Flexport: How to Build a Truly Global Business From Day One with CEO Ryan Petersen

Did you all know that when you ship an ocean container across the world and pretty much look around, every single thing that you see got here by ocean container, when you ship one of these things across the world, there's actually a piece of paper that travels in parallel and that serves as title to the goods. So there's a new owner because you've sold the thing in international trade. And we're actually flying pieces of paper across the ocean still like this. In the year 1500, when Gutenberg invented the printing press, this was a real innovation. You could take that piece of paper and sell it in the marketplace. And that's about where we're living. That piece of paper is called a bill of lading. Lading is an old English word. It means loading. And that's just to give you a sense of the industry that we work in at Flexport. We're trying to bring global trade into the modern world, into to your world, the software world. My own personal story. I actually learned about this piece of paper when I lost one. I was importing motorcycles from China in the early 2000s. In fact, I was the first dealer in the United States with my older brother. Really, he was the boss. I worked for him. First dealer for a company called Geely, which is a Chinese car company. They bought Volvo for years ago. Give you a sense of how far the Chinese have come. I used to be their dealer in the United States, just selling these things on ebay. And lost one of those pieces of paper. Horrifying, because that's the title to the goods, which means you've lost your container. And there's no way customs is going to release this thing to you without the piece of paper. You end up having to get a new one issued. It takes many, many days to create a new document, to get it shipped, to get it delivered, to get it signed. Three different parties have to sign it. The fact the importer and then the freight forwarder, it's a nightmare. Like you can already hear it. Anxiety. I feel it coming back to me. And when this is your only source of cash in the world is that container full of motorcycles. That's when you know the true feeling of being an entrepreneur. When you can't get your stuff out of customs and every day that it sits there, they charge you an extra thousand dollars. So I went through that pain. I went through that pain. This was back in. It must have been in 2005, the first time that happened to me. You call that a death spiral, by the way, when you can't get your paper out because you don't have enough money to pay the fines. It took me. I didn't start Flexport, which is built to solve this problem, to make shipping easy, to make global trade easy for anyone. That's our mission. I didn't start Flexport officially full time, make it my job until 2013. So there's like an eight year gap there that you have to explain. I think it's a useful one to talk about because during that time I was guilty of what Paul Graham, who's the founder of Y Combinator, Flexport's first investor, he calls this schlep blindness. He has an essay called schlep blindness, which if you haven't read, I recommend. And schlep blindness is a. Schlep is a Yiddish word for an arduous journey. And schlep blindness is when a problem is so big that your conscious brain won't let you actually entertain it. You're blind to that problem. You just pretend that it doesn't exist. In his essay, he talks about Stripe, that before Stripe, if you wanted to sell something on the Internet and accept credit cards, it took months and months of waiting. You had to apply with a bank to get permission. It's called merchant processing to sign up for it. And. And what's very interesting about the Stripe example is that every single Internet entrepreneur in the world sort of by definition, experienced this pain because we all had to take credit cards. So 100%, pretty much of all the world's Internet entrepreneurs saw this problem. And we all said, yeah, this is a nightmare. Why am I having to wait three months for an application for permission to be able to sell something? What is that, by the way? Who is this bank to give me permission to sell something? And we all went about our way and ignored the problem. In my case, I just went out and sold these crappy motorcycles on ebay. Those are Hondas. We didn't sell those. I went about my way. And yet here it was, this problem just staring you in the face, which we now know. Stripe's market cap, I think I read, was like $22 billion. Think about that. Like, every 100% of the world's Internet entrepreneurs saw that problem, ignored it, and went about their way selling toilets or cookbooks or whatever it was that they were selling. And I think that that's a very valuable lesson for all of us, whether you're starting a company, working a company, whatever, is to let yourself get pissed off about stuff like when there's a problem and it's not right. Instead of actually using that signal and telling yourself like, who's going to solve this problem if not me? Someone has to solve it. It can't just be okay that there's this horrible problem. So Paul's favorite new example of schlett blindness is Flexport. Anyone who ever imported a container from another country saw that this is a nightmare, saw that it's way too much paperwork that the freight companies are trying to rip you off. No one can tell you where your stuff is. The regulations are really hard to understand and the price changes miraculously, as soon as they have your car go in their possession, the price goes up. And so finally, eventually I came back to this problem in 2013, made it my full time life's mission to make trade easier for everyone. I think trade is extremely important in ways that are not obvious immediately, of course, we lifted more than a