Ryan Petersen: Building Flexport

0:00 Very addictive industry. It's always on. Always different. Every day is unique. You see what's happening in the world. In a insane degree. I've been working on my own thing, which we can't flex for our goal is to be an asset light technology platform for freight forwarding. And you're the most tech forward of all companies. Kind of we're the only one. I think most businesses like actually quality costs less. It's very counterintuitive.

0:23 Go deeper on that. But well in in logistics, like all the costs come from you make a mistake. Like if you file a customs entry. And you get the wrong classification code. You're gonna spend weeks on doing that.

0:35 Hey, that's the game, you know, it's business. It's not a On a socialist project. What did you learn from that? This is proprietary secret I'm gonna let you in on. We're gonna get into some of this. These tariffs have had the opposite impact that Trump would like. I think there's intention or some validity to it all, or some of the things I said from national security and employment and other things, but the result Has been Welcome to the Knowledge Project Podcast. I'm your host, Shane Parish.

1:05 In a world where knowledge is power, this podcast is your toolkit for mastering the best what other people have already figured out. US Customs called Ryan Peterson with surprising news. Steve Jobs was furious. Ryan had just used public shipping records to predict. Apple's secret iPhone launch.

1:24 That same contrarian thinking would build Flexport into a multi-billion dollar logistics company spanning a hundred and forty seven countries. But Ryan stepped down as CEO. He was certain that somebody else would do a better job. His successor hired nine hundred engineers in twelve months and burned through cash. Кастюмер саджін краш фром севенті то севтін. Paul Graham's response to Ryan's decision cut deep.

1:48 That's like saying this other guy would be a better husband for your wife. Ryan returned to a company hemorrhaging cash. The turnaround forced him to embrace micromanagement, but he discovered it was just attention to detail with bad Pierre. In logistics, one customs error destroys a month of efficiency gains. Most critically, he learned that every operation has a bottleneck. You either choose it or it chooses you. In this conversation, we explore stories you won't hear anywhere else, like how he flew 500 million mass to US hospitals in empty passenger planes.

2:22 And how tariffs accidentally push Americes overseas. We also explore the counterintuitive lessons he's learned from Charlie Munger and Peter Kaufman. Whether you're scaling a startup or managing any complex system, Ryan's journey will reshape how you think about growth. confidence and micromanagement. It's time to listen and learn.

2:49 I love the idea of life's work and it seems like your interest in logistics started really young. Can you tell me this story about your mom? Getting you to get soda. Yeah, well my mom's a great entrepreneur. Sold two started and sold two companies uh in the biotech biochemistry space and In Washington D C and so I um

3:11 Plus my brother and I had this job. It was like our first job was delivering soda. They're off like stacking the snacks, uh cabinet and the sodas and stuff. So she would we would Basically just buy the stuff at A giant s like Safeway. And then Mark it up two X instead of it. Yeah. Yeah. And my dad's minivan, we would stack up the back of the you know, the trunk full of the

3:33 Cases of Coke and Diet Coke. And then um My dad taught us to write software. He was a programmer, so we Wrote software to generate the invoices so we could so she could submit the expenses to the IRS or whatever and make sure she got the tax deduction on our allowance. You were motivated to do it, but yeah, you could Just get paid for it. Well kinda easy money. I mean, you buy the soda case for four and sell it for nine, make five bucks on every case that I deliver. What were the dinner table conversations like? Do you remember growing up? Well too entrepreneurial parent. Yeah, super boring because they were talking about biochemistry and food safety and regulations. I can understand but I think I'm still like a very fast eater as a result was trying to get out of there.

4:11 As quickly as I could. Did you always know you wanted to do your own thing, or no. My brother was much more of the entrepreneur than me. Maybe still is. And when I graduate I went to U C Berkeley when I graduated from college, I it was two thousand two. I didn't I was thinking I'd go into like international development or

4:29 Something cool. I like to travel Internationally. And I traveled a lot in the third world'cause I had no money, so I was like traveling but I could afford And I was always very intrigued by like Why some countries were poor and some were rich. So I wanted to work in

4:45 Some aspect of it try to get a job in microfinance or government or something and no one no one was hiring. I got I wasn't really I didn't have a lot of skills when I graduated college. But my brother was hiring and he was running a startup. And so I started working for him and that's how I got an entrepreneurship. Which startup was that? Well We don't really call ourselves a startup, to be honest. We were like uh buying motorcycles in China and selling them on the internet in the US in

5:08 Sort of uh this was been I graduated in two thousand two, you started it before that. And we were um Tech company. But we didn't call ourselves that. We wrote all of our own software to do kinda like it was pre Shopify, right? So e com checkout, inventory management, billing.

5:22 All this stuff. Like if we'd have been Mark. Like Toby was, we'd have sold subscriptions to our little platform and maybe could have been Shopify, but instead we just like bought motorcycles and sold them on Ebay motors and Actually uh through live car auctions, our own website, et cetera.

5:38 Is so you're arbitraging sort of buying in China and then selling everywhere else? Yeah. Uh, buying in China, selling in the US. And you went to live in China. What was that like? Well, I was very curious about the world and like I had lived in South America. I speak Spanish and Portuguese. I was like you know, we were making money not a lot of money, but we were making money in China. Didn't have anyone we had one employee actually in China, but we weren't like really Deep in China and I

6:03 It was very clear in two thousand and two that China was like Just on a tear. And then it would be Maybe the future. It was like really obvious to me. So I moved there. thinking, okay, if anyone can learn Chinese, I already learn Spanish and Portuguese, I could probably learn Chinese. Let's go for it. Uh so I moved there

6:20 work basically of like doing supply chain logistics, e com Development, web development, uh customer service deck of all trades for the startup that we had. Um And then also just like

6:34 Study Chinese for three hours every day. For a few years while I lived in China. That's intense. Yeah. It isn't it isn't. Um It's very hard, but the Chinese people, if you give any effort at all, are like, Wow, they love it. They compliment you, they reinforce you, they make you want to do more of it. So it actually that part makes it kind of rewarding and easy.

6:58 But I feel like I've I've got to be a little bit more than I've try to learn French and I get the I'm like way better at French than at Chinese, but nobody everyone in France like ah you're ter you're terrible. You shouldn't even try. I'm like, all right, I won't Yeah, they talk to me, I I try to speak in French and they talk back in English. If you get like one word wrong or like So the Chinese the opposite of that, you know, you say hello and they're like wow. Your Chinese is amazing.

