a lot of manual work a lot of like we've built like automation and software interfaces and wherever there are systems like a lot of integration layers into different it systems of all the vendors but yeah we open up a can of worms like we got unlimited demand, but like problems much harder and hard to keep up.

31:44And as I say, it's been like this race to like build the capabilities, tech people, geographic footprint infrastructure around the world to match the demand. Um, but we went from, but I forget the metrics at the moment of the first soft bank investment, but, um, one point Inc magazine rated Flexport the second fastest growing company in the world. They did this in the Inc. 5000. We were second place. But the first place company was started before us and was smaller than us. Okay. So like the math says, we grew faster than they did. I don't know how they did their math, but they were wrong. We should have been number one that year.

32:21It wasn't weighted. I don't remember who it was, but we should. Anyways, we were very fast growing company. And a lot of times, yeah, that can kind of like cover up a lot of problems that we had. Were you doing things manually and trying to computerize it as you go? or trying to do it computerized from the get-go? We do a lot of stuff manually. We're still open to do it. We do a lot with people. But with this, we're not satisfied with that. We're like constantly figuring, okay, we'll just do it. That's the secret to our success. We're willing to do what the customer needs with humans as needed.

32:58But constantly say, this is not good. What are we going to do software-wise to take this and structure the workflow and put it into an automation. So we're now on like a freight, just a standard plain vanilla ocean container from any port in Asia to anywhere in the U.S., inland, all the way to destination. We break it down to about 108 steps that have to be completed. And 92 % of those are done either by software automation or sent out to like a third-party BPO processing entity. and so that gets our costs down and the quality is really good because everything's measurable and precise so we've got that piece is like really um took us a long time to build it wasn't like that in the beginning in the beginning it was people uh people picking up the phone and sending a free email forwarding i call it but that's the way every other freight forwarder in the world does it too so we're like okay build a better interface for the customer drive demand And then have this, we are not satisfied with the way the industry works.

34:01What are we going to do to, you know, structure? In fact, in many cases, the car costs have to be higher because if you don't structure the data, you just forward the email, the PDF. Like that could be cheaper than like being like, oh, I got to structure that, put it into our database. And so your costs can be higher, especially if you're just doing one shipment one time. Like, why bother structuring the data? The whole point is that the second time you ship the same thing, your costs are really low because you just go, yeah, do that again. Yeah. So that leads to the SoftBank investment, which was, I think they gave you a billion in cash?

34:34Yeah. 2019. They and other investors in the round did, yeah. So what happened with that? Like you get this money and are you like, we can put the pedal to the metal here? Because didn't something happen right after that? Somebody went bankrupt or something. Oh, that was even before. Hanjin was the big ocean carrier. They went bankrupt in 2016. Oh, it was 2016. 2016 was a very interesting year for freight forwarding. Everyone's forgotten about it because we all keep talking about expensive freight and all the chaos and problems in supply chain. Now tariffs, but COVID, a whole bunch of other things.

35:04The Red Sea crisis, like wars. Oh, we're going to get into some of that stuff. Yeah, I'm sure we will. But in 2016, it's kind of the opposite. There was so much capacity. It was so cheap. You could ship a container from China to the U.S. for our cost was like$600. normal long run average about$2 ,000 today I didn't check the price this morning but it's probably$4 ,000 or$5 ,000 right now and the peak COVID was famously got to like$20 ,000 but it was$600 that year and that was an early year we did YC in 2014 and in 2016 we took that as cheap prices and just passed them through to customers and it led to crazy growth for us a good lesson actually that we don't want to be able to play that strategy pass through low costs and you'll grow really fast So it was 2019 when you started to look for a COO?

35:512019, we got the funding from SoftBank. And then we did, I hired a CTO that year. Okay. I really upgraded, go invest in our tech. We hired a CTO from Amazon Logistics. And he helped us build like some of that workflow software that I just described. It was like kind of architect for that. And then COVID hit. And that's where I saved Flight Sport. It looked really great. Like we turned profitable in 2022. Our revenue peaked at$3.8 billion because the price of freight was so high. But pause, like you knew COVID was going to hit in February before it actually hit. January even. Yeah, I mean, well, it was in the newspaper, but we have a group called Flexport.org.

36:30We do shipping for humanitarian causes like refugee camps and hospitals, nonprofits at cost, sometimes below cost. We had been part, we're partnered with a lot of great groups like international aid groups and things like this. And COVID, it was in the newspaper. It would have hit in Wuhan. And we actually got a ton of demand to ship masks to China for the doctors in China. And so in January of that year, we shipped about 300 ,000 N95s from the U.S. to China, which then like two months later when there were no N95s masks in the U.S., we're like, whoops. So, yeah, we saw that pretty early. And then the other thing that came out in that period was people, about 50 % of the world's air freight travel.

37:16We do air freight too, not ocean freight. And about 50 % of the world's air freight flies in the belly of passenger planes. And those all got grounded because of COVID. There was no reason to, you know, I think they're actually grounded legally. And so we saw, we were at the heart of kind of bringing masks, bringing PPE generally in for U.S. hospital networks from mostly produced in China. And so we saw this insane demand for air freight and there were no ships, no planes to move it. And the ships are too slow, like hospitals are running out of masks. So we saw that and got pretty active. of like, well, you can kind of see the solution to that problem is in the problem itself.

38:01It was like, well, all of the passenger planes are grounded, so we can't ship any masks. You're like, wait, the passenger planes are all grounded. And so with some of our connections, we got in touch with all the major passenger airlines and we got 80 passenger aircraft and flew them to China. Because cargo planes are allowed to travel on the internet. Well, passenger planes can travel too, just not with passengers. Right. So we got the airplane, the airlines to give us great deals. Because otherwise the planes are just idle. Just sitting there in the desert and still just sitting at the airport.

38:32So we got all of this. We got 80, we did 88, I think it was 87, 88 passenger planes full of masks in the overhead compartments and every seat, obviously the belly. And we just, we flew 500 million masks and other object, other PPE items in for US hospital network in March and April of 2020. Do you ever struggle to stay focused? There's a reason I reach for my Remarkable Paper Pro when I need to think clearly. If you're looking for something that can help you really hone in on your work without all the distractions, Remarkable, the paper tablet might just be what you're looking for. Remarkable just released their third generation paper tablet, Remarkable Paper Pro.

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39:51Not sure if it's for you? No worries. You can try Remarkable Paper Pro for up to 100 days with a satisfaction guarantee. If it's not the game changer you were hoping for, you'll get your money back. Get your paper tablet at remarkable.com today. It was crazy. It was like one of the most meaningful parts of my career and everyone at Flexport. It was great because we were like, none of us in the world was in a good place, but it all of a sudden totally distracted us from whatever problems. Trade fell off a cliff. It was really bad for business in the first month or two. We're like, who cares? Like, we get a hospital's like, there's civilizational collapse if the hospitals don't show up, if the doctors don't show up for work.

