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

Starting point is 00:00:00 I lived in China 18, 19 years ago for a couple of years. And I was always predicting back then that, hey, once these Chinese companies figure out how to do branding, they're going to take over the world. Yes. Because they make the product. And then I slap my brand on the thing and market up 5X and I get all the margin. If they can learn UX, UI design. I always said this about Israeli companies.

Starting point is 00:00:20 They're starting to do it. You know, that's what these companies are. That's what's happening right now. This Week in Startups is brought to you by, Miro helps take ideas from in your head to out there in the world with its ability to democratize collaboration and input. Sign up for free at Miro.com slash startups. KuroTech, are you one of those companies that knows you need to be using AI, but you're not

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Starting point is 00:01:20 week in startups. Fan favorite is back on the program. Ryan Peterson is the CEO. and co-founder of Flexport. Back on the show for the second time, you've seen him on the All In podcast two or three times, speaks at the All In Summit. He was last on this podcast, this week and start up on episode 1169 back in February of 2021.

Starting point is 00:01:39 That was peak pandemic days, and that was 700 episodes, if you can imagine. Lots happened since then. He stepped down as CEO and became the executive chair in March of last year. We'll get into that.

Starting point is 00:01:50 Then in July, announced he was going to be a partner at Founders Fund. And then in September, he reached, took the reins as CEO, apparently to get cost and things under control. And we're going to get into everything and more today. Welcome back to the program, Ryan Peterson.

Starting point is 00:02:08 Thanks for having me back. Wow, it's been, did you say it's been 700 episodes since I came up? 700 episodes. You know, it is. You know what happened was, yeah, you know, I always wanted to try being like Howard Stern and have my own daily show. And, you know, over the last couple of years, the podcast gets popular, the ads sell out.

Starting point is 00:02:29 And I just told the ad sales team, well, if you sell out all the ads for three months, I'll add a day. And it went from two day a week, two days a week, three days a week, four days a week, five days a week, and six days a week. And then I realized that we did all in. And it was seven days a week. And I realized, you know what?

Starting point is 00:02:44 Be careful what you wish for in life. My entire life became doing podcasts, and it was exhausting. And so now I'm back down to four days a week for this week in startups, one all in, five a week. five days, one hour a day. And, you know, I do this instead of having lunch and getting fat, right? It's like a better deal. Other people go have lunch and I just do a podcast.

Starting point is 00:03:05 So just to remind everybody, what does Flexport do? What is the business of Flexport? How do you make money for your customers? Well, Flexport's a global logistics company, and we use technology to make that easier, better, cheaper for companies to ship cargo anywhere in the world from wherever it's made deliver to the end customer in over 100 countries. And what that looks like is we actually, our technology lets you place orders to your factories. Factories acknowledge those orders.

Starting point is 00:03:37 They become users too. That's one of the coolest parts about Flexport is that every time we get a U.S. company, that's where we started, but we're now all over the world. But if we get a U.S. company on average, we get 18 of their factories to become users too. So they're receiving orders through the system and then placing bookings to get the cargo picked up and shipped, whether it's by air or ocean, including some cross-border trucking across Canada, Mexico, and then delivery. And then last year we bought Shopify Logistics, and that's the last mile arm.

Starting point is 00:04:08 So now we have fulfillment centers doing e-commerce, pick, and pack, delivering both to retail stores and to customers' houses all over the United States. This is something I wanted you to explain to me. So in a way, are you software and a marketplace? So the software is what people pay you for, but then there's a marketplace to get those logistics and the deliveries going. We're really closer to like a logistic service provider from a business model standpoint. The way customers think about us is like, you're paying us to move cargo around the world to ship your packages.

Starting point is 00:04:41 We use technology to make ourselves much more efficient and reliable, lowering the cost for the customer, and then giving them much better user experiences to do things like planning, how much inventory, to have getting that. The data needs to flow in parallel. At the end of the day, supply chains are about the flow of goods, the flow of data, and then the flow of dollars. And we now have offerings for all of those things, including financing products, help you buy inventory, compliance products.

Starting point is 00:05:09 That's part of the data as like clearing customs, getting things delivered. So it's really a managed service is closer to that. There are marketplace like dynamics in that we work with on the asset owning side. We have 400,000 trucks in our mobile apps. We've got all contracts with all the ocean carriers and airlines, warehouses, other customs brokers. These are kind of supply-side vendors. But the customer doesn't really think about that as a marketplace.

Starting point is 00:05:37 They buy from Flexport. And it's on us to get the right providers and lined up. Got it. So I wanted to ask you about this. I think you called it pack and ship from China to America. Picket pack. Oh, from China to the U.S. Yes, because there are a series of new websites that have gotten very popular.

Starting point is 00:05:56 Some people are not aware of them. Other people are obsessed with them. I think T-M-U, T-E-M-U, Ali Express, which is part of Alibaba, Sheen, which is clothing, S-H-E-I-N. You see these as some of the top apps in the app store, and you wonder, like, who's using these. It turns out it's very popular amongst kids who are on a budget. and I just did this myself as a test. And I think TikTok now has the ability to, they have TikTok shopping.

Starting point is 00:06:26 And so I was looking at Laura Piana shoes because Chamoth is into these shoes and Laura Piana sent the besties some shoes at the All In Summit. And they gave people in the VIP bags like something from Laura Piana. And I saw people promoting knockoffs of these like three or four thousand dollars shoes.

Starting point is 00:06:46 So as a goof, I bought the $20,000. versions of them. I kid you not they came two days ago in a plastic bag. It's the worst quality I've ever seen on a pair of shoes. And they smell terrible. They smell like they're painted. Was it 20 bucks? I think it was 25 bucks for what were Laura Piana rip-off of their like $1,200 loafers. And, you know, if you put them next to each other, you would obviously know the difference. Maybe if you didn't put them next to the other, it wasn't so bad. But what is this new phenomenon of people selling knockoff products or pick, is that pick and pack?

Starting point is 00:07:22 And things going directly from China to U.S. customers. Yeah. So the industry term for this is actually called a Section 321 clearance. And that's a section of the U.S. customs regulations, which allows you to not pay customs duties. If the goods are worth less than $800, then you don't pay customs duty. Now, the trick to do. doing this is that each individual product has to be already consigned to you, the end consumer,

Starting point is 00:07:51 to buy it. And so that means you've got to be able to be efficient and they're like, you're fulfilling that unit from China or could be from Mexico. A lot of people are doing this in Mexico and Canada now, but you're crossing the border one item at a time. Now, they'll bundle lots of these into a freight shipment. So you still get the low cost of freight. But you're clearing those goods and avoiding customs duties. So with the Trump tariffs, you know, which Biden has continued, I think we got to now call him the Biden tariffs or just the new

Starting point is 00:08:19 tariff regime that we have. That, that can be really significant, you know, 20, 25% savings on that by, but, and so that's, that's what's happening there as fundamentally is like avoiding customs duties. It's huge right now. In Q4, it was about 50% of all the air freight

Starting point is 00:08:38 flying across the Pacific was, Wow. E-commerce parcels, generally, broadly. E-commerce parcels. So what's happening logistically is somebody in the United States orders one of these products, listen, I'll say they're lower quality or whatever, but just putting that aside,

Starting point is 00:08:56 they order something direct from a factory that a marketer in China has put on a U.S. commerce site and they pack it up, they put a label on it, and then how does it get to my house directly from a Chinese factory? It's being packed and labeled in China, correct? Yeah, it has to be labeled at origin. So it gets labeled there. It gets flown over on freight, including a lot of this,

Starting point is 00:09:19 is flying on Flex Sports freighters, gets handed off to what cleared customs, and then hand it off to a last mile provider. And that could be UPS. It could be USPS. It could be, you know, whoever's offering the best rates. And so that's who's delivering it to your door. So it's a kind of need to end transaction.

Starting point is 00:09:39 How is this? economically feasible is what I'm trying to figure out. What's the economics of this? Because I don't think there were shipping costs or the shipping costs were de minimis on this. Yeah, I don't, you know, it's hard to say, but, you know, different customers have different business. These companies have different business models that like, hey, maybe they're not making money a $20.

Starting point is 00:09:59 I don't know, those shoes might only cost $2 to make, Jason. I think that's what it is. I don't know. I haven't seen them yet. But what would it cost somebody to ship a pair of shoes like that on an airplane to the United States and then do the last mile. Price of air freight is about five bucks a kilo. How much do you think those things weigh?

Starting point is 00:10:15 Kilo's 2.2 pounds. They got away ounces, right? So maybe under a pound. Yeah. Maybe under a pound. So it's like $2.50 for the air freight. Wow. Last mile could be a couple bucks.

