How to Build A Competitive Edge with Ryan Petersen of Flexport

Welcome to Inc. For Starters with Alexa von Tobel. I'm Alexa, a serial entrepreneur myself and founder and managing partner of Inspired Capital, a venture firm that backs fearless founders who are solving some of the biggest challenges facing humanity. Now in our 6th season, we sit down each week with one of the best founders on the planet to hear their story of guts, inspiration, and drive. Let's dive right in. Hi everybody. I'm your host, Alex von Tobel, and this week I'm excited for you to meet Ryan Petersen, the founder and CEO of Flexport, the company on a mission to make global trade easy for everyone. Ryan started Flexport in 2013 to bring order to the fragmented global supply chain and has since raised $2.6 billion to fuel the business. Today, Flexport is a platform that coordinates global logistics from factory to customer door. In 2023, companies of all shapes and sizes, from emerging brands to Fortune 500s, used Flexport technology to move more than $32 billion of merchandise. Prior to starting Flexport, Ryan was the founder and CEO of Import Genius, a premier provider of transaction data for the global trade industry. He earned a BA from UC Berkeley and an MBA from Columbia Business School. And with that, let's welcome Ryan. First of all, Ryan, so fun to have you on here. Welcome.

Thank you. Great to be here.

Okay. First things first, let's go back to the early days of Flexport in 2013. Walk us through aha moment, origin story. How'd you think about getting this business off the ground?

Yeah, we actually, it goes even back further than that. So in the early 2000s, I worked for my older brother. He's running an import export company. We were entrepreneurs buying scooters, dirt bikes, ATVs, like dune buggies from Asia mostly, and selling them on the internet. And it was kind of like, it was pretty early days before there was no Shopify or Stripe. A lot of the problems that would be pretty out of the box, we had to build a lot of that tech ourselves. And then Obviously solve the problem of sourcing products internationally and selling them. So we ran that business for many years. My brother was my boss, actually my first boss out of college working for him and his business partner, Michael Kenko. And that's when we first discovered this problem of like freight forwarding, international logistics being kind of a nightmare. It just shouldn't be that hard to ship stuff. You know, you solve the hard problem of like finding good quality products and finding customers for those products. Like You would think getting it from that factory to those customers would be simple, but it really wasn't. The big pattern that we saw with everything we were shipping was they're all big, like motorcycles are large. And so we, we were really in the freight world, not the small parcel world. You couldn't ship these things with FedEx or UPS. You're, you're shipping freight.

Yep.

And we just kept like suffering through that. And eventually I realized like I should start a company to be an online customs brokerage. The first idea was sort of like TurboTax for customs, you might call it.

Yep.

Customs is tax. You have to pay your customs taxes. So make that super simple, like a wizard, basically walk you through the process, uh, help you with the documents, the clearance. And then we very quickly realized we'd have to sell freight too. So the early, early customers when we were just customs brokerage in the very beginning were kind of paying in the butt. Like, if you're separating your customs from your freight as a really small business, there's something weird going on. So like, I think the first customer we ever imported was this Berkeley professor who bought a tuk-tuk during his vacation to Cambodia, like one of those motorcycle taxis.

I know exactly what a tuk-tuk is. That's amazing.

Cambodia or Thailand, I can't remember. Uh, and like somebody shipped it for him, but like didn't want to handle the customs. And we're like, I was like, well, we know a lot about motorcycle customs. Like, we'll, we'll go for it. But it was never going to be a repeat customer in a million years. It was sort of a silly, but you know, you have to start somewhere. And we quickly realized like, hey, real companies that are doing repeat transactions want to buy freight and customs together, especially small business, like big companies, they'll sometimes separate it for compliance reasons, but small business wants to buy those 2 things together. So that set us off on like a now 11-year journey to become the best freight provider in the world.

That's amazing. I wanna go back because I think for most people listening, we don't fully appreciate the antiquated logistics world that existed before Flexport came in and modernized so many things. Can we just go back to what the status quo was? What were some of the big problems that you immediately were like, let's go make this simple?

