Flexport's Ryan Petersen on returning as CEO, global logistics in a time of conflict & more | E1881

0:00I lived in China 18, 19 years ago for a couple of years. and I was always predicting back then that, hey, once these Chinese companies figure out how to do branding, they're going to take over the world. Yes. Because they make the product and then I slap my brand on the thing and mark it up 5X and I get all the margin. If they can learn UX, UI design. I always said this about Israeli companies. And they're starting to do it. You know, that's what these companies are. That's what's happening right now. This Week in Startups is brought to you by Miro helps take ideas from in your head to out there in the world with its ability to democratize collaboration and input.

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1:04ketone iq is a clean energy boost without sugar or caffeine get 30 off your first subscription order of ketone iq at hvmn.com twist all right everybody welcome back to this week in startups fan favorite is back on the program ryan peterson is the ceo and co-founder of flexport back on the show for the second time you've seen him on the all-in podcast two or three times speaks at the all in summit he was last on this podcast this week and startups on episode 1169 back in february of 2021 that was peak pandemic days and that was 700 episodes if you can imagine lots happened since then he stepped down as ceo and became the executive chair in march of last year we'll get into that then in july announced he was going to be a partner at founders fund and then in september he retook the reins as ceo apparently to get costs and things under control and we're going to get into everything and more today welcome back to the program ryan peterson thanks for having me back what wow it's been did you say it's been 700 episodes since 700 that can't be right you know it is you know what happened was yeah you know i always wanted to try being like howard stern and have my own daily show and uh you know over the last couple of years podcast gets popular the ads sell out and i just told the ad sales team well if you sell out all the ads for three months i'll add a day and it went from two days one day a week two days a week three days a week four days a week five days a week and six days a week and then i realized that we did all in and it was seven days a week and i realized you know what be careful what you wish for in life my entire life became doing podcasts and it was exhausting and so now i'm back down to four days a week for this week in startups one all in five a week five days one hour a day and you know i do this instead of having lunch and getting fat right it's like a better deal uh other people go have lunch and i just do a podcast so um just to remind everybody what does um flexport do what is the business of flexport how do you make money for your customers uh well flexport's a global logistics company and we we use technology to make that easier better cheaper for companies to ship cargo anywhere in the world from wherever it's made deliver to the end customer in over 100 countries.

3:30And what that looks like is our technology lets you place orders to your factories. Factories acknowledge those orders. They become users too. That's one of the coolest parts about Flexport is that every time we get a US company, that's where we started, but we're now all over the world. But if we get a US company, on average, we get 18 of their factories to become users too. So they're receiving orders through the system and then placing bookings to get the cargo picked up and shipped, whether it's by air or ocean, including some cross-border trucking across Canada, Mexico, and then delivery.

4:02And then last year, we bought Shopify Logistics, and that's the last mile arm. So now we have fulfillment centers doing e-commerce pick and pack, delivering both to retail stores and to customers' houses all over the United States. This is something I wanted you to explain to me. So in a way, are you software and a marketplace? So the software is what people pay you for, but then there's a marketplace to get those logistics and the deliveries going? We're really closer to like a logistic service provider from a business model standpoint. The way customers think about us is like you're paying us to move cargo around the world to ship your packages.

4:41We use technology to make ourselves much more efficient and reliable, lowering the cost for the customer, and then giving them much better user experiences to do things like planning, how much inventory to have, getting that. The data needs to flow in parallel. At the end of the day, supply chains are about the flow of goods, the flow of data, and then the flow of dollars. And we now have offerings for all of those things, including financing products to help you buy inventory, compliance products. that's part of the data is like clearing customs, getting things delivered. So it's really managed service is closer to that.

