Ryan Petersen: Building Flexport

It's a very addictive industry. It's always on, always different. Every day is unique. You see what's happening in the world in an insane degree. I've been working on my own thing, which became Flexport. Our goal is to be an asset-light technology platform for freight forwarding.

And you're the most tech-forward of all the companies.

Kind of. We're the only one. I think most businesses, like, actually quality costs less. It's very counterintuitive.

Go deeper on that.

Well, in logistics, like, all the costs come from you making Like, if you file a customs entry and you get the wrong classification code, you're gonna spend weeks undoing that. Hey, that's the game, you know? It's business. It's not a socialist project.

What did you learn from that?

This is a proprietary secret I'm gonna let you in on.

Oh, we're gonna get into some of this.

These tariffs have had the opposite impact that Trump would like. I think there's intention, there's some validity to it all, like some of the things I've said, from national security and employment, other things.

But the result Welcome to The Knowledge Project Podcast. I'm your host, Shane Parrish. In a world where knowledge is power, this podcast is your toolkit for mastering the best of what other people have already figured out. US Customs called Ryan Petersen with surprising news.

Steve Jobs was furious. Ryan had just used public shipping records to predict April's secret iPhone launch.

That same contrarian thinking would build Flexport into a multibillion-dollar logistics company spanning 147 countries. But Ryan stepped down as CEO. He was certain that somebody else would do a better job.

His successor hired 900 engineers in 12 months and burned through cash. Customer satisfaction crashed from 70 to 17. Paul Graham's response to Ryan's decision cut deep. That's like saying this other guy would be a better husband for your wife. Ryan returned to a company hemorrhaging cash.

The turnaround forced him to embrace micromanagement, but he discovered it was just attention to detail with bad PR.

In logistics, one customs error destroys a month of efficiency gains.

Most critically, he learned that every operation has a bottleneck. You either choose it or it chooses you.

In this conversation, we explore stories you won't hear anywhere else. Like how he flew 500 million masks to US hospitals in empty passenger planes and how tariffs accidentally push American factories overseas.

We also explore the counterintuitive lessons he's learned from Charlie Munger and Peter Kaufman. Whether you're scaling a startup or managing any complex system, Ryan's journey will reshape how you think about growth, confidence, and micromanagement. It's time to listen and learn. I love the idea of life's work, and it seems like your interest in logistics started really young. Can you tell me this story about your mom getting you to get soda?

Oh, wow. Yeah, well, my mom's a great entrepreneur. She sold two— started and sold two companies in the biotech, biochemistry space in Washington, D.C. And so I Both my brother and I had this job. It was like our first job was delivering soda to our office, like stacking the snacks cabinet and the sodas and stuff. So we basically just buy the stuff at Giant, it's like Safeway, and then mark it up 2x and sell it to our office.

Put it in your little like cart?

Yep.

Yeah.

In my dad's minivan, we would stack up the back of the, you know, the trunk full of cases of Coke and Diet Coke. And then my dad taught us to write software. He was a programmer. So we, Wrote software to generate the invoices so we could, so she could submit the expenses to the IRS or whatever and make sure she got the tax deduction on our allowance.

You were motivated to do it because you could just get paid for it.

Well, it was kind of easy money. I mean, you buy the soda case for $4 and sell it for $9, make $5 on every case that I deliver.

What were the dinner table conversations like? Do you remember growing up? Well, 2 entrepreneurial parents.

Yeah, super boring because they were talking about biochemistry and food safety and regulations. I couldn't understand any of it. I think I'm still like a very fast eater as a result. I was trying to get out of there.

Did you always know you wanted to do your own thing or?

No. My brother was much more the entrepreneur than me. Maybe still is. And when I graduated, I went to UC Berkeley. When I graduated from college, I could, it was 2002. I didn't, I was thinking I'd go into like international development or something cool. I like to travel internationally and I traveled a lot in the third world because I had no money. So I was like traveling places I could afford. And I was always very intrigued by like why some countries were poor and some were rich. So I wanted to work in some aspect. I would try to get a job in microfinance or government or something. And no one, no one was hiring. I got, I wasn't really, I didn't have a lot of skills when I graduated college, but my brother was hiring and he was running a startup. And so I just started working for him and that's how I got into entrepreneurship.

Which startup was that?

Well, we didn't really call ourselves a startup, to be honest. We were like buying motorcycles in China and selling them on the internet in the US. And sort of, this would've been, I graduated in 2002. He started it before that. And we were a tech company, but we didn't call ourselves that. And we wrote all of our own software to do kind of like, it was pre-Shopify, right? So e-com checkout, inventory management, billing, all this stuff. Like if we'd have been smart like Toby was, we'd have sold subscriptions to our little platform and maybe could have been Shopify. But instead we just like bought motorcycles and sold 'em on eBay Motors and— Actually, through live car auctions, our own website, et cetera.

So you were arbitraging, sort of buying in China and then selling everywhere else?

Yeah. Buying in China, selling in the US.

And you went to live in China. What was that like?

Well, I was very curious about the world and like I had lived in South America. I speak Spanish and Portuguese. I was like, you know, we were making money, not a lot of money, but we were making money in China. Didn't have anyone. We had one employee actually in China, but we weren't like really Deep in China, and I it was very clear in 2002 that China was like just on a tear, and that it would be maybe the future. It was like really obvious to me. So I moved there thinking, okay, if anyone could learn Chinese, I already learned Spanish and Portuguese. I could probably learn Chinese. Let's go for it. So I moved there, kept my work basically of like doing supply chain logistics, e-com development, web development, customer service. Just a jack of all trades for the startup that we had. And, and then also just like study Chinese for 3 hours every day for a few years while I lived in China.

That's intense.

Yeah, it was fun.

Mandarin is supposed to be one of the hardest languages to learn as an adult.

It isn't, it isn't. Um, it's very hard, but the Chinese people, if you give any effort at all, are like, wow, they love it. They compliment you, they reinforce you, they make you want to do more of it. So actually that part makes it kind of Rewarding and easy. Whereas I feel like I've, I've tried to learn French and I get the, I'm like way better at French than at Chinese, but nobody, everyone in France is like, ah, you're terrible, you shouldn't even try. I'm like, all right, I won't.

Yeah, they talk to me, I try to speak in French and they talk back in English. If you get like one word wrong or like, yeah.

So the Chinese is the opposite of that, you know, you say hello and they're like, wow, your Chinese is amazing.

So if we think of the beats between being in China and ending up in Silicon Valley, what are they? What are the major sort of like, how did that happen?

We had this business, which we were a startup, but yeah, like, that's like, we call it that now. At the time, we were just trying to make money, honestly. And it was, we were building tech in the cloud. We were cutting edge in a lot of ways, like in the early 2000s, there weren't cloud, you know, I think Salesforce and NetSuite, but NetSuite, I don't even know if it was cloud. Probably it was. Yeah. We realized, and it was while I was living in China, we discovered that shipping manifests for ocean freight are public record. And it has a lot of really interesting data on it. They're public record in the US. We've since learned in like over almost 20 countries that you can get the shipping manifest data. So it tells you who, it's kind of like your plane ticket, your boat ticket for your cargo. So it tells you which factory, who made the products, where's it from, who bought it, who sold it, the dates, the ports, a lot of interesting data. And so we realized this data was incredibly useful for us in sourcing products for that company. We were always adding new products to the line, like Because you could find out who's manufacturing the products. Yeah, you could look up any product type and see who the factories are, look up any importer, see where their factories are, etc. So we built a search engine for that data called importgenius.com. Still a great business. We still own it. So we started that business, sell subscriptions, and that was like, again, bootstrap, not Silicon Valley. We started it in Arizona where the motorcycle business was, but we very much like got into tech, like it was a SaaS business. I started following, like trying to learn about SaaS. I wish we knew more, the blogging and podcast world, you can learn so much more about AI, whatever. You can learn so much more now than you could back 15 years ago about how to run a SaaS business. But that got, that's what really got us into the tech scene. We were still outsiders for sure. And then both my brother and I both started new companies. At some point that, that business, great business, but it's kind of like hit its— keeps growing actually, but it was, it, it was stopped being a rocket ship. We had like a few years of like runaway growth and then it kind of reached its place in the ecosystem and it's been like a steady compounder for the last decade, but not, wasn't enough for me to like stay engaged as, as I should have been. And I came back to this idea of like, should be an online platform to help you with your logistics, with especially your customs clearances. Coming back to our motorcycle days of like, man, This is, it's way too important to be this hard and this lack of tech. My brother had gone in this different direction, which was his is like, what other public datasets are out there that we could build valuable datasets and sell subscriptions or provide access to? And so he started a company called BuildZoom in construct— taking construction data. So your building permits are public record in most places and building like rich profiles of contractors, or you can look up any building and see who remodeled it, et cetera. So it's kind of like, Both similar origin starting points, but very different businesses, obviously. And so he did Y Combinator for that.

And that was 2012?

He would've been 2013. And we were, and then I saw that, I got jealous. I mean, I'm like, you're moving from Arizona. I moved to Arizona. I'm not from there. I moved there for KPX after, before China, actually. No, after China, excuse me. Both before and after. So I had moved there for this business, for these businesses. And then I saw him leave to go to the Bay Area where I went to college at Berkeley to work, to do Y Combinator. I was like jealous. So I followed him.

Like sleeping on the couch?

Literally. Yeah. Sleeping in the air mattress in the, in our little apartment. And, and I would just go, Y Combinator at that time did not have great security. So I would just go with him to all the Y Combinator sessions and just said, like, acted like I was part of his company, even though I kind of was. And then that inspired me to go. I'd been working on my own thing, which became Flexport, inspired me to apply to Y Combinator and go through it as well.

Okay, let's pause here for a beat. I want to go back because there's a Steve Jobs moment that we, we need to capture here with the Import Genius. You want to tell us the story?