Well, at, at its core, you know, it, it, it's interesting because I was a user of these services, so I didn't even appreciate all of them. Like, I just wanted to know where my stuff was. How much it was going to cost, what documents and paperwork and data I would need to get it into the country and be compliant with all the various laws and regulatory agencies. So that was my view was like, well, why can't anyone tell me where my stuff is, when it's going to arrive, how much it's going to cost and what data I need to provide? Like, and that's what we set out to do without knowing that the underlying cause of that problem is that there are many disparate systems because if you want to move a container from door to door, Nobody has the assets to do that all as one company.

Wow.

Like nobody owns trucks in every country, plus warehouses, customs, big ship, door to door. Like now some companies are maybe trying to do that, but at the end of the day, like it's such an unwieldy giant company that would need to exist that they, they wouldn't be good at it if they could, and they don't really exist. So what happens instead is you have a layer on top of that called freight forwarding. And I joke often it should be called freight email forwarding because it's kind of like just passing documents as PDF attachments to email between all the different parties. And it just leads to a lot of holes. There's no visibility because there was no tech to track these things. It's kind of a people layer on top of the asset owners of the world. And so that was the status quo when we got into this industry, and we have been just steadily connecting all the parties. Via integrations. In some cases, we build our own tech for them. Like we have tens of thousands of trucks on our mobile app to haul the freight around. We've got warehouse management software. If the providers don't have their own, we'll integrate with theirs, but if they don't have a warehouse management system, they can use ours. And then we of course integrate with all the various parties out there in the world that do customs, ocean freight, all these things. And then try to give the customer a single pane of glass to overview their whole supply chain. But it's, yeah, it's, it's like a 10-year slog. And we're still, I feel like, just getting started with what's possible to, to bring automation into the game.

I love that. Ryan, I wanna rewind, as you said, you know, you're really maybe 12+ years into this. If you kind of think about the chapters of what you learned, if you have to do it in the rearview mirror, you know, as you said, you like moved your first tuk-tuk, um, for your first customer. But can you walk us through how you built the business to where you are today? You've scaled to over 10,000 customers, as you just said. You built integration by integration, but kind of, can you walk us through the chapters of the business and how you stood it up?

Yeah, I haven't thought about it in such concise way, but I probably wouldn't be that hard to think through. I mean, the very first chapter is learning about the problem, you know, and that's what I did in the import business and Going through the pain and being like, oh, this is actually a thing. And that took a long time because it wasn't obvious that we could solve this problem. Um, it was just obvious that there was a problem. 2 was, okay, I want to do this. It actually took me about 4 years to get the license from US Customs. And I probably could have gone faster if I knew more of what we, you know, if I'd been an experienced customs broker and had the relationships and, uh, but it took about 4 years to get licensed. So that would be chapter 2. Chapter 3, we got the license, but like, don't know how to do freight. And that's what I was describing earlier. We just clear customs for weird mom and pops. Like I said, the tuk-tuk example, there are many others I could point to. Chapter 3 started to professionalize. That's when we did Y Combinator, brought in much better engineering leadership. I'd been doing like the original product management and a lot of the coding, you know, myself or with teams that I'd hired in the Philippines in the early, early days. So brought in a CTO who had been the co-founder at Yammer, and he started to really professionalize like the tech team. I brought in One of my business school classmates emailed me. I did YC. I raised money from, uh, raised a seed round with Google Ventures and First Round Capital and a few other good investors. And I had, uh, my business school classmate reach out and was like, hey Ryan, I read this article about you. Did you know that I'm Boston Consulting Group's like main partner on logistics and freight forwarding? I was like, oh, I, no, I didn't know that. Like, and he'd been there for 12 years, I want to say. And they, they do this thing where you get like a 3-month sabbatical. And he came to me and worked for free for 3 months, like a psychopath. So I knew at that point, like, I gotta try anyone who works on their 3-month sabbatical, you know, for the startup is like, gotta try to hire this guy. Assembling that kind of core team, it's a little different than a lot of startups where you like have the 4 buddies that are founders in the beginning. Like I was this more or less solo founder. My brother was a co-founder, but He was like running other companies as well. Never was like full-time at Flexport. So I kind of got the seed round, got some traction, and then got great people, which I think is a good approach that more people should try, more entrepreneurs. And so that was, yeah, I would say that's the next chapter, assembling that team. And then it was really kind of trying to keep up with the demand. And that was probably like a 6 or 8 year, just like, wow, um, we really hit real product market fit. We were growing like 10x or more in a lot of years. And in the physical world, that's like really hard. You know, it's not pure software. We're managing 10 times more containers one year than the year prior.