5:15There are marketplace dynamics in that we work with on the asset owning side. We have 400 ,000 trucks in our mobile apps. We've got all contracts with all the ocean carriers and airlines, warehouses, other customs brokers. These are kind of supply side vendors. But the customer doesn't really think about that as a marketplace. they buy from flexport and it's on us to get the right providers and lined up got it so i wanted to ask you about this i think you called it pack and ship from china to america back oh from china to the u.s yes because there are a series of new websites that have gotten very popular some people are not aware of them other people are obsessed with them i think timu uh t-e-m-u aliexpress which is part of alibaba sheen which is clothing s-h-e-i-n you see these as some of the top apps in the app store and you wonder like who's using these it turns out it's very popular amongst kids who are on a budget uh and i just did this myself as a test and i think tiktok now has the ability to they have tiktok shopping and so i was looking at laura piana shoes because chamath is into these shoes and laura piana sent the besties some shoes at the all-in summit and they gave people in the vip bags like a something from laura piana and i saw people um promoting knockoffs of these like three or four thousand dollar shoes so as a goof i bought the twenty dollar versions of them i kid you not they came two days ago in a plastic bag it's the worst quality i've ever seen on a pair of shoes uh like and they smell terrible like they smell like they're painted was it 20 bucks 20 bucks i think it was 25 bucks for what were laura piana rip off of their like 1200 loafers and you know if you put them next to each other you would obviously know the difference maybe if you didn't put them next to the other ones but what is this new phenomenon of people selling knockoff products or pick is that pick and pack uh and well things going directly from china to us customers yeah so the industry term for this is actually called a section 321 clearance and that's a section of the u.s customs regulations uh which allows you to not pay customs duties if you if the goods are worth less than 800 got it then you don't pay customs due and now the trick to doing this is that each individual product has to be already consigned to you the end consumer to buy it um and so that means you've got to be able to be efficient and like you're fulfilling that unit from china or could be from mexico a lot of people are doing this in mexico and canada now uh but you're crossing the border one item at a time now they'll bundle lots of these into a freight shipment so you still get the low cost of freight but you're clearing those goods and avoiding customs duties so with the cup with the trump tariffs you know which biden has continued i think we got to now call them the biden tariffs or just the new tariff regime that we have um that that that can be really significant you know 20 25 savings on that by um but uh and so that's that's what's happening there is fundamentally is like avoiding customs duties it's huge right now um in q4 it was about 50 of all the air freight flying across the pacific was e-commerce parcels generally broadly e-commerce parcels so what's happening logistically is somebody in the united states orders one of these products you know listen i'll say they're lower quality whatever but just putting that aside they order something direct from a factory that a marketer in china has put on a u.s commerce site and they pack it up they put a label on it and then how does it get to my house from a directly from a chinese factory it's being packed yeah labeled in china correct yeah it has to be labeled at origin so it gets labeled there um it gets flown over on freight including a lot of this is flying on flexports uh freight freighters um gets handed off to what cleared customs uh and then handed off to a last mile provider and that could be ups it could be usps it could be you know whoever's offering the best rates um and so that's who's delivering it to your door so it's a kind of end transaction how is this economically feasible is what i'm trying to figure out what's the economics of this because i i don't think there were shipping costs or the shipping costs were de minimis on this yeah i don't um you know it's hard to say you know different customers have different business these companies have different business models they're like hey maybe they're not making money at 20 but i don't know those shoes might only cost two dollars to make jason i think that's what i don't know i haven't seen them yet but um what would it cost somebody to prepare shoes like that on an airplane to the United States and then do the last mile.

10:11Price of air freight is about$5 a kilo. How much do you think those things weigh? Kilos, 2.2 pounds. They've got to weigh ounces, right? So maybe under a pound. Yeah, maybe under a pound. So it's like$2.50 for the air freight. Wow, last mile could be a couple bucks. So it might only cost you$5 or$6 door-to-door on the freight side of things. It used to be worse. Wish was doing this in a big way. Remember Wish? Now, it used to be worse in the sense that the U.S. government, until a few years ago, Trump closed this loophole. The government was actually subsidizing. It was called e-packet. And it was like this weird customs.

10:48It was a weird postal treaty. And China was considered a developing world country. And so to, like, promote development there, you could ship something cheaper from China by USPS than you could from, like, North Carolina to New York. It was, like, cheaper to fly it from China to New York. um they closed that it was pretty much a loophole they closed that uh because you know there's no reason for the government to be subsidizing this cheap shipping like that all right founders always ask me for pitch deck punch-ups and you know what i got some great news for you we worked with the team at miro the awesome whiteboarding software i've been talking about to create an amazing pitch deck template for founders which you can see if you're watching the video right now this is going to help bring your pitch deck from zero to hero from zero to vc ready and our founder University participants love this template.

