Scaling Airhouse As A Logistics Marketplace With Kevin Gibbon | EM Group Chat #155

So welcome back to Everything Marketplaces, where we talk with the founders and leaders from some of today's top marketplaces. So this is episode 155, which is really great group chat that we just had with Kevin Gibbon, who's the co-founder and CEO of Air House. So Air House is a platform that helps simplify fulfillment for brands while also connecting them with a network of warehouses and providers. So prior to starting Air House, Kevin was also the co-founder and CEO of Ship, which is a notable shipping marketplace that raised over $60 million from top investors. So Kevin was actually an early group chat guest. So this is great to have him back on for follow-up group chat where Kevin started off by sharing some of his key learnings from Ship. We did a quick refresher on the founding story and first steps for starting Air House. Got to learn more about how it's evolved, the recent growth, what the fundraising journey has been like. Kevin shared some tips for marketplace founders building in the logistics space. We also had a great group Q&A. So I really enjoyed this conversation. Now you're going to find it a great watch to the end. So Kevin, welcome back. And it's been a while since you first joined us as a group chat guest, you know, so I'm really excited to have you join us here again today. And we'd like to start off by saying a huge thanks for taking the time to do so in advance. So before we really dive into the latest with Air House, I think it might be great if you can start off by briefly sharing your background for those that might be new to the community and not know you.

Yeah, so I'm actually Canadian. My background is in computer science. I've been in the Bay for the last 11 years. My previous company was Ship, S-H-Y-P, which was a consumer shipping company. We come to your doorstep and it was really a very complicated marketplace, 3-sided marketplace similar to DoorDash. We ran our own warehouses. We had drivers. We would come to your home, pick up things, and we'd basically take them back to our warehouse to pick, pack, and ship them for you all within your app. It was a really great product. People loved it. Unfortunately, on the business side, it didn't make a lot of sense. So this was in the height of the Uber for everything phase. And I think a key learning that I took away from that is like running any type of business with negative gross margins is never a good idea. And that's what we were essentially doing. However, because we were kind of in the hype cycle, we were able to get a lot of VC funding. So we had a total of $63 million raised. We had Kleiner Perkins back our Series B. I had John Doerr on our board. It was kind of a really insane roller coaster and other anecdotes like When you're kind of at that peak, you get pulled into a lot of different circles. So like, I remember having like dinner with like Leonardo DiCaprio and just like kind of crazy stuff. And I would say that all that stuff doesn't matter at the end of the day. It's like, what are you actually building? And why does it matter to your customers? But through that process, I learned that going into Air House, so unfortunately Chip did not work out, and but taking all of the learnings that I had about the industry and where the customer pain points of our largest customers were, they wanted some sort of fulfillment solution. And so what Air House is, is essentially it's a platform network for fulfillment that these digitally native brands can use. They come to us. We don't own any warehouses. We don't lease any warehouses. We essentially, and this is the marketplace aspect of this, is that we partner with different marketplaces and we try to evaluate them upfront and then we vet them over a course of very similar to like an Uber and Airbnb as far as the rating systems go. So like how fast can they get orders out? How fast can they receive purchase orders from manufacturers and all of that? And now it's been 5 years since we started Air House and there's been a lot of evolution, but it really, and I can't overstate this enough, marketplaces take a long time to get going. And but once they do, they just don't stop. And so like growth has been over 300% year over year. We have positive economics, which was a big learning from my previous days at Chip. And I think that we're providing a great— you also have to consider on both sides of the marketplace. You need to consider the demand side and the supply side and make sure that you're offering a really great service for both of those people. And so we have amazing software on the demand side and also we have a vetted network of these 3PLs that we actually have customers in. That we could actually see like the data that is coming in. And then on the supply side is that there's 25,000 3PLs in the US alone. It's a massive market, very competitive, but there's just a lot of, a lot of these different warehouses, call them 3PLs. I'm sure a lot of people don't know a lot about the space, But that they are not really great at their go-to-market and they don't really want to work with a lot of independent brands. And so what we basically build at Airhost is a layer on top of that that removes a lot of the unnecessary emails and everything that kind of takes place. Previous to to us, and also this is a pretty old industry. I I like Keith Rabois the quote that I think that he pinned at the top of his Twitter. It's I'll I'll I'll get it wrong, but more or less like find a very fragmented low MPS market and attack it, and that's essentially like what. Air House's market really is attacking.