40:31And became friendly friends with the guy who runs UCSF, Sam Hoggay. He's the chancellor of UCSF, our local hospital. And I remember years later, I met his wife at dinner, and she was like, when I saw the Zoom call of you talking to Sam was the first moment when I realized everything's going to be okay. It really touched me. It was like, you guys are highly competent people. You're going to get masks delivered the day before they run out. Now, another thing that came out of that was in April of 2020, same problem statement. The passenger planes weren't very economic. They were giving us great deals because we were serving hospitals.

41:12It was all like kind of pro bono, not-for-profit work. They were giving us great deals. I remember one of the planes, the one I remember was a Dreamliner. It won't charge us$200 ,000 to fly a Dreamliner to China and back. Oh, wow. Which like if anyone's ever flown private, that would be like a Dreamliner. I mean, this is many millions of dollars probably round trips. A couple of million, like a million probably, or 500K. I'm not sure. So they gave us a great deal. So we saw lots of things like that, but it wasn't sustainable for the business side of things. Now, we had a lot of ongoing demand for air freight, but all the passenger planes are grounded.

41:45So we signed a long-term deal for three 747s from Atlas Airlines, the biggest cargo airline in the world, dedicated to Flexport. And it was in that response to that, like, hey, the passenger plane, we had this vision, this view, this perspective that air freight is going to be very expensive. because all the capacity is grounded and stuff still needs to move. People still need to ship stuff. So we signed a deal with that airline at a great rate. And I think their stock, Atlas, is in these airline indices. Because actually, if we were smarter, we'd have just bought their stock because they were a public company and they were in these indices for airlines.

42:27And those tanked. But the cargo airline, the price should have gone to the roof because they're still, the price of air freight is going to go crazy. I think, I haven't really talked to them about why they signed the deal with us, but we got a good deal as a result of that moment where there was this dislocation. I assume that their stock price going down was like part of their anxiety to like get these things signed off with us. So we got a good deal, but it did kind of turn Flexport into a cargo airline. And we've had those planes ever since. So it's not our, it was more of a tactic than a strategy.

42:59Like our goal is to be an asset light technology platform for freight forwarding and work, be like more neutral and agnostic and move the cargo on anybody's planes. But we saw that moment. Has that helped you in other ways? Not from a business point of view, but like learning and being more responsive to customers? I mean, it really helped us during those few years of COVID when there's tight capacity. We could serve people and no one else could. It was really an education about asset ownership in logistics in that it kind of turns you against your customers in some ways that can be unhealthy.

43:29You have to really overcome that. Because your job when you have a plane or a ship is to fill the plane or the ship. It's not to serve the customer anymore. Like if the customer's cargo needs to go to a different airport, you'll try to convince them to fly it where your plane is going and then truck it a long distance. or, you know, it was like, all right, you just wait three days. The plane's leaving in three days instead of going, hey, let me find you a different option. So you have to overcome that culturally. Like if you're an asset owner, it's pretty hard to be customer-centric because your job is like fill the asset or you don't make money.

44:03Which is interesting because later on you get warehouses, but we'll get to this. And, okay, so fast forward a couple years and you're looking for a COO. What was the thought behind that? Yeah, so COVID, it did some interesting things for us. It made us kind of famous in part because of the hospital stuff and some other things that we did during that time when supply chains got dislocated. But it, so it helped the business and the profile of the business. It financially was, we turned profitable, but it really exposed some flaws in our operations. And we were remote for way too long, work from home, which just doesn't work in our industry, maybe in any industry, but certainly not in logistics.

44:46You need to be like in person, collaborating, partnering with the assets, et cetera. Really exposed some flaws. Like when you, we would just prior to COVID, just send a truck to the port, pick up the container. Yeah. And you take it for granted. But during that time, you couldn't get appointments. You couldn't get trailers, the chassis to go to hold the containers. There's not enough capacity. It was like the operation was really failing in a lot of ways. By the way, same for all of our peers. and other freight forwarders everyone was kind of in the same boat but that's not how that's not an excuse we want to be the best and we didn't feel like we were winning for a period there operationally and like how we serve customers our net promoter score like was always in the 70s which is a great good metric for customer satisfaction and that like collapsed i forgot how got to like 17 at one point it was pretty bad so had a lot of operational problems and i'm um much more of a creative type okay than i am and operators like do the same thing every single day and a little bit better measure every detail and that that it's not like i've gotten good at that but that's not like naturally who i am what my background is i'm more just like a freewheeling entrepreneur so we're looking for a partner to kind of take that on for me and help flexport mature and grow so yeah that was in that would have been in 2022 when we really like kind of launched in earnest search for a business partner, helping out the operations side of things.

46:13And then you end up meeting Dave Clark, who would go on to take over as CEO for a period of time. But he was originally, you were thinking COO? I was trying to hire a COO and met Dave Clark. He was the CEO of Amazon.com. He'd run Amazon's logistics and supply chain for many years. So it seemed like a great fit, tech and logistics. It was actually in many ways. And you had the good Amazon hire in 2019, the CTO. Yeah. And a lot of people I hired from Amazon, we hired a lot of great people. We still have a lot of good people who worked at Amazon. Logistics and tech, like, they're probably the best.

46:50I think we're the best now, but I think they're, I don't think I could always say that. I think we keep getting better. But yeah, Amazon, logistics and tech, that's what they're known for, right? So it seemed like a perfect fit. Walk me through how we get from that moment of hiring to you stepping down as CEO. Well, it was kind of an orderly transition. When we hired him, I was like, hey, let's have a path for you to become the CEO. It became pretty clear that, like, I don't know, it's hard for me to picture, like, what am I going to be better at today if you run this big company? Was that a confidence thing for you?

47:18Yeah, I mean, I feel a lot more confident now. I haven't seen a much better job in the last 18 months than we ever did before. So, yeah, Dave, he was only, he was with us for years. He was the CEO for, we were co-CEOs and then CEO by himself for six months while I became chairman of the board. It didn't work out. I think these hires are really hard in hindsight. What was the first sort of sign or first moment you realized, oh, shit? There are a lot of things. I think it was building up. I mean, honestly, it was the P &L at the end of the day. Like, we just started burning too much money. Some of that was market forces turned against us.

47:53Like, we overhired. I approved all those hires. Like, we wanted to go big on tech and just dominate. We kind of read the market. It was like trying to be contrarious. So, we had a really strong balance sheet. um i had like 1.6 billion in the bank and everybody was cutting tech hiring in 23 and we felt like let's go lean in put the pedal to the metal and and go hire a bunch of engineers i think we added 900 software engineers into what in like 12 months oh wow and turned out they're all in the u.s or almost all in the u.s seattle mostly it was like very expensive people at a lot of senior execs.

48:37So we just like over invested in the business. And at the same moment, like the freight markets were collapsing. Capital markets got ugly. It like became clear, like, hey, you're not gonna go raise. We'd already raised too much money. Like we don't need to raise, can't raise more money. And so it was just like kind of a perfect storm of bad decisions of which I was like, you know, sign off on all of them. So I don't blame Dave for that. But it became clear we got to change courses here, change course here. And our customer, one of the mistakes that we made, during that period was we took that workflow system I was describing where you have like all these tasks that have to get completed.