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12:49Yeah. Well, Amazon's been lobbying quite a bit to close this loophole. Because it hurts Amazon's business, you know, what's the point of having this like, really impressive network of fulfillment centers all over the US if you're not going to use them, you just bypass the whole thing and fulfill out of China. So they've been doing quite a bit of lobbying, which is, you know, a public record to close it. It originates actually in the rules as an individual. if you're traveling internationally, you come home, you don't have to file a formal customs entry and$800 is the threshold. You remember that next time you're buying something.

13:23If it's below 800 bucks, you're good. You don't have to deal with all the paperwork and extra duties. You still have to declare it on the back of that little piece of paper, but you won't have to pay any customs duties. Once you get above 800, now you're like, oh man, you got to file an entry and it'd be a lot more painful. So that's where it originally comes from. And then um it's called a type 86 clear i guess i probably knew it out too much for this but the ability to do this like at scale where you can clear like 10 000 of them at once because if you have to pay a customs broker to do a customs entry well we charge like 100 bucks for that so that'll kill your whole i can't charge you 100 bucks for a customs entry on a 20 pair of shoes so but there's this manifest clearance it's called where you do 10 000 of them at once yes it's 100 bucks for all the type 86 yeah yeah that's type 86 but section 321 is the section of the customs regulations that creates this law that this ability to do this um it's a very interesting phenomenon it's like kind of taking the world by storm it's like 30 to 50 percent of the air freight market depending on the time of year um which you know up from kind of i don't know what i haven't seen the trend on what it what it was historically so i need to go study that a little bit more but i remember being very surprised when i learned it was like now 50 % of the market in certain weeks and quarters.

14:40It's just extraordinary to think about this infrastructure that's been built over whatever it is, I don't know, less 50 years or 100 years of a factory in China. Somebody makes something there, it goes to some depot, which then goes to an airport, which then flies across the world, lands somewhere in the United States, and then goes to some depot again i guess and then gets delivered and it costs five bucks or 250 a pound yeah well that's that's what's very different about this is like you know if you were to ship a fedex package from china probably cost you 60 70 bucks to get the same and so it's sort of avoiding that by paying bulk wholesale air freight rates if you ship it with flexbor you know we fly it on our we have 747 so we fly it in and then it lands in chicago or la and there we have trucks that literally pull out next to the next to the plane get loaded right on the truck it doesn't even go inside a building it just gets put right on the truck and then shot down the road to ups and ups delivers at the last mile so it's a it's a pretty cool product i had like mixed feelings about this whole thing i'm like hey what are we doing like flying this stuff up and then i then i realized like actually flexport is pretty uniquely positioned to benefit from it because we have air freight customs and with our shopify logistics acquisition we have great contracts for the last mile delivery uh so it's made us a major player in this kind of e-commerce logistics so this gets rid of this idea of i don't know if it's called drayage or a fulfillment center like amazon has where you would order a hundred pairs of these shoes put them in a warehouse somewhere somebody would order them then you would ship them this is factory to to consumer correct yeah or your fulfillment centers in china effectively uh instead of in the or in mexico or Canada, you know, you don't have to fly it.

16:23You can do this on ground shipping, where you put it up in Mexico, Canada, we'll see there's a lot of efforts to lobby to get this to go away. For sort of obvious reasons. I mean, if you're going to have tariffs, like why? Not why? What's the point of this? But there's also lobbying efforts to say, Hey, you know, you should be able to do this out of a bonded out of a free trade foreign trade zone, which is a bonded warehouse in the United States, like Flexport has foreign trade zones that we operate that are legally, technically not inside the commerce of the United States, but you're not allowed to do this clearance from one of those and send it out.

16:59So there's all kinds of lobbying going on right now. There's a bill in front of Congress that we're monitoring all this stuff, but I don't have all the details in my head, but there's one bill out there that would eliminate it for shipments from China, but allow it from other countries. there's another bill that would raise the threshold instead of lower no sorry lower the threshold so instead of being 800 bucks it has to be below 200 bucks which would you know limit the number of products the types of products that could be uh imported in this fashion so yeah it's pretty contention and then there's a lot of different business models too where timu for example is a marketplace so it's like lots of different factories sending stuff they consolidate it and then send it to you.