7:20 So if we think of the beats between being in China and ending up in Silicon Valley, what are they? What are the major sort of like, how did that happen? We had this business, um Which we were a startup but yeah, like I that's like we call it that now at the time we were just trying to make money, honestly. And It was. We were building tech in the cloud. We were cutting edge in a lot of ways. Like in the early two thousands that weren't cloud

7:44 You know, I think Salesforce and Net Suite Well Net Suite I don't even know if it was cloud probably was, yeah. We realized and it was while I was living in China we discovered that shipping manifests for ocean freighter public record. And it has a lot of really interesting data on it. The public record in the US we've since learned in like over almost twenty countries. that you can get the shipping manifest data. So it tells you

8:05 Kinda like your plane ticket, your boat ticket for your cargo. So it tells you which factory, who made the products, where's it from, who bought it, who sold it, the dates, the ports, a lot of interesting data. And so we realized this data was incredibly useful for us. in sourcing products. For that company. We were always adding new products. Like. Because you could find out who's manufacturing the products. Yeah. You could look up any product type and see who the factories are, or look up any imports, see who their factories are, et cetera. So we built um

8:33 A search engine for that data. Called import genius.com. Still a great business. So we started that business, sell subscriptions. And that that was like Again, bootstrap, not Silicon Valley. We started it in Arizona. Uh Where the motorcycle business was, but we Very much. got into tech like it was a sass business. I was started following like trying to learn about SaaS.

8:55 I wish we knew more. the blogging and podcast world, you can learn so much more about uh AI, whatever, you can learn so much more now than you could back. Fifteen years ago at how to run a SaaS business. Um but

9:08 That got that that's what really got us into the tech scene. We were still outsiders for sure. Uh and then both my brother and I both started new companies. some point that that business great business, but it's kinda like hit its Keeps growing actually, but it was it it was not being a rocket ship. We had like a few years of like runaway growth and then it kinda reached its place in the ecosystem and it's been like a steady compounder for the last decade, but not

9:32 wasn't enough for me to like stay engaged as as I should have been. And I came back to this idea of like should be an online platform to help you with like your logistics, with especially your customs clearances. Coming back to our motorcycle days of like, man. It's uh it's it's way too important to be this hard. Unless lack of tech. My brother had gone in a different direction, which was his is like what other public data sets are out there that we could build valuable data sets and sell subscriptions or provide access to. And so he started a company called Build Zoom.

9:58 In constructing construction data. So your building permits are public record in most places. And building like pro rich profiles of contractors, or you can look up any building and see who remodeled it, et cetera. So it's kind of like both similar origin. starting points, but very different businesses, obviously. Um and so he he did Y Combinator for that.

10:19 And that was twenty twelve? He would have been twenty thirteen. And we were and then I saw that and I got jealous. I'm I'm like, uh you're we're moving from Arizona I moved to Arizona. I'm not from there. I moved there for KPX after Ch uh before China actually. No, after time, excuse me. Both. Um before and after. So I had moved there for this business, for these businesses

10:40 And then I saw him leave to go to the Bay Area. Where I went to college at Berkeley. to work to do my commentary. I was like jealous. I followed him. Like sleeping on the couch. Literally. Yeah, sleeping on the bare mattress in the in our little con uh apartment. And And I would just go, Y Combinator at that time did not have great security, so I would just go with him to all the Y Combinator uh sessions and just said uh like acted like I was part of his company, even though it I kinda was. And then that

11:06 Inspired me to go I've been working on my own. thing which became Flexport inspired me to apply the Y Combinator and go through it as well. Okay, let's pause here for a beat. I want to go back'cause there's the Steve Jobs moment that we we need to capture here with the import genius. You wanna tell us the story? Oh so back in one of the early we had Bill Import Genius. It's a great data set. Um

11:28 It's really powerful. And You can look up companies and see what they're shipping, who they're buying up and stuff. And at that time, I guess still the big thing was When's the new iPhone gonna come out? I think we were just on that it was the three G iPhone. Forget. I think that's just like the second iPhone ever.

11:46 It's kind of crazy. Where are we on five G now, but it was the three G iphone. We had built this product and we had like no users for it. It was a great example of like if you build it, they will not come. Like you have to go get customer. We had a couple of customers, but not really. Any um So I knew we needed to get some attention. People needed to know that this data is out here. And I we had such interesting data by companies And so I d

12:09 was searching in the data set for Apple shipments and so it's public record, you can look it up. Um So That they were importing A new product they'd never imported before called an electric computer. She's very interesting. All computers are electric. It was like a silly name.

12:24 Um and it was the perfect storm, perfect moment. Everybody knew it was already being rumored that the three G iPhone was arriving. I don't even know if it was right. I just put out this blog post being like Apple has this new thing. Maybe it's the three G iPhone. Um and it went very viral. We got Within a week we were doing like fifty thousand dollars in Monthly revenue. Like all of a sudden, you know, from zero to fifty thousand in a in a couple of weeks. And

12:52 Um And I got a call from US Customs. At saying, Hey, we just talked to Steve Jobs and he's really pissed. about this. You need to explain where you got this data. Sort of like threatening to shut us down like so I showed him the letter we showed him the letter of the law. Explaining why this is public record and it's public record and then

13:12 He sent us a letter, an email later, saying, Hey, thank you so much. I had to explain I shared that with Apple's team. Thank you for taking the pressure off of us. Uh But it was a bit of the early days of like, you know, how do you get attention in traffic for a New product. That's pretty cool. It's kinda like a really viral marketing type thing, even though it's

13:32 Hindsight kind of. Couple questions here. One, did Apple change the name going forward to make it more sort of like I don't think electric computer's there anymore. What are some of the lessons you take away from import genius before we sort of move on to FlexPort? Most important one is the user retention. Company's great and the data set's extremely valuable, but for a lot of users You don't need to keep paying for it on an ongoing basis. You can get the data.

13:57 Run your search. Fun. The factory that you're looking for or the data. Uh and you don't need to keep subscribing. So we had a relatively high churn rate, certain types of we've eventually figured out which types of customers like

14:09 would pay every single month. Tended to be actually a free a lot of freight forwarding companies. Oh interesting. We use it at Flexboard is for list lead c uh list construction, lead gen, like finding who's importing how my sales team call them. Uh talk to them about their They're fake. Um

14:26 And hedge funds and analysts like Wall Street types that want to see what's going on. They'll pay and they'll pay. They're not they're not that price sensitive and they'll keep paying every month. So But we we're that sophisticated. And our

14:39 We're our sign ups were always pretty good. Relatively consistent. Forgot the numbers, but we would sign up a few hundred customers every month and then but eventually You know, your the the size of your business Is just simply the number of new sign ups that you get.

14:55 Divided by your churn rate. annual turn rate and that tells you how many customers you're gonna get at state at equilibrium when those'cause those two lines will cross. Uh we got to that point and then from there I tried everything I could to like We tried everything because and just me. Um to spend that arc either make the sign ups go up or the retention change and like

15:14 We ended up just adding a lot of cost to the business without Yeah, we we did some stuff that works, but it really your your scale of your business is very much limited by your churn rate. If you have any churn at all, you have like a cap on how big you could be. Unless you're increasing the number of customers you're getting Or the size of those customers. Like It's very it's pretty simple, Matt. I I teach a lot at Flexports like how important it is to retain customers.

15:38 Are there any other niche data sets that you came across while you were doing that that are super tiny? But would be highly valuable in the same way. Yeah, I think so. My well my that's what my brother largely does is take data sets and build businesses around them. Oh, outside of construction too. Yeah, so he's now he's got that company builds in, but he has a few other

15:58 He partners with uh great entrepreneurs and So like for import genius, are these records like paper and you go and like you take a picture of them? Like how does that work? We Freedom of Information Act to access them from all the from from customs and border protection and you get access to the to the data. They they make no effort whatsoever to make it useful. You don't have to do paper digitization, but they just get like data dumps and they won't give you past data. Oh, interesting. Yeah. And that's just custom that's just US. We have data sets for Latin America. Um Mostly Latin America, a couple of other countries. India.