Oh, so back in one of the early— we had built Import Genius. It's a great dataset. It's really powerful. And you can look up companies and see what they're shipping, who they're buying it from and stuff. And at that time, I guess still the big thing was when's the new iPhone gonna come out? I think we were just on that. There was the 3G iPhone. Forget, I think that's just like the second iPhone ever. It was kind of crazy. What are we on, 5G now? But it was the 3G iPhone. We had built this product and we had like no users for it. It was a great example of like, if you build it, they will not come. Like you have to go get customer. We had a couple customers, but not really any. So I knew we needed to get some attention. People needed to know that this data's out here. And I, we had such interesting data about companies. And so I was searching in the dataset for Apple shipments and saw— it's public record, you can look it up— saw that they were importing a new product they'd never imported before called an electric computer, which is very interesting. All computers are electric. It was like a silly name. And it was a perfect storm, perfect moment. Everybody knew it was already being rumored that the 3G iPhone was arriving. I don't even know if it was right. I just put out this blog post being like, Apple has this new thing, maybe it's the 3G iPhone. And it went very viral. We got within a week, we were doing like $50,000 in monthly revenue, like all of a sudden, you know, from zero to $50,000 in a couple of weeks. And I got a call from US Customs saying, hey, we just talked to Steve Jobs and he's really pissed about this. You need to explain where you got this data. Sort of like threatening to shut us down. I'm like, so I showed him the letter, we showed him the letter of the law. Explaining why this is public record and it's public record. And then he sent us a letter, an email later saying, hey, thank you so much. I had to explain, I shared that with Apple's team. Thank you for taking the pressure off of us. But it was a bit of the early days of like, you know, how do you get attention and traffic for a new product? That's pretty cool. It was kind of like an early viral marketing type thing, even though it was in hindsight kind of Couple questions here.

One, did Apple change the name going forward to make it more sort of like—

I don't think electric computer's there anymore.

What are some of the lessons you take away from Import Genius before we sort of move on to Flexport?

Most important one is the user retention. Company's great and the dataset's extremely valuable, but for a lot of users, you don't need to keep paying for it on an ongoing basis. You can get the data, run your search, find the factory that you're looking for or the data, uh, and you don't need to keep subscribing. So we had a relatively high churn rate. Certain types of, we've eventually figured out which types of customers like would pay every single month, tended to be actually a freight, a lot of freight forwarding companies.

Oh, interesting.

We use it at Flexport, it's for list, lead, uh, list construction, lead gen, like finding who's importing though. They have my sales team call them, uh, talk to them about their, their freight. And hedge funds and analysts, like Wall Street types that wanna see what's going on. They'll pay and they'll pay. They're not that price sensitive and they'll keep paying every month. So, but we weren't that sophisticated and our signups were always pretty good, relatively consistent. Forgot the numbers, but we would sign up a few hundred customers every month. And then, but eventually, you know, you're the size of your business. is just simply the number of new signups that you get divided by your churn rate, annual churn rate. And that tells you how many customers you're gonna get at state— at equilibrium when those, 'cause those 2 lines will cross. And we got to that point. And then from there, I tried everything I could to like, we tried everything we could, it wasn't just me, to bend that arc, either make the signups go up or the retention change. And like, we ended up just adding a lot of cost to the business without— Yeah, we did some stuff that worked, but it, Really, your scale of your business is very much limited by your churn rate. If you have any churn at all, you have like a cap on how big you can be unless you're increasing the number of customers you're getting or the size of those customers.

Like, it's very—

it's pretty simple math. I teach a lot at Flexport. It's like how important it is to retain customers.

Are there any other niche datasets that you came across while you were doing that that are super tiny but would be highly valuable in the same way?

Yeah, I think so. My, well, my, that's what my brother largely does is take datasets and build businesses around them.

Oh, outside of construction too?

Yeah. So he's now, he's got that company BuildZoom, but he has a few other, he partners with, uh, great entrepreneurs and—

So like for Import Genius, are these records like paper and you go and like you take a picture of them? Like how does that work? Yeah.

Oh, you have to at least Freedom of Information Act to access them from all the, from, from Customs and Border Protection. And you get access to the, to the data. They, they make no effort whatsoever to make it useful. You don't have to do paper digitization, but they just give like data dumps and They won't give you past data.

Oh, interesting.

And that's just custom. That's just US. We have datasets for Latin America, mostly Latin America, a couple other countries, India.

Okay, so let's go back to Y Combinator 2013. You're there with your brother. 2014, you apply, you get in. At that point, you have the idea for Flexport?

No, we'd already gotten licensed. And that was the thing, like we had the idea, A lot of debate between me and my brother and our other partner who had the idea for Flexport. We all claim it, uh, but first email that I can find like discussing this was like in 2008 or '09. But it took a long time to get licensed by Customs and Border Protection. Had to go through an FBI background check, had to do a whole bunch of, yeah, it just takes, took years. Um, so it was when we got the license from CBP that I left, stepped down and started Flexport. And that was about 6 months before. YC started. I forget the timeline of the application, but about 6 months before. So we had, but we didn't like, we had maybe one customer. We really didn't have any customers, but we had a V1 of the software app, had the license, like had a bit of a strategy for what we were going to go do.

Take me through the Y Combinator experience.

It may have changed. This was already 10 years ago. They do a Tuesday dinner. PG used to cook it. I think it was really bad food.

You were the last batch where he was the—

Yeah, really lucky that I not only was the last batch, but he announced it mid-batch. So you didn't take it for granted that you were getting this time with Paul.

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But for me, it was amazing because I'm not from— I hadn't been living in the Silicon Valley ecosystem. I didn't have connections and The Evernote CEO, Phil Libin. He was hilarious. Chesky, Brian Chesky. Yeah, kind of like somewhat eminent founders and investors and stuff. But they'd just come and give a talk for a couple hours, do Q&A. So nothing amazing. But the real benefit of YC, I think, is the friends that I made. Like, as an outsider, fair to call myself that back then. Like, I didn't have a lot of entrepreneur friends. They were trying to find them online and stuff. So this, like, all of a sudden I had all these peers who were also building businesses and like, that's, I don't know, that's just super valuable from a life experience standpoint. I don't know how much it helped the business, but it just like made my life better. And then it also, I guess that kind of understates like YC. If you're one of the top companies, I think it's very important to be a top company if you're going to do Y Combinator. There's a bit of a competition. A lot of people don't realize that. It's like at the end of the day, there's only so many hot companies that can come out each year and you want to be— if you're one of those, then it's tremendously valuable for you because fundraising, I could have raised money. I'd built a successful, profitable SaaS business. I'm sure I could have raised money, but I literally like tried at one point to raise money and I showed up in Silicon Valley on Sand Hill Road wearing a suit and tie. I just didn't know. I think people like just were like, who's this guy? You know, and tried to raise money for it. Now, I didn't try that hard. I did a couple pitches and they went nowhere. And then with YC, it was a feeding frenzy. It was, it turned it from an outbound sale, which is hard doing outbound kind of cold calling, to an inbound sale where everybody was like eager to invest. They heard about Flexport. PG himself really liked and likes Flexport and was telling investors, you should invest in this company, which kind of controversial. YC partners, I think they're a little better about it now than they used to be, but they would kind of pick, choose favorites and— Hey, that's the game. You know, it's business. It's not a socialist project. We're here to like find the best businesses and back them. But it is— I try to tell every founder like, you're going to go into YC. It's not— you're not there to have fun. You're trying to be the best. And it is a competition. You versus— sure, make friends with them. I'm sure Michael Phelps is friends with the other swimmers too, but like you're trying to beat them on some level.

What are some of the lessons that you learned from Paul Graham that still resonate with you today? I know you still talk to him a lot.

His main thing is not, he doesn't look at the downside and what could go wrong. He only looks at what could go right and like how big and awesome could this be in the best case scenario and what should you do to make that happen? He's not, he's not looking. And that's like for a seed investor, the obviously correct way because the losers don't matter. All that matters is you get the power law winners that do 100,000x or whatever their best deals have done for them. Again, I was really lucky because we were in his last batch. And he announced like halfway through the batch that he was stepping down and Sam was taking over, but he kept running the batch the whole way. So then when it came to Demo Day, the preparation for Demo Day for when you go pitch the investors, I barely worked on my pitch. In fact, my pitch was pretty bad. I think I'm like not very good at reading a script and they only give you 2 minutes. So you kind of have to have a script if you're going to do a 2-minute pitch. But also I was kind of bad because I didn't practice. Very much. I had the opportunity to sit there. I'm in Picasso's studio, you know, watch Picasso paint. You know, he is about to retire. So I got to sit there and watch PG critique other people's pitches instead of go, I don't wanna sit there and paint. Like, let me just watch Picasso paint, you know? So I sat next to him for 12 hours a day for like 3 days in a row watching him critique everyone else's pitch.

What did you learn from that?

This is proprietary secret I'm gonna let you in on. You should tighten the aspect ratio on your graph and it'll make it, the curve look steeper. I feel like he told everybody that, like, just scrunch your graphs and watch how your startup looks hotter. There's something to that. You gotta appeal to investors' greed. I don't know if he taught me that or someone else, but it's kind of the same thing. You wanna, there's a feeling that goes to it. Really simplifying things. I mean, one of the things that PG is really good at, if you read his writing and stuff, is just like very simple language. You won't read like a PG sentence where you're like, What is that word? I don't understand. He's like, very simple. It's easy to understand. My favorite PG moment from that period was one of my friends had a— in the batch did a presentation and PG was like, this is terrible. This is not good. And he rewrote the whole thing for him. He's like, you should say this, this, and this. And like, he just said all the things. And my friend just took down perfect notes. Probably does like, you pitch for 2 minutes, then he gives you like 10 minutes of feedback and then the next group comes and he just does that Over and over again all day. So there's a queue. So if you pitch and you want to do it again to come back and try again, you've got to wait like 3 hours for your turn. So like 3 or 4 hours go by and my friend goes back up and presents the pitch and he says exactly word for word everything that PG told him to say. And then PG was like, that's perfect. That's the best pitch I've ever heard. He totally forgot because he's doing too many pitches in a row. He totally forgot that that was like, dude, you wrote that pitch. That was amazing. I learned a lot from all his essays and stuff too. It's hard to remember what I learned from him personally versus reading all of his stuff.

You get out of YC, uh, 2014. Walk me through the major beats, uh, and milestones up until the SoftBank investment, which was 2019.

