First Time Founders with Ed Elson – ft. Ryan Petersen of Flexport

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1:21Welcome to First Time Founders. I'm Ed Elson. You might remember back in 2021 when a giant container ship got stuck in the Suez Canal. Or when lockdowns forced shipping companies to delay their schedules, sending consumer prices through the roof. Over the past three years, the supply chain has become a big theme in business. Specifically, we've all woken up to the fact that it's a lot more vulnerable than we once thought. Now, some of this was a COVID anomaly, but much of it was also structural. Supply chain management is a notoriously antiquated business. It's still heavily reliant on physical paperwork and traditional record keeping, which results in poor data quality and low efficiency.

2:02In other words, the stage is set for a disruptor. That's why I'm happy to introduce our next guest, Ryan Peterson, who is the foremost disruptor in the space. In 2013, Ryan founded Flexport, the supply chain management and freight forwarding platform. His thesis was simple, modernized trade with technology. And it worked. By 2021, the company was generating more than$3 billion in revenue. And the following year, the company was valued at$8 billion. You may have seen him on the cover of Forbes, or you may have seen his viral tweets pulling back the curtain on the black box that is the supply chain industry.

2:38Today, we're going to discuss all of it. Ryan, thank you so much for coming on. Hey, my pleasure. Thanks for having me on. So freight forwarding is kind of an obscure category, and I'm sure many of our listeners have never heard of it. So let's just start with a brief explanation of what Flexport is. Yeah, totally. So, you know, it's a little obscure, but you also have to kind of just look around yourself and go, where did all this stuff come from? How did they get here? And, you know, huge amounts of goods are made internationally and shipped internationally. In fact, I think I read recently global trade is 47 % of global GDP.

3:12So, I mean, it's almost half of everything gets shipped around the world in some format, some form. And so the challenge fundamentally what freight forwarding is, is that art and now science of getting that cargo moved from wherever it needs to be to wherever it's ending up. And why you need this layer that we call forwarding is because, you know, the ships only go from port to port or the planes go from airport to airport, but the cargo needs to go from door to door. And so we're sort of the coordinating layer of how do you coordinate the order actually going from a company to its vendors. placing a purchase order to turning that into goods.

3:49Well, that's manufacturing, of course. But then once the goods are ready, the manufacturing company needs to come on and tell the forwarder, OK, these goods are ready. Come pick them up, book it on a plane or a ship, clear it out of customs, clear it into customs in the other country and get it delivered. So there's a typical transaction door to door. We tend to see 15 or more companies that do something. Plus the government, you know, multiple governments are involved, a bank, an insurance company. There's a lot of complex coordination that needs to happen. I often joke with our customers that it should be called freight email forwarding because there's so many different people involved.

4:27And what Flexport does differently, I think, than everybody else in this industry is we try to bring structured data to this process, connect people through software, whether that's actually software to talking to software as much as possible through APIs and through a legacy technology called EDI, which is really predominant in this industry, but also a lot of humans, like how do you build great web interfaces, mobile interfaces to allow the people to communicate and allow the data to travel in parallel to those goods as they travel around the world. So do you think it's fair to call it like you're the middleman, you're the software middleman in global trade, basically?

5:01Yeah, I think so. Now, I think there's two kinds of middlemen in the world. There's some that just buy low and sell high, and they don't add a lot of value, and they give middlemen a bad name. And there's other kinds of middlemen that coordinate complexity and simplify the world and allow you not to have to think about all of that. A customer comes to Flexport. They don't need to worry about the 15 different vendors, subcontractors, trucking companies, warehouses, airlines. They have to worry a little bit about customs, but we try to make that really easy for them, make compliance really kind of like build compliance as a service, build that in.

5:32So yeah, we're okay with being called a middleman as long as you realize, hey, there is a role for middleman to add a lot of value in this world. So the title of this program is First Time Founders, but I should recognize up front that Flexport was actually not your first company. So we're slightly cheating here. Back in 2006, you and your brother started another logistics shipping company called Import Genius. So take us back to the very beginning. Why did you decide to get into shipping of all spaces? Yeah, actually, Import Genius is a company that sells data about imports and exports, about shipping.

6:04So we came at it from that perspective. Before that, we started a business importing products, mostly motor sports products, off-road vehicles, dirt bikes, ATVs, and dune buggies. Actually, my brother and Michael started that business. I was an employee. Even in the early 2000s, we had built software that lets you automate the outbound trucking piece. So like when we had these motorcycles that we would sell, and so we'd ship them out. Sorry, can I just interrupt? Why motorcycles? How did you guys land on that? Well, we did a lot of different stuff. Motorcycles is kind of our bestseller. We were the first dealer in the United States for Gigli, which is the Chinese car company that bought Volvo.