17:40Shane is much more kind of like make their own brand, design their products, kind of own it, more first party and less third party, although I think they have some third party aspects to it as well. So that is kind of bypassing the Amazon Fulfillment Centers or the Flexport Fulfillment Centers. We now have a bunch of these as well. I don't know. I don't know how to feel about it. Flexport is pretty well positioned to do well in that world. We want to be... It's interesting because like i if it's going to last forever then i got to invest and go hey let's go build some fulfillment centers in canada and mexico and be really great at it but if congress is going to change the law and make it go away overnight and like i'm you know less less excited to go do that it also uh creates a bunch of issues around the quality and safety of these products and you know trademarks and intellectual property because the people who are selling in china let's say or you know pick another country they might not have the same standards for safety etc and they're selling direct to a consumer whereas if it goes through amazon amazon picks up some liability yeah well i think with amazon's marketplace they avoid the liability as well so it's kind of similar there's a lot of third parties you know a lot of counterfeit issues sellers will tell you on amazon as well but it's um you're still subject to the same rules and regulations for importing goods it still has to be counterfeit still illegal um it does create some complexity for us on the compliance front to make sure that we are dialed in like you know there's compliance for counterfeiting which is important but uh compliance for dangerous goods for batteries in particular to not sort of fire on an airplane like that's like 10 times more important in my view right like a thousand times more important um just because people's lives are at risk um and so yeah it's dialing in those compliance processes to make sure that everybody understands like here's what the rules are that you need um i don't want to bore the audience but material safety data sheet to like validate that there's been drop testing on the batteries and yes all that all these types of things need to be done to before you can put up um before you put a battery on an airplane yeah i mean we had all kinds of weird stuff happen with batteries on airplanes it's an interesting segue i mean i had this away bag that they put a built-in battery pack where you can plug in your phone to your you know roller when you're getting on a plane i came on the plane the woman's like oh is that one of the new ones with the battery pack i was like yeah she's like oh you can't bring it on the plane and i was like yeah that was a setup that was a setup she asked me like she was personally interested in my away bag and they changed that but that was a weird one yeah yeah that one's you know that one always surprises me because well obviously they built the product for travel so they should have sold that but if it's in the passenger compartment you are allowed to have battery but they still make you take it out of the suitcase it's like it's kind of weird yeah i get why you're not allowed to put it under this underneath because there's no one there to like monitor it and make sure it doesn't go it's a very serious issue now you can have a battery fire if it's designed the right way the battery will sort of like collapse in on it so the fire will collapse in on itself and not spread it's like an elaborate you know engineering process and that's why it's important that you do these things professionally and not have like random amateurs trying to do so there is an interesting topic that's at work right now with these 737 maxes i don't know if those are the planes you fly but you saw the the door come off we got 747s but yeah that's crazy and you know my friend sky dayton um from earthlink and boingo fame he just wrote a blog post about this about just training of pilots he's a pilot uh close friend of mine and they're really having challenges now with the number of pilots available and their training and are they getting enough hours and it turns out they're pushing them to put a lot of hours not in the simulator but into like you know, CESTA 172s and the training and stuff like that.

21:31Tell me, is there, are there issues right now around flying stuff around the globe? Is that, and you're starting to see that with pilots shortages and safety with planes? There've been a lot, you know, all these airlines, sort of a self-created problem. They laid all their pilots off during COVID. A lot of them did. And they've had to rehire. And then you definitely see it like much younger pilots, like trying to find, you know, training random though in fact it's i'm very proud we've had like six or seven flexport employees in asia who were doing freight forwarding work which is like working with factories to get documents coordinating shipments shipping stuff that have become pilots for major airlines wow i i just found this out i was in asia two weeks ago and i was like oh yeah this guy left here he's now a pilot at cafe pacific i was like really what that's so cool uh yeah a lot of opportunities been created there what i heard from the team there was that a lot of the um the experienced pilots got went to the Middle East, a lot of the Middle Eastern airlines were still hiring and attracted away a lot of the pilots out of the Asian airlines who had shut down completely and the Middle Eastern Airlines kept operating or else that deeper pockets or whatever.

22:37So and they're growing a lot. So yeah, interesting dynamic, but I don't think it's creating, it hasn't been a big challenge that hits us in the freight world. I just like hear about it. anecdotally. Okay, you've seen Sunday Night Demo a ton of AI tools, and we've learned that these tools are going to help you do so much more with less. That means more revenue and less overhead. Here's the hard part for a lot of companies. How do you actually integrate your AI into your daily workflow? Well, you got to check out Curatech. Curatech specializes in strategic consulting and product engineering for AI tools.