There's a lot. Um, actually one of the funniest things, one of our other investors is Ron Conway, and he was, he saved Flexport at one point. I don't know if I've ever told this story, but, um, we had a license from Customs and Border Protection, but it was issued oddly enough in the Port of Houston. Which is like a whole story, but it was like, that's where we got our license for. And it's fine. You have a national license. One of the things that made Flexport possible was that in 2007, I think it was, the customs changed the rules to allow for electronic filing of customs entries. And it used to be that you had to have a license at each port where you wanted to clear goods. So a startup could not possibly enter Unless you were just like a little mom-and-pop, help the local companies. But like, there's no point in doing an internet company to serve one port. And so that changed in 2007. We started applying for licenses in like '09 or something. Markets aren't totally efficient, but kind of. And okay, so we had this license, but it was in Houston and we wanted to be in San Francisco after YC. And in order to transfer it, it's just an administrative process, but you have to have a business license from the city of San Francisco. Simple, right? It's just a business license. Well, the city of San Francisco had an IT problem and was unable to issue business licenses. And this was in 2014. They were, they had not been issuing business licenses for several years. They could issue a letter that says you have a business license, but customs wouldn't accept that. They wanted the license and they, printer problem. I don't know what the IT problem was. They wouldn't accept a letter on city letterhead saying, yes, this company has a license on file with us. They wanted to see the actual license. It was kind of like Kafkaesque. At some point, we just weren't going to be able to operate in San Francisco. We were like operating remotely in Houston and it just wasn't going to work. And Customs was kind of clear, like, you need to— you can only transmit entries physically sitting in Houston. So I told Ron Conway about this situation and he emailed the late Ed Lee, who was our mayor, and I, Ron was like one of his big donors and friends, and we got the license within 6 hours. They like went down, I don't know what happened at City Hall. They got the license printed and we, you know, sent it to customs and it all got moved. But like, there was a moment there where like Flexport was not gonna be able to operate in San Francisco if it was, and it was just crazy. Can't issue a license.

That's insane.

So anyways, that was very early days. Many things happened. I would say like the summary of it all is we had product market fit just like Insane from the get-go to the point of it being a problem, like more demand than we could keep up with, asking us to do more things than we were capable of doing. Just sort of runaway. It was not all success, lots of mistakes and bumps in the road. But, um, I guess the big, a couple of big milestones on there. One is we started out when we went through Y Combinator, Flexport was just a customs brokerage. We didn't do freight forwarding. And we said, hey, we're gonna do freight forwarding someday, but we wanted to just focus. The kind of dogma in startups is like, be really good at one thing, really focus. You've written about this, like the need to focus. We also, the other dogma is talk, you know, Y Combinator, talk to users and make something people want. And when we were just doing customs, we get customers, but like we get the worst kind. We get a lot of rough types of customers. One of the first things we ever imported was a tuk-tuk, which is like a, from Cambodia. Some guy went to Cambodia and bought like one of those little, uh, Jeepney kind of scooters with the cool seats in the back. Like Berkeley professor wanted it for the nudist parade in Berkeley. This is not, he was only gonna do one of those in his life. Not a great customer. So we had like a lot, a lot of customers for customs brokerage, but like rough customers doing things that they were amateurs. They didn't know what they were doing. They weren't probably gonna recur. Some guy bought like a bouncy house for his kid's birthday party in China 'cause he was too cheap to buy one locally. Like stuff like that.

Is that because people wanna deal with one One interaction from a freight forwarding and customs brokerage point of view.

Exactly. And so like when, whenever we talk to real companies that were doing repeat transactions, they're like, we didn't want to separate customs from the freight. And if they did, they were going to give the customs to like the best customs brokerage in the world with the best reputation for compliance. And like, we were not to the startup. Now we actually have a lot of big companies that use Flexport for customs only because we've built our brand and our reputation and our technology systems to actually, we can say, hey, we're the best. If you want to separate your customs from freight and they're there are good reasons to do so. Like, it's a hub for your compliance data. You don't wanna shop it out, you know, and have all these compliance records living in 10 different freight forwarder systems.

Right.

People are much more likely to have a single customs broker and many forwarders that move the freight. But when we were starting out, like, that wasn't us. So we'd, and when we only did customs, we were not getting like the legitimate companies that we wanted to build a business around. So that was the first, Kind of, it's not really a pivot. We always knew we'd go into freight, but we went there much faster than we wanted to. And the moment we did that, it was again, like back to couldn't keep up with the demand. And it became a much harder problem. Like customs, like, okay, cool. I self-contained, this is a contained environment here. I gotta collect the data, gotta transmit it to US customs. Freight forwarding, all of a sudden I'm like unconstrained. I'm out here in the freaking wild, giant round world.

You're dealing with multiple parties, different interfaces to each party, because you're trying to computerize things at this point. And I don't imagine there's API, like, how does that even work?

Right. There's, there were no APIs, still very few APIs, a lot of manual work, a lot of like, we've built like automation and software interfaces and wherever there are systems, like a lot of integration layers into different IT systems of all the vendors. But yeah, we opened up a can of worms. Like, we got unlimited demand, but like, problem's much harder and hard to keep up. That's why I say it's been like this race to like build the capabilities, tech, people, geographic footprint, infrastructure around the world to match the demand. But we went from— I forget the metrics at the moment of the first SoftBank investment, but At one point, Inc. magazine rated Flexport the 2nd fastest growing company in the world. They did this in the Inc. 5000. We were 2nd place, but the 1st place company was started before us and was smaller than us.

Okay.

So like the math says, we grew faster than they did. I don't know how they did their math, but they were wrong. We should have been number 1 that year. It wasn't weighted. I don't remember who it was, but, um, but we should— anyways, we were a very fast growing company and A lot of times, yeah, that, that can kind of like cover up a lot of problems that we had.

Were you doing things manually and trying to computerize it as you go or trying to do it computerized from the get-go?

We were doing a lot of stuff manually. We're still open to do, we do a lot with people, um, but with this, we're not satisfied with that. We're like constantly figuring out, okay, well just do it. Make the, that's, that's the secret to our success. We're willing to do what the customer needs with humans as needed, but constantly say, this is not good. What are we gonna do software-wise to take this and structure the workflow and put it into an automation? So we're now on like a freight, just a standard plain vanilla ocean container from any port in Asia to anywhere in the US inland, all the way to destination. We break it down to about 108 steps that have to be completed. And 92% of those are done either by software automation or sent out to like a third-party BPO processing entity. So that gets our costs down and the quality's really good because everything's measurable and precise. So we've got that piece is like really took us a long time to build. It wasn't like that in the beginning. In the beginning, it was people, people picking up the phone and sending it free email forwarding, I call it. But that's the way every other freight forwarder in the world does it too. So we're like, okay, build a better interface for the customer, drive demand, and then have this, we are not satisfied with the way the industry works. What are we gonna do to, you know, structure? In fact, in many cases, the, our costs have to be higher because if you don't structure the data, you, you just forward the email, the PDF, like that could be cheaper than like being like, oh, I gotta structure that, put it into our database. And so your costs can be higher, especially if you're just doing one shipment one time. Like, why bother structuring the data? The whole point is that the second time you ship the same thing, your costs are really low because you just go, yep, do that again.

Yeah. So that leads to the SoftBank investment, which was, I think they gave you a billion in cash?

Yeah.

2019?

They and other investors in the round did. Yeah.

So what happened with that? Like, you get this money and are you like, we can put the pedal to the metal here. Because didn't something happen right after that? Somebody went bankrupt or something.

Oh, that was even before. Hanjin was the big ocean carrier. They went bankrupt in 2016.

Oh, it was 2016.

2016 was a very interesting year for, for freight forwarding that everyone's forgotten about because we all keep talking about expensive freight and all the chaos and problems in supply chain now, tariffs, but COVID, a whole bunch of other things, the Red Sea crisis, like wars.

But we're gonna get into some of that stuff.

Yeah, I'm sure we will. But in 2016, it's kind of the opposite. There was so much capacity, it was so cheap. You could ship a container from China to the US for— our cost was like $600. Normal long-run average, about $2,000. Today, I didn't check the price this morning, but it's probably $4,000 or $5,000 right now. And the peak COVID was, you know, famously got to like $20,000. So, but it was $600 that year, and that was an early year. We did YC in 2014. And in 2016, we took those cheap prices and just passed them through to customers, and it led to crazy growth for us. Um, a good lesson actually, that you want to be able to play that strategy, pass through low costs and you'll grow really fast.

So it was 2019 when you started to look for a COO?

2019, we got the funding from SoftBank, and then we did, I hired a CTO that year.

Okay.

A really great co-investor in our tech. We hired a CTO from Amazon Logistics, and he was, He helped us build like some of that workflow software that I just described. He was like kind of the architect for that. And then COVID hit and that's where I say Flexport looked really great. Like we were, we turned profitable in 2022. Our revenue peaked at $3.8 billion because the price of freight was so high.

But pause, like you knew COVID was going to hit in February before it actually hit.

January even. Yeah. I mean, well, it was, it was in the newspaper, but we have a group called flexport.org. We do shipping for humanitarian causes. Like refugee camps and hospitals, nonprofits at cost, sometimes below cost. We had been part— we're partnered with a lot of great groups like international aid groups and things like this. And COVID, it was in the newspaper, it had hit in Wuhan, and we actually got a ton of demand to ship masks to China for the doctors in China. And so in January of that year, we shipped about 300,000 N95s from the US to China. Which then like 2 months later when there were no N95 masks in the US, we're like, whoops. So yeah, we saw that pretty early. And then the other thing that came out in that period was people, about 50% of the world's air freight travel, we do air freight too, not just ocean freight. And about 50% of the world's air freight flies in the belly of passenger planes. And those all got grounded because of COVID There was no reason to, I think they were actually grounded legally. And so we saw, we were at the heart of kind of bringing masks, bringing PPE generally in for US hospital networks from mostly produced in China. And so we saw this insane demand for air freight and there were no ships or no planes to move it. And the ships were too slow, like hospitals were running out of masks. So we saw that and got pretty active. Like, well, you can kind of see the solution to that problem is in the problem itself. It was like, well, all of the passenger planes are grounded, so we can't ship any masks. You're like, wait, the passenger planes are all grounded? And so with some of our connections, we got in touch with all the major passenger airlines and we got 80 planes, 80 passenger aircraft, and flew them to China.

Because cargo planes are allowed to travel under that?