6:44So we found some good factories overseas. We built kind of e-commerce sites to sell this stuff. And as I was saying, we automated a lot of the outbound trucking. Like even in the early 2000s, we could get rates from less than truckload providers, print the bill of lading, place a booking, have a truck show up and ship it out. And we tried to build similar types of systems on the inbound piece. And it was just like really hopeless. So we felt like the freight forwarding was a very frustrating industry to work with. One was the lack of tech, but like kind of, that was 20 years ago. Most people were bad at tech back then.

7:13But even like getting service out of the forwarding industry, it seemed like they were, George Bernard Shaw says, every profession is a conspiracy against the laity. And it seemed like freight forwarding is just a poster child for that. Like, come on, like, like a lot of code words and acronyms and Viking English. You even heard me say it, bill of lading. Bill of lading, I was going to ask. It should be bill of loading. It should be loading. We're loading cargo, like not lading. That's old English. What was your background before that? Because I still, that's, it's, it's a strange business to go into.

7:43I assume it was your brother who decided to get into it, but you know, did you always know you were going to be an entrepreneur? Kind of. Yeah. Both my parents are entrepreneurs. My older brother's an entrepreneur. Um, so it seemed kind of natural, but I started working for my brother. He's there. He's the real entrepreneur of the family. And I, I kind of learned from, learned from him. Um, but, uh, yeah, no, I don't have a, my background is entrepreneurship. Um, learning basically was what that means. Try to learn as bad, learn faster than everybody else. Uh, I had a job in high school. I made pizza at Domino's, but other than that, I basically just been building companies my whole life.

8:15So then in 2013, I think you were in the middle of Import Genius, but that's when you went to Y Combinator with this TurboTax for customs paperwork idea called Flexport. Can you take us through the original pitch for the company? Yeah, you know what? Actually, it's pretty interesting. It's on YouTube. I did a pitch with Sam Altman, OpenAI founder who was at Y Combinator at the time, and Paul Graham. And if you search like Ryan Peterson, Sam Altman, Paul Graham, something like that, you'll see my original pitch.

8:49I did it on stage at their event called Startup School. I got lucky to be selected to go present it on stage. And it was sort of that. It was kind of turbo attacks for customs not doing freight. We actually added that later, a year or two later. We started in customs because that's where, well, that's where the compliance takes place. This is where the data lives, like fundamentally. And customs has even gotten much more important with all the tariffs that the Trump administration and Biden administration have carried on. But it was already a problem, like a lot of paperwork. I was experienced in importing motorcycles, which is heavily regulated, as you can imagine.

9:28Department of Transportation, EPA, some state governments, plus customs and border protection. So, yeah, that was the original pitch. Like, let's make it easy for people to import stuff, show them how it works, kind of use the Internet, use software like a little wizard like TurboTax would do. It is taxes ultimately, right? Customs are taxes. So the TurboTax analogy is pretty good. TurboTax is much more automated because global logistics requires people. And so we always knew we would pair you up with almost, it's like TurboTax plus your accountant kind of thing, right? Like we'd pair you up with a customs broker and now a freight forwarding expert operations team that's gonna make this whole thing easy for you, hold your hand every step of the way.

10:06So let's fast forward, you know, five years to 2019, at which point, correct me if I'm wrong, I'm pretty sure you were generating around a half a billion dollars in revenue. Zero to half a billion in five, six years. I don't think even Zuckerberg can say that. What were some of the key decisions that you made that enabled you to reach that level of scale? Probably the most important decision for scaling the business has been our org structure, where we're built like a team of teams and kind of like, we call them squads, but it's a customer, it's a cross-functional team that serves the customers.

10:39So that's customs, sales team, kind of account management, operations people that are coordinating freight. And that cross-functional team gets to kind of be like a little business unit and grow itself. And I actually thought about calling this a cell, you know, like in the biological metaphor, like as it gets too much business, it can split and keep growing. I didn't, we call them squads instead because a cell can also be a prison cell and you don't really want your employees thinking of themselves in that fashion. But that team really leads to you to have like very high quality customer experience.

11:17Even, you know, you don't get like this call center that you might get calling, you know, like a big company. We want to make like, hey, this is your team. They're here to take care of you. And that's made the business quite scalable. And it's also like kind of, it's made it, less tops down, more like bottoms up culturally, where you can kind of serve that customer. And the customer's the boss. And I don't have to tell everyone what to do, because the customer's telling you what they need you to do. And people are able to kind of, it's a bit like an immune system, right? It's just like rapidly solve a problem.

11:47The nervous system, like, you know, you wait for instructions from the brain before you act. And an immune system, there's no centralized control. It's like, just, it sees a virus and it attacks it. It sort of reminds me of Bezos customer obsession ethos. But would you say that that's your point of differentiation in the space? Is you value the customer where others don't? We like to think that. The narrative, the brand around Flexport and what brings people in is our technology. And it's about user experience, visibility, control, the data traveling in parallel to the goods. and giving you the ability to connect systems, integrate your software systems, your factory software systems with our data sets and provide better planning, better control over your cargo as it moves from factory now all the way to customer stores.