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24:01So go check out curatech.com slash twist and get$5 ,000 off. That's C-U-R-O-T-E-C.com slash twist. C-U-R-O-T-E-C.com slash twist. Let's get the update on what's going on in the red sea you you came on all in the other week and talked about it a little bit and then i've been watching you on twitter man you shared one graphic of people going around is that cape horn at the at the end of uh no no that's a cape of good hope cape horn is south america cape of good south america and cape good hope is that the one good hope yep cape of good hope which by the way is one of the most dangerous turns you can make around a continent yeah yeah i mean the southern southern ocean is pretty crazy especially we're my understanding is that the winter is i've never been down there but i think the winter is way worse um so we'll see it's right now it's summer down there um yeah uh so we'll see if that i i do i have heard you know it's not it's non-trivial to send container ships through those waters in the winter um so hopefully this gets resolved in the next six months but um people are just electing to take the long route right now just to avoid the possibilities yeah in some large way somewhere between 90 and 95 percent of container ships are routing around the red sea um about 30 of all container ships flow through the suez regularly throughout their journeys uh so it's a huge disruption to global trade to go around it takes 20 to 25 percent longer um it's really you know we talked about this on on the all-in pod but it it's a real challenge to the american-led order like post-world war ii where we said like hey we're gonna patrol this freedom of the navigation anybody can trade with anybody else will have this globalized world peace and harmony and anybody can you know anybody can do business with anybody else as long as you're not part of the soviet bloc or something that was kind of the post-world war ii american-led order and if all of a sudden you know the u.s navy sends a carrier strike group to the red sea and it's still not enough to keep it open for navigation and they're still able to hit ships with missiles you're kind of like huh like what is that it does make you think about the united states's role and uh in terms of being the global police officer and people being scared of pissing off the united states you know and if we don't serve that function then who is and i know for america we there's a lot of people in america who maybe don't want to be the world cop but then if we're not when a lot of people around the world who don't want us to be the world cop too like we don't make a lot of friends when we go invade these countries a lot of european countries are like no stop doing that you know so and and the suez really benefits europe and china and asia much more than the united states i mean we barely use it we use it for shipments from india like indian subcontinent middle east to the east coast uh that's the that's the route where the suez would be the fastest way to to deliver where you go through the red sea across the mediter the suez across the mediterranean across the atlantic ocean and hit the U.S.

27:03East Coast. But if you're going anywhere from China to the U.S. East Coast, you're better to go across the Pacific and through the Panama Canal. Yeah. From China to the West Coast, obviously, you just go straight across the Pacific. So it's an interesting role for the United States. Should we go patrol the ocean on behalf of European countries who they themselves don't seem to want to send their navies down there to do it, other than France? It's very interesting right now. France has got their navy in the Red Sea and only protecting French ships. uh and the french ships keep going through that's you know i said 90 to 95 the ones that keep going are the french ones and it's a very it yeah and it's really like a return like before world war ii this is how trade worked was like your navy existed for this purpose that's why you traded with your colonies like you had colonies out there and you traded with your colonies and you had a navy to protect your ships and make sure no pirates or foreign navies yeah you know captured kind of every man for themselves kind of approach right like i hope not i hope not you know i think um the argument the counter arguments are like well why should the u.s do this if it's not if it benefits europe more and leave it to them it's sort of like well it's not a zero-sum world and the u.s benefits from global prosperity and you know rising tide lifts all boats like everybody else everybody being better off is good for america relatively they're more better off than we are but quite literally in this sense a rising tide lifts all boats i mean you would think that this is an area where the united states france and china and india could collaborate these are all major trading partners manufacturers consumers this would be a great opportunity for xi jinping and biden or you know whoever to just get together and say you know what yeah we all have an interest in making sure that this route stays open and defending ships because we're sellers you're buyers why don't we put some you know uh ships from china and the u.s in that straight and say yeah you can't you can't attack commercial ships sorry yeah that's why i don't think this is gonna last that long you know like the rational brain says hey there's too many interests aligned here too many superpowers even india like last week um sent their special forces their navy because there was a ship that had been um hijacked or basically taken over by pirates off the coast of Somalia and it was Indian sailors on board it was Indian owned and the Indian special forces went on board and cleared the ship yeah clear um but that's kind of interesting right like that's you would normally think that's the role of the United States Navy but the Indian Navy stepping up so yeah we might I like everybody I like everybody stepping up and being part of it and having a dialogue about this because you know when you have bad actors um it's good for them to get a united front from and hear from different voices like hey this behavior is not going to be acceptable we're gonna we're gonna stop it i'm curious what markets you know i you keep hearing and you have your finger on the pulse of this that you know some people are moving factories out of china i tried to explain this on all in i kind of got a little i think chamoff laughed at me some other folks were like yeah uh apple's never going to make the iphone in india and sure enough apple's making the iphone in india and they're making more recent versions of it from what i understand so is india and vietnam are those two areas specifically i think also indonesia becoming you know major players in terms of more advanced manufacturing and you're seeing more shipping coming out of those areas now yeah absolutely vietnam uh huge winner lots of manufacturing lots of manufacturing shipping out of china um and it has been for like 10 15 years for the low end kind of where it's just about labor arbitrage because china is not the cheapest Because Mexico has a Mexican labor cost is now about half of Chinese labor, like dollars per hour that you pay to the workers.