Well, passenger planes can travel too. Just not with passengers.

Right.

So we got the airplane, uh, the airlines to give us great deals.

Because otherwise the planes are just idle.

Just sitting there in the desert and stuff.

Yeah.

Just sitting at the airport. So we got all of this, we got 80, we did 88, I think it was 87, 88, um, passenger planes full of masks in the overhead compartments, in every seat, obviously the belly. And we just, we flew 500 million masks and other objects, other PPE items in for a US hospital network in March and April of 2020.

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This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at accenture.com/spotify. It was crazy. It was like one of the most meaningful Parts of my career and everyone at Flexport. It was great because we were like, not in a good— none of us in the world was in a good place, but it all of a sudden totally distracted us from whatever problems we— trade fell off a cliff. It was really bad for business in the first month or two. We're like, who cares? Like, we get to hospitals. Like, there's civilizational collapse if the hospitals don't show, if the doctors don't show up for work. And became friendly friends with the guy who runs UCSF, Sam Hawgood. He's a— Chancellor of UCSF, our local hospital. And, um, I remember years later I met his wife at dinner and she was like, it was when, when I saw this Zoom call of you talking to Sam was the first moment when I realized everything's gonna be okay. 'Cause you guys really touched me. It was like, I saw you guys are highly competent people are gonna get masks delivered, you know, the day before they run out. Uh, now another thing that came outta that was in April of 2020, Same problem statement. The passenger planes weren't very economic. They were giving us great deals because we were serving hospitals and it was all like kind of pro bono, not-for-profit work. They were giving us great deals. It was, I remember once we, one of the planes, the one I remember was a Dreamliner, only charged us $200,000 to fly a Dreamliner to China and back.

Oh, wow.

Which like, if you, anyone's ever flown private, that would be like a Dreamliner. I mean, this is many millions of dollars, probably round trip, a couple of million, like a million probably. Or $500K, I'm not sure. So they gave us a great deal. We saw lots of things like that, but it wasn't sustainable for the business side of things. Now, when we had a lot of ongoing demand for air freight, but all the passenger planes are grounded. So we signed a long-term deal for 3 747s from Atlas Airlines, the biggest cargo airline in the world, dedicated to Flexport. And it was in that response to that, like, hey, the passenger plane, we had this vision, this view, this perspective that Airfreight can be very expensive because all the capacity's grounded and stuff still needs to move. People still need to ship stuff. So we signed a deal with the airline, with that airline at a great rate. And I think they were, their stock Atlas was in, is in these airline indices. It's actually, if we were smarter, we'd have just bought their stock because they were a public company and they were in these public, these indices for airlines. And those tanked.

Yeah.

But the cargo airline, the price should have gone through the roof because they're still— the price of air freight's gonna go crazy. I think I probably haven't really talked to them about why they signed the deal with us, but we got a good deal as a result of that moment where there was this dislocation. I assume that their stock price going down was like part of their anxiety to like get these things signed off with us. So we got a good deal, but it did kind of turn Flexport into a cargo airline. Uh, and we've had those planes ever since. So it's not our— it was more of a tactic than a strategy. Like, our goal is to be an asset-light technology platform for freight forwarding and work, be like more neutral and agnostic and move the cargo on anybody's planes. But we, we saw that moment.

Has that helped you in other ways? Not from a business point of view, but like learning and being more responsive to customers?

I mean, it really helped us during those few years of COVID when there's tight capacity, we could serve people. And no one else could. It was really an education about asset ownership in logistics in that it kind of turns you against your customers in some ways that can be unhealthy. You have to really overcome that inner— that because your job when you have a plane or a ship is to fill the plane or the ship. It's not to serve the customer anymore. Like if the customer's cargo needs to go to a different airport, you'll try to convince them to fly it where your plane is going and then truck it a long distance. Or, you know, it was like, all right, you just wait 3 days. The plane's leaving in 3 days instead of going, hey, Hey, let me find you a different option. So you have to overcome that culturally. Like, if you're an asset owner, it's pretty hard to be customer-centric because your job is like fill the asset or you don't make money.

Which is interesting because later on you get warehouses, but we'll get to this. And okay, so fast forward a couple years and you're looking for a COO. What was the thought behind that?

Yeah, so COVID did some interesting things for us. It made us kind of famous in part because of the hospital stuff and some other things that we did during that time when Supply chains got dislocated, but it— so it helped the business and the profile of the business. It financially returned profitable, but it really exposed some flaws in our operations. And we were, we were remote for way too long, work from home, which just doesn't work in our industry, maybe in any industry, but certainly not in logistics. You need to be like in person collaborating, partnering on the— with the assets, etc. Really exposed some flaws. Like when you, we would just prior to COVID, just send a truck to the port, pick up the container.

Yeah.

And you take it for granted. But during that time you couldn't get appointments, you couldn't get trailers, the chassis to go to haul the containers. There's not enough capacity. It was like, the operation was really failing in a lot of ways. By the way, same for all of our peers and other freight forwarders. Everyone was kind of in the same boat. But that's not how— that's not an excuse. We want to be the best. And we didn't feel like we were winning for a period there operationally and like how we serve customers. Our net promoter score like was always in the 70s, which is a great, good metric for customer satisfaction. And that like collapsed. I forget how it got to like 17 at one point. It was pretty bad. So we had a lot of operational problems and I'm much more of a creative type.

Okay.

Than I am an Operators like do the same thing every single day and a little bit better and measure every detail. And that, that it's not like I've gotten good at that, but that's not like naturally who I am, what my background is. I'm more just like a freewheeling entrepreneur. So was looking for a partner to kind of take that on for me and help Flexport mature and grow. So yeah, that was in, that would've been in 2022 when we really like kind of launched in earnest. search for a business partner to help me out the operations side of things.

And then you end up meeting Dave Clark, who would go on to take over as CEO for a period of time. Uh, but he was originally, were you think, you were thinking COO or?

Was trying to hire a COO and met Dave Clark. He was the CEO of Amazon.com. He'd run Amazon's logistics and supply chain for many years. Um, so it seemed like a great fit, tech and logistics. It was actually in many ways.

And you had the good Amazon hire in 2019, the CTO.

Yeah. And a lot of people I hired from Amazon, we hired a lot of great people. We still have a lot of good people who worked at Amazon Logistics and Tech. Like, they're probably the best at— I think we're the best now, but I think that— I don't think I could always say that. I think we keep getting better. But yeah, Amazon Logistics and Tech, that's what they're known for, right? So it seemed like a perfect fit.

Walk me through how we get from that moment of hiring to you stepping down as CEO.

Uh, well, it was kind of an orderly transition. When we hired him, it was like, hey, let's have a path for you to become the CEO. It became pretty clear that, like, I don't know, it was hard for me to picture, like, what am I gonna be better at than Dave is running this big company?

And— Was that a confidence thing for you?

Yeah. I mean, I feel a lot more confident now having seen, uh, done a much better job, uh, in the last 18 months than we ever did before. So yeah, Dave, he was only the— he was with us for years. The CEO first, we were co-CEOs and then CEO by himself for 6 months. That's why I became chairman of the board. Didn't work out. I think these hires are really hard in hindsight.

What was the first sort of sign or first moment you realized, oh shit?

There are a lot of things. It was building up. I mean, honestly, it was the P&L at the end of the day. Like, we just started burning too much money. Some of that was market forces turned against us. Like, we overhired. I approved all those hires. Like, we wanted to go big on tech and just dominate. We kind of read the market. It was like trying to be contrarian or something. We had a really strong balance sheet, had like $1.6 billion in the bank, and everybody was cutting tech hiring in '23. And we felt like, let's go lean in.

Let's put the pedal to the metal.

And go hire a bunch of engineers. I think we added 900 software engineers in like 12 months.

Oh, wow.

And turned out they're all in the US or almost all in the US, Seattle mostly. It was like very expensive people, had a lot of senior execs. So we just like overinvested in the business. And at the same moment, like the freight markets were collapsing, capital markets got ugly. It like became clear like, hey, you're not gonna go raise— we'd already raised too much money. Like we don't need to raise, can't raise more money. And so it was just like kind of Perfect storm of bad decisions, of which I was like, you know, I signed off on all of them. So I don't blame Dave for that. But it became clear we got to change courses here, change course here. And our customer, one of the mistakes that we made during that period was we took that workflow system I was describing where you have like all these tasks that have to get completed. And we had taken this idea of efficiency way too seriously to where An operator would just do like 1 or 2 of these tasks and do those over and over and over again, like a robot almost. What will happen then, you have like 50 different people collaborating on 1 shipment. That's how fulfillment works. If you go to a fulfillment center, it's the only way it could work. You're not going to have the same person like unload the truck, put away the goods, take the good pallet, put it in the box. Like you break it into stages, right? And so that's where the Amazon background and Flexport background really came into conflict actually, because they break it apart into simple tasks and have the same person do it over and over again. And like kind of robot, human robots almost like, or literal robots. And, and forwarding, it's much more of a service business. There's a lot more exceptions that can go wrong. You're out there in a messy world. You don't own all the assets. You don't control all the things that are happening. You need to like oversee these things and, oh, the trucker didn't pick it up. Like, Better call a different trucker. Like, oh, they're not responding on the API. Okay, pick up the phone, you know, go there. Lost the cargo. All right, drive to the airport. Like, you know, I mean, it's a, it's a service business for, and it's B2B. You spend a lot of time with the customer. So, but especially that, that piece, um, the quality really started to suffer. And it's a really good lesson in business. And I think most businesses, like, actually quality costs less. It's very counterintuitive.

Go deeper on that.

But, well, in logistics, like, all the costs come from you making a mistake. Like, if you file a customs entry and you get the wrong classification code, you're going to spend weeks undoing that with the customs agencies. And like, you might have license issues or regulatory problems. Like, getting it right the first time costs way less than one mistake will undo all your efficiency gains for the month, you know, in logistics. So I had to learn that the hard way. Our customer NPS really started to suffer. So the board was looking at it and going like, okay, you're burning too much money. You're gonna have to cut costs. And that means cutting headcount. Like, that's where most of the costs sat. So you gotta cut costs and you gotta improve your quality. That's a kind of a hard thing to do. And our culture had been suffering. We brought in all these new leaders and like the core people that built the business were like—

Leaving.