billion people out of poverty in the last 40 years through the adoption of free market economics in India and China, many other parts of Asia and the world. So we've seen that trade can drive gdp. It's a market that by the way, is just massive. It has grown 4% annually for over 800 years, which is a nice slide to present to investors. They're not used to 800 year growth charts. But there's something even more fundamental here, is that without trade, it's actually the thing. Trade is the thing that separates humans from the animal kingdom. There are animals that make tools, there's animals. Lemurs can use 200 words, I understand, but there is no animal that can trade an object with another object because of their difference in preferences. And every time you trade something, if it's a mutually beneficial exchange, by definition you're made better off. And so this is literally the force by which humanity has emerged from the animal kingdom. And so when you see that there's this problem that's like fundamental to the human experience that's driving huge parts of the global economy. It is the circulatory system for the human ecosystem. And it's broken because there's no software, no technology. I'm flying pieces of paper around the world. Light bulbs should really go off. That this is a huge opportunity. So as I said in 2013, I made it a really big, I made it my full time job. And over the last. And so what I want to talk to you today is really about how we did this. What is it? We've raised now $354 million in venture capital. We've grown to a thousand employees in five years. We closed last year, I'm proud to say. $471 million in revenue in our fifth year in business. And so why, what is so different when you apply technology to something and it really is that you have an analog process that's very broken. And if you're in. We're all much more familiar with parcels because we use them at home. Like you send it to your, hopefully your grandma at Christmas time and on her birthday you send her a package. That world is pretty streamlined. It's the same company from door to door. It's probably FedEx or UPS and they come to your house. The driver is a FedEx employee. He takes it in. He or she takes in a FedEx truck to a FedEx warehouse, where a FedEx customs broker puts it on a FedEx plane. And so door to door, it's one company, one IT system, one process in the world of freight. And the difference is pretty simple, actually. Freight is when something is too big and the driver can't pick it up. It's 100 kilograms in that world. There's no company that can do it from door to door. So what you actually have to do to solve this problem is get as many as we've got. I've seen shipments with 18 companies involved, 18 different companies from door to door, each of whom needs a way to share data to us or to receive data from us, to connect it all together to collaborate in the old world. It's a relay race of unstructured data. It should be called, we call it Freight forwarding is the name of our industry. It should be called freight email forwarding because it's just a human looks at this PDF and says who else needs to know? And forwards the email and passes on some instructions. And what you get is an industry that's extremely inefficient, where customers get almost no service, no technology. You can't log in and see where your stuff is, which is a pretty important thing if your whole livelihood depends on those products arriving. And so what Flexport's done is build user interfaces. I think we're pretty fortunate that as a company, me personally, I'd never been a freight forwarder before. I'd only been a frustrated customer of freight forwarding. And that's, that's a benefit in a couple ways. One, I get to understand our customer much better than a freight forwarder does, who's in it for themselves, and I'm in it for the customer. Two, I was naive enough to think that this is possible and I didn't understand all the things I just described, that there are 18 companies in a chain depending on data, flowing seamlessly in structured ways. I only knew that the customer was getting ripped off and had no visibility, no control. And, and so this is another lesson for people, is that you have to talk in simple language if you want employees to understand it, if you want your customers to understand it, your investors. If I had whiteboarded every single complexity of Flexport's current structure, our data model, our organization design, if I knew all that stuff when I started and I wrote it on the whiteboard, you would think I was John Nash and Beautiful Mind and nobody would invest in that, nobody would have joined me. But instead I talked in simple language. I said, we're going to make trade easy for everyone. We're going to be TurboTax for importing. We're going to simplify this complex process. And people that like registered people got it and they came. And it's been a five year mission to untangle this web, simplify the world, bring all the parties together and build this technology. And so what the technology looks like is a data suite where we each party, whether you're a trucking company, a warehouse, an ocean carrier, an airline, a railroad, an importer, an exporter, we're connecting all these parties together in one place. Web interfaces, APIs, mobile apps, as well as some really old school stuff like edi, some email, a fair number of CSV files I still see floating around. It is a mess and there's not a silver bullet. But building that technology is what lets us really stand apart from the traditional freight forwarders, of which there are many, 5,900 in the United States alone. But tech is not enough. And I think that's where Flexboard is a little bit different than most of the companies at this conference because this is real world stuff. We have to have