49:12And we had taken this idea of efficiency way too seriously to where an operator would just do like one or two of these tasks and do those over and over and over again, like a robot almost. What will happen, then you have like 50 different people collaborating on one shipment. That's how fulfillment works. If you go to a fulfillment center it's the only way it could work you're not going to have the same person like yeah unload the truck put away the goods take the good bout put it in the box like you break it into stages right and so that's where the amazon background and flexport background really came in conflict actually because they break it apart into simple tasks and have the same person do it over and over again and like kind of robot human robots almost like or literal robots and and at forwarding it's much more of a service business there's a lot more exceptions that can go wrong you're out there in a messy world.

50:04You don't own all the assets. You don't control all the things that are happening. You need to like oversee these things. And, oh, the trucker didn't pick it up. Like, better call a different trucker. Like, oh, they're not responding on the API. Okay. Pick up the phone, you know, go to there. Lost the car. Go, all right, drive to the airport. Like, you know, I mean, it's a service business for, and it's B2B. You spend a lot of time with the customer. So, but especially that, that piece, the quality really started to suffer. and it's a really good lesson in business. And I think most businesses, like actually quality costs less.

50:34It's very counterintuitive. Go deeper on that. Well, in logistics, like all the costs come from you make a mistake. Like if you file a customs entry and you get the wrong classification code, you're going to spend weeks on doing that with the customs agencies. And like you might have license issues or regulatory problems. Like getting it right their first time cost way less than one mistake will undo all your efficiency gains for the month you know and logistics so i had to learn that the hard way our customer nps really started to suffer so the board was looking at it and going like okay you're burning too much money you're gonna have to cut costs and that means cutting head down like that's where most of the cost sat so you got to cut costs and you got to improve your quality as a kind of a hard thing to do and our culture had been suffering we brought in all these new leaders and like the The core people that built the business were like, we grew an insane amount.

51:31Leaving. We had grown. It's a really hard business because it's so global. Like we shipped to and from 147 countries. We got people all over the world. And so the board kind of looked at this problem and said, like, this is a problem for the founder of the business. Like you need to come back. Nothing against Dave per se, but it was like very clear. Like, okay, you're going to cut people and tell them you care about the culture and tell them I need you to work harder to solve like customer problems. and do a giant reorg back to the way we'd always been organized that led to all the growth, which was operator would take a shipment end to end and own all the tasks, own that.

52:07And those just like the board was like, Ryan, we need, you know, you got to come back and step in and do this. And I had already taken a job at Founders Fund as a partner. So it was a little, it was still embarrassing for me. Like, I'm like, I just took this job and I got to go back. Like, what am I doing? I got to follow through on my commitments. But it was obviously like I'm honor bound to make Flexport work, make it successful. So I was very happy and excited to come back. What happened when you told PG you were stepping down? I didn't tell him until later. I forget when, but like after I was the chairman, so I think I was already at Founders Fund.

52:43He was pissed because he thought I should go be a partner at Y Combinator instead of Founders Fund first off. But I went for a walk with him when he came back to Palo Alto one time, and he asked me why he did it, why I stepped down. And I said, well, I thought, I think Dave's going to be better at the job than I am. There's a genuinely true. That's why I did it. It wasn't because I was burnt out or something. I just thought he would be better for the company. I thought we needed to mature and be better at operations and better at building tech than we were. And I thought he'd be better at that.

53:09And Paul had this amazing line. He said, that's like saying this other guy would be a better husband for your wife. Might be true, but like, don't act on it. Like, this is your company. You need to stay in there. I thought that was super hilarious. is and he then told me okay if he's better than you at these things and he asked me is this your life work i heard you say that earlier is this your life's work is flexport your life's work i was like yeah it is well then you need to figure out all the things that he's better than you at and go learn them go learn them from him learn them from other people like figure out what are these things that you think he's better than you so you can be the next ceo after he steps back like larry page did uh after he came back you know he hired eric schmidt for a decade and then came back he's like you need to go learn those skill sets but it happened much faster than uh pg and i could imagine on that walk did you go and learn those was there a conscious effort on your part i don't know it all happened so fast not really uh but i've learned plenty of lessons along the way yeah walk me through some of those well the number one thing i think is um i learned from toby from shopify and brian cheskey have been good advisors for me the micromanagement is not a bad word it's a good word you gotta like stay involved in all the details and that's very hard in my company we're like big and sprawling and do a lot of stuff but need to be way more hands-on do lots of skip levels don't trust don't like hire big executives and then just trust them like treat them like a black box like i had when i heard him say this i was like oh my god he's committed the sin at the highest possible level.

54:42Right. But like, don't do that at any level. Like it's all my company audit, everything, inspect everything. It's, you can't just like give people too much leash to run things their way. And if they disagree with me, like, sure. I want to, I want to debate it. I want to hear from them. But like, at the end of the day, I know I'm going to still work at Flexport in 10 years. And I don't know if that's true about anyone else. And that, that's, that's how they heard from Chesky. And I was like, you know, it's like, it's probably true like i hope that my team stays and i got the team for 10 years but i'm positive that i'll be here and so if they really don't like the way i want to do something like okay no problem but it's my company and like they can move on and like that's the level of confidence that i didn't have prior i heard from people that we have in common that you when you came back uh you were a different ceo and you were like founder mode before it became founder mode yeah Yeah, I mean, Chesky's like way more hardcore, I think.

55:37I try. But I didn't have as many frameworks for it. I was just like, oh, I got to do what I have to do, you know. And there was a lot of stuff that I really didn't understand about the company. I had way too much committed all these sins of just like, okay, there's a problem in some department. Hire a big exec. Let them, and then don't get in their way. Like that is the kind of the corporate way that most people teach or like most people expect. Like this is how a company should be run. Micromanagement's a bad word. And Toby's the first person I ever heard that from. Like, it's not a bad, it's like a great thing.

56:07Get involved. You know, why would you ever want, like micromanagement and attention to detail, same two words for the same thing, right? Attention to detail is great. Like your boss is involved in your stuff. Like that's only a problem if your boss is an idiot and out of touch and making bad decisions. But like, if your boss like genuinely cares about your work, is involved in tune, knows what you're doing, has good judgment, like why would you not want them looking over your shoulder and participating with you in what you're doing? So, but Flashboard is a much, I don't know. I don't know. I've never worked at another company really, but it's compared to other businesses, I think far more complex.