Leaving. We had grown. It's a really hard business 'cause it's so global. Like we ship to and from 147 countries. We gotta We got people all over the world, like, and so the board kind of looked at this problem and said, like, this is a problem for the founder of the business. Like, you need to come back. Nothing against Dave per se, but it was like very clear, like, okay, you're gonna cut people and tell them you care about the culture and tell them I need you to work harder to solve like customer problems and do a giant reorg back to the way we'd always been organized that led to all the growth, which was operator would take a shipment end to end and own it, all the tasks, own own that. And so just like the board was like, Ryan, we need, you know, you, you gotta come back and step in and do this. And I had already taken a job at Founders Fund as a partner. So it was a little, it was, it's so embarrassing for me. Like, I'm like, I just took this job and now I gotta go back. Like, what am I doing? I gotta follow through on my commitments. But it was obviously like I'm honor-bound to, to make Flexport work, make it successful. So I, I was very happy and excited to come back.

What happened when you told PG you were stepping down?

I didn't tell him until later. I forget when, but like after I'd— I was the chairman, so I think I was already at Founders Fund. He was pissed because he thought I should go be a partner at Y Combinator instead of Founders Fund, first off. But I went for a walk with him when he came back to Palo Alto one time, and he asked me why I did it, why I stepped down. I said, well, I thought— I think Dave's going to be better at the job than I am.

That's true.

It was genuinely true. That's why I did it. It wasn't because I was burnt out or something. I just thought he would be better for the company. I thought we needed to mature and be better at operations and better at building tech than we were. And I thought he'd be better at that. Um, and Paul had this amazing line. He said, uh, that's like saying this other guy would be a better husband for your wife. Might be true, but like, don't act on it. Like, this is your company. You need to stay in there. I thought that was funny.

Super hilarious.

And he then told me, okay, if he's better than you at these things, and he asked me, is this your life work? I heard you say that earlier. Is this your life's work? Is Flexport your life's work? I was like, yeah, it is. He's like, well then you need to figure out all the things that he's better than you at and go learn them. Go learn them from him, learn them from other people. Like figure out what are these things that you think he's better than you so you can be the next CEO after he steps back like Larry Page did after he came back. You know, he hired Eric Schmidt for a decade and then came back. He's like, you need to go learn those skill sets. But it happened much faster than P&G and I could have imagined on that walk.

Did you go and learn those? Was there a conscious effort on your part?

I don't know. It all happened so fast. Not really. But I've learned plenty of lessons along the way. Yeah.

Walk me through some of those.

Well, the number one thing I think is I learned from Tobi from Shopify and Brian Chesky, who've been good advisors for me, that micromanagement is not a bad word. It's a good word. You gotta like stay involved in all the details. And that's very hard in my company. We're like big and sprawling and do a lot of stuff, but you need to be way more hands-on. Do lots of skip levels. Don't trust, don't like hire big executives and then just trust them, like treat them like a black box. Like I had, when I heard him say this, I was like, oh my God, I just committed this sin at the highest possible level. Right. But like, don't do that at any level. Like it's all my company, audit everything, inspect everything. It's, you can't just like give people too much leash to run things their way. And if they disagree with me, like, sure, I wanna, I wanna debate it. I wanna hear from them. But like, at the end of the day, I know I'm gonna still work at Flexport in 10 years. And I don't know if that's true about anyone else. And that, that's, that's something I heard from Chesky. And I was like, you know, it's like, it's probably true. Like, I hope that my team stays and I got the team for 10 years, but I'm positive that I'll be here. And so if they really don't like the way I wanna do something, like, okay, no problem.

But it's my company and like, they can, I heard from people that we have in common that you, when you came back, you were a different CEO and you were like founder mode before it became founder mode.

Yeah. I mean, Chet's like way more hardcore, I think. I try, but I didn't have as many frameworks for it. I was just like, oh, I gotta do what I have to do, you know? And there was a lot of stuff that I really didn't understand. About the company. I had way too much, committed all these sins of just like, okay, there's a problem in some department, hire a big exec, let them, and then don't get in their way. Like that is the kind of the corporate way that most people teach or like most people expect, like this is how companies should be run. Micromanagement's a bad word. Toby's the first person I ever heard that from, that like, it's not a bad, it's like a great thing. Get involved. You know, why would you ever want, like micromanagement and attention to detail, the same 2 words for the same thing, right? Attention to detail is Great. Like, your boss is involved in your stuff. Like, that's only a problem if your boss is an idiot and out of touch and making bad decisions. But like, if your boss like genuinely cares about your work, is involved, in tune, knows what you're doing, has good judgment, like, why would you not want them looking over your shoulder and participating with you in what you're doing? So, but Flightboard is a much, I don't know, I don't know. I've never worked at another company really, but it's, Compared to other businesses, I think far more complex. So it's hard. It's really actually quite hard for me to live up to Chesky's ideal of like, I think he says like, if the company should only do as many things as the founder can be personally involved in, it's a nice ideal. It doesn't work at my company. We're like in all these different countries and all these different modes of transport that like one person can't actually keep it all in their head. But I try my hardest. How do you hire differently?

What do you look for differently? And then how do you integrate people differently now as a result of these experiences?

I just only promote from within except for very rare cases where you just really can't find the person. And then I spend a lot more time with the new hire. I've only hired one person actually from external in the last couple years, and I spent just Loads of time with him. And I told him he's not allowed to make any decisions for 90 days.

How did that play out?

It was perfect, honestly. And he even told me like, maybe I should have done more time because I remember he told me at like day 88, but no, he told me day 91 that if I had let him, if I had told him 80 days, he would've made different decisions than he made. And like, even those last 10 days, they were still like learning and taking things in. You have to approach startups, if you're an executive and you're joining a company, you have to approach it with extreme humility. Like, these are smart, really smart people. Like, some of the smartest people I've ever met have worked, come through the doors of Flexport or still work at Flexport. And we've been obsessed with the problems that we're working on for a decade. And like, the idea that some big shot's gonna come in here, this is no knock on any particular person, it's just like a classic. Like, what are the odds that anyone could come in and know, you know, on day one, do figure out problems that we couldn't think of or solutions that we couldn't think of? It's why no investor ever gives me useful advice, really, because sure, they can about people and some high-level stuff for sure, capital markets, but business strategy, how could they ever know my business better than me? I obsess about it every waking hour.

I'm always skeptical of people who run businesses or even government and they contract things out to consultants and it's like, well, how does that consultant know your business better than—

that scares me.

Yeah. PJ wrote about that in his Founder Mode days. Like, well, if you're a professional manager, your mindset is like you can run any companies, how you go in. And in that world, you shouldn't be too involved in all the things because like, hey, you know, you don't know about that particular domain, that industry. So just trust the people that are already there. Your job is kind of babysitting it all. But that's not like founder mode as they come to be called is like, You should know all the stuff, like more or less.

You were at that talk. What did you— were you inspired by that? What did you take away from it? What was the moment that really like solidified things for you?

Oh my God, I wish I could— I wish it was recorded. He went on a rant like for 3 hours, just like— he's a very intense guy. I took like 4 or 5 pages of notes. I was definitely like enthralled in the back and like a lot of stuff deeply resonated, but I don't remember any Yeah, I've shared already some of the specific things. A lot of it is like, yeah, just be way more involved in the day-to-day. And if the people don't— and do a lot more skip levels, like meet the people who report. Don't trust the managers. Not in a bad way. Hey, like, you know, I'm here to help. Like, actually, I'll— when I go skip level, meaning like go talk to the people who work for— I talk to anyone. I've talked to 40 or 50 people every day on Slack or text or phone. at Flexport. And if I talk to somebody who works for you, I'm not like trying to undermine you. I'm going to come back to you and be like, here's what they said. Like, here's what I think we need to do. And if the person asks me to keep it confidential, I'll do my best. But ultimately, I'm trying to solve problems together with my execs. So, you know, and if people have a problem, thus far they haven't. But if someone had a problem with that, I'd be like, well, it's probably not a fix. This is my company. I'm going to talk to anyone I want in this company.

I find it interesting because you remember that telephone game in like preschool where you sit in a circle and there's like 10 of you?

Yeah.

And the teacher like passes a message to some kid on the right. And then it goes through 10 kids. And by the time it gets back to the teacher, it's like this completely different sentence and meaning. And organizations sort of filter this way unconsciously. Nobody's trying to make a mistake, but people just filter information differently. And what's important to somebody on the front line might be different to the manager, to the team leader, to all the way up to you. And so by the time you get it, it's like, how accurate is this information?

And vice versa. Like, you just like, what are the odds people don't know what I want?

Exactly. And so the other way, just as Well, right. It's an interesting way to think about it.

Yeah. They lean in way more than I realized into communications and enablement training. Like we've been doing the last year, huge amount of like strategy sessions and teaching and like traveling the world and doing these like little, almost like a little music festival. Maybe it's the wrong analogy, but like, you know, music festival, they give you like multiple tracks that you could, you know, you go to see different acts. Like we have that. We'll come to different offices and have different tracks to learn about different things. I think it's very important that the people have agency. You show up in an office and you're like, okay, we're going to do a half a day of training. You have to sit through like 4 talks in a row. You lose your mind. But if I give you a menu and you're like, hey, there's like 4 talks happening right now and there's 16 talks, right? For the next 4 hours, you can just choose your own adventure. Which talk would you want to go to? People all of a sudden like, this is amazing.

Yeah.

I get to go learn about— and our business is super interesting. Geographically, we're in all the different countries and almost all the countries, we, different modes of transport, different technologies. There's like, it's actually an incredible thing. So if you give people agency, so we trying to do that to like overcome this problem of, I just realized I, we have a really, I think we're a pretty well-run company. We have everybody writing teams, like write these documents of what their strategy is, what happened this month. Like these 6-pager kind of, we took this from Amazon years ago before we ever hired Dick Clark. The 6-pagers that you would write about updates. Well, I read them all. I get access to all of them, but no one else does. A couple other people on the team, we're not that secretive, but just like, it's not part of the structure. It was like, they don't disseminate. So I was just realizing like, no one else has such incredible things happening at this company, but nobody knows about it, or like not enough people know. So we started, I'm trying to work on that problem more. kind of to overcome this telephone problem. It was like, I just realized, oh, like no one else has the access I do.