Starting point is 00:10:27 Might only cost you $5 or $6 door to door on the freight side of things. It used to be worse. You know, Wish was doing this in a big way. Remember which? Now, it used to be worse in the sense that the U.S. government, until a few years ago, Trump closed this loophole. The government was actually subsidizing. It was called E-Packet. And it was like this weird customs, it was a weird postal treaty. And China was considered a developing world country. And so to like promote development there,

Starting point is 00:10:56 you could ship something cheaper from China by USPS than you could from like North Carolina to New York. It was like cheaper to fly it from China to New York. They closed that. It was pretty much a loophole. They closed that because there's a reason for the government to be subsidizing these cheap shipping like that. All right. Founders always ask me for pitch deck punchups. And you know what? I got some great news for you. We worked with the team at Miro, the awesome whiteboarding software I've been talking about to create an amazing pitch deck template for founders, which you can see if you're watching the video right now.

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Starting point is 00:12:26 M-I-R-O-com slash startups. That's mirror.com slash startups to sign up for free. This was all, I think, created because of Amazon third-party sellers in some way. you know, kind of incepting in Americans' minds that there are these knockoff products or, you know, similar to products

Starting point is 00:12:46 that you can buy for a lot cheaper, yeah? Well, Amazon's been lobbying quite a bit to close this loophole. Because it hurts Amazon's business, you know? What's the point of having this like really impressive network of fulfillment centers all over the U.S. If you're not going to use them, you just bypass the whole thing

Starting point is 00:13:02 and fulfill out of China? So they've been doing quite a bit of lobbying, which a public record to close it. It originates actually in the rules as an individual. If you're traveling internationally, you come home, you don't have to file a formal customs entry and $800 at the threshold. You remember that next time you're buying something. If it's below $800, you're good.

Starting point is 00:13:25 You don't have to deal with all the paperwork and extra duties. You still have to declare it on the back of that little piece of paper, but you won't have to pay any customs duties. When you get above $800, now you're like, oh, man, you've got to file an entry. and it would be a lot more painful. So that's where it originally comes from. And then it's called a type 86 clearing. I probably knew it out too much for this.

Starting point is 00:13:45 But the ability to do this like at scale where you can clear like 10,000 of them at once because if you have to pay a customs broker to do a customs entry, well, we charge like 100 bucks for that. So that'll kill your whole. I can't charge you 100 bucks for a customs entry on a $20 pair of shoes. So but there's this manifest clearance it's called

Starting point is 00:14:04 where you do 10,000. thousand of them at once. Yes. It's 100 bucks for all 10,000. That's the type 86. But section 3021 is the section of the customs regulations that creates this law, this ability to do this. It's a very interesting phenomenon.

Starting point is 00:14:20 It's like kind of taking the world by storm. It's like 30 to 50% of the air freight market, depending on the time of year. Which, you know, up from kind of, I don't know what, I haven't seen the trend on what it, what it was historically. So I need to go study that a little bit more. But I remember being very surprised when I wanted. learned it was like now 50% of the market in certain weeks and quarters. It's just extraordinary to think about this infrastructure that's been built over whatever

Starting point is 00:14:45 it is, I don't know, less 50 years or 100 years of a factory in China. Somebody makes something there. It goes to some depot, which then goes to an airport, which then flies across the world, lands somewhere in the United States, and then goes to some depot again, I guess, and then gets delivered. and it cost five bucks or $250 a pound. Yeah, well, that's what's very different about this is like, you know, if you were to ship a FedEx package from China,

Starting point is 00:15:13 it probably costs you $60,70 to get the same. And so it's sort of avoiding that by paying bulk wholesale air freight rates. You ship it with Flexport, you know, we fly it on our, we have 747, so we fly it in. And then it lands in Chicago or L.A. And there we have trucks that literally pull out next to the, next to the plane, get loaded right on the truck. It doesn't even go inside a building. It just gets put right on the truck and then shut down the road to UPS and UPS delivers

Starting point is 00:15:39 at the last mile. So it's a pretty cool product. I had like mixed feelings about this whole thing. I'm like, hey, what are we doing? Like flying this stuff up. And then I realized like actually Flex Sports pretty uniquely positioned to benefit from it because

Starting point is 00:15:50 we have air freight customs and with our Shopify logistics acquisition, we have great contracts for the last mile delivery. So it's made us a major player in this kind of e-commerce logistics. So this gets rid of this idea of, I don't know if it's called Drey. or a fulfillment center like Amazon has where you would order 100 pairs of these shoes, put them in a warehouse somewhere,

Starting point is 00:16:12 somebody would order them, then you would ship them. This is factory to consumer, correct? Yeah, or your fulfillment centers in China, effectively, or in Mexico or Canada. You know, you don't have to fly it. You can do this on ground shipping where you put it up in Mexico or Canada.

Starting point is 00:16:26 We'll see there's a lot of efforts to lobby to get this to go away for sort of obvious reasons. I mean, if you're going to have tariffs, like why not why allowed it? You know, what's the point of this? But there's also lobbying efforts to say, hey, you know, you should be able to do this out of a bonded, out of a free trade, foreign trade zone, which is a bonded warehouse in the United States.

Starting point is 00:16:48 Like Flexport has foreign trade zones that we operate that are legally, technically, not inside the commerce of the United States, but you're not allowed to do this clearance from one of those and send it out. So there's all kinds of lobbying going on right now. there's a bill in front of Congress that we're monitoring all this stuff, but I don't have all the details in my head. But there's one bill out there that would eliminate it for shipments from China, but allow it from other countries. There's another bill that would raise the threshold instead of lower the threshold. So instead of being 800 bucks, it has to be below 200 bucks,

Starting point is 00:17:24 which would limit the number of products that could be imported in this fashion. So yet, it's pretty contention. And then there's a lot of different business models too where Timo, for example, is a marketplace. So it's like lots of different factories sending stuff. They consolidate it and then send it to you. Shane is much more kind of like make their own brand, design their products. Yes. Kind of own it, let more first party and less third party. Although I think they have some third party aspects to it as well. So that that is kind of bypassing the Amazon fulfillment centers or the Flexport fulfillment centers. We now have a bunch of these as well.

Starting point is 00:18:02 I don't know. You know, I don't know how to feel about it. Like, Flex Sports is pretty well positioned to do well in that world. We want to be, it's interesting because like, if it's going to last forever,

Starting point is 00:18:11 then I got to invest and go, hey, let's go build some fulfillment centers in Canada and Mexico and be really great at it. But if Congress is going to change the law, I could go away overnight. And like, I'm, you know,

Starting point is 00:18:21 less, less excited to go do that. It also creates a bunch of issues around the quality and safety of these products and, you know, trademarks and intellectual property because the people who are selling in China, let's say, or, you know, pick another country,

Starting point is 00:18:40 they might not have the same standards for safety, etc. And they're selling direct to a consumer. Whereas if it goes through Amazon, Amazon picks up some liability, yeah? Well, I think with Amazon's marketplace, they avoid the liability as well. So it's kind of similar.

Starting point is 00:18:54 There's a lot of third parties, you know, a lot of counterfeit issues. Sellers will tell you on Amazon as well. But it's, you're still subject to the same rules and regulations for importing goods. It still has to be counterfeits still illegal. It does create some complexity for us on a compliance front to make sure that we are dialed. And like, you know, there's compliance for counterfeiting, which is important. But compliance for dangerous goods for batteries in particular to not sort of fire on an airplane.

Starting point is 00:19:22 That's like 10 times more important in my view, right? Like, a thousand times more important just because people's lives are at risk. And so, yeah, it's dialing in those compliance processes to make sure that everybody understands, like, here's what the rules are. You need, I don't want to board the audience, but material safety data sheet to, like, validate that there's been drop testing on the batteries and all these types of things need to be done before you can put up, before you can put a battery on an airplane. Yeah, I mean, we had all kinds of weird stuff happen with batteries on airplanes. It's an interesting segue. I mean, I had this away bag that they put a built-in battery pack where you can plug in your phone to your, you know, roller when you're getting on a plane.

Starting point is 00:20:01 I came on the plane. The woman's like, oh, is that one of the new ones with the battery pack? I was like, yeah, she's like, oh, you can't bring it on the plane. And I was like, that was a setup. That was a setup. She asked me like, she was personally interested in my away bag. And they changed that, but that was a weird one, yeah? Yeah, that one's, you know, that one always surprises me because, well, obviously they built the product for travel, so it should have solved up.

Starting point is 00:20:22 But if it's in the passenger compartment, you are allowed to have battery, but they still make you take it out of the suitcase. It's like, it's kind of weird. I get why you're not allowed to put it under this underneath because there's no one there to like monitor it and make sure it doesn't go. It's a very serious issue. Now, you can have a battery fire. If it's designed the right way, the battery will sort of like collapse in on it. So the fire will collapse in on itself and not spread.