56:43So it's hard. It's really actually quite hard for me to live up to Chesky's ideal of like, I think he says like, if the company should only do as many things as the founder can be personally involved in, it's a nice ideal. It doesn't work at my company. We're like in all these different countries and all these different modes of transport that like one person can't actually keep it all in their head but I tried my hardest. How do you hire differently what do you look for differently and then how do you integrate people differently now as a result of these experiences? I just like only promote from within except for very rare cases where just like really can't find the person and then I spend a lot more time with the new hire I've only hired one person actually from external in the the last couple of years and I spent just like loads of time with him and I told him he's not allowed to make any decisions for 90 days how did that play it it was perfect honestly and he even told me like maybe I should have done more time because I remember he told me at like day 88 but no he told me day 91 that if I had let him if I told him 80 days he would have made different decisions than he made and like even those last 10 days there was still like learning and taking things in you have to approach startups if you're an executive and you're joining a company you have to approach it with extreme humility like these are smart really smart people like some of the smartest people i've ever might have worked come through the doors of flexport or still work at flexport and we've been obsessed with the problems that we're working on for a decade and like the idea that some big shots could have come in here this is no knock on any particular person it's just like a classic like what are the odds that anyone could come in and know you know of day one do figure out problems that we couldn't think of or solutions that we couldn't think of it's why like no investor ever gives me useful advice really because like i'm not sure they can't about people and some high level stuff for sure capital markets but like business like strategy like how could they ever know my business better than me i obsess about it like every waking hour i'm always skeptical of people who run businesses or even government and they contract things out to consultants and it's like well how is that consultant know your business better that scares me indictment yeah pg wrote about that his founder mode thing it's like well if you're a professional manager your mindset is like you can run any companies how you go in and and in that world you shouldn't be too involved in all the things because like hey you know you don't you don't know about that particular domain that industry so just trust the people that are already there.

59:19Your job is kind of... babysitting it all. but that's not like founder founder mode as they come to be called is like you should know all the stuff like more or less you were at that talk what did you were you inspired by that what did you take away from it what was the moment that really like solidified things for you my god i wish i could i wish it was recorded he went on a rant like four out of three hours just like he's a very intense guy i took like four or five pages of notes i was definitely like enthralled in the back and like a lot of stuff deeply resonated but i'm already um yeah i've shared already some of the specific things a lot of it is like yeah just be way more involved in the day-to-day and if the people don't and do a lot more skip levels like meet the people who report don't trust the managers not a bad way hey like you know i'm here to help like actually i'll when i go skip level meaning like go talk to the people who work for i talked to anyone i've i've talked to 40 or 50 people every day on Slack or text or phone at Flexport.

1:00:21And if I talk to somebody who works for you, I'm not like trying to undermine you. I'm going to come back to you and be like, here's what they said. Like, here's what I think we need to do. And if the person asks me to keep it confidential, I'll do my best. But ultimately, I try to solve problems together with my exec. So, you know, and if people have a problem thus far, they haven't. But if somebody had a problem with that, I'd be like, well, it's probably not a fix. This is my company. I'm going to talk to anyone I want in this company. I find it interesting because you remember that telephone game in like preschool where you sit in a circle and there's like 10 of you.

1:00:48Yeah. And the teacher like passes a message to some kid on the right and then it goes through 10 kids. And by the time it gets back to the teacher, it's like this completely different sentence and meaning. And organizations sort of filter this way unconsciously. Nobody's trying to make a mistake, but people just filter information differently. And what's important to somebody on the front line might be different to the manager, to the team leader, to all the way up to you. And so by the time you get it, it's like, how accurate is this information? And vice versa. Like, what are the odds? People don't know what I want.

1:01:21Exactly. And so the other way, just as well, right? It's an interesting way to think about it. Yeah. Like, leaning in way more than I realized into communications and enablement training. Like we've been doing the last year, huge amount of like strategy sessions and teaching and like traveling the world and doing these like little, almost like a little music festival. And it's the wrong analogy, but like, you know, music festival, I give you like multiple tracks that you can, you know, you go to see different acts. Like we have that. We'll come to different offices and have different tracks that learn about different things.

1:01:55I think it's very important that the people have agency. You show up in an office and you're like, okay, we're going to do a half a day of training. you have to sit through like four talks in a row, you lose your mind. But if I give you a menu and you're like, Hey, there's like four talks happening right now. And there's 16 talks, right? For the next four hours, you can just choose your own adventure. Which talk would you want to go to? People all of a sudden like, this is amazing. I get to go learn about it. And our business is super interesting. Geographically, we're in all the different countries and almost all the countries, we, different modes of transport, different technologies.

1:02:27There's like, it's actually an incredible thing so if you give people agencies so we're trying to do that to like overcome this problem of i just realized i i we haven't really i think we're a pretty well-run company we have everybody writing teams like write these documents of what their strategy is what happened this month like these six pages kind of we took this from amazon years ago before we ever heard dick clark um the six pagers that you would write about updates well i read them all i get access to all of them but no one else does a couple other people on the team we're not that secretive but just like it's not part of the the structure is like they don't disseminate uh so i was just realizing like no one else has such incredible things happening at this company but nobody knows about it or like not enough people know so we started i'm trying to work on that problem more it was kind of to overcome this telephone problem was like i just realized oh like no one else has the access I do.

1:03:21What's the cadence and frequency of those six page updates? Monthly. There's about 26 teams that do an MBR, a monthly business review in a six pager. And then that's just like, it doesn't, I think we cap it at six, but it's the six isn't that important. Mostly, honestly, I actually think the six pager is sort of maybe wrong. I'm not sure, but it's more how much time it takes to read. Right. You know, what's Twain say? Like it's harder to write a six pager than is to write a 12-pager for a lot of businesses. And so you're like, if you had more empathy for the people who are working hard, you'd let them write the 12-pager and spend more time reading it.

1:03:57But it turns out that six pages seems fine. So we have, I think, 25 or 26 teams that write those monthly. And then they do an annual plan, two-year rolling, but once a year update. Chesky does his twice a year update. Okay. I don't know if that's secret, but I haven't moved to that yet. You mentioned the word obsessed. I want to talk about that for a beat before we move on to tariffs. What does that mean to you? I was just like, I can't stop thinking about Flexport. It's just all the time. It's like consuming the problem. It's a very addictive industry. It turns out it's always on. It's always different.

1:04:36Every day is unique. You got a front row seat, your backstage pass. You see what's happening in the world in an insane degree. And there's infinite problems to solve. ours and our customers and our vendors. Like, I mean, it's just like a crazy landscape of problems to solve. So yeah, it's a pretty awesome industry. And I think one of the things that we've done well is show people that actually this thing that looks boring, you don't think about it, actually a really interesting place to build a career. Well, let's talk about what's going on in the world. Let's start with tariffs a little bit. And I think it would just help orient people for the conversation.

1:05:10What are tariffs? When do they apply? Is this a simple question or is this not? Tariffs, I think it's an Arabic word. It goes back a long time. Governments have always had tariffs thousands of years. Control their borders and make money. It used to be the primary source of revenue for most countries is the tariff. In the United States, that was for sure true. The income tax wasn't introduced until Abraham Lincoln in the Civil War. And it has a percent of the value of the goods that are imported that you have to pay to the U.S. Treasury. reason for it. I guess there's a few. Revenue's real. In fact, Trump's chief economic advisor right now, the chairman of the Council of Economic Advisors, is a guy named Stephen Moran.