30:47And I don't know if that's productivity adjusted. Probably not. And then, of course, the tariffs have been very real and impacted businesses and a lot of decisions. And then some of it's just brand like companies just don't feel as good about the Chinese brand as they did. And so, yeah, you see that Vietnam's the biggest winner so far. But Vietnam, big country as it is, is like less than 10 % of the population of China. yeah yeah it's 109 or so right yeah really weak infrastructure i mean there's the two biggest cities um are hanoi and ho chi man they're not connected by a freeway i mean it's like red light stop light the whole way crazy these two mega urban centers vietnam does benefit they have um great rivers and a lot of the ocean can take a lot of the container shipping actually flows on the rivers because the trucks the roads are so bad um and so we do a ton of barge shipping in Vietnam bringing it out of the country down to the to the coast and put it on a container ship there.

31:45But it's, it just doesn't really have the infrastructure. It's happening fast. They're building that freeway as we speak there. But yeah, big factories there, Samsung, Apple, lots of these major companies have huge factories in especially around Hanoi, North Vietnam, and India as well. So and then Mexico is the other big, the other biggest winner right now. but it's kind of, there is no other China. It's like a lot of other countries kind of coming up at once. This is a long-term pattern though. You know, it used to be, you go to Taiwan and Korea and Japan for cheap manufacturing. Yeah. And then they become more advanced and China has become more advanced and manufacturing has moved to for the cheap stuff has moved to cheaper places.

32:22But China's also kind of right. Like for really high end electronics, high end manufacturing, like Apple's still the best you can hear Tim co talk about why Apple, like for manufacturing the high, the best products in the world is still China is the best place to do it. Yeah. Um, although just the fact that they, I think, got the because it used to be they made like the maybe four or five generations ago in India. But now they move the 14 or 15, I think, is now being made there. So it's super fascinating. And yeah, really interesting. Vietnam ranks highly 19th of 141 countries in terms of linear shipping connectivity.

32:58However, the efficiency of seaport services ranks 83rd according to the World Economic Forum. Yeah, 83rd is pretty bad, man. yeah so their ports are terrible but they do have tons of rivers so that means potential they have great it's a lot of the roads that are bad um but even even like rivers you know i was just meeting with the largest i was in um singapore a couple weeks ago and i met with the largest logistics company in vietnam the owner flew over to meet with me because we're big partners we have a jv with them and they um they do they own four they own four river ports so they're doing this barge shipping they run all these barges on the rivers and he was explaining to me how, you know, the shape of these boats is like, can we make them bigger?

33:36Like, how can we get more volume throughput? He's like, well, we can make them longer, but we've already hit the length of what's legal. So we're like trying to convince the government to make it longer. I was like, why don't we make them taller? He's like, well, there's 200 bridges, you know, along the way. They're like this high, you can't go any higher. And like, they're not, you know, if you're going to make every bridge higher, like you're talking, you might as well make a better freeway or something. So when you're in the startup business, you should always be looking for a performance edge.