16:30 Okay, so let's go back to Y Common in her twenty thirteen you're there with your brother. Twenty fourteen, you apply, you get in Uh at that point you have the idea for Flexport? No, we'd already gotten licensed. Um And that was the thing, like we had the idea Well debate between me and my brother and our other partner who had the idea for full export, we all claim it. Uh But

16:51 first email that I can find like discussing this was like in two thousand eight or nine. But it took a long time to get licensed. by customs of border protection. Had to go through an FBI background check. Had to do a whole bunch of Yeah, it just takes Um so

17:05 It was when we got the license from CBP that I left. Step down and started Flexport and that was About six months before Y C started. I forgot the timeline of the application, but about six months before so we had but we didn't Like we had

17:20 Maybe a one customer. We really didn't have any customers, but we had a V one of the software app. Had the license, like how to Bit of a strategy for what we're gonna go do. Take me through the the Y combinator experience. It may have changed. This was already ten years ago.

17:34 Um They do a Tuesday dinner. P G used to cook it, I think it was really bad for you were the last batch where he was the Yeah. Really lucky. that I not only was the last batch, but he announced it mid batch, so you didn't take it for granted that you're getting this time.

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20:07 Stop struggling. Start making progress, get somewhere with base camp. Sign up for free at Basecamp.com But for me it was amazing'cause I'm not from I hadn't been living in the silic Silicon Valley ecosystem. I didn't have connections and

20:22 Yeah. Evernote CEO Phil Liban, he was hilarious. Chesky Brian Chesky. Um Yeah, kinda like somewhat eminent founders and investors and stuff. They just come and give a talk for a couple hours, do Q and A. So nothing. Amazing, but um

20:40 The real benefit of Y C I think is the Friends that That I made like As an outsider. Fair to call myself that back then. Like I didn't have a lot of entrepreneur friends. They were

20:53 Try to find them online and stuff. So this Like all of a sudden I had all these peers who were also building businesses and like that's I don't know, that's just super valuable from a life experience standpoint. I don't know how much it helped a business, but like made my life better. And then it also, I guess that kinda understates like why why see If you're one of the top companies, I think it's very important to be a top company if you're gonna do Y Combinator. It is a bit of a competition. A lot of people don't realize that. It's like at the end of the day, there's only so many hot. companies that can come out each year.

21:20 And you wanna be if you're one of those, then it's tremendously valuable for you. Because fundraising I could have raised money. I built a successful, profitable SaaS business. I'm sure I could have raised money, but I literally like tried at one point to raise money. And I showed up in Silicon Valley on San Hill Road wearing a suit and tie. I just didn't know. I think people like just were like, Who's this guy? You know, uh and try to raise money for it.

21:43 No, I I didn't try that hard. I did a couple of pitches and they went nowhere. Uh and then with Y C it was a feeding frenzy. It was it turned it from an outbound sale, which is hard doing outbound kind of cold calling. To an inbound there where everybody was like eager to invest. They heard about Lexport. PG himself really like Liked and likes the Flexport and was telling investors you should invest in this company.

22:05 Which Kinda controversial Y C partners. I think they're a little better about it now than they used to be, with they would kinda p choose favorites and Hey, that's the game, you know, it's business. It's not a on a socialist project. We're here to like Find the best businesses and back them. Um but it is I I I'm

22:20 I try to tell every founder, like you're gonna go into Y C it's not you're not there to have fun. You're trying to be the best. And it is a competition. You versus you you sure make friends with them, but I'm sure Michael Phelps is friends with the other swimmers too, but like you're trying to beat them on some level. What are some of the lessons that you learned from Paul Graham that still resonate with you today. I know you still talk to him a lot. His main thing is not he doesn't look at the downside and what could go wrong. He only looks at what could go right and like how big and awesome could this be in the best case scenario and what should you do to make that happen. And that's like for a seed investor. The obviously correct way because Losers don't matter. All that matters is you get the power ball winners that do hundred thousand X or whatever they're

23:01 Best deals have done for them. Again, I was really lucky'cause we were in his last batch. And he announced like halfway through the batch that he was stepping down and Sam was taking over, but he kept running the batch the whole way. So then when it came to demo day the preparation for a demo day for

23:16 You go pitch the investors. Um I barely worked on my pitch. In fact my pitch was pretty bad, I think. I I'm like not very good at reading a script. And they only give you two minutes, so you kinda have to have a script if you're gonna do a two minute pitch. But also I was kinda bad'cause I didn't practice.

23:31 Very much. I had opportunity to sit there. I'm in Picasso's studio. Yeah, watch Picasso paint, you know he's about to retire. So I got to sit there and watch PG critique other people's pitches instead of go, I don't wanna sit there and paint like let me just watch Picasso paint, you know? Um So I sat next to him for twelve hours a day for like three days in a row.

23:52 Watching him critique everyone else's pitch. What did you learn from that? This is proprietary secret I'm gonna let you in on. You should tighten the aspect ratio on your graph. And it'll make it. The curve looks deeper.

24:05 I feel like he told everybody that. Just sc scrutch your graph and watch how your Startup looks hotter. Uh there's something to that. You got to appeal to investors' greed. I don't know if you taught me that or someone else, but it's kinda the same thing. You wanna there's a there's a feeling that goes to it. Really simplifying things. I mean, one of the things that PG is really good at if you read his writing and stuff is just like very simple language. You won't read like a P G sentence where you're like, What is that word? I don't understand. He's like Very simple. It's easy to understand. My favorite PG moment from that period was one of my friends had a in the batch did a presentation and

24:43 PG was like this is terrible. This is not good. And he rewrote the whole thing for me. He's like, You should say this, this, and this, and like he just said all the things and my friend just took down perfect notes. probably does like you pitch for two minutes, then he gives you like ten minutes of feedback and then the next group comes. And he just does that over and over again all day. So there's a cue. So if you pitch and you want to do it again to come back and try again, you've got to wait like three hours for your turn. So like three or four hours go by and my friend goes back up and presents the the the pitch and he says exactly word for word everything that P G told him to say and then P G was like that

25:16 Perfect. That's the best pitch I've ever heard. He totally forgot because he's doing too many pitches in a row. He totally forgot that that was like dude you wrote that pitch. That was amazing. I learned a lot from all his essays and stuff too. It's hard to Remember what I learned from him personally versus reading all of his stuff. You get out of Y C Uh twenty fourteen. Walk me through the major beats uh and milestones up until the soft bank investment, which was twenty nineteen. There's a lot. Um actually one of the funniest things one of our other investors is Ron Conway and he was

25:46 He saved Flagsport at one point. I don't know if I've ever told the story, but um We had a license from Customs and Border Protection, but it was issued oddly enough in the port of Houston. Which is like the whole story, but it was like that's where we got our license for And it's fine. You have a national license. One one of the things that made Flight Sport possible

26:05 was that in Two thousand and Seven I think it was. The customs will change the rules to allow for

26:13 Electronic filing of customs entries. And it used to be That you had to have a license at each port where you wanted to clear goods. So a startup could not possibly enter Unless you were just like a little mom and pop. help the local companies, but like there's no point in doing an internet company.