1:05:54And he, in his current administration, he said that in the Trump one, first term, that the tariffs on China paid for one third of the tax cuts that Trump did. It's pretty meaningful. I mean, It's an interesting alternative way to fund the government via tariffs instead of income tax. Like, I'm not sure. I hate that idea. I don't know what would happen. So it's sorts of revenues, very, very important and valuable to the government. It's a way to control protectionism for companies. That's been a major reason to use tariffs over the years is to protect U.S. businesses from competition. in part just for employment reasons, in part for national security reasons, like you want to have certain industries be successful.

1:06:39Steel has always been one of these, and autos, most major countries, like, believe their auto industry is, like, important not just for jobs, but for armaments, like you make tanks out of your Ford factory during a war, et cetera. So, yeah, those are legitimate reasons for terrorists. Why do they matter in the context of, like, the global politics? obviously an increase of the cost for companies that are sourcing goods. And we've become so globalized. Our economy is just like the supply chains are unfathomably complex and interdependent and they're full of independent actors making their own decisions about how they want to do things.

1:07:17And there's these component, subcomponent ecosystems of supply moving goods all over the world and doing assembly and production in different countries and bringing things together. So introducing massive changes on short notice of the tariffs has caused borderline chaos, certainly a lot of disorder in global supply chains, which ultimately affects all the stuff that we buy. It's not true that America doesn't make anything anymore, but a lot of the consumer goods, a lot of them are made overseas, obviously. When you talk to a lot of customers, are people on-shoring or are they just accepting or what's happening?

1:07:53Well, that's the thing. You have to judge policies not by their intention, but by their outcome like they own of the mistakes that a lot of people make is like oh it's good intention so therefore the policy is fine and that's not right and these tariffs have had the opposite impact that trump would like i think his intention there's some doubt some validity to it all like some of the things i said from national security and employment other things but the um the result has been thus far and it's pretty early in the cycle we're only a couple months since the liberation day or whatever but the um i've met way more i've met infinitely more i haven't met anyone who said oh because of these terrors i'm gonna start doing production in the u.s i've read some headlines on it and they've done some white house announcements and things but like those aren't my customer base in my customer base met at least a half a dozen companies that said stop production in the u.s because of the cost of the components coming in oh interesting and there's kind of like three categories of these two or three uh one is people for example We have a company that makes bicycles in the U.S., kids' bikes.

1:08:54And for some reason, they made an exemption for importing bikes that are duty-free, but not bike components. So their costs went way up, and their competitors from overseas didn't. So they are cheaper to manufacture overseas. So they're moving their factory that has been a well-known brand, reasonably well-known brand, known for being made in America, and they're like, it doesn't work anymore. So that's one example. Two is if you're doing it for export, you're exporting goods, you're paying, your costs have gone up on the import of the goods, of the components, doing assembly in the U.S. and then exporting.

1:09:29You're better off setting up that factory now somewhere else where you don't have the cost on the imported components. Third would be machinery costs. So like, in fact, a friend of mine was setting up a line for a fab, like a semiconductor fab. And just like the machines are made in Germany for that particular line. And the cost was going to go up 30%. He's like, oh, all right, I'll just build this line somewhere else in another country. And there's all sorts of like hedges and ways around this. Like one would, I think a bonded warehouse is you don't actually technically pay the tariff until you take it out of.

1:10:01So it's landed in the United States, but you don't pay the tariff until it comes out of the bonded warehouse. Yeah, it's temporary though. You're still going to pay the tariffs. So it doesn't really work for like changing their nature. But a bonded warehouse will let you make a bet that tariffs are going to come down. So when tariffs were at$145 on China, we helped a lot of companies move into bonded warehouses because we all predicted that it would come down from there. So you're better off waiting and only enter the goods, only exit them out of the building, but enter them into the U.S. commerce after the tariffs have come down.

1:10:32So there's some hacks around the edges. There's a lot that you need to do. Before, you didn't care about valuation. The value of the goods, if it was times zero, who cares? But now, all of a sudden, if it's times 30 % or whatever number, you care a lot more of how is it valued. And there are all kinds of legal ways, and you need to get really great advice on legal advice or trade advisory on how to do this. But there are ways tracking that you want to be able to really track every single component of a product. Where is it made? Uh, and what is its, what is, what is its cost? So like if you have a couch, there's steel and aluminum duties right now that are really high.

1:11:12I forget the exact number, but they're quite high. I think 50 % or more, um, on, on Chinese made steel and aluminum. Maybe I'll, I should know all these details. It's very complex. Um, but if you have a couch that has steel and aluminum, you don't want to pay that 50%. You don't want to pay that high duty on the entire couch. You want to only pay it on the portion that's steel and aluminum. them so you really have to build this great we call it a product library uh which flexport offers this technology product so you you want to be able to track all these things at the subcomponent level where's every item made and then there's all these new regulations have been coming out for many many years there's one called the uyghur forced labor protection act requires you to track the cotton anything cotton where was it made uh specifically like what down and then the eu has The new one's very similar, but any forestry, any wood product, you need to be able to show where the wood was grown anywhere in the world.

1:12:05Track that. This is insanely complex. Yeah. Carbon, they want to know the carbon border adjustment factor, I think it's called that. They want to know all the input, all the carbon inputs of every single subcomponent of every product in the world, how much carbon went into making it so they can measure the carbon footprint. and then you coming soon um you're gonna have to provide a like a qr code on every item that you can scan and they'll tell you the carbon footprint so the world just keeps getting more and more complex which plays into the hands of customs company companies like flexport because you need technology to track all this stuff um kind of classic regulatory capture type stuff we're not lobbying for any of these things but uh and you're the most tech forward of all the companies kind of we're the only one founded only one in the top 100 in the world founded after the web browser was invented a lot of good companies but they're not tech companies fundamentally so we have to uh we have the the world is our oyster we should win it all are there any sort of creative strategies you've seen any of your customers use that you're like oh that's novel or interesting you have to be careful there's um there's some illegal stuff that i see not so much of our customers we talk them out of this but um one of the temptations that a lot of people are falling into right now is letting your factory import the goods for you and then buying it from them in the U.S.

1:13:31And then not turning a blind eye if the factory cheats on the value of the goods or their classification. That's kind of rampant in the industry right now. That's just a matter of time before I would imagine. Who regulates that? Customs and Border Protection and DOJ. Their problem is what the factories will do is set up a shell company. Not in the U.S. You don't have to have a U.S. entity to import goods into the U.S. Oh, interesting. You can just, or Canada, or most of Western Europe. So you can just, they set up the shell company in whatever country. It could be China, it could be anywhere. That company registers, not as an LLC or any kind of legal entity, but they just register with CBP, with customs.

1:14:14they import the goods into the U.S. from abroad. If they cheat, they just disappear and Customs doesn't have agents in China to go chase it down. So then they just do it again under a different shell company. And that's a huge amount of what gets sold on Amazon. I'm not saying it's fraudulent, but it is these foreign registered companies. It's definitely like a gray area. Do you think they'll bring that back? I think they're going to crack down that. I think they're going to shut down that. And make it so you have to be a U.S. entity Yeah, that's a created LLC. It can be foreign-owned LLC, but you'll have to have like an LLC that can be held accountable.