Starting point is 00:20:47 It's like an elaborate, you know, engineering process. And that's why it's important that you do these things professionally and not have like random amateur is trying to do so. there is an interesting topic that's at work right now with these 737 maxes. I don't know if those are the planes you fly, but you saw the door come off. No, we got 747s, but yeah, I saw that. That's crazy.

Starting point is 00:21:06 And, you know, my friend, Sky Dayton from Earthlink and Boingo fame, he just wrote a blog post about this, about just training of pilots. He's a pilot close round to mine. And they're really having challenges now with the number of pilots available and they're training and are they getting enough hours. And it turns out they're pushing them to put a lot of hours

Starting point is 00:21:25 not in the simulator, but into like, you know, Sesta-172s and the training and stuff like that. Tell me, are there issues right now around flying stuff around the globe? Is that, and you're starting to see that with pilots, shortages, and safety with planes? There've been a lot, you know, all these airlines, sort of a self-created problem, they laid all their pilots off during COVID. A lot of them did, and they've had to rehire, and then you definitely see it, like, much younger pilots, like trying to fly.

Starting point is 00:21:55 fine, you know, training random. In fact, I'm very proud. We've had like six or seven flexport employees in Asia who were doing freight forwarding work, which is like working with factories to get documents, coordinating shipments, shipping stuff that have become pilots for major airlines. Wow. I just found this out. I was in Asia two weeks ago.

Starting point is 00:22:13 And I was like, oh, yeah, this guy left here. He's now a pilot at Cathay Pacific. I was like, really? What's so cool. Yeah, a lot of opportunities been created. What I heard from the team there was that a lot of the experience pilots got, went to the Middle East. A lot of the Middle Eastern Airlines were still hiring and attracted away a lot of the pilots out of the Asian Airlines who had shut down completely. And the Middle Eastern Airlines kept operating or else they had deeper pockets or whatever. And they're growing a lot. So yeah, interesting dynamic. But I don't think it's creating. It hasn't been a big challenge that hits us in the freight world. I just like hear about it anecdotally. Okay, you've seen Sunday Night Demo a ton of AI tools, and we've learned that these tools are going to help you do so much more with less.

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Starting point is 00:24:00 a reality. So go check out curatech.com slash twist and get $5,000 off. That's c-U-R-O-T-E-C.com slash twist. Let's get the update on what's going on in the Red Sea. You came on all in the other week and talked about it a little bit. And then I've been watching you on Twitter, man, you shared one graphic of people going around. Is that Cape Horn at the, at the end of, uh, that's a Cape Horn at the South America. Cape Horn is South America. And Cape Horned is South America. And Cape Good Hope, is that the one of the one of the good hope, yep. Cape of Good Hope, which by the way is one of the most turns you can make around a continent, yeah? Yeah. I mean, the Southern Ocean is pretty crazy, especially we're, my understanding is that the winner is, I've never been down there, but I think the

Starting point is 00:24:46 winter is way worse. So we'll see, it's right now it's summer down there. Yeah. So we'll see if that, I do, I have heard, you know, it's not, it's non-trivial to send container ships through those waters in the winter. So hopefully this gets resolved in the next six months, but. People are just electing to take the long route right now just to avoid the possibilities, yeah, in some large way.

Starting point is 00:25:11 Somewhere between 90 and 95 percent of the container ships are routing around the Red Sea. Wow. About 30% of all container ships flow through the Suez regularly throughout their journeys. So it's a huge disruption to global trade to go around. It takes 20 to 25% longer. It's really, you know, we talked about this on the all-impot, but it's a real challenge to the American-led order like post-World War II where we said like, hey, we're going to patrol this freedom of navigation. Anybody can trade with anybody else. We'll have this globalized world peace and harmony and anybody can, you know, anybody can do business with anybody.

Starting point is 00:25:46 else as long as you're not part of the Soviet block or something. That was kind of the post-World World War II American-led order. And if all of a sudden, you know, the U.S. Navy sends a carrier strike group to the Red Sea and it's still not enough to keep it open for navigation and there's still able to hit ships with missiles. You're kind of like, huh, like, what is that? It does make you think about the United States's role and in terms of being the global police officer and people being scared of pissing off the United States, you know, and if we don't serve that function, then who is? And I know for America, there's a lot of people in America who maybe don't want to be the World Cop, but then if we're not.

Starting point is 00:26:27 Yeah, a lot of people around the world who don't want us to be the World Cop too. Like, we don't make a lot of friends when we go invade these countries. A lot of European countries are like, no, stop doing that, you know? So, and as soon as really benefits Europe and China and Asia, much more than the United States. I mean, we barely use it. We use it for shipments from India, like Indian subcontinent and Middle East to the East Coast. That's the route where the Suez would be the fastest way to deliver. Where you go through the Red Sea, across the Mediterranean, across the Atlantic Ocean, and across the U.S.

Starting point is 00:27:03 East Coast. But if you're going anywhere from China to the U.S. East Coast, you're better to go across the Pacific and through the Panama Canal. Yeah. From China to the West Coast, obviously, you just go straight across the U.S. the Pacific. So we're, it's an interesting role for the United States. Like, should we go patrol the ocean on behalf of European countries who like they themselves don't seem to want to send their navies down there to do it other than France. It's very interesting right now. France has got their navy in the Red Sea and only protecting French ships. Uh, and the French ships keep going

Starting point is 00:27:32 through. That's, you know, I said 90 to 95 percent. The ones that keep going are the French ones. And it's a very, yeah. And it's really like a return like before World War II. This is how trade worked was like, your navy existed for this purpose. That's why you had a Navy. Like you had colonies. Like you had colonies out there and you traded with your colonies and you had a Navy to protect your ships and make sure no pirates or foreign navies, you know, captured them. Kind of every man for themselves kind of approach, right? Like, I hope not. I hope not. You know, I think the argument, the counter arguments are like, well, why should the U.S. do this? If it's not, if it benefits grew up more and leave it to that, it's sort of like, well, it's not a

Starting point is 00:28:10 zero-some world and the U.S. benefits from global prosperity and, you know, rising tide lifts all books like everybody else. Everybody being better off is good for America. Quite literally in the sense. They're more better off than we are. Quite literally in this sense, arising tie lifts all books. I mean, you would think that this is an area where the United States, France, and China and India could collaborate. These are all major trading partners, manufacturers, consumers. This would be a great opportunity for Xi Jinping and Biden or, you know, whoever, to just get together and say, you know what? Yeah, we all have an interest in making sure that this route stays open and defending ships because we're sellers, your buyers.

Starting point is 00:28:51 Why don't we put some, you know, ships from China and the U.S. in that straight and say, yeah, you can't attack commercial ships. Sorry. Yeah. That's why I don't think this is going to last that long. You know, like the rational brain says, hey, there's too many interests aligned here, too many superpowers. Even India, like last week, sent their special forces, their Navy, because there was a ship that had been hijacked or basically taken over by pirates off the coast of Somalia. And it was Indian sailors on board. It was Indian owned.

Starting point is 00:29:21 And the Indian Special Forces went on board and cleared the ship. Yeah, clear. But that's kind of interesting, right? Like, you would normally think that's the role of the United States Navy, but the Indian Navy is stepping up. So, yeah, we might. I like everybody stepping up and being part of it and having a dial. about this because, you know, when you have bad actors, it's good for them to get a united front from and hear from different voices like, hey, this behavior is not going to be acceptable.

Starting point is 00:29:50 We're going to, we're going to stop it. I'm curious what markets, you know, you keep hearing and you have your finger on the pulse of this, that, you know, some people are moving factories out of China. I tried to explain this on All In. I kind of got a little, I think Tumov laughed at me and some other folks were like, yeah, uh, Apple's never going to make the iPhone and Indian. And sure enough, Apple's making the iPhone in India and they're making more recent versions of it from what I understand. So is India and Vietnam, are those two areas specifically?

Starting point is 00:30:19 I think also Indonesia becoming, you know, major players in terms of more advanced manufacturing and you're seeing more shipping coming out of those areas now? Yeah, absolutely. Vietnam's a huge winner, lots of manufacturing. Lots of manufacturers shipped out of China. And it has been for like 10, 15 years for the low end kind of where it's just about labor arbitrage. because China is not the cheapest. Mexico has a Mexican labor cost is now about half of Chinese labor, like dollars per hour that you pay to the workers. And I don't know if that's productivity adjusted, probably not. And then, of course, the tariffs have impacted been a very real and impacted businesses

Starting point is 00:30:53 and a lot of decisions. And then some of it's just brand like companies just don't feel as good about the Chinese brand as they did. Yeah. And so, yeah, you see that Vietnam's the biggest winner so far. Well, Vietnam, big country as it is, is like less than 10. percent of the population of China. Yeah, it has a hundred nine or so, right?