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34:37I have been on it for a couple of months now and my energy level has gone up, up, up and my focus as well. I love taking these shots. I take it in the morning before I work out. I take it when I'm skiing and man, it makes you feel like a superhero. So here's the call to action. Get 30 % off your first subscription to ketone iq at hvmn.com slash twist that's hvmn.com slash twist for 30 % off or you can easily find ketone dash iq at your local sprouts market comes in little bottles and you just take this little shot boom you're off to the races let's uh pivot the discussion to this ceo drama uh you decide uh that you were going to become a venture capitalist you were going to hand over Flexport.

35:20Let's take that first decision. This is a very hard decision for a founder to make. Why did you make that decision to hand the reins over to begin with? Because usually I see that, hey, man, people are burnt out, or they feel like, hey, maybe, you know, there's somebody better than me to for the next phase, hey, maybe zero to one, I'm this creative person, scaling, I need somebody maybe who's a little more boring, but is obsessed with scaling. So let's start with that first chapter there. Why did you make that decision that you wanted to try not being the CEO of the company you co-founded? Yeah.

35:54There are separate decisions, by the way. Being the VC came much later. It was not pre-planned. So it wasn't like the allure of being a VC. No, no, not at all. It really was that of like, I want just the best for Flexport. And I think Flexport has a huge lead in technology in our industry. Like it's an old school industry. It's been around for thousands of years. We're the only freight forwarder in the top 100 freight forwarders in the world. There's only one that was founded after Netscape was invented in 94, the web browser, and that's Flexport. We're the third largest in the US. And so we have a big lead on tech.

36:27But I think it's kind of, I don't know, comparing yourself to the... It's not the bar that I want to clear being the best at tech in the freight forwarding industry, right? Which I would like to be as good as Amazon or as good as Google. And I don't think we're reaching that level. So on the one hand, I want to go faster in building technology. and two is i do think amazon's the best logistics tech company in the world um still i can say that even though i aspire to be that with flex board it's like amazon it's i can't explain we're better than amazon at building logistics technology um and so when i had the opportunity i was looking for a an operator and to help me on both those areas like tech and operational rigor efficiency reliability metrics like can you quantify it can you put in all the processes to dial it in i just look at Amazon, it's just finding it to be so amazing.

37:16Right. And so I was looking for a partner. One of the things I'll do when I'm trying to recruit an exec is talk to investment bankers because they know a lot of people and they want, they don't want to do Flexport's IPO. So I just kind of like put the word out there, Hey, here's the profile I'm looking for. A lot of people go to headhunters. I like to, headhunters charge you a lot of money and you know, the bankers, they want to make this, they're trying to jockey for position for our IPO. They want to do you a solid. This is a really good favor. make them work for it right like so so i had a own banker kind of but gave him the spec i told him hey here's what i'm looking for he's like oh you should hire dave clark i was like i'd come on man he's the ceo of amazon like retail consumer business like don't be crazy i could hit yeah and so he yeah exactly and he's like i might be open to it let's talk to him and turned out he was um and so it was very opportunistic because i was really trying to hire like a ceo uh and i kind of caught a whale and it became pretty apparent that uh you know just talking to him and getting to know him and his experience it was like really see him like working yeah and it worked for me as the chairman of the board but like working for me as ceo like what would i own what am i responsible for what am i going to be better and more experienced and which decisions would i own so i made it made the decision like i thought he'd be better at building the tech running the operational side of things um and then dialing it in to where we could be the most reliable, efficient and therefore affordable logistics company in the world.

38:44So yeah, it was really just down to make Flexport better. And then it quickly went sideways. You had him in there for a year or so. You weren't happy with the performance. The board wasn't happy. To the extent you can go into it, maybe you could talk about when you just realized I need to come back and I made a mistake in leaving or I made a mistake in hiring this person or both. I don't know what you conclusion you came to there but it did get a little spicy publicly uh obviously yeah it was a little unfortunate i mean very unfortunate the um you know well one of the things that happened which was really unfortunate and annoying was that um journalists kind of dug up a bunch of drama that didn't exist uh i'm shocked and then spun it up and made it worse uh maybe it like created drama out of thin air so they told they interviewed somebody like some former employee who told him all this stuff about Dave that wasn't true like actual allegations there were some allegations of like fraud I mean there was in this article and say claiming all these things uh and said it was from a source close to Flexport and told and then called Dave and told Dave this was I think it was someone that he fired who didn't like him well this and this is important for people to understand when you're the boss and you have to fire people or layoffs for cause not for cause or you beat competitors or somebody doesn't a vc doesn't get an allocation you just start building up these people who have resentment towards you well and this is how journalists operate you know they're always going to find somebody disgruntled somebody out there with some story and like you know maybe there's a half truth to it but in this case it was completely fabricated and then told dave it was someone close to the company.