infrastructure to connect to actual physical bits in the world. Atoms, not just bits, sorry, that we have to connect to the world's planes, trucks, ocean carriers, container ships, et cetera. And that is a different skill set. And we've had many, many technology entrepreneurs attack the same problem. I think my idea is not that hard for Flexport. The execution's really hard. And a lot of engineering background, software developers, product managers, hopefully not the product managers, but a lot of people with a technology background don't want to go out and talk to the customers, don't want to get out there in the real world. And if you don't go in front of the real world, you won't figure out how it actually works. In many industries, the secret of Flexport is being able to combine the technology with infrastructure. What does that mean? It means going out to Hong Kong and drinking whiskey until 4am to figure out how the heck they load those airplanes and learning the insides and outs. And what is the problem? What is the problem that the freight forwarder in Hong Kong is facing, that the trucking company in Long beach is facing, and treating every single side of that platform as a customer? That it's not just people who pay us money, even our vendors are customers. And we have to understand what is it? How do they make money? How do they, how do we save them? How do we help them make more money? By either saving money or driving growth. We in fact, the COO of the world's it's a top two or three ocean carrier in the world. So these are the people that own those big container ships. He told me that in 30 years as the COO, I was the first person from the freight industry ever to ask him, how can I help you make more money? Think about that. Like this guy has had thousands of meetings and nobody, none of his customers have ever said to him, how can I help you make more money? We're used to a world where it's a zero sum game and for him to make more money, I would have to pay more. And no one wants to ask that awkward question, but there's many other ways for your vendors to make more money. You can be more reliable, you can be more predictable, you can help them lower transaction costs. There's many ways. And so by looking at the world's infrastructure providers and treating them as though they were our customers, even though we're paying them money, but treating them as customers and doing customer development, the same things that you learn about in entrepreneurship and going to understand what is their need. And if I build this, would you partner with me? Would you give me space on your container, on your container ship? If I could lower your cost dramatically, If I could guarantee that instead of canceling 30% of all the containers I book, I'm gonna Cancel Less than 1%, would you do business with me, even though I'm a nobody? And eventually, if you have enough of those conversations, you break through. And so. And so it's technology and its infrastructure that have made Flexport successful. And even that's not enough. There's a huge amount of expertise required compliance with. There are 43 government agencies in the United States alone that take an interest and regulate imported products. 43 Just in the US, we shipped goods to 107 countries last year. And I think actually if you believe the UN Freedom Index or whatever that thing's called, we actually have a relatively low amount of bureaucracy in this country. Remarkably. And so this real expertise to understand the ins and outs of these laws, these regulations, to have the build relationships with customers, to be able to solve problems for them, understand what their needs are, that's the expertise side of the business. It's not tech alone. And I think that you'll find that when you can combine technology, infrastructure, expertise in novel ways, you can generate a really differentiated and very defensible business. We in our competition, by the way, is this company called Expediter. So this is the world's number one freight forwarder. In five years we did. It took them their first 15 years to get to our revenue number and for sure that dotted line will come true. This is a really interesting example. Like we're used to software companies where almost by definition you all are inventing something brand new that never existed in the world. If it's software and you're trying to sell someone and convince them they need something that they're not currently buying, our business is a little bit different because every single company in the world that has a physical product must ship it. And so you're actually able to come onto one of these companies. And if your tech is differentiating you, which it does, makes you easier to use, lower transaction costs again, gives you more control, you can't say no to that. At some point, if I can get to the same price, it's irrational not to buy. And I think one of my hypotheses is that there are these huge pie charts of gdp. Rather in the pie chart of GDP there are these huge sections of it that just have not yet been fundamentally transformed by the Internet. We're used to thinking everything's been transformed, everything has already changed. And, and I think that it's similar to how I used to think when I was a kid and I thought McDonald's.com already got registered. I missed my chance to register all those domain names. And in fact there were still tons and tons of million dollar domain names out there. I used to be a domainer. And the reality is I think that there are still huge swaths of the economy that have not been turned over by the Internet. And there are big opportunities if you're willing to do the hard thing, which is not just build tech, that's really hard, trust me, I know. But if you also can learn about what is the Customer experience. How do