Starting point is 00:31:11 Yeah. It's really weak infrastructure. I mean, there's the two biggest cities, um, are Hanoi and Hocci men. They're not connected by a freeway. I mean, it's like red light, stoplight the whole way. Crazy. You know, between these two mega urban centers. Vietnam does benefit.

Starting point is 00:31:26 They have, um, great rivers. And a lot of the ocean can take a lot of the container shipping actually flows on the rivers because the trucks, the roads are so bad. Um, and so we do a ton of barge. shipping in Vietnam, bringing it out of the country down to the coast and put it on a container ship there. But it's it just doesn't really have the infrastructure. It's happening fast. They're building that freeway as we speak. But yeah, big factories there, Samsung, Apple, lots of these major companies have huge factories, especially around Hanoi, North Vietnam, and India as well.

Starting point is 00:32:02 And then Mexico is the other biggest winner right now. But there is no other China. It's like a lot of other countries kind of coming up at once. This is a long-term pattern, though. You used to be you go to Taiwan and Korea and Japan for cheap manufacturing. Yeah. And then they become more advanced. And China has become more advanced and manufacturing has moved to, for the cheap stuff,

Starting point is 00:32:21 has moved to cheaper places. But Chama's also kind of right. Like for really high-end electronics, high-end manufacturing, like Apple's still the best. You can hear Tim Coe talk about why Apple, like for manufacturing, the best products in the world is still China's the best place to do it. Yeah.

Starting point is 00:32:36 Although, just the fact, that they, I think, got the, because it used to be they made like the, the maybe four or five generations ago in India, but now they move the 14 or 15, I think, is now being made there. So it's super fascinating and, yeah, really interesting. Vietnam ranks highly 19th of 141 countries in terms of linear shipping connectivity. However, the efficiency of seaport services ranks 83rd, according to the World Economic Forum. Yeah, yeah, 803 is pretty bad, man. Yeah, so their ports are terrible, but they do have tons of,

Starting point is 00:33:07 rivers, so that means potential. They have great potential. It's a lot of the roads that are bad. But even like rivers, you know, I was just meeting with the largest, I was in Singapore a couple weeks ago and I met with the largest logistics company in Vietnam. The owner flew over to meet with me because we're big partners. We have a JV with them. And they, um, they do, they own four, they own four river ports.

Starting point is 00:33:27 So they're doing this barge shipping. They run all these barges on the rivers. And he was explaining to me how, you know, this shape of these boats is like, can we make them bigger? Like, how can we get more volume? He's like, well, we can make him longer, but we've already hit the length of what's legal. So we're like trying to convince the government to make it longer. I was like, why don't we make them taller?

Starting point is 00:33:44 He's like, well, there's 200 bridges, you know, along the way. You can't go any higher. And like, they're not, you know, if you're going to make every bridge higher, like you're talking, you might as well make a better freeway or something. When you're in the start of business, you should always be looking for a performance edge. There are simple ways to do this, like getting better sleep. We all know that. But let me tell you about a little hack that.

Starting point is 00:34:07 elite athletes and U.S. military members use. It's called ketone IQ. A bunch of the quantified self, people like Andrew Huberman have been talking about the benefits of ketones recently, and ketone IQ is a ketone shot that was developed through a contract with DARPA to make American soldiers sharper. You can think of ketones as nature's brain fuel. They have a bunch of proven health benefits like improved focus and weight loss, and ketone IQ is a clean energy boost with no sugar and no caffeine. I have been on it for a couple of months now, and my energy level has gone up, up, up, and my focus as well. I love taking these shots. I take it in the morning before I work out. I take it when I'm skiing. And man, it makes you feel like a superhero. So here's

Starting point is 00:34:50 the call to action. Get 30% off your first subscription to ketone IQ at HVMN.com slash twist. That's HVMN.com slash twist for 30% off. Or you can easily find ketone dash IQ at your local sprouts market. Comes in the little bottles and you just take this little shot, boom, you're off to the races. Let's pivot the discussion to this CEO drama. You decide that you were going to become a venture capitalist. You were going to hand over Flexport. Let's take that first decision. This is a very hard decision for a founder to make. Why did you make that decision to hand the reins over to begin with? because usually I see that, hey, man, people are burnt out or they feel like, hey, maybe there's somebody better than me for the next phase.

Starting point is 00:35:37 Hey, maybe zero to one. I'm this creative person. Scaling, I need somebody maybe who's a little more boring, but is obsessed with scaling. So let's start with that first chapter there. Why did you make that decision that you wanted to try not being the CEO of the company you co-founded? Yeah, there are separate decisions, by the way. Being the VC came months later was not pre-planned.

Starting point is 00:35:57 So it wasn't like the allure of being a V-C. No, no, no, no, no. It really was that of like, I want just the best for Flexport. And I think Flexport has a huge lead in technology in our industry. Like, it's an old school industry. It's been around for thousands of years. We're the only freight forwarder in the top 100 freight forwarders in the world. There's only one that was founded after Netscape was invented in 94, the web browser, and that's

Starting point is 00:36:23 Flexport. Like, we're the third largest in the U.S. And so we have a big lead on tech. But I think it's kind of, I don't know, comparing yourself to the, it's not the bar that I want to clear being the best at tech in the freight forwarding industry, right? Which I would like to be as good as Amazon, like or as good as Google. Like I don't think we're reaching that level. So on the one hand, I want to go faster in building technology. And two is I do think Amazon is the best logistics tech company in the world.

Starting point is 00:36:50 Still, I can say that even though I aspire to be that with Flexport. It's like Amazon, it's, I can't explain we're better than Amazon at building logistics. technology. And so when I had the opportunity, I was looking for an operator to help me on both those areas like tech and operational rigor, efficiency, reliability, metrics. Like, can you quantify it? Can you put in all the processes to dial it in? And I just look at Amazon, it's just finding it to be so amazing, right? And so I was looking for a partner. One of the things I'll do when I'm trying to recruit an exec is talk to investment bankers. Because they know a lot of people. And they They all want to do Flex Sports IPO.

Starting point is 00:37:28 So I just kind of like put the word out there. Hey, here's the profile I'm looking for. A lot of people go to headhunters. I like to headhunters charge you a lot of money. And, you know, the bankers like, they got, they want to make this. They're trying to jockey for position for our IPO. They want to do you a solid. This is a really good favor.

Starting point is 00:37:43 Make them work for it, right? Like, so, so I had a banker kind of put, gave him the spec. I told him, hey, is what I'm looking for. He's like, oh, you should hire Dave Clark. I was like, I'd come on man. He's the CEO of Amazon, like, retail, consumer business. Give me a card that I could hit.

Starting point is 00:37:59 Yeah. And so he, yeah, exactly. And he's like, I might be open to it. Let's talk to him. And turned out he was. And so it was very opportunistic because I was really trying to hire like a CEO. And I kind of caught a whale. And it became pretty apparent that I, you know, just talking to him and getting to know him

Starting point is 00:38:15 and his experience. It was like really see him like working. Yeah, it worked for me as the chairman of the board. But like working for me as CEO, like what would I own? What am I responsible for? what am I going to be better and more experience and which decisions would I own? So I made it made the decision. Like I thought he'd be better at building the tech, running the operational side of things,

Starting point is 00:38:35 and then dialing it in to, so where we could, you know, be the most reliable, efficient and therefore affordable logistics company the world. So, yeah, it was really just done to make Flexport better. And then it quickly went sideways. You had him in there for a year or so. You weren't happy with the performance. board wasn't happy to the extent you can go into it. Maybe you could talk about when you just realized, uh, I need to come back and I made a mistake in leaving or I made a mistake in hiring

Starting point is 00:39:05 this person or both. I don't know what conclusion you came to there, but it did get a little spicy publicly, uh, obviously. Yeah, it was a little unfortunate. I mean, very unfortunate. The, um, you know, one of the things that happened was, was really unfortunate and annoying was that, um, journalists kind of dug up a bunch of drama that didn't exist. Uh, I'm shocked. And then spun it up and made it worse. Really? Created drama out of thin air. So they told, they interviewed somebody like some former employee who told him all this stuff about Dave that wasn't true.

Starting point is 00:39:38 Like actual allegations, there were some allegation of like fraud. I mean, there was in this article and say claiming all these things. And said it was from a source close to Flexport and then called Dave and told Dave. This was, I think it was someone that he fired. who didn't like them. Well, this, and this is important for people to understand, when you're the boss and you have to fire people, or layoffs for cause, not for cause,

Starting point is 00:40:04 or you beat competitors or somebody doesn't, a VC doesn't get an allocation, you just start building up these people who have resentment towards you. Fair on. This is how journalists operate, you know, they're always going to find some, disgruntled somebody out there with some story and like, you know, maybe there's a half-truth to it.