Wow.

So building the process to scale that, making sure the tech could scale was a long journey. And then maybe the next chapter is all the way up through, you know, raising giant, we raised some really big rounds of venture capital, $2.6 billion, you know, to date. Lifetime.

Wow.

So somewhere along that line is just like venture capital scale, fund the journey, scale it like crazy, mega hyperscale. Then of course, brought in a new CEO and I became chairman of the board for about 6 months. And then that was a whole chapter, which was not my favorite chapter of the book. It's sort of the hero's journey. You gotta go through the down part along the way. And then the comeback story, the last year, Where we've dramatically, you know, just gotten back to our old roots and gotten back to the growth and the, the culture, that entrepreneurialism that built the company. So yeah, it's like a lot of, I never really thought of it that way, but quite a number of different periods in the company's journey.

That was awesome, Ryan. Just even hearing you kind of lay it out in your own head and just what a huge emphasis you put on the talent that you were able to attract. You've talked a lot about how critical customer relationships are in your business. Where did the focus on customers come from and what did you learn about those strong customer relationships in building Flexport in those early days? What did that look like?

Well, first off, I came at this from the customer point of view, right? Like I was a customer. The reason we started the company, I felt like these freight forwarders were always taking advantage of me. One, they had no tech that we knew we could build better software. It was like, you know, 2013, SaaS had proven like every single industry could be made better. off-the-shelf tech that you could implement for making UX better, for managing documents and data and all this stuff. Like we knew we could do a better job there. And then it was a culture of tech alone wouldn't solve the problems. It was like a culture of actually caring about your customers and playing the long game and being a values-based company that we, yeah, we want to make a lot of money, but we're going to do that by earning the trust of our customers so that they give us more and more business and we scale with them. And This industry is super transactional. It's very frustrating still, the degree to which freight companies and their customers engage in these sort of mercenary behavior of like short-term memory negotiation. Like it's, and I don't just mean like us and I don't even mean us and our customers, but there's carriers that own the ships and the planes and the customers. There's a lot of kind of unnecessary adversarial relationship there. And one of the things that we've tried to bring as a newcomer to this game is this view that all the parties need to win, like the ocean carrier and the customer should win and Flexport. And that's actually incredibly challenging to create, to shift the dynamic. We approached it from a simple framework, which was like probably inspired by some reading I'd been doing in biology actually around like Can we create like autonomous cellular automata? It's not even biology. It's like the merging of computer science and biology. I don't know if I'm pronouncing that word correctly. I've only read it automata or automata. It's these like self-replicating organisms that can be autonomously like grow and have a life of their own. And we wanted to build like, okay, so you have this problem of one, the law of large numbers. You're trying to build something. Most things get worse when they get bigger.

Yep.

The most customer service experiences, especially like big companies, like 800 number call center. Nobody cares about you. Like, I don't like big companies because they treat their customers like they don't matter. And yet I want to be a big company. So I wrestled a lot with that. And the answer that we came up with was like, let's have a team of teams, like lots of small companies, company within the company and a little small cross-functional. We call it a squad. I almost called it a cell. But Paul Graham told me that sounded like a prison cell. Uh, so, but like the biological cell, like, okay, this is like a team that can scale and it's cross-functional. So there's a salesperson, operations people that are responsible for the customer success, customs brokerage that does compliance. And they would be able to really own that customer relationship, get to know them. And as you grow, you split the squads and, you know, and each takes half the book and they both grow from there. And so we kind of were inspired by Darwinian evolution on some level or some kind of biological emergence property. And that worked really, really well for us of like just allowing you to scale with, and you don't need a huge amount of top-down management in such a structure because the customer is the boss. They're telling you what they need. They'll, they'll be way more demanding than the boss would be like. And if they're really tied to the KPIs and the outcome for that customer, it's worked remarkably well.