1:14:49But it's very unclear exactly how it will be or should be structured. Like, does it need to have employees who could face jail time? Like, what's the, you know, does it need to have a certain amount of cash in the bank that can be taken if there's fraud? There's a lot of ways, but I have no idea what's going to pass. There's a couple, I understand there's a few bills like looming, but I haven't read the text of them yet in Washington that would shut down the ability for foreign companies to import or put in new requirements for it. So that's like one creative thing. Now, what will happen is you get offered as an importer.

1:15:20You've been buying these goods from your factory, and then all of a sudden they offer them to you for way cheaper than the duty alone. You're like, yeah, it's not my problem. I just bought it in the U.S. Guarantee you, like, you are reliable for that. Like, as a warning, look at the camera. The UFCP DOJ has announced that their number two priority in the White Collar Crime Division of the Department of Justice is customs fraud. But healthcare fraud is number one and then customs fraud number two. Are there any other creative strategies we can sort of put out there in the world today that you've seen not your customers use?

1:15:49Yeah, well, the good strategies, let's not talk about the illegal ones anymore. I mean, but be careful. Make sure you're getting good advice. Is have that database. Know all the subcomponents. There's a few things like valuation. You can, there's a thing called first sale. I won't bore you all with the technicalities of it, but it's called first sale, which basically says that you pay the value of the goods based on the first time it was sold, not the price that you paid at import. So there's legal ways to do that. If you bought it, like there was a middleman or an agent that bought it in China and marked it up to you, you can actually import the goods at the price they paid, not the price you paid.

1:16:25You can deduct the Porsche if you file it all correctly. and don't quote me on this because you want to get good legal advice, including from Flex Sports Team, but you can deduct the portion that's U.S. made. But you don't just get to automatically do that. You have to file all the right paperwork and stuff. And then importantly, if you import something, you pay duties, and then you later export a product with the same classification, you're owed a refund on that first pass. Okay. You get your import back, the import duties you pay. Yeah. So every year in the United States,$7 billion goes unclaimed.

1:16:56And that was pre these new tariffs. So it's presumably much higher. Yeah. So we help companies with that. We've been getting people like big checks back that haven't. And you can go back five years in time. So that's like a really important one. If you haven't done, it's called duty drawback. If you haven't done that and other countries offer this to most countries. So, yeah, there's a lot of strategies. In fact, the one thing that people should really know is your data on all your past transactions with the U.S. government or with U.S. Customs are your it's your data. You have the right to it under the Freedom of Information Act.

1:17:25So you can pull your last five years of transactions from CBP. Now they won't, they give it to you in a very unusable format. I think like giant CSV dump, basically, maybe even on CDs, I forget, but they give you like not, not useful. It is still your data. So it's useful, but you have to know how to clean up. So we've built this interface that like visualizes all of this for you and shows you every transaction you've done in and out of the country. And then our experts kind of walk you through and be like, okay, here's our checklist. This is ways that we think we could maybe get you a refund.

1:17:56Now, Trump has lost the lawsuit on these new tariffs.

1:18:04It's going to appeal to the oral arguments for that start on July 30th next month. Is that at the Supreme Court level? No, it's the level below the Supreme Court. So presumably if he loses again, it'll get appealed again to the Supreme Court. So I don't know enough how this works, but towards the end of the year is my imagination, is my guess, that it would go to the Supreme Court. Either way, it'll probably end up there. Probably it ends at the Supreme Court, yeah. That will be really an interesting case. If they lose again, everybody gets a refund on all their duties. But they won't just refund it.

1:18:36You're then going to have to file paperwork. Of course, yeah. They're not going to like, here's a magic check in the middle. Yeah, so it's going to be... And then it already takes like about a year. When you get one of these refunds from the government, it takes about a year to get your check. Yeah. When every single company in the country applies for a refund, you probably won't see the check for like three years. There's going to be so much fraud. Oh, man, it's going to be kind of a total mess if they lose that lawsuit. Where's traffic now? Is it back to normal? Is it down? Is it? Volumes from China collapsed 60 % down when on April 9th, the day the duties hit, stayed down for five weeks.

1:19:12and then as soon as he relaxed, as soon as the Trump administration relaxed, the duties on China to 30 % instead of 145, it surged to 80 % above pre-tariff levels. That lasted for two weeks and then it came down. It's still above pre-tariff levels. I haven't studied enough the market data and now I'm looking at Flexport data and we have got 30 % growth over last year. So then I start to figure, we're actually up again from the drop, Like it came down and now we're back up. But I think that's a flex four thing. I think the market's shrinking again from the peak that we hit post COVID. But our own volumes were like 30 % year over year growth.

1:19:53What are the markers you look for that are like public information or that you have as proprietary information that are sort of indicators like the economy is really good? Oh, we're going to hit some trouble. You know, one of the things that Buffett has always said as he looks at intermodal rail volume as a leading indicator for the economy. I'm curious, like, given your aperture into everything. I've never been like a macro person. I'm not an investor like that, so it doesn't matter to me that much. I guess it's, I mean, Buffett's right, like the logistics, but it's the international stuff is so, well, I see Zally.

1:20:28there's a lot of weirdness in lately in this tariffs data that is just like, I don't know if that means you want to know what the consumers are doing ultimately, what are they buying and selling? And a lot of, there's just a huge amount of noise. Like they didn't ship that much less or more because of consumer demand. That was like, you know, cost and inventory forecasting. And so I don't, it's probably if I had my access to any data, it would be the consumer sales data from all the customers and inventory levels. I just don't know. The sales data, fine. I like public companies report on their sales.

1:21:02Inventory data, I've never understood. Like the U.S. government publishes these inventory metrics every month. I don't know where they get that. I have no idea. I haven't gotten any good economists to answer that. Look how they run a survey. I'm like, yeah. Interesting. Is that data? Is that accurate? I know how hard it is to get accurate data out of my own company. So the idea of the government economists it's getting accurate data about all of the companies. I'm like always very skeptical on these things. That's 100 % correct. I'm so skeptical on like big government data sets. One of the things that you said that I came across that really stood out for me was when you're designing an operation, you're choosing your bottleneck.

1:21:39If the bottleneck appears somewhere, you didn't choose it. You aren't running an operation. It's running you. Double click on that for a moment. bottleneck is going to be you know the point the choke point the point at which the um the limiting factor and i think you're in a in a company your bottleneck should always be customer demand should never be like bottleneck oh i can't right now we're bottlenecked in our customs team our trade advisory team the people that are helping solve these problems that i was describing around how much do you owe and how to minimize it how to be compliant that team is super bottleneck.

1:22:14We didn't plan for a world that would require this much money, this much expert head count. And it's hard to find these types of people that really know the space. So we're bottlenecked in a place that we didn't plan. The bottleneck should be, I don't have enough customers wanting my thing. You'd like that to be in a B2B environment. That should be the bottleneck. But if it shows up somewhere else, yeah, I'm not in control right now. It feels very uncomfortable. I'm like, I don't want to just hire more people, especially if it's not, if it's a temporary surge. so what uh it feels out of control as it um and we need to get get our handle on that and i i hate that i want my problem always to be like oh i need to be more creative in my marketing and sales and like work on the pitch and the user experience and the things there and so yeah if you're bottlenecked and how much space we've had a number of it this has been we've had bottlenecks move all over the place during covid and since um how much space there is on ships there's been a bottleneck for us even as recently as last couple of weeks with this huge surge of new bookings following the relaxation of the terrace.