Starting point is 00:40:20 But in this case, it was completely fabricated. And then told Dave, it was someone close to the company. Right. So they weaponized it. Dave then thought I was the one saying bad things about him. And he's like, oh, if they're going to make these allegations against me, we're at war and started attacking the company.

Starting point is 00:40:37 It's just like spiraled. And we never, you know, we were very careful to go back and look like. We never said bad things about him. Like never, these allegations weren't true. There was a decision made by our board that like, hey, we do have to change direction of the company. We've got to pivot pretty hard towards profitability. Dave was going big. Dave was like all out there.

Starting point is 00:40:58 Let's conquer the world. We have a big lead on technology. Yeah. In a massive multi-trillion dollar industry, got a great balance sheet. Let's go after it. Like, let's go dominate this industry. Hired 800 software engineers. We grew our tech team from like 400 to 1,300 in like nine months.

Starting point is 00:41:19 We've been, you know, going really big. And the board made this decision. They're like, hey, this isn't the right path. We've got to build towards profitability, which means we have to cut costs. We also need to maintain flexports, like very entrepreneurial culture of customer, like intimacy, like how we meet with customers and grow with the customer and how we build the culture of our team. And that's a very hard job for a hired CEO to do to both be like, I'm cutting costs and I care about the culture a lot. Yeah.

Starting point is 00:41:51 And it was just like kind of clear that this would be a better role for the. the founder and go, all right, yeah, I got to cut costs, sucks, but I'll let people go. But I genuinely, and people know me at Flexport, I've got enough people that believe in, that understand me and my love for the company and for the people of the company to say, like, yeah, genuinely do care about the culture, even as I do. Yeah, it's a really hard challenge to be saying, I'm going to cut costs and invests in the culture. I'm going to improve quality, like on-time performance and operational efficiency, all

Starting point is 00:42:22 these things while cut it costs like these are these transitions thing for a hired CEO to do transitions are like this are never easy and this occurred during a market uh collapse yeah this all happened during yeah so the one 22 23 there's definitely some aspect of it that's related um the the freight the price of freight came down about 90 80 to 90 percent um but that's we knew that was going to happen you know it was in our forecast it happened faster it happened about six months faster. We had kind of like drawn it as like a smoother curve. But like at the end of the day, it wasn't the deciding factor. Like it was much more just looking at our business and just taking a clean look at like what's growth look like. Are we hitting our growth targets? Like,

Starting point is 00:43:06 what are the customer experiences? What's the customer feedback? Like what do we need to do? We had we hired a lot of people probably hired too fast. Like takes a while to get people and we have a very complex business and get hired a lot of big leaders out of Amazon. Great people, but it just takes time to like get to know a new culture, a new company, a new industry. Although we're on logistics, it's quite different. They're in consumer logistics.

Starting point is 00:43:34 You don't have to talk to the customer. I'm not really doing sales. AWS side does sales, but Amazon side is like its own flywheel. We're up to be a service provider. And taking complaints or getting product requests from your customers at Amazon. and they're just signing up for prime and they're done. You know, I make sure to talk to at least one customer every day. And like the last my first 90 days back in the job, I talked to a hundred, the video calls of 130 customers in 90 days.

Starting point is 00:44:02 So like it was, uh, well, 90 days, 90 days is includes the weekends, right? Yeah. So you're doing two or three calls a day with customers. Yeah, there were some days I was doing eight or 10. I mean, I was, it was deliberate. I was trying to really get out there, send a lead from the front, said that signal to our teams like, hey, I really care about the customer. Also, I wanted to document everything. What do we need to do?

Starting point is 00:44:23 How do we win? What do these customers need to see from us? And we've been really acting on that feedback over the last really since I got back in the job. Such a great technique to just email a customer and say, can we talk about your experience with our product, do a quick Zoom, would really appreciate it. And a lot of founders I find don't do this. They get disconnected from it. And it's almost like the machine tries to pull you away from getting this direct feedback.

Starting point is 00:44:49 back. You know, you're the customer support teams like, we got this boss. The sales team and the customer success teams like, don't worry, we'll send you a report. They almost try to block you from having that direct contact. It's a very hard thing to do to be a leader of a large organization and live in reality and find out what's really happening because people want, you know, reality might look bad. If you're the person owning that problem, like, well, I don't want to tell my boss about this terrible thing that's happening under my watch. So yeah, talking to customers directly, talking to frontline employees directly shadowing them, doing the work yourself, like seeing what that looks like. Those are just crucial.

Starting point is 00:45:24 And then the other one is just like build your own financial model of the business. That's simply enough for caveman, whatever level of sophistication you may have. For me, it's kind of caveman level of financial modeling. I do have an MBA, but of like financial modeling caveman skills. But it's my model is better, honestly, because I understand it. It's not as I can play with it. There's only three or four assumptions that really matter. And I go, okay, this is what really matters from a financial perspective.

Starting point is 00:45:53 Here's what really matters from a customer perspective. Here's what really matters from the frontline employees perspective. And that's kind of all you really need to leave. This is something I did for a long time when I was on airplanes and they didn't have pre-internet days is I would build models of my media businesses. Okay, we have 10 blogs at Weblogs, Inc. Okay, we got engaged, making this much money. It's got this cost.

Starting point is 00:46:12 We're doing this many blog posts. And I just say, how many blog posts do we need to do to have a hit blog? What do we need to pay people? how much traffic does each blog post get? How many ads? How many impressions? What's the CPM? What's the remnant inventory?

Starting point is 00:46:23 I just would build like a little model in an Excel document. And boy, does it like help you build this mental model? And having the ability to just take out a moleskin or, you know, do it in an Excel and build it from the bottom up yourself and really think about the assumption. It just creates clarity. Just like writing creates clarity for a person. Or if you are playing a chess game and you do a recap of you. your chess game and you have to explain every move, like chess.com will replay the game for you and tell you when you made mistakes. All of a sudden, you become a much better player of the game.

Starting point is 00:46:56 Yeah, distilling it down to something very simple. Like, not outsourcing that to your finance department. Of course, the finance department needs to build a more complicated model that factors in all the different segments and different things. But like, I just like to be super simple. And I can understand. There's probably three or four variables that really matter. And they go, okay, for each of those, what are the three or four things we're going to do to get the number to where we need to it to be. It's very eye-opening. Yeah.

Starting point is 00:47:21 So it got messy. You came back. You listened to all the customers. You got the company right-sized. Bill Gurley and Brad Gerson, and we did a little podcast last week on this week and Startup's Little Roundtable. And we're talking about IPOs. When's the right window to IPO?

Starting point is 00:47:36 They're kind of of the thought, you know, when you get to that $100 million, 200 million, which I understand you guys are, you know, somewhere in that zone. You know, getting public earlier and getting that discipline is a good. good thing. You've probably gotten, I don't think you've ever taken a company public. So what's the advice you've gotten on when you should go public? The earliest advice, the later advice, staying private longer, because it seems like there's a lot of varying views on this, staying private longer, getting public earlier. Well, in general, you know, it's very hard to give generic advice on these things.

Starting point is 00:48:09 Every company is different. So I'll tell you how we think about a flex board is, yeah, we'd like to go public as soon as we have one, I'd like to be profitable or like real line of sight to profitability. We have that right now, but I don't think we have enough credibility of our own. Like one is credibility to the investment community or investor community of hitting our results. We've not, we've had a couple of bad quarters where we missed pretty badly what we thought we were going to hit. So like getting to where we're like, hey, we reliably, like we can forecast the business. And that's a discipline that we're putting in the right systems and processes.

Starting point is 00:48:48 So there's a maturity there that we should have by now, but we're behind on where we should be in predictability. Yeah. And like, of course, the freight market, we're never going to be able to predict the ups and downs of the freight market. I mean, look, the Red Sea just spiked freight rates like 3x, like COVID and that stuff. But there's a level of like even within what should be predictable that we need to improve our processes. And then, yeah, we'd like to be, we'd like to be a profitable company. I've got the whole team geared right now to try to get that done this year. Like, end of the year, not going public, but be profitable for the quarter in Q4 and then for the full year next year in 2025.

Starting point is 00:49:24 That's got to be inspiring for folks, yeah. I hope so. You know, I don't think getting profitable is the most inspiring goal that you can pick in the world, to be honest. It is for me as the founder. I'm like, yeah. I don't know. Doesn't it make people feel safe or like this is a real business? This isn't one of the deserve or crazy companies?