I go get real deep expertise in a domain that's super nichy? Figure out what the world's asset owners need and want and how can you help them and combine these in novel ways. You can actually grow insanely fast. Like way faster than a software company. Maybe there are some software companies that have grown this fast, but not many. And I think that's a really interesting perspective. Even if you look around this room and we're used to again, thinking that the whole world's been transformed by the Internet, but actually most of the objects that you see are not connected to the Internet in any way. This stuff is just like old stuff. It's not connected to the Internet, but it all will be right. I suspect in 20 years when you look around, every single thing will be watching you and you'll be watching it. It'll all be connected. So there's just these huge amounts of opportunity and the big trend that we're building towards at Flexport and building for that we want. How do we help our customers really grow? Because this is the other thing. You don't think of your freight forwarder as someone who's here to help you grow. They're just like the necessary evil. You gotta ship something, you have to pay someone to do it. Maybe we're a little better than the other people. I call us the offensive linemen of those in logistics. We're the offensive linemen of business. Like you only notice us when we screw up. But actually there's a huge amount of potential that the world has changed fundamentally. When I was a kid, and I'm not that old, I'm 38, but I feel old because Wi Fi did not exist. When I was in college. I didn't have a cell phone. The world has definitely changed a lot. When I was a kid, there were three television channels and you got to pick whatever brand was for sale was advertising on those three channels. Whoever was in the local store or in the Sears catalog. The Sears catalog, by the way, is the most sad story ever. It was disbanded in 1993, the year before the Internet was invented. It could have been Amazon. So Sears catalog, you could set up one distribution center in the middle of America and, and serve everybody, because three weeks was all you could hope for. But today, in terms of Delivery time, your 3 week delivery time was fine. The brands were in charge in the old world. Today, customers are in charge. They can get anything they want whenever they want it. Right now, two hour delivery is expected. You're going to have two minute Delivery with drones. As soon as it's deregulated, two minute delivery, you just push a button and boom, like Snickers bar right at your seat. That will happen. But how does a brand, how does a company respond to that from a supply chain perspective? You can't deliver it from a warehouse in Kentucky in two hours. And so what you're gonna see is that brands, if they want to survive in an Amazon world, they need to have small pockets of inventory everywhere, little caches of inventory in every single nook and cranny of every zip code to be ready to deliver for customers. And this is what we have to build towards is a world where a company can deliver that promise to their customer and not spend a trillion dollars on inventory, because if the products don't sell you, you're going to sit there with a trillion dollars in capital on your balance sheet. And so it's all about building that infrastructure for commerce so that you can actually become a partner to help brands grow so they don't get swallowed by Amazon. That is the existential threat to every single company that makes products in this planet right now is should your brand exist or should it just be a generic on Amazon? And if you don't fix it, if you don't solve it, if you're not able to at least get parity to Amazon's value proposition of two hour delivery, you will go bankrupt. I think there's going to be huge amounts of opportunity in helping brands to make that leap, to actually survive in an Amazon world so that they don't just get gobbled up by the mothership. If Amazon eats everybody, it seems to be happening, by the way, if it happens. There's a philosopher in Germany in the 1860s who predicted this, that there would be one global mega corporation that would take over all of them. And I think that's a pretty ugly reality that we don't want to live in an ugly world where there's one company and we all work for it. You get whatever they decide you deserve. Killed 100 million people last century, by the way. So I hope that this room full of entrepreneurs building software will think about this world that we're in and say there's going to be a huge amount of opportunity. Every single product is going to be up for grabs in this new world of who's going to sell it, who's going to make it, what kind of brand is going to do it. Is it just one big giant mega corporation? Or is there a world where thousands or millions of different entrepreneurs can thrive, make awesome products differentiate not just on price and delivery time but on the quality of their materials, where they're made, how they're made and if we don't build that infrastructure for global commerce there's only one company that's going to have it. So I hope that's a bit of a call to action to this community here in the software business and say huge amount of opportunity here if we get to know these companies and what are their problems and how do you help them thrive and not be scared by the fact that customers are in charge now but actually be put in a position where we can help those customers, we can help those brands serve those customers and actually not just like barely hang on but really differentiate and do something unique and better than Amazon better for their customers. If we don't it's going to be an ugly world. So that's my remarks for today and thank you all very much for coming.