26:29 To serve one port. Um, and so that changed in two thousand seven. We started applying for licenses in like oh nine or something. Markets aren't totally efficient, but Kind of. And okay, so we had this license, but it was in Houston and we wanted it to be in San Francisco after Y C And

26:46 In order to transfer it is it's just a administrative process, but you have to have a business license from the city of San Francisco. Well, the city of San Francisco had an IT problem and was unable to issue business licenses. And this was in twenty fourteen. They were they had not been issuing business licenses for several years. They could issue a letter

27:08 That says you have a business license. But customers wouldn't accept that. They wanted the license. And they I don't know what the IT problem was.

27:19 They wouldn't accept a letter on City Letterhead saying, Yes, this company has a license on file with us. They wanted to see the actual license. It was a kind of like Kafka ass At some point Well, you just weren't gonna be able to operate. We were like operating remotely in Houston and it just wasn't gonna work. And customs was kinda clear, like you need to You can you can only transmit entries physically sitting in Houston. So I told Ron Conway about this situation.

27:47 And he emailed the late. Ed Lee, who was our mayor. And I want Ron was like one of his big uh donors and Friends. And we got the license within six hours. They like went down to I don't know what happened at City Hall, they got the license printed and we

28:00 Yeah, sensitive customs that all got moved. But like there was a moment there where like Flexport was not gonna be able to operate in San Francisco. Uh if it was and it was just crazy. Can't miss can't issue a license. That's insane.

28:14 Many things happen. I would say like the summary of it all is we had product market fit just like Insane from the get go. To the point of it being a problem, like more demand than we could keep up with, asking us to do more things than we were capable of doing. Just sort of run away. It was all success, lots of mistakes and bumps in the road, but um I guess the big a couple of big

28:35 Milestones on there. One is we started out when we went through my combinator Flexport was just a customs brokerage. We didn't do freight forwarding. And we said hey we're gonna do Free Forty someday, but we wanted to just Focus the kind of dogma in startups is like be really good at one thing. Really focus. You've written about this, like the need to focus. We also the other dog is talk you know, my combinator talk to users

28:56 And make something people want. And When we were just doing customs, we get customers, but like we get the worst kinda we get a lot of Rough. Types of customers. One of the first things we ever imported was uh

29:07 A took tuk. She's like a Jeep knee uh kind of scooters with the seats in the back. Uh like the Berkeley professor wanted it for the nudist parade in Berkeley. Uh

29:22 This is not he was only gonna do one of those in his life, not a great customer. So we had like a lot, a lot of customers for customs. brokerage, but like rough customers doing things that they were amateurs, they know what they were doing, they weren't probably gonna recur Some guy bought like a bouncy house for his kids' birthday party in China because he was too cheap to buy one locally. Like stuff like that. Is that because people want to deal with one one interaction from a freight forwarding and customs brokerage point of view. Exactly. And so like when whatever we talk to real companies that were doing repeat transactions, they're like, we didn't want to separate customs from the freight. And if they did, they were going to give the customs to like the best customs brokerage in the world. With the best reputation for compliance and like we were not to the start up.

30:05 Now we actually have a lot of big companies that use Flexport for customs only. Uh, because we've built our brand and our reputation and our technology systems to actually we can say, Hey, we're the best. If you want to separate your customs from Frey, and they're there are good reasons to do so. Like the hub for your compliance data. You don't want to shop it out, you know, and have All those compliance records living in Ten different freight forwarder systems. Right. People are much more likely to have a single customs broker and many forwarders.

30:30 That move the freight. But Well we were starting out like that wasn't us, so we'd And when we only did customs, we were not getting like The legitimate companies that we wanted to build a business around. So

30:41 That was the first um Kind of. Not really a pivot. We always knew we'd go into freight, but we went there much faster than we wanted to. In the moment we did that, it was again like Back to

30:52 couldn't keep up with the demand. And it became a much harder problem. Like customs like, okay, cool. I self contained. This is a contained environment here. I got to collect the data. Got it transmitted to US customs. Freight forwarding all of a sudden I'm like unconstrained. I'm out here in the freaking wild giant round world. You're dealing with multiple parties different interfaces to each party,'cause you're trying to computerise things at this point.

31:17 And there I I don't imagine there's API. Like how does that even work? Right. There's there were no APIs, still very few APIs. Um Lot of manual work, lot of like we we've built Like automation and software interfaces and wherever there are systems, like a lot of integration layers into different IT systems of all the vendors. Yeah, we open up a can of worms, like we got unlimited demand, but like

31:41 Problems much harder. And hard to keep up. That's why I say it's been like this race to like build the capabilities. tech people geographic footprint infrastructure around the world. to match the demand. Um but we went From

31:56 I forget the metrics at the moment of the first soft bank investment, but um One point ink. magazine rated Flexport the second fastest growing company in the world. They did this in the Inc. Five Thousand. We were in we were second place But The first place company

32:12 was started before us and was smaller than us. Okay. So like the math says we grew faster than they did. I don't know how they did their math, but they were wrong. We should have been number one that year. It wasn't weighted. I don't remember who it was, but um but we should anyways, we were a very fast growing company and A lot of times, yeah, that that can kinda like cover up a lot of problems that we had. Were you doing things manually and trying to computerized it as you go, or trying to do it computerized from the get go? We were do a lot of stuff manually. We're still open to do we do a lot with people. Um

32:44 But with this We're not satisfied with that. Or like constantly. Figuring okay, well just do it. Make the g that's that's the secret to our success. We're willing to do

32:55 What the customer needs with humans as needed. Um but Constantly say this is not good. We're what are we gonna do software wise to Take this and structure the workflow and put it into a Automation

33:06 So we're now On like a freight. Just a standard plain vanilla ocean container from any port in Asia to anywhere in the US. Inland all the way to destination. We break it down about a hundred and eight steps that have to be completed.

33:22 And ninety two percent of those are done Either by software automation or sent out to like a third party BPO processing Entity. Um

33:33 That gets our cost down. And the quality's really good because everything's measurable and precise. So we've got That piece is like Really um

33:41 Took us a long time to build. It wasn't like that in the beginning. In the beginning was people Yeah. People picking up the phone and sending it free email forwarding, I call it. But that's the way every other freight forwarder in the world does it too. So we're like I build a better interface for the customer. Drive demand.

33:57 And then have this we are not satisfied with the way the industry works. What are we gonna do to you know structure in fact, in many cases the car costs have to be higher because if you don't structure the data You you just forward the email, the PDF. Like that could be cheaper than like being like oh I gotta structure that, put it into our database. Um And so your cost can be higher, especially if you're just doing one shipment at one time, like Why bother structuring the data? The whole point is that the second time you ship the same thing.