1:23:17That's not right. Like there should not be a bottleneck for I can't get cargo loaded on a ship and therefore I can't help the customer or the customers getting this huge delay and getting loaded and getting their cargo delivered. It is a fact of the industry right now, but that bottleneck shouldn't be in a warehouse environment. You know, you've got a picture of this flow of goods at the loading dock. You can choose where to put the bottleneck in the flow of those goods. So loading dock, unload, put away, pick, pack, outbound, you know, and ship again. And the way that Amazon does this, as I understand it, is they try to make the bottleneck the most capital intensive piece.

1:24:01And then they over stack it so that there's plenty of capacity on that. Whatever the machine is probably that is capital intensive. It requires a lot of capital. I have lots and lots of that machine so that that way it just keeps flowing. The goods, you don't hit the bottleneck. You don't actually hit it. And if you do, it's because, oh, okay, nothing I could do there. It's more capital needed rather than if it's labor, you're like, cool, just throw more labor at it. That should never be the bottleneck. It's only where, oh, I need a lot more capital here, even than I planned. And then they overinvest in CapEx so they don't hit the bottleneck.

1:24:36Because you want the most asset intense part sweating just nonstop. Yeah, the asset intense part should be operating. No, but you should have excess capacity there. That way you don't get stuck with this machine holding you back. Like you have an extra machine. But that's a strategy for people with a lot of CapEx. That's Amazon's model. but plenty of capex uh and i'm not sure that they do it right like one of the things that they do that pisses off their merchants is they have this endless line of trucks at the warehouse they can't unload they've pushed the bottleneck off into the unload piece the loading docks and truckers and can't get appointments and stuff so i think that'd be wrong in that framework that like they should allow the goods to float through it's a it's fascinating world of like uh you know wd w.e.

1:25:24Deming is the kind of business philosopher of quality. He's written a lot on statistical process control and creating even flow through a system that you don't want to have these spikes of flow because it makes planning really hard and labor and assets. People become idle. You don't want any variance. Yeah, eliminating variance is like Lean Six Sigma type stuff. It's one of these things that doesn't come naturally to me. So I'm like trying to study it and take an interest in it, but it's not my natural forte to go deep on this area. I do find it quite intellectually stimulating, but it hasn't, it's not like my training and background.

1:26:03Is that like the whole Toyota production system thing? It is, yeah. Do you guys use that? A little bit, yeah. I mean, the Toyota production system, I think there's like two companies that have taken it really, really seriously and advanced it in the United States. One is Amazon and one is Donaher Manufacturing Company. The idea is a couple of things. One is one things that we do that is very Toyota production system like is in the Toyota production system. And I've never been to Toyota. I got a proper tour of this. I'm a bit of a chauffeur knowledge, like repeating what I've heard and learned a little bit from a distance.

1:26:35But the worker, the line worker follows the part down the line and does many of the steps, operates several or many of the machines. Instead of like in a U.S. production, Toyota auto production, each guy does one job and kind of more robotic, like I was describing earlier. And our models are similar to the Toyota one in that sense. So like the same worker follows this shipment down the line, as it were, doing all the tasks until it's complete. That I think Toyota kind of pioneered that piece of it. Better for the worker, for sure. You like have more agency. You're more involved. You know more of the details.

1:27:15You're like your career is more interesting. You're learning all the steps. But they really the other thing that Toyota really does is empower the workers to like elevate problems. It's like, right. They famously have the rope they can pull to shut down the whole line if things aren't right and take quality super seriously. Quality costs less. I think that comes from W.E. Deming. So it's all a very interesting area that we try to apply. And this is where I needed help at some point. I'm not like a natural on these things. You mentioned chauffeur knowledge, which is such a tell that you're a Charlie Munger devotee.

1:27:48I would love to hear some of the lessons you took away from reading him or interacting with him. I got to become friendly with Munger towards the end of his life. I went to his 99th birthday party last year, actually, before he passed. I got lucky. In fact, the person I'm closer with is Peter Kaufman, who's the author of Poor Charlie's Almanac. And that's like one of my favorite books. And when I lived in China, I got a copy of that book. and really love it's like a coffee table but stripe just re-released a copy of it it's now available in print again it used to be kind of out of print and i had that book and i loved it it really inspired me munger has this really wonderful essay which i actually discovered on the y combinator website um called the art of worldly wisdom or something to that effect if you google munger worldly wisdom you'll find it um and it's a u.s it's a speech of that he gave at USC.

1:28:43It's like a graduation speech. We'll link to it in the show. Yeah, you should link to it. It's wonderful. And it's about this idea that there's like 300 domains in the world of knowledge, 300. It's kind of an arbitrary. I don't remember if he says 300 or not, but there's some number of limited quantity of domains. And in each of these, there are two or three big ideas that carry all the 80 % of the freight, as he said it. And so if you were to go and learn those two or three big ideas from each of the disciplines up your alley. I'm sure you've written about this before. You have all these mental models and you get lots of stuff to hang things on.

1:29:16Uh, and then also a lot of the innovation in the world comes from taking an idea from one domain and applying it elsewhere, a mental model from one applying it elsewhere. So I learned about this when I was like 25 or so living in China, and that really set me off on a lifetime journey of like trying to read, because like learn as many of these domains as I could you try to be worldly wise um and so I I love that it really inspired me and then one day I was at a party at a house in Silicon Valley not like a fun party but like you know gathering a cocktail event or something and um I didn't know anybody and I this older guys older gentleman was there and I struck up he struck up a conversation he saw me not talking to anyone or something we started talking to each other and he at some point asked me what my favorite book was.

1:30:03I told him, oh, it's, it's poor Charlie's almanac. And because he's like, why do you like that book? And I told him all this and he's like, well, I know that book really well, actually. I'm the author of that book, uh, Peter Kaufman. And so he's like one of Munger's really good friends, uh, for many, many years. And he's the one that put together this almanac. So he just thought that was so funny that he started bringing me to Charlie's house and like tell Charlie the story. One of my favorite things that Charlie told me at one of these dinners at his house was when I told him about Flexport, he was like, oh, you had a great business because the key to success is dumb competition, which that's kind of insulting.

1:30:41We have some really smart competitors, but I always say that to people who are like building AI companies. It's just like, what a nightmare. Your competitors are literally AI geniuses. Like you should find a way to apply AI in some other domain. So you're not competing with the smartest people on planet earth. Cause like the odd, it's like trying to be a boxer. Like you're kind of, you might beat all the people in your local gym, but at some point you're going to run into somebody bigger, stronger, faster. John Jones or somebody going to kick your ass. Yeah. I don't think we're the smartest people in the world, but within our little old school industry, we can, we can do some damage.