What's the cadence and frequency of those 6-page updates?

Monthly. There's about 26 teams that do an MBR, a monthly business review, and a 6-pager. And then that's just like, it doesn't, I think we cap it at 6, but it's the 6 isn't that important. It's mostly, honestly, I actually think the 6-pager is sort of maybe wrong. I'm not sure, but It's more how much time it takes to read.

Right.

You know, what's Twain say? Like, it's harder to write a 6-pager than it is to write a 12-pager.

Yeah.

For a lot of businesses. And so you're like, if you had more empathy for the people who are working hard, you'd let them write the 12-pager and spend more time reading it.

Yeah.

But it turns out you, that 6 pages seems fine. So we have, I think, 25 or 26 teams that write those monthly, and then they do an annual plan, 2-year rolling. But once-a-year update. Uh, Chesky does his twice-a-year update. I don't know if that's secret, but, uh, I haven't moved to that yet.

You mentioned the word obsessed. I want to talk about that for a beat before we move on to tariffs. What does that mean to you?

Oh, it's just like, I can't stop thinking about Flexport.

It's just all the time. It's like consuming.

It's a problem. It's a very addictive industry. It turns out it's always on. It's always different. Every day is unique. You got a front row seat, you have backstage pass, you see what's happening in the world in an insane degree. And there's infinite problems to solve, ours and our customers and our vendors. Like, I mean, it's just like a crazy landscape of problems to solve. So yeah, it's a, it's a pretty awesome industry. And I think one of the things that we've done well is show people that actually this thing that looks boring, you don't think about it, actually a really interesting place to Well, let's talk about what's going on in the world and let's start with tariffs a little bit.

And I think it would just help orient people for the conversation. What are tariffs? When do they apply? Is this a simple question or is this not?

Tariffs, I think it's an Arabic word. It goes back a long time. Governments have always had tariffs, thousands of years. Control their borders and make money. It used to be the primary source of revenue for most countries is the tariff. In the United States, that was for sure true. The income tax wasn't introduced until Abraham Lincoln and the Civil War. And it is a percent of the value of the goods that are imported that you have to pay to the US Treasury. Primary reason for it, I guess there's a few, revenue's real. In fact, Trump's chief economic advisor right now, the chairman of the Council of— I don't know if he's his chief advisor, but the chairman of the Council of Economic Advisers is a guy named Stephen Moran. And he, in his current administration, he said that in the Trump first term, that the tariffs on China paid for 1/3 of the tax cuts that Trump did. So it's pretty meaningful. I mean, it's an interesting alternative way to fund the government via tariffs instead of income tax. Like, I'm not sure I hate that idea. I don't know what would happen. So it's a source of revenue, very, very important and valuable to the government. It's a way to control protectionism for companies. That's been a major reason to use tariffs over the years, is to protect US businesses from competition. In part just for employment reasons, in part for national security reasons. Like, you want to have certain industries be successful. Steel has always been one of these, and autos. Most major countries believe their auto industry is important, not just for jobs, but for armaments. Like you make tanks out of your Ford factory during a war, et cetera. So yeah, those are legitimate reasons for tariffs.

Why do they matter in the context of like the global politics?

Obviously it increases the cost for companies that are sourcing goods and we've become so globalized. Our economy is just like, these supply chains are unfathomably complex and interdependent and they're full of independent actors making their own decisions about how they want to do things. And there's these component, subcomponent ecosystems of supply, moving goods all over the world and doing assembly and production in different countries and bringing things together. So introducing massive changes on short notice to the tariffs has caused borderline chaos, certainly a lot of disorder in global supply chains, which ultimately affects all the stuff that we buy. Most It's not true that America doesn't make anything anymore, but a lot of the consumer goods, a lot of them are made overseas, obviously.

When you talk to a lot of customers, are people onshoring or are they just sort of accepting, or what's happening?

Well, that's the thing. I think you have to judge policies not by their intention, but by their outcome. One of the mistakes that a lot of people make is like, oh, it was good intention, so therefore the policy's fine. And that's Which is not right. And these tariffs have had the opposite impact that Trump would like. I think there's intention, there's some validity to it all, like some of the things I said from national security and employment, other things. But the result has been thus far, and it's pretty early in the cycle, we're only a couple months since the Liberation Day or whatever, but I've met way more, I've met infinitely more. I haven't met anyone who said, oh, because of these tariffs, I'm going to start doing production in the US. I've read some headlines on it and they've done some White House announcements and things, but those aren't my customer base. In my customer base, Met at least half a dozen companies that said stop production in the US because of the cost of the components coming in.

Oh, interesting.

And there's kind of like 3 categories of these, 2 or 3. One is people, for example, we have a bicycle, a company that makes bicycles in the US, kids' bikes. And for some reason they made an exemption for importing bikes. They're duty-free, but not bike components. So their costs went way up and their competitors from overseas didn't. So they're cheaper to manufacture overseas. So they're moving their factory that like has been a well-known brand, reasonably well-known brand known for being made in America. And they're like, doesn't work anymore. So that's one example. 2 is if you're doing it for export, you're exporting goods, you're paying, your costs have gone up on the import of the goods, of the components, doing assembly in the US and then exporting. You're better off setting up that factory now somewhere else where you don't have the cost on the imported components. Third would be machinery costs. So like, in fact, a friend of mine was setting up a line for a fab, like a semiconductor fab, and just like the machines are made in Germany for that particular line and the cost was going to go up 30%. He's like, all right, I'll just build this line somewhere else in another country.

And there's all sorts of like hedges and ways around this. Like one would, I think a bonded warehouse is you don't actually technically pay the tariff until you take it out of. So it's landed in the United States, but you don't pay the tariff until it comes out of the bonded warehouse.

Yeah, it's temporary though. You're still going to pay the tariff. So it doesn't really work for like changing the nature, but a bonded warehouse will let you make a bet that tariffs are going to come down. So when tariffs were at 145% on China, we helped a lot of companies move into bonded warehouses because we all predicted that it would come down from there. So you're better off waiting and only enter the goods, only exit them out of the building, but enter them into the US commerce after they've, after the tariffs have come down. So there's some, there's some hacks around the edges. There's a lot that you need to do. If before you didn't care about valuation, the value of the goods, if it was times zero, who cares?

Yeah.

But now all of a sudden, if it's times 30% or whatever number, you care a lot more of how is it valued. And there are all kinds of legal ways and you need to get really great advice on legal advice or trade advisory. on how to do this, but there are ways tracking the, you want to be able to really track every single component of the product. Where is it made? And what is its sub— what is its cost? So like if you have a cow, there's steel and aluminum duties right now that are really high. Forget the exact number, but they're quite high. I think 50% or more on Chinese-made steel and aluminum, maybe on all steel. I should know all these details. It's very complex. But if you have a couch that has steel and aluminum, you don't want to pay that 50%. You don't want to pay that high duty on the entire couch. You want to only pay it on the portion that's steel and aluminum. So you really have to build this great— we call it a product library, which Flexport offers as technology products. So you want to be able to track all these things at the subcomponent level. Where's every item made? And then there's all these new regulations that have been coming out for many, many years. There's one called the Uyghur Forced Labor Protection Act. Requires you to track the cotton, anything cotton. Where was it made specifically? Like what down? And then the EU has a new one, it's very similar, but any forestry, any wood product, you need to be able to show where the wood was grown anywhere in the world. Track that.

This is insanely complex.

Yeah. Carbon. They want to know the carbon border adjustment factor. I think it's called that. They want to know All the input, all the carbon inputs of every single subcomponent of every product in the world, how much carbon went into making it so they can measure the carbon footprint. And then you coming soon, you're going to have to provide a, like a QR code on every item that you can scan and they'll tell you the carbon footprint. So the world just keeps getting more and more complex, which plays into the hands of customs company, companies like Flexport, 'cause everybody's cool. You need technology to track all this stuff. Um, kind of classic regulatory capture type stuff. We're not lobbying for any of these things, but, uh, and you're the most tech forward of all the companies. Yeah. Kind of, we're the only one founded, only one in the top 100 in the world founded after the web browser was invented. A lot of good companies, but they're not tech companies fundamentally. So we have to, uh, we have the, the world is our oyster. We should win it all.

Are there any sort of creative strategies you've seen any of your customers use that you're like, oh, that's novel or interesting?

You have to be careful. There's, um, there's some illegal stuff that I see, not so much at our customers. We talk them out of this. But, um, one of the temptations that a lot of people are falling into right now is letting your factory import the goods for you and then buying it from them in the US and then not turning a blind eye if the factory cheats. On the value of the goods or their classification. That's kind of rampant in the industry right now.

That's just a matter of time before, I would imagine. Who regulates that?

Customs and Border Protection and DOJ. Their problem is what the factories will do is set up a shell company, not in the US. You don't have to have a US entity to import goods into the US.

Oh, interesting.

You can just, or Canada or most of Western Europe. So you can just They set up this shell company in whatever country. It could be China, it could be anywhere. That company registers not as an LLC or any kind of legal entity, but they just register with CBP, with customs. They import the goods into the US from abroad. If they cheat, they just disappear and customs doesn't have agents in China to go chase it down. So then they just do it again under a different shell company. And that's a huge amount of what gets sold on Amazon. It's not, not, I'm not saying it's fraudulent, but it is these foreign registered companies.

It's definitely like a gray area. Do you think they'll bring that back?

I think they're going to crack down on that. I think they're going to shut down that.

And make it so you have to be a US entity to import.

Yeah, that's a great LLC. It can be foreign owned LLC, but you'll have to have like an LLC that can be held accountable. But it's very unclear exactly how it will be or should be structured. Like, Does it need to have employees who could face jail time? Like, what's the, you know, what does it need to have a certain amount of cash in the bank that could be taken if there's fraud? There's a lot of ways, but I have no idea what's going to pass. There's a couple, I understand there's a few bills like looming, but I haven't read the text of them yet in Washington that would shut down the ability for foreign companies to import or put in new requirements for it. So that's like one creative thing. Now what'll happen is you get offered as an importer, you've been buying these goods from your factory, And then all of a sudden they offer them to you for way cheaper than the duty alone. You're like, yeah, it's not my problem. I just bought it in the US. Guarantee, like, you are liable for that. Like, as a warning, look at the camera. CBP, DOJ has announced this, their number 2 priority in White Collar Crime Division of the Department of Justice is, um, customs fraud. After healthcare fraud is number 1 and then customs fraud number 2.