34:24 Your costs are really low'cause you just go, Yeah, do that again. Yeah. So that leads to the soft bank investment, which was I think they gave you a billion in cash. Yeah. They and other investors in the round did, yeah. So what happened with that? Like you get this money and are you like we can

34:41 Put the pedal to the metal here. Because didn't something happen right after that? Somebody went bankrupt or something. Oh, that was even before Hunjine was the big ocean carrier. They went bankrupt in twenty sixteen. Oh, it was twenty sixteen. Twenty sixteen was very interesting year for for freight forwarding that everyone's forgotten about it because we all keep talking about expensive freight and all the chaos and problems and Supply chain now tariffs, but Covid, a whole bunch of other things.

35:04 The the Red Sea crisis, like wars. But we're gonna get into some of that stuff. Yeah, we're sure we will. But in twenty sixteen Kind of the opposite. There was so much capacity. It was so cheap. You could ship a container from China to the US for Our cost was like six hundred dollars. Uh normal long run average about two thousand today. I didn't check the price this morning, but it's probably four or five thousand right now.

35:25 Um And the peak Covid was Yeah, famously got to like twenty thousand. So but it was six hundred bucks that year. And that was an early year we did Y C in twenty fourteen. And in twenty sixteen we took that as cheap prices and just passed them through to customers.

35:39 And it led to crazy growth for us. Um a good lesson actually. We wanna be able to play that strategy. Pass through low costs and you'll grow really fast. So it was twenty nineteen when you started to look for COO? Twenty nineteen, we got the funding from Softbank and then we did we I hired a CTO that year. Okay. Uh really upgraded go invest in our tech. We hired a CTO from Amazon Logistics and he was

36:03 He helped us build like some of that workflow software that I just described was like Kind of architect that. And then Covid hit. And that's where I say Flight Sport looked really great. Like we were we turned profitable in twenty twenty two. Our revenue peaked at three point eight billion'cause the price of freight was so high. But pause. Like you knew Covid was gonna hit in February before it actually hit.

36:25 January even. Yeah, I mean, well it was it was in the newspaper, but we have a group called Fleshport.org, we do shipping for humanitarian causes. Like refugee camps and hospitals, nonprofits at at costs. Uh sometimes below cost. We had been part we're partnered with a lot of gr great groups like international aid aid groups and things like this. And Um Covid w it was in the newspaper, it would have hit in Wuhan.

36:47 And we actually got a ton of demand to ship masks to China for the doctors in China. And so in January of that year we shipped about three hundred thousand N ninety five from the US to China. Which then like two months later when there were no N ninety five mass in the US were like uh whoops like Um

37:06 So yeah, we saw that pretty early. And then the other thing that came out in that period was People About fifty percent of the world's air freight travel we do air freight too much ocean freight. Um and about fifty percent of the world's air freight flies in the belly of passenger planes. And those all got grounded.

37:24 Because of Covid. There was no reason to you know. I think they're actually grounded legally. Um and so We saw We were at the heart of

37:33 Kind of bringing masks. Bringing uh PPE generally in for US hospital networks. From mostly produced in China, and so we saw this insane demand. For air freight. And there were no ships and no planes to move it. And the ships were too slow. Like hospitals are running out of masks.

37:52 So we saw that and got pretty active, like Well you can kinda see The solution to that problem is in the problem itself. It's like well, all of the passenger planes are grounded. So we can't ship any mass. We're like, Wait, the passenger planes are all grounded.

38:09 Uh, and so with some of our connections we got in touch with all the major passenger airlines and we got eighty plane eighty passenger aircraft and flew them to China. Well passenger planes can travel too, just not with passengers. Right. So we Got the airplane uh the airlines to give us great deals. 'Cause otherwise the planes are just idle. Sitting there in the desert and stuff and just sitting at the airport. So we got all of this we got eight we did eighty eight I think it was eighty seven, eighty eight. Um

38:36 Passenger planes. Four. mas overhead compartments in every seat, obviously the belly And we just shi we flew five hundred million masks and other objects other PPE items in for US hospital network in March and April of twenty twenty. Do you ever struggle to stay focused?

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39:58 If it's not the game changer you were hoping for, you'll get your money back. Get your paper tablet at remarkable.com today. It was crazy. It was like one of the most meaningful parts of my career and everyone at Flexbore. It was great'cause we were like Not in it.

40:15 None of us and the world was in a good place, but it all of a sudden totally distracted us from whatever problems we trade fell off a cliff. It was really bad for business in the first month or two, we're like, Who cares? Like we did a hospitals like their civilization will collapse if the hospitals don't show if the doctors don't show up for work. And became friendly friends with um the guy who runs UCSF. Sam Hogg's uh

40:37 Chancellor of UCSF. our local hospital and um Remember years later I met his wife dinner and she was like, It was what when

40:45 When I saw the zoom call. Of you talking to Sam was the first moment when I realized everything's gonna be okay. You gu it really touched me. He was like I saw you guys are highly competent people are gonna get mass delivered. You know, the day before they run out. Uh Now another thing that came out of that was

41:02 In April of twenty twenty Same problem statement. Passenger planes weren't very economic. They were giving us great deals. Because we were serving hospitals. It was all like kind of Pro bono, not for profit.

41:15 Work. Mm-hmm. They were giving us great deals. It was I remember once we one of the planes the one I remember was a Dreamliner. Well charges two hundred thousand dollars to fly a dreamliner to China back. Oh wow. Which like if you anyone's ever flown private, that would be like a dream ladder. I mean, there's many millions of dollars probably around Trip. Couple of million like a million probably.

41:34 Five hundred K, I'm not sure. So you give us a great deal. We saw lots of things like that. But w it wasn't sustainable for the business side of things. Now What and we had a lot of ongoing demand for air freight, but all the passenger planes are grinded. So we signed a long term deal For three seven forty sevens.

41:50 From Atlas Airlines, the biggest cargo airline in the world. Dedicated to Flexport. And it was in that. response to that. Like hey, the passenger plate we have this vision this view, this perspective that Airfreight can be very expensive.

42:03 Because All the capacity's grounded and stuff still needs to move. People still need to ship stuff. So we signed a deal with the airline, uh with that airline at a great rate. And I think they were their their stock Atlas was in is in these airline indices.

42:20 It's actually if we're smarter, we'd have just bought their stock because They were a public company and they were in these public these indices for airlines. And those that tanked. Yeah. But the cargo airline, the price should have gone to the roof because they're still they're gonna the price at air freight's gonna go crazy. I think I probably I haven't really talked to them about why they signed the deal with us, but we got a good deal

42:38 as a result of that moment where there was this dislocation, I assume that their stock price going down was like part of the their anxiety to like get these things signed off with us. So we got a good deal It but it did kinda turn Slexport into a cargo airline. Uh, and we've had those planes ever since.

42:56 So it's not our it was more of a tactic than a strategy. Like our goal is to be an asset light technology platform for freight forwarding and work, be like more neutral and agnostic and move the cargo on anybody's planes, but we ha we saw that. Has that moment has that helped you in other ways? Not from a business point of view, but like learning. And being more responsive to customers. I mean, if it really helped us during those few years of Covid when there's tight capacity, we can serve people and no one else could. It really an education about asset ownership in logistics in

43:26 In that It kinda turns you against your customers in some ways that can be unhealthy. You have to really overcome that inert. That Because um Your job when you have a plane or a ship is to fill the plane or the ship.