Starting point is 00:49:42 I would think that for the right team members, it should make you feel stable. We're driving that right now, and I hope everybody at Flexport is out there is like, yeah, all in on that goal. But not, not everyone in the world thinks like you and me.

Starting point is 00:49:53 So I'm not sure everybody in the world is like, profit, profit, profit. You want to have some level of higher calling of what we try to do around helping customers and serving, you know, serving the wider world. But definitely you don't get to do any of that

Starting point is 00:50:04 if you're not in a profitable business. So, and then my view is, hey, once we're profitable, we've got a degree of predictability. You got the right compliance processes. and Sarbanes Oxley and all the other stuff that goes in the IPO process and go public as soon as you can. But we're not thinking about it that much. We're thinking all day about the profitability, working a lot of hard work.

Starting point is 00:50:26 Our business is much harder, much more complicated than most businesses because on a given flexport transaction, you're moving in a, let's just say an ocean freight container. We also do air fray. We do parcels or everything else. But just take a ocean freight container on a single transaction. moving that container from Vietnam, what I was just mentioning, down the river port on a barge, putting it on Ocean Carrier, clearing customs, delivering it, clear customs, pick it up with a truck, maybe bring it to a warehouse, translate it, maybe you bring it, put it on a rail,

Starting point is 00:51:00 then take it off clear customs, take it to a warehouse unload it, then put it on a truck. There's insurance, there's a bank that's doing a wire transfer for the customer. There's like 8, 10, you can have 18 vendors, literally, on this transaction. And they're billing us. We've got to capture their bill. Make sure they build us the right amount. Make sure they actually provided the service that they were supposed to provide, that their bill is not in some way wrong.

Starting point is 00:51:27 Then that we actually build the cut, you know, added that true correctly and then charge the customer the right amount and made to make money. And the margins are pretty thin in global logistics. Like, it's not Google AdWords. It's like you've got to really dial those processes. So, you know, in the health or skeletalters days of just growing 16 X in a year, you don't always have every single process dialed on all these things. So that's kind of the maturity level that we're at right now is putting in dialed in processes

Starting point is 00:51:56 for these things, making sure you have the right controls, the right audits, all that stuff, level of maturity that's needed. If you want to be, go be a public company. So we're working our butts off right now to get done. Yeah. And you talk a little bit about the global workforce and what you're seeing in that regard. You are a truly global business. And one of the trends I'm seeing in startups, and listen, you're a much more mature company now, but you still have that startup ethos.

Starting point is 00:52:22 I'm seeing a lot of folks saying, you know what, in America, it's too hard to hire, too hard to inspire. Maybe there's on the margin some entitlement here or there. And there are other places where people really want work, really need work, maybe more commitment, maybe more affordability. So how are you thinking about building out this global team and where you're putting talent and where you're seeing talent emerge that really makes it impacting your company?

Starting point is 00:52:48 Yeah, and we're super global pretty much from day one, the nature of Flexport. The curse and the beautiful thing about the business. Yeah. We've got employees in 40 different offices around the world. Wow. And then some contractors and more to kind of like BPO, data entry,

Starting point is 00:53:06 some of these service back office type processing stuff, freight audit and stuff like that. The wage disparities are pretty crazy, honestly. It's one of these things that's kind of hard to get your head around where you pay, you know, hundreds of thousands of dollars in the U.S. and $20,000 in Asia. Not for the same work, but like, hey, if it's one-tenth the price. You could have three people doing it.

Starting point is 00:53:27 Like, yeah. Yeah, this is a mistake to just go chase things based on labor alone. Like, that's companies have done that for years. You get this call center that's on the other side of the world. and it's just like, I don't know, we never will outsource like customer support or even offshore customer support. Like, I want that to be close to the customer. There's a lot of value to culture, the culture of being in the market close to your, the same culture as your customer. I believe in that. I think Americans are amazing at customer service.

Starting point is 00:53:57 We'll be like, just like pretty friendly, awesome people. Yeah. I'm like, we have this idea of tipping. Yeah. You know, we don't tip our freight forwarder, but like we tip our waiters and you get, you get better customer service from a waiter in the U.S. than like, well, you know how they solve this in China is they just assign a waiter to your table who just stands next to your table the whole time. Yeah, they're like, we're going to make sure that this service is elite. Service is real good.

Starting point is 00:54:20 Tying you to the table. Your table 10. So, yeah, there's a different ways around it. Software engineering is very interesting. You know, a lot of what we do is pretty basic, like, web forms and databases. And, like, you know, some of what we do is more sophisticated AI and machine learning. algorithms, machinery. Some really interesting data science algorithms and planning and some of that stuff.

Starting point is 00:54:41 But, you know, we're finding people are really good at this at our engineering sites in Asia. And Amsterdam has been a great site for us as well. The Dutch government has a great kind of incentive program might be the way of frame it, but like a way to attract you to come to the country. Yeah. And so we've participated there. We've got a nice setup. We've been in Amsterdam as our European headquarters almost since, yeah,

Starting point is 00:55:05 a year two or something in the company. So yeah, it's definitely something you study more and more, but we're very cautious not to just go and outsource just to find lower factor costs. You want to go like, hey, where's the talent? I really map to... Yeah, you want to follow the talent.

Starting point is 00:55:17 And then... What you're trying to do? It's a, you know, I'm not a remote work proponent. I said that was exactly where I was going next because a lot of this, you know, global workforce seems to be, at least in startups, they're saying, well, people don't want to come to the office in the U.S.,

Starting point is 00:55:33 and I'm managing somebody in the U.S. who's working for $150,000 a year as a full-stack developer or salesperson, but they're in this like low-cost place and they don't come to an office. We tried it. We tried it. It didn't work. We're back to the office. There's some resistance to that.

Starting point is 00:55:53 But, you know, I'm the CEO. So we're not doing it. And it's going to be in office most of the time, default. Like it was before, I don't need to be, you know, the police on this stuff. But like the default of something. as you come to the office and do your work, like, if you need to be at home for a good reason, like we're a reasonable people. Yeah, no, if you're kids sick, your kid's sick.

Starting point is 00:56:13 If, yeah, you're missed daycare, it's all good, but yeah. Yeah, totally. And like we're, you know, I tell our, especially our parents, like, hey, we're global logistics business. It's global logistics is 24-7, 365. Like, it doesn't take Christmas off. Like, the ships are still moving. The planes are moving.

Starting point is 00:56:28 And so we expect, like, it's a hard job because, you know, the earth is round and you've got to stay up late to talk to. someone on the other side of the world. And we ask a lot of our people. But with that comes like, it doesn't mean you have to work 15 hours a day, but you might go home early, spend some time with your kids in the afternoon and then go work three hours from 10 a. Yeah.

Starting point is 00:56:47 If you're dealing with the Middle East or China, yeah, you might be doing 10 to 2 a.m. A lot of our jobs are like that. And so, hey, you know, like, that doesn't mean I need you to come to the office every time you do a phone call or something. But we've just found people are so much more productive in the office. It's so much better for culture. Now, there's another way to run a company, which is. is all remote.

Starting point is 00:57:08 But if you're doing that, you know, it's not guys that look like you that want to live in Lake Tahoe, Jason, that are going to hang out and make $250,000 a year going skiing four hours a day and then go back to, you know, go back to the job. Like, it's going to be geniuses in the developing world who cost one-tenth the way you cost. Yes. And, you know, the winners in that, I think there will be very interesting companies that are built on this model who are going like, let's figure out how to find. the hidden talent in these countries.

Starting point is 00:57:39 Are there people who have like, you know, rock star, they would have gotten a, what's the SAT, 1600 on the SAT? Yeah. And, you know, they're incredible. But they're in Bangladesh or they're Sri Lankan or they're Pakistan or India. And they're just like unappreciated talent pools. Yeah.

Starting point is 00:57:55 And those people out there and they're watching this show probably. They're studying YouTube. They're learning the code. I think there's kind of two models. One is like you're in person. You're working your butts off as like a team. that's going hardcore. The other is,

Starting point is 00:58:07 oh, our labor costs is one-tenth as much, and our team is, okay, we only have 80% of the culture in the drive, and the, you know, but at one-tenth the cost,

Starting point is 00:58:17 you could probably build something interesting there. But it's not our business. Our business is global logistics. Like, the strong expectation is, well, you're going to be in person and often at the port or the warehouse

Starting point is 00:58:28 or doing some work like touching the freight, making sure that things get coordinated. And our business is very complex. You know, as mentioned, it's 18 transactions, but there's a lot of coordination that has to happen as cross-functional, it's cross-disciplinary, that's you just got to have relationships.