40:26Right. So they weaponized it. Dave then thought I was the one saying bad things about him. And he's like, Oh, they're gonna make these allegations against me. We're at war and started attacking the company. It's just like spiraled. And we never, you know, we were very careful to go back and look like we never said bad things about him. Like never there were these allegations weren't true. There was a decision made by our board that like, Hey, we do have to change direction of the company. We've got to pivot pretty hard towards profitability. Dave was going big. Dave was like, all out there. Let's conquer the world.

40:59We have a big lead on technology in a massive multi-trillion dollar industry. Got a great balance sheet. Let's go after it. Let's go dominate this industry. Hired 800 software engineers. We grew our tech team from 400 to 1 ,300 in nine months. We've been going really big and the board made this decision. they're like, hey, this isn't the right path. We've got to get we got to build towards profitability, which means we have to cut costs. We also need to maintain flex sports, like very entrepreneurial culture of customer, like intimacy, like how we meet with customers and grow with the customer and how we build the culture of our team.

41:44And that's a very hard job for a hired CEO to do to both be like i'm cutting costs and i care about the culture a lot yeah and it was just like kind of clear that this would be a better role for the founder to go all right yeah i gotta cut costs sucks but i'll let people go but i genuinely and people know me at flexport i've got enough people that believe in and that understand me and my love for the company and and for the people of the company to say like yeah genuinely do care about the culture even as i do you know it's a really hard challenge to be saying i'm gonna cut costs and invest in the culture i'm to improve quality, like on time performance and operational efficiency, all these things while cutting costs like these are these transitions thing for a hired CEO to do transitions are like this are never easy.

42:30And this occurred during a market collapse. Yeah, this will happen during yes, and then one 2223. There was definitely some aspect of it that's related. The freight, the price of freight came down about 90 % 80 to 90%. But that's, we knew that was going to happen. You know, it was in our forecast, it happened faster, it happened about six months faster, we had kind of like drawn it as like a smoother curve. But like, at the end of the day, it wasn't the deciding factor, like it was much more just looking at our business and just taking a clean look at like, what's growth look like? Are we hitting our growth targets?

43:06Like, what are the customer experiences? What's the customer feedback? What do we need to do? We had hired a lot of people, probably hired too fast. It takes a while to get people in. We have a very complex business. Hired a lot of big leaders out of Amazon. Great people, but it just takes time to get to know a new culture, a new company, a new industry. Although we're on logistics, it's quite different. They're in consumer logistics. you don't have to talk to the customer they're not really doing sales aws side does sales but the amazon side is like its own flywheel we're yeah you're just you're not getting on a call and taking complaints or getting product requests from your customers at amazon they're just yeah signing up for prime and they're done yeah you know i make sure to talk to at least one customer every day and like the last my first 90 days back in the job i talked to 100 did video calls 130 30 customers in 90 days.

44:02So like it was, uh, well, 90 days, less 90 days is includes the weekends, right? Yeah. So you're doing two or three calls a day with customers. Yeah. There were some days I was doing eight or 10. I mean, I was, it was, it was deliberate. I was trying to really get out there, send a lead from the front, send that signal to our teams. Like, Hey, I really care about the customer. Well, also I wanted to document everything. Like, what do we need to do? How do we win? What do these customers need to see from us? Uh, and we've been really acting on that feedback over the last, really since I got back in the job.

44:31Such a great technique to just email a customer and say, can we talk about your experience with our product? Do a quick Zoom, would really appreciate it. And a lot of founders I find don't do this. They get disconnected from it. And it's almost like the machine tries to pull you away from getting this direct feedback. You know, the customer support team's like, we got this boss. The sales team and the customer success team's like, don't worry, we'll send you a report. they almost try to block you from having that direct contact. It's a very hard thing to do to be a leader of a large organization and live in reality and find out what's really happening.