Are there any other creative strategies we can sort of put out there in the world today that you've seen not your customers use?

Yeah. Well, the good strategies, let's not talk about the illegal ones anymore. I mean, but Be careful, make sure you're getting good advice. Is have that database, know all the subcomponents. There's a few things like valuation. You can, there's a thing called first sale. I won't bore you all with the technicalities of it, but there's, it's called first sale, which basically says that you pay the value of the goods based on the first time it was sold, not the price that you paid at import. So there's legal ways to do that. If you bought it, like there was a middleman or an agent that bought it in China and marked it up to you, you can actually Import the goods at the price they paid, not the price you paid. You can deduct the portion if you file it all correctly. And don't quote me on this because you want to get good legal advice, including from Flexport's team. But you, uh, you could deduct the portion that's US-made, but you have to, you don't just get to automatically do that. You have to like file all the right paperwork and stuff. And then importantly, if you import something, you pay duties and then you later export a product with the same classification, You're owed a refund on the first pass.

Okay. You get your import back, the import duties you paid.

Yeah.

And so every year in the United States, $7 billion goes unclaimed and that was pre these new tariffs. So it's presumably much higher. Yeah. So we help companies with that. We've been getting people like big checks back that haven't, and you can go back 5 years in time. So that's like a really important one. If you haven't done it, it's called duty drawback. If you haven't done that and other countries offer this too, most countries. So yeah, there's a lot of strategies. In fact, the one thing that people should really know is your data on all your past transactions with the US government or with US Customs are your, it's your data. You have the right to it under the Freedom of Information Act. So you can pull your last 5 years of transactions from CBP. Now they won't, they'll give it to you, uh, in a very unusable format. I think like giant CSV dump, basically, maybe even on CDs. I forget, but they give you like It's not, not useful. It is still your data, so it's useful, but you have to know how to clean it up. So we've built this interface that like visualizes all of this for you and shows you every transaction you've done in and out of the country. And then our experts kind of walk you through and be like, okay, here's our checklist. This is ways that we think we could maybe get you a refund. Now Trump has lost the lawsuit on these new duties, on these new tariffs. And they, they, it's going to appeal. So the oral arguments for that start on July 30th, next month.

Is that at the Supreme Court level?

No, it's the level below the Supreme Court. So presumably if he loses again, it'll get appealed again to the Supreme Court. So that's probably— I don't know enough how this works, but towards the end of the year is my imagination, is my guess that it would go to the Supreme Court.

Either way, it'll probably end up there.

Probably it ends at the Supreme Court. Yeah. That will be really an interesting case. If they lose again, everybody gets a refund on all their duties. But it won't— they won't just refund it. You're then going to have to file paperwork.

Of course.

Yeah.

They're not going to like, here's a magic check in the mail.

Yeah. So it's going to be— and then it already takes like about a year when you get one of these refunds from the government. It takes about a year to get your check. Yeah. When every single company in the country applies for a refund, you probably won't see the check for like 3 years. There's going to be so much fraud. Oh man. It's going to be kind of a total mess if they lose that lawsuit.

Where's traffic now? Is it back to normal? Is it Down, is it?

Volumes from China collapsed 60% down when on April 9th, the day the duties hit, stayed down for 5 weeks. And then as soon as he relaxed, as soon as they, the Trump administration relaxed the duties on China to 30% instead of 145%, it surged to 80% above pre-tariff levels. That lasted for 2 weeks and then it came down. It's still above pre-tariff levels, I haven't studied enough market data, and now I'm looking at Flexport data, and we have got 30% growth over the last year. So then I start to figure we're actually up again from the trough, like it came down and now we're back up. But I think that's a Flexport thing. I think the market's shrinking again from the peak that we hit post-COVID, but our own volumes were like 30% year-over-year growth.

So what are the markers you look for that are like public information or that you have as proprietary information that are sort of indicators like, The economy's really good. Oh, we're going to hit some trouble. You know, one of the things that Buffett has always said is he looks at intermodal rail volume as a leading indicator for the economy. I'm curious, like, given your aperture into everything, I've never been like a macro person.

I'm not an investor like that, so it doesn't matter to me that much. I guess it's, I mean, Buffett's right, like the logistics data, but it's the international stuff is so Less seasonality. There's a lot of weirdness lately in this tariff data that it's just like, I don't know if that means— you want to know what the consumers are doing ultimately. What are they buying and selling? And a lot of, there's just a huge amount of noise. Like they didn't ship that much less or more because of consumer demand. That was like cost and inventory forecasting. And so I don't, it's probably if I had my access to any data, it would be the consumer sales data from all the customers and Inventory levels. I just don't know. The sales data, fine. I like public companies report on their sales. Inventory data, I've never understood. Like the US government publishes these inventory metrics every month. I don't know where they get that. I have no idea. I haven't gotten any good economists to answer that. They're like, oh, they run a survey. I'm like, yeah.

Interesting.

Is that valid data? Is that accurate? I know how hard it is to get accurate data out of my own company. So the idea of like government economists getting accurate data about all of the companies, I'm like always very skeptical on these things.

It's 100% correct.

I'm so skeptical on like big government datasets.

One of the things that you said that I came across that really stood out for me was when you're designing an operation, you're choosing your bottleneck. If the bottleneck appears somewhere you didn't choose it, you aren't running an operation, it's running you. Double-click on that for a moment.

Bottleneck is going to be, you know, the point, the choke point, the point at which the The limiting factor. And I think you're in a company, your bottleneck should always be customer demand. Should never be like bottleneck, oh, I can't. Right now we're bottlenecked in our customs team, our trade advisory team, the people that are helping solve these problems that I was describing around how much dues you owe and how to minimize it, how to be compliant. That team is super bottlenecked. We didn't plan for a world that would require this much expert headcount and hard to find these types of people that really know the space. So we're bottlenecked in a place that we didn't plan. The bottleneck should be, I don't have enough customers wanting my thing. You'd like that to be in a B2B environment. That should be the bottleneck. But if it shows up somewhere else, yeah, I'm not in control right now. It feels very uncomfortable. I'm like, do I want— I don't wanna just hire more people, especially if it's not, if it's a temporary surge. So what, it feels out of control as it And we need to get our handle on that. And I hate that. I want my problem always to be like, oh, I need to be more creative in my marketing and sales and like work on the pitch and the user experience and the things there. And so yeah, if you're bottlenecked in how much space— we've had a number of it. This has been— we've had bottlenecks move all over the place during COVID and since. How much space there is on ships has been a bottleneck for us even as recently as last couple of weeks with this huge surge of new bookings following the relaxation of the tariffs. That's not right. Like, there should not be a bottleneck where I can't get cargo loaded on a ship and therefore I can't help the customer, or the customer's getting this huge delay in getting loaded and getting their cargo delivered. It is a fact of the industry right now, but that bottleneck shouldn't be in a warehouse environment. You know, you've got a picture of this flow of goods at the loading dock. You can choose where to put the bottleneck in the flow of those goods. So loading dock, Unload, put away, pick, pack, outbound, you know, and ship again. And the way that Amazon does this, as I understand it, is they try to make the bottleneck the most capital-intensive piece, and then they overstack it so that there's plenty of capacity on that, whatever the machine is, probably that is capital-intensive, that requires a lot of capital, and have like lots and lots of that. machine so that, that way they're never— it just keeps flowing the goods. You don't hit the bottleneck. You don't actually hit it. And if you do, it's because, oh, okay, didn't— nothing I could do there is like more capital needed rather than if it's labor, you're like, cool, just throw more labor at it. That should never be the bottleneck. It's only where, oh, I need a lot more capital here even than I planned. And then they overinvest in CapEx so that they don't hit the bottleneck.

Because you want the most asset-intense part sweating just nonstop.

Yeah, the asset intense part should be always, should be operating. No, but you should have excess capacity there. That way you don't get stuck with this machine holding you back. Like you have extra machine, but it's, it's a, that's a strategy for people with a lot of CapEx. That's Amazon's model with plenty of CapEx. And I'm not sure that they do it right. Like one of the things that they do that pisses off their merchants is they have this endless line of trucks at the warehouse they can't unload. They've pushed the bottleneck often to the unload piece, the loading docks and truckers, and can't get appointments and stuff. So I think that'd be wrong in that framework that like they should allow the goods to flow through. It's a fascinating world of like, you know, W.E. Deming is the kind of business philosopher of quality. He's written a lot on statistical process control and creating even flow. through a system that you don't want to have these spikes of flow because it makes planning really hard and labor and assets or people become idle.

You don't want any variance.

Yeah. Eliminating variance is like Lean Six Sigma type stuff. It's one of these things that doesn't come naturally to me, so I'm trying to study it and take an interest in it, but it's not my natural forte to go deep on this area. I do find it quite intellectually stimulating, but it hasn't, it's not like my training and background.

Is that like the whole Toyota Production System thing?

It is.

Yeah.

Do you guys use that?

A little bit. Yeah. I mean, the Toyota Production System, I think there's like 2 companies that have taken it really, really seriously and advanced it in the United States. One is Amazon and one is Donaher Manufacturing Company. The idea is a couple of things. One is, one of the things that we do that is very Toyota Production System-like is In the Toyota production system, and I've never been to Toyota and got a proper tour of this, I'm a bit of a chauffeur knowledge, like repeating what I've heard and learned a little bit from a distance, but is the worker, the line worker follows the part down the line and does many of the steps, operates several of the, or many of the machines instead of like in a US production, Toyota auto production, each guy does one job and kind of more robotic like I was describing earlier. And our model's very similar to the Toyota one in that sense that we're like the same worker follows the shipment down the line, as it were, doing all the tasks until it's complete. That, I think Toyota kind of pioneered that piece of it. Better for the worker, for sure. You like have more agency, you're more involved, you know more of the details. You're like, your career's more interesting, you're learning all the steps. But they really, the other thing that Toyota really does is empower the workers to like elevate problems that they, right? They famously have that rope they can pull to shut down the whole line. if things aren't right and take quality super seriously. Quality costs less. I think that comes from W.E. Deming. So it's all a very interesting area that we try to apply. This is where I needed help at some point because I'm not like a natural on these things.