That's awesome, Ryan. I love— that is such a fabulous example. I wanna shift to a topic that I'm pretty pumped to ask you about. So freight forwarding is a minimum trillion-dollar industry that's at the center of global trade. And in fact, you've called literally what you do for a living a backstage pass to the world economy, which is so fascinating. You literally are behind the scenes watching what happens in the world. You have such a unique vantage point. at this moment in time in history? Can you talk about the biggest trends? What are the things you're trying to prep the business for?

In general, the big question I think that was going to affect this industry and the wider economy is just, is globalization a fad? Is it going to continue? Was this just a post-World War II 70-year run and now we're going to go back towards people buying things domestically or in their local region? Or is it still like Ever since World War II, the US Navy has guaranteed freedom of the seas and anybody can sail a ship anywhere in the world and buy and sell stuff. That's the nature of globalization. And that's not just a challenge by politics, but by geopolitics or with the rebels in Yemen firing missiles and taking out container ships and other kinds of ships that are going through the Red Sea. The most vital maritime choke point in the world is now cut off effectively from container shipping. And that was like the US Navy tried to go down there and show them who's boss and didn't, wasn't able to stop it. So that's a major development. There doesn't seem to be political will in the United States or elsewhere in Europe and other places affected by this to go solve that problem. So it's sort of related, like it's an extra tax on Unfortunately, it's a tax where nobody, it's not going to some government to benefit. It's just a tax. That's the biggest one is what's going to happen with globalization. Tariffs are maybe related, but a close second. And then obviously what's happening with AI is just incredible. And we think we're going to probably the industry that's going to be the most affected, either positive or negatively, depending on if you're the ones applying it or not. But, you know, I was describing that free email forwarding. There's a lot of manual workflows that go into coordinating these transactions end to end. And it turns out we're— AI just like does a lot of this stuff, uh, once you structure the workflow, which we've spent the last decade building structured workflow tools. So we're, we're currently automating about 1% per week in our freight forwarding business.

Wow.

Um, yeah, it's pretty crazy. So we, we're, uh, by, by end of next year, we feel like most of the manual workflow The majority of the manual workflow will be done in an automated fashion by either AI or just well-written scripts. And that will lower the cost of shipping anything by ocean by about 5%.

Wow.

Or we make 5% more margin, which 5% more margin in a 5% EBIT margin industry is pretty crazy. Um, so that's going to be a huge trend. It also is allowing AI is going to be much, much better at solving some of the classic problems of route optimization, sort of traveling salesman type problems, but inventory management, how much inventory should you order in the face of uncertain demand? Where should you put the inventory? We're finding that AI models are better at this than certainly than like the random person doing Excel planning at a customer would be.

Totally.

Um, and we acquired Shopify Logistics last year as well as Convoy, which is a trucking technology company. And that gives us the true end-to-end, like from factory floor all the way to customers' doors. If you order from a lot of Shopify sites, the product's delivered by Flexport.

Wow.

Like fulfilled by Flexport. And so now you're saying, okay, how do I apply AI across the whole spectrum? And there's a lot of amazing AI companies out here, but like they don't have our advantage of just use the AI. We have all this proprietary data from decade of doing this. We build our own code so we can just apply it and then go tomorrow and go live. I don't have to beg anybody for permission to use the AI. You're going to see amazing stuff on the UX here. It's going to bring down costs. Will it bring down costs as fast as tariffs and other stuff increases? Uh, maybe not, but it's still going to be a pretty important trend.

And we'll be right back after a message from our sponsors. Okay, I'm going to transition to you. I know you grew up in Bethesda, Maryland. Your brother is a co-founder of the business in many ways. If you go back, it sounds like you grew up in a very entrepreneurial household, which I think is fabulous. I, I did as well. If you look back to your childhood to today, was there something that your parents did or something that stands out that you think is almost a direct line to you being so comfortable as an entrepreneur?