That's quite a bit. So thanks for, you know, kind of going back to Shipt as well and kind of walking us through that and, you know, some of your key learnings and, you know, more now with Air House. So a lot we're going to get into, I guess. But, you know, just going back to Shipt, right? You mentioned it's a 3-sided marketplace and somewhat operationally complex. And it sounds like, you know, Air House is as well. So what were some of those kind of key challenges? Maybe you mentioned some of the learnings, but maybe like marketplace-specific challenges with Ship that, you know, and then how you've kind of taken that to solving and maybe even kind of like the initial starting points with Air House.

Yeah, there was a lot of challenges with building Ship. We not only had to build the initial app and software. So we had basically 3 different software platforms. We had our consumer-facing application, we had our driver app, and we also had our warehouse management system. And those were all very hard to build. I actually built the initial versions of All of them. And they were really terrible. But that's kind of the grit that you need to have as like an early founder as far as like doing that. And I would even go and do the first initial pickups and do all the packaging and All that. And so, but when you get, and I can't overemphasize this enough, and definitely the market has changed, but as we were able to get more capital in the door, we were able to raise a really good, it was a $10 million Series A. That enabled us to really hire a lot of people. And then we raised a $50 million round from Kleiner Perkins. It kind of masked a lot of the problems that we actually had as a business because we were also in the hype cycle. But I think that going back to your question, you really need to make sure that you're like, for a marketplace, like managing all the different constituents that you have. So if you're a two-sided marketplace, like what are you actually providing for that customer? And then on the supply side, what are you actually bringing to the table for them. And then hopefully, I can't stress this enough, do your unit economics actually work? And that was a really big learning for me. But a 3-sided marketplace is even harder, obviously, right? You think of the DoorDashes of the world where they have the deal with not only their customers, but also their drivers and their restaurants. I think that as a marketplace founder, you really need to understand your, what you bring to the table for everybody. And I could say at Air House, this is actually a very surprising learning that I've learned. And this is why marketplaces take so long to get up and running is that not all of the, on the supply side, so the different warehouses that we work with, not all of them actually wanted to work with us. They actually, there was a very specific set of market of warehouses that actually wanted to work with us. They Other other ones did not see the need for working with us, and I think that that is like the same as like a DoorDash. Like when you Domino's, for example, like they have their own like driver delivery system and everything. So as as a marketplace, like you're you're not going to be able to convince everybody else. And so I think that. On both the demand side and the supply side, you need to have like an ICP that you really know. So like our ICP for our brands that we work with are brands that are over a certain amount of revenue that are growing 200% to 300% year over year that really don't want to have to deal with the logistics. We obviously could go and try to work with the Caspers or the large brands of the world, but it just doesn't make sense because they already have that infrastructure built in. And then on the supply side, there's like, there's a lot of 3PLs out there and fulfillment providers that are competitors to us, that they do have a go-to-market motion and they don't really see the benefit in working with us. And so I think that for any marketplace, you really need to understand your customers and your customers are on both sides or maybe 3 sides, whatever type of marketplace you have and understand the value that you're actually bringing to all of them. And then just as you continuously evolve as a business, you need to really hone in on that piece on both or the 3 sides of your marketplace.

Yeah, no, those are really great tips and you got a few head nods here. So, you know, relatable for some founders as well. So, you know, I know on your past group chat, you know, we were kind of discussing ICPs on kind of both sides, you know, of the marketplace. And it sounds like, you know, you've entered, you know, the next kind of stage of growth for Air House, which is great to hear. So has that kind of changed as far as like, you know, like who your ICPs are now and maybe how has the kind of Air House experience evolved?

Yeah. So we— it definitely did. So early days, we would basically take in any customer. And so I'll actually get to the origin story. So we actually bought a very small direct-to-consumer brand and we just pretended that we were a customer of these different fulfillment operations and then we just like continue to add more SKUs to the orders that we were printing out. But in the backend, those were actually customers. And then as we continued to scale out, we found out that there are a lot of really bad warehouses out there. And so we churn them and now we're at a place that We are, we have a really great network of warehouses, but also on the customer side as well. We, we would take anybody initially. And so it could be your mom-and-pop, like very small brand that didn't really know anything. They just didn't want to deal with the actual shipping and fulfillment. And those turned out to be not great customers for us or our partners. And so we have evolved our ICP to be a certain revenue amount that they're doing and also a certain growth amount that they're doing. And we're really focused now on high-growth brands and providing them the service that they just don't need to worry about, like scaling into multiple locations, going international, all of those different things. And early on, it was not, it was not that. And we actually did just last year And I'm sorry if there's any customers on here that are potentially listening, but we self-churned, I don't know, it was probably like 80 customers or something like that, that they just, it didn't make sense for them to work with us. They weren't doing any volume. Our partners did not like them. They would have like 20 or 40 pallets just like in a warehouse, which like how warehouses make money is basically the throughput that they actually go through. And so we eliminated those customers and That was kind of a way to really develop our— the now, the high-growth ICP that we have. And so for any marketplace founder, I think that to get going is definitely different than scaling. And that's definitely like a big learning for me. And what we've had to do at Air House.