43:38 Not to serve the customer anymore. But If the customer's cargo needs to go to a different airport, you'll try to convince them to fly it. where your plane is going and then truck it a long distance or You know, it's like all right, you just wait three days, the plane's leaving in three days, instead of going, Hey, let me find you a different option.

43:55 So you have to overcome that culturally, like If you're an asset owner it's pretty hard to be customer centric because your job is like Fill the asset or you don't make money. Which is interesting'cause later on you get warehouses, but we'll get to the

44:08 Uh and Okay, so fast forward a couple of years and you're looking for a COO Mm-hmm. What was the the thought behind that Yeah, so Covid d it did some interesting things for us. It made us kind of famous and Cork has the hospital stuff and some other things that we did during that time when when supply chains got dislocated.

44:26 Um But it uh so it helped the business and the profile of the business. It financially was we turned profitable. But It really exposed some flaws in our operations. Yeah, we were we were remote.

44:39 For way too long. Um work from home, which just doesn't work in our industry. Maybe in any industry, but certainly not in logistics. You need to be like In person, collaborating, partnering on the with the assets, et cetera. Um Really expose some flaws like when you we would just prior to Covid just send a truck to the port.

44:57 Pick up the container. Yeah. You take it for granted. But during that time you couldn't get appointments, you couldn't get trailers. The chassis to go.

45:04 Just not enough capacity. It was like it Uh the operation was really failing in a lot of ways. Um by the way, same for All of our peers and other freight forwarders, everyone was in kind of in the same boat.

45:19 But That's not how that's not an excuse. We wanna be the best. And we didn't feel like we were winning for a period there operationally and like how we serve customers. Our net promoter score like was always in the seventies, which is a great good metric for customer satisfaction and that like collapsed. I forget how Got to like seventeen at one point, it was pretty bad.

45:37 So had a lot of operational problems and I'm um much more of a creative type. Okay. Operators like do the same thing every single day and a little bit better. Measure every detail and that That's not like I've gotten good at that, but that's not like naturally who I am.

45:54 what my background is. I'm more of just like a freewheeling entrepreneur, so Was looking for a partner to kinda take that on for me and help Flex sport mature and grow. So yeah, that was in that would have been in twenty twenty two when we really like kind of Watched in earnest.

46:10 Search for a business partner helped me out the operations side of things. And then you end up meeting Dave, Clark, who would go on to take over as CEO for a period of time. Uh, but he was originally were you think you were thinking COO or try to hire CO and met Dave Clark. He was the CEO of Amazon.com. He'd run Amazon's logistics and supply chain for many years.

46:32 Um So it seemed like great fit. Tech and logistics. It was actually in many ways. And you had the good Amazon hire in twenty nineteen, the CTO. Yeah. Um and a lot of people I hired from Amazon We got a lot of great people, we still have a lot of good people who worked at Amazon.

46:47 Logistics and tech, like they're probably the best at I think we're the best now, but I think they're Uh, I don't think I could always say that. I think we keep getting better, but um yeah, Amazon Logistics and tech, that's what they're known for, right? So it seemed like a perfect fit. Walk me through how we get from

47:04 that moment of hiring to you stepping down as CEO. Uh well it's kind of an orderly transition. When we hired him was like uh let's have a path or you become the CEO. It became pretty clear that like, I don't know, it's hard for me to picture like what am I gonna be better at the day to run this big company in? Was that a confidence thing for you? Yeah, I mean I feel a lot more confident now, having seen uh done a much better job, uh in the last eighteen months than we ever did before.

47:26 So yeah, Dave he was only the he was with us for years the C CEO for six we were co CEOs and then CEO for by himself for six months while I became chairman of the board. And work out. I think these hires are really hard in hindsight. What was the first sort of sign or first moment you realized Oh shit.

47:46 There are a lot of things. It was building up. I mean, honestly it was the P L at the end of the day. Like we just start burning too much money. Some of that was market forces turned against us. Like we'd We overhired. I li I approved all those hires. Like we wanted to go big on tech is just dominate. We kinda read the market. W it was like trying to be contrary to something we had a really strong balance sheet.

48:06 Um I like One point six billion in the bank. And everybody was cutting Tech hiring. Twenty.

48:16 And we felt like let's go lean in put the pedal to the mud. And and go hire a bunch of engineers. I think we added nine hundred software engineers into In like twelve months. So uh And turned out They're and all in the US or almost all in the US, Seattle mostly. It was like very expensive people. had a lot of senior exec, so we just like overinvested in the business.

48:40 And at the same moment, like the freight markets were collapsing, capital markets got ugly. It like became clear like hey, you're not gonna go raise we'd already raised too much money, like we don't need to raise can't raise more money. And so it's just like kind of a perfect storm of bad decisions, of which I was like, you know, I sign off on all of them, so I don't blame Dave for that. But it became clear we gotta change courses here change course here. And our customer One of the mistakes that we made during that period was we took

49:08 That that workflow system I was describing, where you have like all these tasks that have to get completed. And we had taken This idea of efficiency way too seriously. To where An operator.

49:21 We just do like one or two of these tasks. And do those over and over and over again like a robot almost. What will happen then you have like fifty different people collaborating on one shipment. That's how fulfillment works. If you go to a fulfillment center, it's the only way it could work. You're not you're not gonna have the p same person like Yeah.

49:38 Unload the truck, put it away the goods. Take the good bout, put it in a box, like y you break it into stages, right? And so that's where the Amazon background and flexboard background really came in conflict actually,'cause they break it apart into simple tasks and have the same person do it over and over again and like Kind of robot human robots almost, like or literal robots. And and it forwarding it's much more of a service business, there's a lot more exceptions that can go wrong. You're out there in a messy world. You don't own all the assets. You don't control all the

50:06 things that are happening. You need to like oversee these things and oh the trucker didn't pick it up. Like Better call a different trucker, like Oh, they're not responding on the API. Okay, pick up the phone, you know, go to there. Lost the car, go all right, drive to the airport. Like you know, I mean it's a it's a service business for and it's B to B. You spend a lot of time with the customer. So but especially that that piece, um, the quality really started to suffer.

50:29 And it's a really good lesson in business. And I think most businesses like actually quality costs less. It's very counterintuitive. Go deeper on that. But well in in logistics, like all the costs come from you make a mistake. Come on. Like if you file a customs entry. And you get the wrong classification code.

50:48 You're gonna spend weeks on doing that. With the customs agencies. Like you might have license issues or regulatory problems like Getting you right, their first time costs way less than one mistake on do all your efficiency gains for the month, you know, and logistics. So I had to learn that the hard way our customer NPS really started to suffer.

51:07 So the board was looking at it and going like Okay, you're burning too much money. You're gonna have to cut costs. And that means Cutting head count. Like that's where most of the costs at. You gotta cut costs. And you gotta improve your quality.