Starting point is 00:58:44 It can't just happen on Zoom, everything, pre-scheduled meetings. Yeah. So. Yeah, I know this is becoming a big industry because I keep seeing requests for like deal. I don't know if you have that company, DEL, for like hiring contractors remote. All these companies are now abstracting how to do contractor payments around the world. and one startup was dealing with a group of folks and they're like, we want to be paid in cryptocurrency.

Starting point is 00:59:08 And you're like, okay, how do we pay you in cryptocurrency in your country? Like, is that even legal or whatever? And it's like, yep, just please use, you know, this platform. I don't know if it was DL or remote or plane. There's like all these providers that are now doing this abstraction for you. Take the talent, get them paid in crypto.

Starting point is 00:59:27 Brooklyn has a product for that now too. Yeah. So all of them are kind of figuring that all out. And they wouldn't have those problems. They wouldn't be solving those problems with software and operations if there wasn't demand for it. So I was huge man. And like, you know, I mean, my business, uh, my businesses before Flexport were not venture backed. They're bootstrapped profitable businesses.

Starting point is 00:59:49 And so we did all of our software development, uh, back office work in the Philippines. And we've been doing that since the late 90s. And that, you know, when you're not venture backed, it's not necessarily a choice. Like all you can afford is a couple engineers at a much lower price. And you manage them really tightly to get the quality that you want. You've got to do the design yourself and be all over it and make sure it's good. And like, yeah, that's. And I think there's a real space in the ecosystem for those businesses.

Starting point is 01:00:19 I think it's pretty cool having run a venture back business, like just a different kind of discipline that comes with it. Yeah. Being a bootstrap business, like much more. And I think that venture businesses are new world that we're in will benefit. from learning those skills of being way more. If you can be more cash efficient at the early stage, you can maintain the cap table, you need less capital,

Starting point is 01:00:40 and maybe you can go faster, right? And you can be faster and lighter. And we're seeing that now. I'll see companies that we're looking at angel investing in. And I'm like, you have 12 employees. They're like, yeah,

Starting point is 01:00:49 I'm like, what do you spend every month? And they're like, we're spending 70. And I'm like, $6,000 an employee. And they're like, oh, no, no, no.

Starting point is 01:00:56 It's like 4,000 employee, but we have servers and we've got this other thing we're doing or do some paid marketing. Like, wait, how are you spending 45,000, dollar per employee. Oh, we have like two people in the US. We got 10 people offshore for this amount, 12,000 a year to 40,000 a year. And oh, I get it. Right. And so there's like, yeah, it's,

Starting point is 01:01:15 but it's how good, you know, it's very hard to recruit. It's not you just go and just hire people because they're cheap. Like, you have to really still put in the good processes, identify the talent. They don't have the same culture of entrepreneurship and aggressive. Like, not every job can be done there. And they, you know, you have to work really hard to find the right. talent, but they're definitely out there. Yeah. Yeah, and putting in the good processes to identify that talent. So, yeah, it's a bit of both.

Starting point is 01:01:41 We're doing that as well. Like, we have quite a lot of people offshore. We've got 600 people in Asia, another five or 600 contractors in Asia and in Latin America. Yeah. Latin America coming on strong as well. Some great universities in South America, Latin America. Yeah, just incredible developers coming out of some schools there and people are starting to pool them together.

Starting point is 01:02:02 And then I saw one company, I would say which it is, but they're basically taking pools of business process people skimming the top 2% of them, then putting them through training and then having them do business functions. So it's kind of like you were saying, like there's some diamonds in the rough there. And then if you put them through US-based training for, let's call it, you know, management type processes, they're going to get better and better. Well, I think that's one of the opportunities that's out there is like, you know, people have done offshoring for like 20 years. Like, we're not talking about anything new. No. But they tended to just, like, send out, like, almost like a body shop of people just, like, do data entry and treat it like almost like a mechanical Turk. Like, hey, I don't talk to these people.

Starting point is 01:02:41 I just give them work and it gets done. I think there's a big opportunity to go, hey, let's actually onboard them through the Zoom calls to Slack. Yes. Have them on Zoom. Have them on Slack. Like, treat them like an equal. Yeah, do a notion. Have them on Koda.

Starting point is 01:02:56 Have them doing project management and teach them those next generation skills. What's the difference? Smart people are smart people. I haven't seen someone really nail this because it's a different level of like rigor. You know, maybe it's kind of interesting. What's the GitLab has been like this fully remote company. I haven't checked in with what they do. But it's interesting how the fully all remote companies also don't just gravitate towards like,

Starting point is 01:03:20 well, don't you just immediately go towards the lowest cost labor function. But they don't necessarily. They still have tons of people in the U.S. And so it's an interesting point. Like it's not just the cheapest labor. where you've got to get the team skill and the culture and all these other things together. But over the next 20 years, you're going to see that.

Starting point is 01:03:36 Even the rise that we were talking about, tying it back together to the e-com companies. Like, I lived in China 18, 19 years ago for a couple of years. And I was always predicting back then, hey, once these Chinese companies figure out how to do branding, they're going to take over the world. Yes. Because they make the product,

Starting point is 01:03:53 and then I slap my brand on the thing and market up 5X and I get all the margin. If they can learn UX, UI design, I always said this about Israeli, They're starting to do it. You know, that's what these companies are. That's what's happening right now. I always says about Israeli companies.

Starting point is 01:04:04 I would meet an Israeli company. Like, this company's got the most amazing technology. And then they would tell me the name of it. And the domain name would have a dash in it and be a dot org. And I'm like, who did the branding on there? So like, who cares about branding? I'm like, consumers. Yeah.

Starting point is 01:04:16 Corporate people. Everybody cares about branding. Apple, Microsoft. You ever see the logos and the design of these websites? Like branding's a thing. So, yeah, 20 years ago, I started to predict that that's going to happen. And what I thought would have to happen. and this is what happened is that generation would have to grow up who really speaks English

Starting point is 01:04:34 and has a more global mindset to become the leaders of the companies. Yes. Because 20 years ago when I was living in China, they had people who spoke English on a team like doing sales or customer, you know, relationship. That's what I would talk to. They weren't the CEO. And they're not going to, their English was not good enough. Right.

Starting point is 01:04:50 To like do the marketing and do the branding and the brochures. But they weren't going to tell the boss my English is not good enough because he'll fire them. Yes. So their branding was terrible. Right. But then once that guy becomes the CEO, he can go, hey, my English is not good enough. I know because I speak English, but not good enough. Let me go get the pros.

Starting point is 01:05:06 Let me build it up and design it. This was the brilliant thing about Singapore. They had this like incredible leader. I mean, watching his videos on YouTube. Yeah, yeah. Yeah, Li-Huan-U. And at some point, he was just like, English is the language in Singapore. That's it.

Starting point is 01:05:20 We're done. We want to be, you know, we want to be the leaders in Asia. and Singapore just made this decision to have English as their language, I understand it. And once they made that jump and people got over it, they really became super powerful. And yeah, you're definitely seeing, you know, increased design.

Starting point is 01:05:40 And when I was in the Middle East, there's been a whole generation there now who are our age, you know, 40s, 50s, who went to Western schools based upon scholarship. So, UAE, Qatar, a kingdom of Saudi Arabia, all these countries had Kuwait these scholarship programs

Starting point is 01:06:00 for the nationals to go to any school in the West, could be Oxford, could be Michigan, could be Harvard, whatever they could get into, plus get a stipend and get paid to go and have their housing paid for.

Starting point is 01:06:11 And when I've been spending time in the Middle East, I'm meeting folks and like, oh yeah, no, no, I went to this school. I went to Fordham. I went to, you know, the school in Michigan.

Starting point is 01:06:20 I went to school in Hawaii, whatever it is, Arizona. not all just Ivy League. And they've just got a whole generation there who now have gone back and are running businesses, venture firms, LPs, private businesses. And they're just incredibly, they're more worldly, obviously, than Americans. Yeah.

Starting point is 01:06:39 Because they've been educated for a decade and lived in the West and then gone back to their countries. And that's why you're seeing them modernized so quickly over there. Because those people are like, yeah, I want to have what I had when I lived in America or when I lived in London, we need that here in our country, and then they build those businesses in Riyadh or Doa.

Starting point is 01:06:59 Yeah. It's interesting, you know, it's one of the interesting things about Flexport and how we work is that we'll actually onboard local, we call it local heroes, but it's like,

Starting point is 01:07:07 for example, I was talking about the one in Vietnam, it's the largest logistics company of Vietnam, but they're only in Vietnam. Who's a great CEO speaks English really well. He's very global experienced. But they have local capabilities, local assets.