Yeah, no, that's really interesting to learn more about. So I guess, you know, if we jump over to the, to the partner side with the warehouses, you know, is there kind of like a local nature to it to where they can only service, you know, certain kind of regions? And I guess kind of like in the earlier stages, you know, did you constrain to specific markets or?

Yeah, that's a great question. And, and that's kind of what, what we are, are doing now. So, We have a network of warehouses and we initially picked the warehouses that were gonna be like on like the East Coast and West Coast and international as well. And one of the great things about what we do for these high-growth brands is that we can allow these warehouses that they would previously churn out these smaller brands to have like maybe a third of their actual inventory and we provide the network that's on top of them. And that's been really great for both the customers and also the the warehouses as well because they like if you are like a single or you have a couple different warehouses, a brand will eventually these high growth brands which everybody wants to get, they will eventually want to go and like it like a $250 million brand probably has like nine different nine ten different locations in the U.S. and probably about like 5 to 6 different locations internationally and were able to give them just a very small piece and were kind of the, the, the, the kind of the, the glue that holds everything together. And so they would have actually naturally churned out of those specific warehouses, but we're still able to give them a decent amount of volume. And that is one of the major selling points that we have for the warehouses that we now go and sell to.

So I guess, you know, it also sounds like, you know, as a marketplace, you're not only kind of connecting the, you know, the warehouses kind of with the brands, but, you know, solving somewhat complex kind of problems that the brands are facing and even the warehouses as well. So how have you thought about like the importance of kind of sequencing when it comes to, you know, solving those problems?

Yeah, so I think that we look at reducing the amount of emails that go back and forth. So every customer, they only deal with us, they have an account manager, and we look to reduce the emails that go back and forth and This is a very old school industry. So things like, where is my order? That's an email. Like, and so we've developed software that actually will be able to tell you a lot of that stuff. We're getting more into the predictive analytics. We're actually just launching a product this month that will basically tell you how many warehouses you should be in, what is your optimal way to get faster and cheaper shipping within our network and also globally as well. And so I think there's a really massive software component. And also what we do is we have, we're kind of We're replacing or partnering with a lot of point SaaS solutions. So we are like the all-in-one provider. So very similar to like a Rippling that they make probably most of their money off of payroll, but they have a bunch of other additional software angles to them. And that's very similar to what we do. over at Airhouse as well.

That's going to be really helpful. So I know a lot of times as marketplace founders, you know, we think about, you know, solving complex problems and, you know, not, not trying to do too much in the very beginning and how to kind of sequence into doing so. So you also mentioned as far as the note is, you know, the space you operate in, right, with kind of, I would say, like logistics and shipping and fulfillment. So are there any specific challenges, you know, operating in the space? I know there are many challenges, I'm sure, but, you know, maybe that might be helpful for others, marketplace founders building in the space.

In this space, there's, and now I've got like 11 years under me, there's a lot of nuances. So like things like from my ship days of actually running warehouses to actually understanding the the human component of it. So like the— we had multiple warehouses, we had some that would perform better than others. And to really take that into account now that we don't actually have these warehouses and realize that it's really a human problem at the end of the day. I'd say that it was like one of the major learnings that we had.

And then I guess as far as, you know, when it comes to note on fundraising, because that was like a topic I also wanted to chat about, and I know a few founders had questions, you know, have you found it kind of challenging, you know, I would say, you know, raising in the space given that it's, you know, might not be as one that's attractive to investors right now?