Yeah, I mean, I, I think I give my mom a lot of credit. My mom's a very successful entrepreneur. She built and sold 2 companies. She's a biochemist first and foremost. I'm not even sure she calls herself an entrepreneur. She's a biochemist. But she sold 2 companies in the food safety space, not like, you know, Silicon Valley exits, but she did very well. And she would make me and my brother too, we would earn our allowance by delivering sodas to her office. We would stock the fridge at her company. And then we had to, we wrote software that would generate the invoices. We were like 8, 9. We each of us, me and my brother both did this like at different ages. So I had to learn a bunch of skills about, I mean, it wasn't like hard work, but you're like kind of like generating an invoice. I have tax returns from when I was like 8 years old. I don't think I had to pay taxes. I think my income was too low, but I had to file the returns. And then she was getting a tax write-off for paying my allow— you know, that's a company paying my allowance that way. So that was creative. But I would give more credit for my entrepreneurialism to my older brother. who is just like a supreme entrepreneur. Like, can't— he may be unemployable, I think, like even more so than me.

Like, most of us are.

Yeah, yeah, yeah, probably. But he has extreme self-confidence, like believes that he's better than everybody else at, at business. Not like in life, but like doesn't believe that there's some big company that's better than we are at doing stuff. Like he's always kind of challenging He was running a business when, with real hustle. My first job was just working for, I mean, I worked for Domino's when I was in high school making pizza, but my real first job was working for my brother. And he was the one that was taking the risk there. Like he had been a computer programmer at Intel and just used his salary to buy motorcycles in China and start selling them on eBay. Like that was, and he's a programmer, so he built all this software for e-com checkout payments. Inventory management, all this other stuff. But so I, I kind of learned the ropes from him.

I love that. His name's David, and I think, you know, one of your first businesses in the logistics space was Import Genius that you guys built together. So it sounds like you guys have done a lot together, which is pretty rad. You have this quote that I really love of yours. You said you wanna empower the team to make reversible decisions so they can feel comfortable to move really fast. I want to talk about on a practical level, how do you enable that culture?

Yeah, you know, it's been a journey. And one thing I've learned is you can't have a pure bottoms-up org where everybody's just self-organizing and does whatever they— I tried that. It's a nightmare, a disaster. And you get a lot of bureaucracy from like not knowing, you know, you need tops-down guidance. The biological analogy here is like you have a nervous system and an immune system. Yep. And the immune system is like bottoms-up self-organizing. It sees a virus and attacks, but like You need a nervous system telling everyone where to go and what to do. So I think I was a little, I was too light on that in the early days, too much like, ah, the customers will tell everyone what to do. We'll just like let the thing organically go. I've become much more of a tops-down, tell people what to do, or at least where we're going. Much more comfortable making a lot of decisions, a bit micromanagement in some cases. I don't think that's a bad word. I think being in the details, as we call it, But that quote you said is just copied from Jeff Bezos, right? The type 1, type 2 decision of like, is it reversible or not? If it's reversible, you can definitely want to move fast. Having that framework is important. Having a good decision-making framework for any large company or growing company, like who can make what decision. We use RAPID. Like there's someone who's recommending the decision. The A is someone who has to agree. You're not allowed to put anyone there. The P is who's going to perform. I is who's providing input. Let's get input from lots of people. And then the D is the decision maker. And the D, you know, the key question for everybody in the flex board is who is the D? Who is the decision maker? If you can't figure it out, escalate. And if 2 people say they're the decision maker, find where in the org chart those 2 people meet and they're the decision maker. Like, and that, you know, if you can get a bit of helping people and it's sad that you need these kinds of things in big companies, but it's sort of the nature of it. One of the things that we've started to do is This is where AI is going to be really powerful is getting summaries of what's going on with every customer, for example, and having the account managers responsible for that customer just write up a report about every customer and put them all in a RAG and have the LLM summarize it and tell me what's going on with the customer base. Of course we have managers and stuff, but just summarize it and tell me what should I be focused on? What's growing? What's not growing? Like that works beautifully. So I think there's more you can do. With this stuff than just build automation and customer features.

Ryan, another thing I wanna like touch on, you are someone who clearly thrives in complexity, and I think one of your investors, there's this awesome quote that was like, where most entrepreneurs fall apart, Ryan really hits his stride. And it sounds like in some ways you're really good at managing chaos in addition to complexity. Where does that come from?