12:38We bought Shopify Logistics earlier this year so we can fulfill packages to people's stores or into retail store. So that's what brings people in. But yeah, it's the people that, the reason that they stay and that's driven by our culture. I would say that's like the foundational competitive advantage for Flexport is the culture that we built. And we have a big advantage over competition that we've, and maybe these are related, right? We've kind of like shown that this industry is interesting and attracted people who maybe wouldn't have come into this. And that's part of tech. Like people like to work in technology companies and we empower people, make the jobs more interesting.

13:10And so people at Flexport, maybe traditionally in another alternative timeline might've gone to work at, you know, a consulting firm or investment banking or like a Google or something like that. We have a lot of, not just the tech talent, but the operations, the salespeople, et cetera. Yeah, we talk a lot on this program about like the CEO's ability to tell a good story. And you have to tell a story to your investors. You have to tell the story to your shareholders. And like you're pointing out, like you got to tell a story to talent to recruit employees. And I'm sure there are many times where you have to sort of tell a story to yourself.

13:45How has storytelling played a role in your career? And do you have any insights on how to get better at it as a CEO and a founder? Yeah, I think that's fair. I mean, you end up telling the story. If you don't like telling stories, you shouldn't find a company because you have to do the same. And it's relatively the same pitch, maybe slightly different. But you're pitching the investors, the customers, the employees. In our case, also the vendors. We've got to convince ocean carriers, airlines, warehouses, trucking companies to come and partner with us. We've got to convince regulators that we're not wild cards.

14:23This is not like, oh, we're just there's, you know, in our case, like, obviously, it's heavily regulated industry. We're crossing borders and we got to show these regulators that we're dead serious about compliance and that actually tech gives us the opportunity to be better at it than anyone else. So that's another part of the story that you have to tell. and tell a story with, for the communities where you operate, like, why should, why should you want Flexport in your city? Why is Flexport a good actor? So yeah, that's, that's a huge part of it. How do you, probably how to get better is do it over and over again.

14:53You know, I remember my Y Combinator, not the pitch that you can see on YouTube, but although I was kind of, I was probably kind of nervous in that one, but my demo day pitch where I presented to the crowd, I mean, it's pretty high stakes, right? Like I got to raise money and there's all these people out there. I was very nervous and I'm not very good at memorizing things. I'm actually just terrible. I can't. And the demo day pitch, you get like two minutes. It is like super tough for me because a two minute pitch, like you got to be pretty scripted and demo. But I just remember how bad I was.

15:22And now, like, I don't know, I've gotten done at thousands of 10. I've probably done the flex board pitch like 20 ,000 times. So, you know, it gets more interesting, have fun with it, try to make it relatable. You want to start every presentation you do probably with a story, like make it personal, personable, and kind of finish it with make something actionable, like how can you use this in your life in an ideal world? What was your customer acquisition strategy way back in the early days when you didn't have this massive brand that you could rely on? Yeah, well, you know, it still hasn't changed that much.

15:54I think in very, very early days, it was Google AdWords, people searching for customs broker, etc. We're still pretty active spender on Google AdWords and other kind of social type digital ads. But that's not really the driver. The driver of our growth has been really outbound marketing. We're pretty good at identifying importers and exporters. I haven't looked at this stat exactly, but it's in the probably 85, 90 % of our sales is outbound, meaning we're calling on customers. And that's a very tough thing to do because every other freight forwarder is out here calling all day too. And these customers don't really want another freight forwarder.

16:31in the mix. Like they'll tell you that, but, um, but we've managed to stand out enough with our tech, with our storytelling, with, uh, you know, showing you how we can solve a problem. Then once we get people to do a demo, um, it's a demo of the software. It tends to be like that actually, you know, we'll go in and they're like, really don't want to be here until the software comes up. And then they're like, Oh, wait, this was like, and they'll go grab Patty from accounting and be like, look, you can pay your bills like right here without having to email me, you know it's kind of hitting the pavement we we're a little bit more we're certainly more famous than we were when we started and that helps um you know there's a uh there's a famous neuroscience paper about the Halle Berry neuron I've not heard of this and I I use this with our marketing team yeah it's a famous paper in neuroscience that apparently all of us have a specific neuron for Halle Berry um then whatever you whether you see her name in writing see her picture whatever that neuron will fire we have one for every human you have one for your grandmother but the neuroscience paper is the Halle Berry neuron.