51:20 As a Kind of a hard mm thing to do and our culture had been suffering. We brought in all these new leaders and like the core core people that built the business were like We grew an insane. Leaving. We had grown. It's a really hard business'cause it's so global. Like we ship to and from one hundred forty seven countries. We'll have we have people all over the world, like And so the board kinda looked at this problem and said, Like

51:43 This is a problem for the founder of the business. Like you need to come back. Nothing against Dave per se, but it was like very clear, like okay, you're gonna Cut people and tell them you care about the culture and tell them I need you to work harder to solve like customer problems and do a giant reorg back to the way we'd always been organized that led to all the growth, which was operator would take a shipment and and own it all the tasks. Own own that.

52:07 And So just like the board was like Ryan, we need yeah, yeah. You you gotta come back and step in and do this. And I had already taken a job at Founders Fun. as a partner. So it was a little it was it's still embarrassing for me. Like I'm like I just took this job and now I gotta go back like I

52:22 What am I doing? I gotta follow through on my commitments. But it was obviously like I'm honor bound to To make Flexboard work, make it successful. So I I was very happy and excited to come back. What happened when you told PG you were stepping down? I didn't tell until later. I forget when, but like after I'd

52:40 I was the chairman, so I think I was already at Founders Phone. He was pissed'cause he thought I should go be a partner at White Combinator instead of uh Foundersphone first off. But I went for a walk with him when he came back to the Palo Alto one time and he um He asked me why you did it, why I stepped down, I said, Well I thought I think Dave's gonna be better at the job than I am. There's genuinely true, that's why I did it. It wasn't'cause I was burnt out or something. I just thought he would be better for the company. Thought we needed mature, it'd be better at operations and better at building tack than we were. And I thought I'd be better at that. Um And Paul had this amazing line. He said, uh

53:12 That's like saying this other guy would be a better husband for your wife. Might be true, but like don't act on it. Like this is your company. You need to stay in there. I thought that was funny. Super hilarious. And he then told me Okay, if he's better than you at these things, and he asked me, Is this your life work? I heard you say that earlier. Is this your life's work? Is Flight Sport your life's work? I was like, Yeah, it is. Well then You need to figure out all the things that he's better than

53:36 You at And go learn them. Go learn them from him, learn them from other people. Like figure out what are these things that you think he's better than you say you can Be the next CEO after he steps back, like Larry Page did, uh after he came back, he hired Eric Schmidt for a decade and then came back. He's like you need to go Learn their skill sets. But it happened much faster than

53:55 Uh P G and I could imagine on that walk. Did you go and learn those? Was there a conscious effort on your part? I don't know. It all happened so fast, not really. Uh I've learned the plenty of lessons along the way, yeah. Walk me through some of those. Well the number one thing I think is um learn from

54:14 Toby from Shopify. And Brian Teske, who've been good advisors for me. The micromanagement is not a bad word. It's a good word. You gotta like stay involved in all the details. And that's very hard in my company. We're like big and sprawling and do a lot of stuff, but need to be way more hands on Do lots of skip levels.

54:35 Don't like hire big executives and then just trust them, like treat them like a black box. Like I had when I heard him say this, I was like, Oh my God, I just committed this sin at the highest possible level, right? But like don't do that at any level, like All my company. Audit everything, inspect everything. You can't just like give people too much leash to run things their way and if they disagree with me, like

54:56 Sure, I wanna I wanna debate it. I wanna hear from them, but like at the end of the day I know I'm gonna still work at Flashport in ten years and I don't know if that's true about anyone else. And that that's that's something they heard from Chesky. And that was like You know, it's like it's probably true. Like I hope that my team stays and I got the team for ten years, but I'm positive that I'll be here. And so if they really don't like the way I wanna do something, like, Okay, no problem, but it's my company and like they can

55:19 Move on. Like that's a level of confidence that I didn't have prior. I heard from people that we have in common that you when you came back Uh, you were a different CEO and you were like founder mode before it became founder mode. Yeah. I mean Chesky's like way more hardcore, I think. Uh But I but I didn't have as many frameworks for it. I was just like, Oh, I gotta do what I have to do, you know. And there was a lot of stuff that I really didn't understand.

55:46 about the company. I had way too much committed all these sins of just like okay, there's a problem in some department I'm a big exact. But then And then don't get in their way.

55:57 kind of the corporate way that most people teach or like most people expect like this is how companies should be run. Micromanagement's a bad word. Toby's the first person I ever heard that from. Like it's not about it's like a great thing. Get involved. You know why would you ever want Like micromanagement and attention to detail the same two words for the same thing, right? Attention to detail is great. Like your boss is involved in your stuff. Like that's only a problem if your boss is an idiot. And out of touch and making bad decisions. But like

56:22 Genuinely cares about your work, is involved in tune, knows what you're doing, has good judgment, like why would you not want them looking over your shoulder and participating with you and what you're doing. So Uh, but Flashboard is a much I don't know. I don't know. I've never worked at another company really, but it's um Compared to other businesses, I think far more complex. So it's hard f it's really actually quite hard for me to live up to

56:47 Chesky's ideal of like, I think he says like if the company should only do as many things as the founder can be personally involved in. It's a nice ideal. It doesn't work at my company. We're like in All these different countries and all these different modes of transport. that like one person can't actually keep it all in their head, but I try my hardest. How do you

57:07 hire differently, what do you look for differently? And then how do you integrate people differently now as a result of these experiences? I just like only promote from within except for very rare Cases where just like really can't find the person. Uh and then I

57:25 Spend a lot more time with New hard I've only hired one person actually from external in the last couple of years. And I spent just like Loads of time. With him. And I told him he's not allowed to make any decisions for ninety days.

57:37 How did that play out? It was perfect, honestly. And he even told me like Maybe I should have done more time because I remember he told me at like day eighty A No, you told me day ninety one

57:49 that if I had let him if I had told him eighty days, he would have made different decisions than he made in like even those last ten days, there was still like learning and taking things in you have to approach startups. If you're an executive and you're joining a company, you have to approach it with extreme humility. Like These are Smart. Really smart people. Like some of the smartest people I've ever met have worked come through the doors of Flexport or still work at Flexport.

58:11 And we've been obsessed with the problems that we're working on for a decade. And like the idea that some big shot's gonna come in here. This is no knock on any particular person. It's just like a class. Like what are the odds they Anyone could come in and know You know.

58:25 On day one, do figure out problems that we couldn't think of or solutions that we can think of. It's why like no investor ever gives me Useful advice, really. Because like I not th sure they can't about people and some high level stuff for sure, j capital markets, but like

58:42 business like strategy? Like how could they ever know my business better than me? I'm obsess about it. Like every waking hour. I'm all always skeptical of people who run businesses or even government and they contract things out to consultants. And it's like, Well, how is that consultant know your business better? That scares me. Yeah. Uh PG wrote about that in founder mode. Like, well if you're a professional manager your mindset is though you can run any company. So you go ahead and

59:09 And in that world you shouldn't be too involved in all the things'cause like you know, you don't w you don't know about that. Particular. domain, that industry. So just trust the people that are already there. So your job is kinda Babysitting at all.