Probably my brain is just like fully chaotic, so I've got no choice, uh, trying to keep up with all the thoughts that I have running. I can multitask. task a lot of different things at once. I don't know if I'm that good at all this stuff. Like, you know, like I never really had a job before, so I've had to just be learning, super focused on learning faster than everybody. And I'm not an expert in a lot of things, but I'm also like, I know I'm not stupid, so I can ask all the dumb questions. And then I'm not afraid to be seen as dumb because I know I'm not dumb. So then I just ask a million questions all the time and try to find out what's really going on. I'm pretty good at building trust within the team, so kind of getting people to tell me what's going on and know that I'm not out to get anybody. So like, I'm pretty good at building sources of information all over the world in the company and synthesizing that. And I need to get better at the, just making decisions. That's hard, right? Especially decisions in the face of uncertainty. It's like the hardest thing.

So hard.

That's always really hard for me. I like to have other people make decisions, but it's a problem. And then I'm very effective when it comes to taking action. Like I just get stuff done.

That's funny. I like, I'm smiling because I think most of the best entrepreneurs are very, very good at being action-oriented.

Yeah. If I was like a single person company, it would be the most productive single person company ever.

But, uh, that's amazing, Ryan. Um, okay, Ryan. Quickfire round. First thing that comes to your mind, what gets you outta bed every day?

Uh, I usually wake up very, very early, just ready to go at Flexport. My hard part is stopping to make sure I take time with my kids and my physical fitness, but I got a list of problems that I wanna work on that I'm very excited about every day. So yeah, I love my job.

What do you love to ask people when you're interviewing them to get a sense of whether or not they're a good fit for you?

Well, I don't wanna reveal all my secrets, so I'm really trying to figure out That mindset of whether or not this is a person who can just get stuff done versus talk a big game. I'm trying to detect chauffeur knowledge. It's really hard in our industry. Chauffeur knowledge is the knowledge that the limousine driver picks up by listening to the people in the backseat that are making the decisions. And the chauffeur knows a lot, but like didn't come up with those ideas or doesn't know how to implement them. Just overheard it. And our industry's full of it. You got all these people who know everything. They can make it all sound so complicated. I'm like, well, you, okay, you worked at that company for 20 years and you've learned that, but like, Can you, why can you derive this from first principles? Like, why is it done that way?

And can you make the call by yourself?

Yeah.

Yeah. No, I like that a lot. What is a quote or mantra, Ryan, that like, it's kind of burned into your soul?

It's probably that idea that you could just do things. You don't need permission. You need to understand what's legal and what's not, but within the bounds of the laws, just go and do it.

I like it. We should get you some Nikes. Just do it. What is a book that you've read, and it can be of any kind, doesn't have to be a business book, any book that has left like a material impact on you?

Oh, there's so many. I'm a big reader. I think it's probably the biggest one is called Certain to Win. And that's a, it's actually a business book, which is a little cheesy, but it's the application of maneuver warfare ideas from military philosophy and military theory to the business realm, which is a really hard thing to do. But that book really pulls it off. And so it's about managing in chaos. Building culture that can adapt really well and be agile.

I love it. And last question we're gonna end on, which is, to date, what is the biggest pinch-me moment you've ever had at Flexport? If you think about the day where you were most proud of something, what was it?

Oh, I don't know if those are the same thing. I mean, wow, there've been so many. I think I was on 60 Minutes in like a helicopter flying over the port. I don't know if I'm that proud of that. It was just like a thing, but that was definitely a kind of a pinch-me moment, seeing myself on primetime like that.

I think that's pretty cool, Ryan. That's a good one. Ryan, first of all, sincerely, thank you so much for joining us today. You have just created such an incredible business that we've all watched from afar, and your trials and tribulations have been so impressive of everything that you've just had to continually be resilient through. Everybody out there, if you haven't already, check out flexport.com, and you can join me for a new episode next week of For Starters with Alexa von Tobel. Ryan, we're rooting for you. Thank you so, so much. Thank you.

My absolute pleasure. Thank you.

Thank you.