Starting point is 01:07:18 So we onboard them to our technology. We get there, the best service locally at a low cost because they're good at hiring locals and managing that. They're good at local relationships that are needed. And we give them the tech, the global brand. This guy wouldn't, you know, they don't have the sales force all over the world to go sell the Western brands and bring it. So that's a big part of how Flexport works is actually empowering these kind of local

Starting point is 01:07:41 companies that do great service in these markets. And we get to meet a lot of these great entrepreneurs. You're right. A lot of them are educated in the West or spent time and that came back to their home country. Yep. And actually a lot of flexport teams in these countries are like that too. Like our head of Korea lived in Texas for like six years of Korea guy, but he lived in Texas running doing sales for a freight forwarding company. He knows barbecue. He knows Korean barbecue and Texas barbecue. Yeah, exactly. It's a superpower.

Starting point is 01:08:09 I mean, right there, two best barbecue you can get. All right. Listen, Brian Peterson, it's great having the program. You're always so honest. Continued success. And if you want to work for a great leader and a great company, Flexport, maybe they're hiring. Maybe they're or not, I don't know. Selectively, is hiring you're trying to keep the, be more efficient and not do it. We're always, we're always have roles. We're definitely, we're definitely focused big time on profitability and dialing it in and, um, not in, not in the hiring sprees that we've been in the past. But yeah, selectively, there's definitely, there's definitely some interesting jobs, especially in Asia. We're expanding. Uh, we launched in, uh, Malaysia, Thailand,

Starting point is 01:08:42 Vietnam, Korea, Korea. I'm really interested in that far of the world. I've been to Korea, but I haven't been to Vietnam, Singapore. I haven't been to that region. I It's just every now and then, I don't know if you ever do this, go on Google Maps and just look at that region. And it's just Indonesia and Singapore or Vietnam. It's also fascinating to me, these island chains and they kind of hook up with Australia eventually. Yeah, Google Earth is my favorite product in the world. If I was not an entrepreneur, I tried to go get a job at Google Earth, man. It's such a cool product.

Starting point is 01:09:13 Yeah, just like, and I was looking at the, I don't know if you're tracking what's happening in northern Saudi Arabia, Neom, you know, the N-E-O-M project. and they're building this huge city and you know, that's by, I guess, some of these pathways and ports and everything. A lot of ports around that area and that part of the... Yeah,

Starting point is 01:09:32 they're trying to make it a big port. You know, coming back again to the Red Sea, it's like, well, if the Red Sea's cut off from trade, that's not going to work out. So I do think that's going to want to step up.

Starting point is 01:09:40 There's beautiful oceans and everything and scuba diving and gorgeous vistas. And it's just like totally undeveloped. And now they're like, you know what? We're going to build Hong Kong or, you know, know, whatever you're building there, whatever you qualify it as, and they're moving fast, and they're going to put like $500 billion into this.

Starting point is 01:09:59 It'll probably work. I mean, you know, China's got a big track record of doing this. Like Hong Kong itself, the Brits did that. Yeah. There was no city there. Shanghai was in a city that was built by the Brits. Chen Zhen. And then China built Shenzhen, overnight, built a new city.

Starting point is 01:10:14 You put special economic zone, free trade zones. You set it up. The world will come. So that'll probably work. And it's in a great place. you know, it's right on as long as the Red Sea is open for navigation. You can get to Italy, Greece, you know, Europe

Starting point is 01:10:28 in a couple of hours on a flight. You can get to India from Saudi in a couple of hours on a flight. I mean, that's one of the really interesting things about Dubai and that whole region. If you're going to Asia, if you're going to Europe, if you're going to Africa, India, you're just, yeah, it's the center of the world. It's the downside. I still am a big believer in building companies in San Francisco. There's something special about the people here.

Starting point is 01:10:49 Yeah. But man, where the edge of the edge of the world. the Earth. Like, we are. Getting here is. You want to go anywhere. It's like in the Pacific Ocean, it's like spin Google Earth open, you'll see it like half of the Earth is the Pacific Ocean. It's very far, very hard to get anywhere from San Francisco. So that's an annoying part.

Starting point is 01:11:04 You know, it's pretty hard to do a land attack on America, the Atlantic and Pacific and we've got basically, we're complaining about the borders. We've got two borders, folks. It's not really that hard. Southern border, northern border. Pretty hard to get into the northern one, a little easy to get into the southern one. I think we just take it for

Starting point is 01:11:21 granted, you know, how hard it is to get here. You know, it's, you can't just take a puzzle. No, America's geography is just like unstoppable. There's a great YouTube video, like, from one of my favorite channels called Real Life lore. Oh. I call why America's geography is so on point. And it is just like, it'll blow your mind about how blessed we are from a geography.

Starting point is 01:11:42 Our geography is so good that, like, no matter how hard we screw it out, try to screw it up with politics, we still can't seem to screw it up. Yeah, no, I mean, to have two giant. oceans on either side of us and then the middle of the country is empty. You fly over this country and you're just like, we have 300 million people. We could have 3 billion. It's empty, but it's full of farmland, you know, is the greatest farmland in the world. Mountains, trees.

Starting point is 01:12:06 I mean, it's unbelievable. The river network is, you know, I was mentioning Vietnam how they have a big advantage to have a river network for doing navigation of freight movements. But the United States has more navigable rivers than all the other countries in the world combined. Yeah. And just to put that in contrast. Yeah, and the Mississippi River is just incredible.

Starting point is 01:12:23 The network that goes and it connects to the Great Lakes and then all the way up to Canada. Yeah. And you compare that to Mexico. They don't have a single navigable river in the entire country. Wow. So we're very blessed. Too close to the equator, yeah. Too mountainous and yeah, too dry.

Starting point is 01:12:36 It's too mountainous. So we're just very blessed geographically. We got Canada melting all the water. Totally. Yeah. It rains a lot over in these coast. And we don't think about that that much because you're like, well, rivers, whatever. But we use it like crazy in logistics.

Starting point is 01:12:50 Like all the green shipping out of the Midwest is going down. We're the biggest food exporter in the world. That's why oil exports are flowing down these rivers, like tons of ore and products flowing in the rivers. We used to have that really. Like if you look at Napa, Yantville, Petaluma, all of those areas north of San Francisco. They used to bring the butter, the cheese, the milk down. All of these. And you can look it up online and they still have it.

Starting point is 01:13:15 The Napa River and all these inlets. The Petaluma River. Petaluma River. They would just take barges down with milk, cheese, whatever, into San Francisco, then San Francisco to the rest of the country and the world. It's what allowed the United States to become, like, industrialized at the East Coast cities could, because normally, you know, if without the river network, you'd have all those great plains, but how could you get the food there from there to the East Coast?

Starting point is 01:13:40 Like, you can't, food can't travel on the back of a horse. The horse will eat all the food, you know, it can go about 100 miles before. It eats all the food that requires. calorie efficient model. It just won't work for grain or whatever. You need ships. And so the fact that we had that river network flowed down out of New Orleans and up around Florida and up to the East Coast.

Starting point is 01:13:59 Like that's what allowed America to develop. And we're just very blessed on that. And it's not obvious. Like you sit there at home and go, oh, America, it's like, it's not just about culture. A lot of its geography. And it gets very underrated. Yeah. I mean, I think I've heard that.

Starting point is 01:14:12 Geography is destiny. Yeah. A lot of it is destiny. All right, listen. Second time, I'll try to end the show third time. great to talk to me, Ryan. No, it's hard. I mean, we always hit some pivot point and just another idea, another idea, another idea. Continued success with the company. Congrats at being back in the driver's seat and wish you good luck on this very important 20, 24 for you and the team,

Starting point is 01:14:33 get profitable, get fit, and who knows, maybe 2025. Thanks, man. Betraying the stock. I appreciate. Thanks for having back on the show. You know, I've been listening to this show since 2008 or something. So I'm glad to see you some grinding, man. It's like I can believe how many episodes you've done. I mean, it's like 1900 of this and 160 of all in, so it's over 2000 now. And I just look at it as this would have been like you and I having a drink, right? We just would sit there and just, oh, let's talk about America. Let's talk about Saudi.

Starting point is 01:15:01 Let's talk about Neum. Let's talk about outsourcing. And then I leave this. What people don't understand is I took the Myers-Briggs, which is like astrology for men, is what we call it. And I was like 94 and 100% extroverted on two times. took the test in 20 years, which means I get out of this conversation. I have all these notes I've written down.

Starting point is 01:15:22 I feel like my battery's full after talking to entrepreneurs, investors, people who are building in the world. It's the greatest gift in the world that I get paid with the advertising on this program to just share stories with the world, you know, and millions of people watch it. And, man, it feels great. And I get a lot out of it. All right. Well, thanks for having me here.

Starting point is 01:15:41 Adios. I'll talk to you soon. Good luck to the team, and we'll talk to you soon.

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

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