17:30And so you want to create kind of flex port neurons that are active and they don't really, they've heard of you. But then when that email comes in, it's like, there's a sense of familiarity that neuron is firing. And so that's maybe where the brand helps a little bit, but it's not like people hear, I don't think people necessarily see us in the news and like call us, but it makes them more likely to take the call when we, when we, when we reach out. Yeah. So things were going super, super well, 2021, 2022. and last year you actually stepped down as CEO. Why did you decide to leave when things were already going so well?

18:06Yeah, well, to be clear, I never laughed. I became the executive chairman and kind of stepped up rather than stepped out. Stepped up, okay. It's fine, it's fine. You know, I think I really wanted Flexport, well, there was a couple of things. One is actually the pandemic was pretty hard on us. Our operations is hard. Our net promoter score before the pandemic was in the mid 70s, came way down. And not just Flexport, the whole industry, like those ships that were stuck off the coast of Long Beach and the transit time to deliver freight from China, the US was like 120 days on average across the industry.

18:40And like, by the way, the ship only takes 14 days to cross the ocean. So it's pretty abysmal. The price of freight went to$20 ,000. There were all these challenges in the operations of the company. And I felt like a lot of that's industry-wide. you know the whole industry suffered is we're certainly not unique in that but some of it felt like man how are we going to drive operational improvement here we've got to get better i wanted us to go faster on tech we're like for sure the leader in technology and global freight forwarding but like that's not the bar that we want to clear um i want to be compared to amazon or google are the best tech companies in the world so i felt like i wanted a partner to help me with that and i got introduced to dave and he's um he's a you know an outstanding leader built amazon supply chain team.

19:23It just seemed like a match made in heaven to go, Hey, we can go faster and be better at this. So it wasn't, it wasn't so much that like, I wanted to step out. I love being the CEO of Flexport. And then you decided to come back. Why? We weren't growing enough and not just revenue. And, you know, you can't really grow revenue when you're, when the price of your service in the market goes down so much. Um, but we weren't growing volumes enough. And as we spent more time with, uh, was I spent, you know, I was still the executive chairman. So as I spent a lot of time with customers learn like, hey, like, you know, you guys aren't listening to this kind of feedback.

19:54We went away from that squad model that I described earlier, and we pursued like task-based efficiency. And we lost a lot of our cultural ethos of like, hey, let's be really customer centric and engaged. And it became pretty clear to the board that like, hey, you know, like the growth engine of this company, the thing that drove the growth isn't there right now. And, you know, going through a downturn, it's like much easier to managed, we realized we were going to have to cut some costs. And it's much easier for a founder to come in and say, hey, we want to revive our culture. We want to revive our customer centricity while cutting costs.

20:31That's an enormously hard challenge that I have right now. Because it's genuinely the number one priority is culture. And number two is the quality of our operations. And a close third is cost discipline. And it's like, okay, I'm cutting people. We've had to reduce the size of our technology team quite considerably while telling the team, Hey, culture is the number one thing. Like that's like something that's much easier for a founder to lead a company through. So the board felt like, you know, that I was the best, best suited to do that job. So I'm, I'm, I'm thrilled to be back. Like I genuinely, I was starting to say, I love business.

21:05I'm a fan of business. Like the way some people are fans of sports. Um, I'm like a fan of like, what's going to happen out here. I hope someday I'm old and incapacitated. I'm still going to be like reading the Wall Street Journal and say, what's going on out there? And I had the best job in the world for that. Like we serve some of the best companies in the world. We get to not just like see it from the press, but get inside those companies, see how they're run and help them with the problem. I'm like a fan, like get in the game somewhat sometimes and help them run a better supply chain. So it's an awesome job.

21:35I'm thrilled to be here. We'll be right back.

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22:49We're back with First Time Founders. A recurring theme in these founder interviews has been sacrifice. I think everyone knows you have to make sacrifices to be a founder, but you have to make greater and more sacrifices to be a successful one. And I think usually those sacrifices, at least in my conversations, have come in two forms. One is mental health, and two is personal relationships. and I'm just wondering in your experience what steps have you taken if any to maintain a healthy sustainable personal life while at the same time running a multi-billion dollar company wow I haven't I haven't done that I just focus on running the company you know I'm very lucky I I got married uh four years ago and I have a wonderful wife who's like super supportive and is my my main team and now I've got two young kids and I spent a lot of time with them and so So that's like everything else has kind of gone by the wayside and focus on my family and Flexport.

23:47And if you're one of my friends out there, I love you, but I haven't had enough time to hang. I make a lot of new friends. The Flexport people are kind of the family now. We spend a lot of time together in the trenches serving customers and getting out here. And that's more than enough for me. I mean, of course, I try to maintain relationships, but everybody who knows me knows where I'm focused on right now. So I do have a support network of like other CEOs and a lot of friends, you know, kind of like chat groups and meet up groups and stuff where people going through similar stuff is it's can be hard to find.