You mentioned Chauffeur Knowledge, which is such a tell that you're a Charlie Munger devotee. I would love to hear some of the lessons you took away from reading him or interacting with him?

I got to become friendly with Munger towards the— with Charlie towards the end of his life. I went to his 99th birthday party last year, actually, before he passed. I got lucky. I got real— in fact, his— the person I'm closer with is Peter Kaufman, who's the author of Poor Charlie's Almanac. And that's like one of my favorite books. And when I lived in China, I got a copy of that book. And really love— it's like a coffee table book. Stripe just re-released a copy of it. It's now available in print again. It used to be kind of out of print. And I had that book and I loved it and it really inspired me. Munger has this really wonderful essay, which I actually discovered on the Y Combinator website called The Art of Worldly Wisdom or something to that effect. If you Google Munger worldly wisdom, you'll find it. And it's a speech that he gave at USC. It's like a graduation speech.

We'll link to it in the show notes.

Yeah, you should link to it. It's wonderful. And it's about this idea that there's like 300 domains in the world of knowledge. 300 is kind of an arbitrary— I don't remember if he says 300 or not, but there's some number of limited quantity of domains. And that in each of these, there are 2 or 3 big ideas that carry all the 80% of the freight, as he said it. And so if you were to go and learn those 2 or 3 big ideas from each of the disciplines, Up your alley. I'm sure you've written about this before. You have all these mental models and you got lots of stuff to hang things on. And then also a lot of the innovation in the world comes from taking an idea from one domain and applying it elsewhere, a mental model from one, applying it elsewhere. So I learned about this when I was like 25 or so living in China, and that really set me off on a lifetime journey of like trying to read, become like, learn as many of these domains as I could, just try to be worldly wise. And so I loved that. It really inspired me. And then one day I was at a party at a house in Silicon Valley, not like a fun party, but like, you know, gathering, a cocktail event or something. And I didn't know anybody. And I, this older guy, this older gentleman was there and I struck up, he struck up a conversation. He saw me not talking to anyone or something. We started talking to each other and he at some point asked me what my favorite book was. I told him, oh, it's Poor Charlie's Almanac. And because he's like, why do you like that book? And I told him all this and he's like, well, I know that book really well actually. I'm the author of that book, Peter Kaufman. And so he's like one of Munger's really good friends for many, many years, and he's the one that put together this almanac. So he just thought that was so funny that he started bringing me to Charlie's house and like telling Charlie the story. One of my favorite things that Charlie told me at one of these dinners at his house was when I told him about Flexport, he was like, oh, you had a great business because the key to success is dumb competition. Which, that's kind of insulting. We have some really smart competitors, but I always say that to people who are like building AI companies. It's just like, what a nightmare. Your competitors are literally AI geniuses. Like, you should find a way to apply AI in some other domain so you're not competing with the smartest people on planet Earth. Because like, it's like trying to be a boxer. Like, you're kind of, you might beat all the people in your local gym, but at some point you're going to run into Somebody bigger, stronger, faster. Jon Jones or somebody's going to kick your ass.

Yeah.

I don't think we're the smartest people in the world, but within our little old school industry, we can do some damage.

Funny story about Peter before. He's a mutual friend of yours and mine. And the way that I met him, I was at a Berkshire Hathaway meeting and I had went up to the hotel, you know, naively, this is my first meeting ever. You know, I just show up and I'm like, can I get a hotel room, And the person behind the counter starts laughing. And I was like, oh, no problem. I'll just sleep in my car, you know, whatever. And Peter walks up to me and he's like, I hear you, you need a hotel room. And he ends up giving me— he had a block of rooms and he ends up giving me one of his rooms.

That's amazing. Which is the perfect Peter move.

It is totally. And it's the most perfect embodiment of one of his phrases, which is go positive and go first.

Yeah.

And He, we ended up striking up a conversation. We had a mutual friend who joined us in that, which was Peter Bevelin, and we just ended up chatting for a long time. And he's like, if you're ever out in California, you know, come see me. And I was like, oh, I just so happened to be there next week. I had no plans to be there at all. Right.

But if you've ever gone there.

Oh yeah, totally. And that struck up a friendship with him, which has been, he's been an incredible influence. Yeah. Yeah.

Okay. That makes sense. That's hilarious because he loves inventory. Yeah. And he had it. He also had an inventory of extra brooms just in case somebody needed one.

Actually, walk me through that. Why does he love inventory?

Well, because everyone else hates it. I think there's a contrarian element to it. Everybody went to business school and learned that excess inventory is evil and carries working capital costs, et cetera. But he's in his business, which is airline, airport, airplane parts, aviation parts. Having excess inventory means you can provide the part on demand, any part. You have it, no one else does. So people are willing to pay a real premium if you're, especially in aviation, if your line is down or your plane's not flying. We have a whole branch of logistics called aircraft on ground logistics, AOG, aircraft on ground. People will pay any price. I once flew, and this is not what Flexport does, but I know this guy's a billionaire and his plane, his G650, Goldstream private jet broke down in Antarctica or in southern Chile, like right next to Antarctica. Somebody crashed like a tractor into the wing and he called me. He's like, can you get me a— I need this. I have the wing. I need to fly it to Chile. I will pay any price. Like, then connect you and this guy. He told us like 10 times, like, if there's a way to pay more to get this there faster, we will do it. And so. Being the guy with all the parts for that type of customer.

But you think about it, you have this like in some cases, you know, $10 million to $200 million plane or more.

Yeah.

Sitting grounded from a like $1,000 part or could be $10,000. You could charge $100K for that part and they'd be like, no problem. Yeah.

And inventory, I mean, inventory should be not that expensive to keep around, but it depends if it's perishable. Like the COVID was a great example. Like people at the hospitals didn't have enough inventory, all run just in time, which is just a ridiculous way to run a healthcare network just in time because in a crisis you better have some inventory. But the problem I think becomes that these, the PPE, the masks and stuff has a shelf life, an expiration date. So you can't just build a warehouse full of this stuff and let it sit there. You only need it—

Pull it out in 20 years.

Yeah, it won't work. So it's a hard problem. Similar with like military, like how much artillery do you want to just produce and just have sitting around just in case there's a war? But like you want some when there's a war, you know, you don't want to start your production then.

Are there any other Peter Kaufman lessons that stand out?

So many. I don't know if, you know, hopefully he publishes more books at some point. He's written a lot of stuff that he keeps offline. I really like his competitive exclusion principle.

What is that?

It's basically, it comes from biology and it's this idea that in a niche, in an ecological niche ecosystem, there's only 2 species can't occupy the same niche. One of them must outcompete the other one. If they're like, for life, they're both occupying the exact same niche, one will win, the other get pushed aside, go extinct, or have to adapt. And so in business, the way to apply that is like, you should be able to do all the things that your competitor can do. You can't leave any room for them to exist because they can do something you can't do. The opposite of this dogma that you should only do one thing and do it really, really well. It's like, actually, you should spread out and make sure there's no room for the other guy to stick around and maintain a relationship with your customer just because you're not able to do that thing. And we still have some of these. I mean, it's very hard to do everything, but he calls it— there's a Wikipedia article about it, the competitive exclusion principle. I think that's pretty interesting. I learned from him. Actually, just generally, Peter's whole thing is the worldly wisdom idea, just taking ideas from biology and physics. And what's his other one? Is the formula for kinetic energy is 1/2 of mass times velocity squared. We use velocity as like our main word at Flexport, velocity. Yeah.

Go deeper on that because velocity matters more because it's, it's power law, right?

From the kinetic energy formula, it's a square function and mass is only linear. And so this is why in football, American football is hitting so hard. Knocking often, it seems like this little guy can just like create more, way more energy. Well, they are, their velocity, they're running really fast. Yeah. It's more important than how big you are is how fast you're moving. And now velocity is different from physics. than speed. Velocity has a vector, so you gotta go in the right direction in business. But it also, it's sort of an explanation for why startups outcompete big companies. Have way more mass, but they start to become slow and bureaucratic, and 3 guys in the garage can often outcompete.

It's interesting to sort of visualize as like the incumbent being fat and you being, you know, skinny and quick and agile, and you kind of want to run upstairs and It sucks for you, but it really sucks for them.

Yeah.

That's how I sort of think about that.

Yeah.

Like, how do you, how can you cause pain in a way that like, it's going to suck for you, but it sucks more for them?

What are some things that you got from Peter?

Well, the go positive, go first thing is just such an unlock in life. And the demonstration, like I'd never talked to him or sort of like had any conversations with him at that point. And it's just stuck with me. It's—

His example is from the elevator. You're stuck in an elevator with someone. Most people will say nothing, which is like kind of polite to not say anything. But if you say hello, they'll actually, turns out most people will say hello back and be nice to you.

And then we don't do it because like the 2% of people will sort of scowl at us.

Yeah. I don't really talk to people in elevators either, but I get that.

Yeah.

I mean, it's an interesting point.

Well, now everybody's on their phones. It's a different world. Ryan, we always end these interviews with the exact same question, which is, what is success for you?

I'd like to be worldly wise. I try to keep learning. I'm lucky to have that, learned that value early on in my life, that learning is the most important thing. I mean, now I've got kids, so it's love, but learning is right there as a close second for what my number one value is. That's why I like Flexport so much. It's like a really incredible vehicle to learn. And the best way to learn is to solve a problem, you know, be really engaged and do things and solve problems for people. In the business context for Flexport, we want to be the number one logistics company in the world by far. And we think there's real scale economies in this industry that you can unlock, but we're pretty far from that. We're only about 0.1% of global trade in the containerized, in the world, in the domain in which we play. So I think we got 20, 30 years of just like building, going global. We got Flexport employees in 18 countries. I want to be in all the world's countries, be like a true network business where ship anything anywhere, make it super easy with tech. Uh, actually, we think we can lower the cost of shipping anything by 5 to 10%. And I think it could have just like a massive impact on the world economy. So all those things, all those things are like part of the success path, but we're trying to enjoy the journey, like learn every day, hopefully help our customers on that. Along that path.

I'm looking forward to rooting for you from the sidelines.

Thanks.

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