Yes. I think that also I'd say this for, I have a group of founders that I talk to a lot and I think right now, unless you're in like AI, which is like the current hype cycle, it is extremely challenging. I would've never imagined our metrics to be as good as they are, but it's still like, it's very rough out there still. And it takes doing whatever you can to network with other founders to get intros. I think founder intros are the best way to get into and to have a signal to a VC. I think that right now my strategy is to go extremely wide versus like when I was in the, my last company in the ship days, it was very like there was only I'd go down Sand Hill Road and like talk to maybe 10 firms, and now it's like more of like going to 50 or 100 different firms to, or family offices or anything like that, and just getting whatever you need to get done. But I definitely recommend The founder network that you create and also asking them and also making it easier on them. So like little things like sending them forwardable emails that they could just be, just forward something. It makes it actually a lot easier to get those email, those intros to those different VCs. And it may seem small, but like you need to like, especially in this environment, I definitely would recommend everybody go very wide versus going like very deep. Like unless you do have a connection to a16z or Sequoia or something like that, Which I think is very rare right now. And so I think just using your network and also building that founder network up, I think is like super important to this fundraising environment.

Yeah, no, definitely glad you mentioned that point. So we are always discussing, you know, the importance of having a founder network and kind of tapping into that here. the community.

So yeah, cool.

So I feel like you and I could probably just go on for quite some time and I want to make sure we can save time for the group Q&A since I promised founders that. But, you know, I actually had a question for you though that someone sent me to kind of kick things off here, which is they want— they were asking about, you know, how you think about balancing capital efficiency with growth, you know, maybe from your time at Ship and then how you're approaching that at Air House.

I like to, and this is probably very contrarian to a lot of other founders, I like to raise as much as I can to deliver for the next round. So I raised way too much at Ship and I think a lot about that now. And so I like to, like, we've raised right now at Air Host $22 million. We could have raised a lot more, but I've chosen to, like, I think that constraints actually breed a lot of creativity within the team and it really forces you to, you Even though it's very painful as a founder and also for the rest of the team, it really forces you to think of really creative solutions to all of these different problems. So my advice, which is very contrarian to a lot of founders that are like, just raise as much as you can. I'm like, no, don't do that. It reduces your optionality as far as like your next fundraise or if you potentially do want to get acquired or something like that. Like, I know a lot of founders right now that are sitting on like $50 million in the bank and they are at 0% growth and They just like, I don't see what the actual exit path for them is at all.

Hey, so on that note, that's actually a kind of segue into another question that I actually wanted to bring up before, which was around like team building and hiring. So do you have any tips maybe for earlier stage founders that are looking to kind of, you know, make those first key hires?

It depends. It's It's really like if they're earlier on in their career, that's an important piece. If they want to go build their own startup, that's another like really good piece. I've had many people from my last company and also even my current company that they— I encourage them. It's like, this is a place that you can come and learn to build something. of your own, I definitely would like say don't hire very senior executives and pay them. That's kind of like the big thing that I've learned. And so, But also use your network again, continuously go to even like hackathons, meet people, like do whatever you can. And you really want to get that like entrepreneurial spirit with your very first hires. And that is just so important. Because they're the ones that are going to be like basically creating the company and you don't want the senior execs that are used to having everything handed to them. So I definitely stay away from the Facebooks and Google hires. I typically like, that's kind of a no. Then that may be unfair because some of them may be very talented, but that's typically a no for me.

Yeah, it actually led to a question I think Lindsay posted in the chat. She was asking about your thoughts on fractional executives and the kind of growing trend with that.

I'd say that going from 0 to 1, no, but going from 1 to 10, yes. I think that would make more sense. You want to have people that are going to be in the trenches with you that have a lot to prove in their careers and they really want to make a difference. I think that I've definitely had bad experiences bringing on execs before you've actually found like product market fit. Because they think that they're gonna have all these different resources and all this. And like, in what this is, this is also like broad knowledge that I've had. Obviously, there are exceptions to every rule and all this. And But I definitely would, would like, you need to have people that are going to be in the trenches with you.

Yeah, I know that's going to be super helpful. So, hey, Kevin, so I know that you, you mentioned we had to cut this short today, but once again, really appreciate taking the time to join us here today for the group chat. This is great to welcome you back on to kind of hear the latest with Air House, you know, how it's evolved and even some of your kind of recent learnings and tips for others that you shared. Which is going to be super helpful. So we really appreciate it. And I'll also include links to your socials so everyone can follow along. And also Second Time Founders Podcast. And that's a great listen that I definitely recommend others, you know, check out here in the community. And thanks everyone for joining in today and the great questions.