1:31:16Funny story about Peter before he's a mutual friend of yours and mine. And the way that I met him, I was at a Berkshire Hathaway meeting and I had went up to the hotel, you know, naively. this is my first meeting ever you know i just show up and i'm like can i get a hotel room and the person behind the counter starts laughing and i was like oh no problem i'll just sleep in my car you know whatever and peter walks up to me and he's like i hear you you need a hotel room and he ends up giving me he had a block of rooms and he ends up giving me one of his rooms that's amazing which is the perfect peter room it is totally and it's the most perfect embodiment of one of his phrases, which is go positive and go first.

1:31:58Yeah. And he, we ended up striking up a conversation. Uh, we had a mutual friend who joined us in that, which was Peter Bevelin. And we just ended up chatting for a long time. And he's like, if you're ever in California, you know, come see me. And I was like, Oh, I just so happened to be there next week. I had no plans to be there at all. Right. Oh yeah, totally. And that struck out my friendship with him, which has been, he's been an incredible influence. Yeah. Yeah. Okay. That makes sense. That's hilarious because he loves inventory. Yeah. And he also had an inventory of extra rooms just in case somebody needed money.

1:32:30Actually, walk me through that. Why does he love inventory? Well, because everyone else hates it. I think it was a contrarian element to it. Everybody went to business school and learned that extra inventory is evil and carries working capital costs, et cetera. But he's in his business, which is airline, airport, airplane parts, aviation parts. Having excess inventory means you can provide the part on demand. Any part, you have it. No one else does. So people are willing to pay a real premium if you're, especially in aviation. If your line is down or your plane's not flying, we have a whole branch of logistics called Aircraft on Ground Logistics, AOG, Aircraft on Ground.

1:33:06People will pay any price. I once flew and this is not what Flight Sport does, but I know this guy's a billionaire and his plane, his G650 Coldstream private jet broke down in Antarctica or in Southern Chile, like right next to Antarctica. somebody crashed uh like a tractor into the wing and he called me he's like can you get me a i need this i have the wing i need to fly it to chile i will pay any price like this guy told us like 10 times like if there's a way to pay more to get this there faster we will do it and so being the guy with all the parts uh for that type of customer when you think of it you have this like in some cases you know 10 million to 200 million dollar plane or more yeah sitting grounded from a like$1 ,000 part or it could be$10 ,000.

1:33:56You could charge$100 ,000 for that part and then you'd be like, no problem. Yeah, and the inventory, I mean, inventory should be not that expensive to keep around, but it depends if it's perishable. Like the COVID was a great example. Like people, the hospitals didn't have enough inventories all run just in time, which is just a ridiculous way to run a healthcare network just in time because in a crisis, so you better have some inventory. But the problem I think becomes that the PPE, the masks and stuff has a shelf life and expiration. so you can't just build a warehouse totally full of stuff and let it sit there you only need to pull it out 20 years yeah it'll work so it's a hard problem similar with like military like how much artillery do you want to just produce and just have sitting around just in case there's a war but like you want some when there's a war you know you don't want to start your production then are there any other peter kaufman lessons that stand out so many i don't know if uh you know hopefully he publishes more books at some point he's written a lot of stuff that he keeps offline i really like his competitive exclusion principle what is that it's basically it comes from biology and it's this idea that um in a niche in an ecological niche ecosystem there's only a two two species can't occupy the same niche one of them must out compete the other one if they're like for life they're both occupying the exact same niche one will win the other will get pushed aside go extinct or have to adapt and so in business the way to apply that is like you should be able to do all the things that your competitor can do and you can't leave any room for them to exist because they can do something you can't do the opposite of this dogma that you should only do one thing and do it really really well it's like actually you should spread out and make sure there's no room for the other guy to stick around and maintain a relationship with your customer just because you're not able to do that thing and we still have some of these i mean we very hard to do everything but he calls it's a there's a wikipedia article about the competitive exclusion principle i think that's pretty interesting i learned from actually just generally peter's whole thing is um is the worldly wisdom idea just taking ideas from biology and physics and what's his other one is the formula for kinetic energy is one half of mass times velocity squared we use velocity as like our main word at flex part velocity go deeper on that because velocity matters more because it's it's power log right From the kinetic energy formula, it's a square function and mass is only a linear.

1:36:18And so this is why in football, American football is hitting so hard, knocking. Often it seems like this little guy can just like create more, way more energy. Well, they are. Their velocity, they're running really fast. Yeah. It's more important than how big you are is how fast you're moving. And now velocity is different from physics than speed. Velocity has a vector. So you got to go in the right direction in business. but it also it's kind of an explanation for why startups outcompete big companies have way more mass but they start to become slow and bureaucratic and three guys in the garage can often outcompete it's interesting to sort of visualize as like the incumbent being fat and you being you know skinny and quick and agile and you kind of want to run upstairs and it sucks for you but it really sucks for them yeah that's how i sort of think about that yeah like how do you how can you cause pain in a way that like it's going to suck for you, but it sucks more for them.

1:37:15What are some things that you got from Peter? Well, the go positive, go first thing is just such an unlock in life. And the demonstration, like I'd never talked to him or sort of like had any conversations with him at that point. And it's just stuck with me. This example is from the elevator. You're stuck in an elevator with someone. Most people will say nothing, which is a kind of polite to not say anything. But if you say hello, they'll actually, turns out most people will say hello back and be nice to you. And then we don't do it because like the 2 % of people will sort of scowl at us. I don't really want to talk to people at all meters either, but I get that.

1:37:45Yeah. I mean, it's an interesting point. Well, now everybody's on their phone. It's a different world. Ryan, we always end these interviews with the exact same question, which is what is success for you? I like to be worldly wise. I try to keep learning. I'm lucky to have that learned that value early on in my life. That learning is the most important thing. I mean, now I've got kids, so it's love. but learning is right there as a close second for what my number one value is. That's why I like Flexport so much. It's like a really incredible vehicle to learn. And the best way to learn is to solve a problem, you know, be really engaged and do things and solve problems for people.

1:38:19In the business context for Flexport, we want to be the number one logistics company in the world by far. And we think there's real scale economies in this industry that you can unlock. But we're pretty far from that. We're only about 0.1 % of global trade in the domain in which we play. So we got 20, 30 years of just like building, going global. We got Flexport employees in 18 countries. I want to be in all the world's countries, be like a true network business where ship anything anywhere, make it super easy with tech. Actually, I think we can lower the cost of shipping anything. by 5 % to 10%.

1:39:04I think it could have just like a massive impact on the world economy. So all those things are like part of the success path, but we're trying to enjoy the journey, like learn every day, really help our customers along that path. I'm looking forward to rooting for you from the sidelines. Thanks. Thanks for listening and learning with us. Be sure to sign up for my free weekly newsletter at fs.blog slash newsletter. The Farnham Street website is also where you can get more info on our membership program, which includes access to episode transcripts, my repository, ad-free episodes, and more. Follow myself and Farnam Street on X Instagram and LinkedIn to stay in the loop.

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