59:24 But that's not like founder founder mode, as they they come to be called, is like You should know all the stuff, like more or less. Y you were at that talk, what Did you were you inspired by that? What did you take away from it? What was the moment that really like Solidified things for you. I wish I could I wish it was recorded. He went on and ran like four out of three hours. Just like

59:45 He's a very intense guy. I took like four or five pages of notes. I was definitely like enthrall in the back and like a lot of stuff deeply resonated. But I don't remember any Um Yeah, I've shared already some of the specific things.

59:58 A lot of it is like yeah, just be way more involved in the Day to day. And if the people don't and do a lot more skip levels, like meet the people who report don't trust the managers. Not in a bad way. Like, you know, I'm here to help. Like actually I'll When I go Skip level, meaning like go talk to the people who work for I I talked to anyone. I'm I've I've talked to forty or fifty people every day on Slack or text or phone, um at Flexport and

1:00:22 If I talk to somebody who works for you, I'm not really trying to undermine you. I'm gonna come back to you and be like, Here's what they said, like here's what I think we need to do. And if the person asked me to keep it confidential, I'll Do my best, but um Ultimately I'm trying to solve problems together with my exact so you know, and if people have a problem thus far they haven't, but if someone has a problem with that, I'd be like, Well, it's probably not a fix. This is my company, I'm gonna Talk to anyone I want in this company. I find it interesting'cause you remember that telephone game in like pre school where you sit in a circle and there's like ten of you. Yeah. And the teacher like passes a message to s some kid on the right and then it goes through ten kids and by the time it gets back to the teacher, it's like this completely different yeah sentence and meaning and

1:00:59 organizations sort of filter this way unconsciously. Nobody's trying to make a mistake. Uh, but people just filter information differently and what's important to somebody on the front line might be different to the manager, to the team leader, to the all the way up to you. And so by the time you get it It's like how accurate is this information? And vice versa. Like you just like what are the odds, the people don't know what I want. Exactly. And so the other way just as well. Right. It's an interesting way to think about it. Yeah, they're lean like lean in way more than I realize in the communications and enablement training like we've been doing. A lot of your huge amount of like strategy sessions and teaching and like traveling the world and doing these like

1:01:43 Little Almost like a little music festival. No, it's the wrong analogy, but like You know, music festival give you like multiple tracks that you could you know, you go to see different acts, like we have that. We'll come to different offices and have different tracks to learn about different things. You show up in an office and like, Okay, we're gonna do a half a day of training, you have to sit through like

1:02:02 four talks in a row, you lose your mind. But if I give you a menu and you're like, hey, there's like four talks happening right now and there's sixteen talks, right? For the next four hours, you can just choose your own adventure which talk will you want to go to people all of a sudden like this is amazing. Um get to go learn about and our business is super interesting. Geographically. We're in all the different countries and um Almost all the countries we different modes of transport, different technologies. There's like it's actually an incredible thing. So if you give people agency, so we

1:02:31 Trying to do that to like Overcome this problem of I just realized I I we have an Really? I think we're a pretty well run company. We have everybody writing Teams like write these documents.

1:02:42 of what their strategy is, what happened this month, like these six pages kinda we took this from Amazon years ago before we ever heard Dick Clark. Um The six pages that you would write. Updates. Well, I read them all. I get access to all of them. But no one else does a couple other people on the team

1:02:58 We're not that secretive, but just like It's not part of the The structure is like they don't Disseminate. Uh

1:03:07 So I was just realizing like no one else has such incredible things happening at this company, but nobody knows about it. Or like not enough people know. So we started I'm trying to work on that problem more. It was kinda to overcome this telephone problem, like I just realized, oh like no one else has the access idea. What's the cadence and frequencies of those six page updates? Monthly. There's about twenty six teams that do an MBR monthly business review. The six pager and then That's just like it doesn't uh I think we tap it at six, but it's the six isn't that important.

1:03:35 Mostly um honestly, I actually think the six pager is Sort of. Maybe wrong. Uh I'm not sure, but It's more how much time it takes to read. Right. You know, what's Twain say like uh

1:03:48 harder to write a six pager than it is to write a twelve pager for a lot of businesses. And so you're like if you had more empathy for the people who were working hard, you'd let them write the twelve pager and spend more time reading it. Yeah. But it turns out you The six pages seems fine. Um so we have I think twenty five or twenty six teams that write those monthly and then they do an annual plan. Uh two year rolling, but once a year update. Okay.

1:04:12 twice a year update. Okay. I don't know if that's secret, but uh I haven't moved to that yet. You mentioned the word obsessed. I wanna talk about that for a beat before we move on to tariffs.

1:04:23 What does that mean, do you? Oh, it's just like I can't stop thinking about Flexport. Just all the time. It's like consuming the problem. It's very addictive industry. It turns out it's always on.

1:04:35 Always different. Every day is unique. Yeah, front row seat, you backstage pass. You see what's happening in the world. In a insane degree. And there's infinite problems to solve. Ours and our customers and our vendors. Like I mean it's just like a crazy landscape of

1:04:51 Problems to solve. So Yeah, it k it's a it's a pretty awesome industry. And and uh I think one of the things that we've done well is show people that actually this thing that looks boring, you don't think about it. Actually a really interesting place to Build a career. Well, let's talk about what's going on in the world and let's start with tariffs a little bit. And I I think it would just help orient people for the conversation.

1:05:10 What are tariffs? When do they apply? Is this a simple question or is this not? Tariffs. I think it's an Arabic word. It goes back a long time. Governments have always had tariffs thousands of years. control their borders uh and make money. It used to be the primary source of revenue for most countries is the tariff. Uh in the United States that was for sure true.

1:05:30 Uh the income tax wasn't introduced until Abraham Lincoln and the Civil War. And uh yeah, it's the percent of the value of the goods that are imported that you have to pay to the US Treasury. Primary reason for it, I guess there's a few. Revenue's real. Um in fact Trump's chief economic advisor

1:05:47 Right now the chairman of the council I don't know if he's his chief advisor, but the chairman of the council of economic advisors, um, is a guy named Steven Moran. Um and he in his current administration he said that in the Trump one First to term. That the tariffs on China

1:06:03 paid for one third of the tax cuts that Trump did. Pretty meaningful. I mean It's an i i it's an interesting alternative. way to fund the government.

1:06:12 via terrorists instead of income tax. Like I'm not sure. I hate that idea. I don't know what would happen. So it's source of revenue is uh very, very important and valuable to the government. It's a way to control protectionism for Companies. That's that been a major reason to use tariffs over the years is to protect US businesses from competition. In part. just for e employment reasons, in part for national security reasons, like you want to

1:06:37 have certain industries be successful. Steel has always been one of these and Auto is most comp but most major countries like believe their auto industry is like s important not just for jobs but for armaments like you make tanks out factory during a war, et cetera. So yeah, those are

1:06:54 Legitimate reasons for terrorists. Why do they matter in the context of like the global politics? Obviously it increases the cost for companies that are sourced. And we've become So globalized our economy is just like S supply chains are unfathomably complex and interdependent and

1:07:12 They're full of Independent actors. Making their own decisions about how they want to do things and Um there's these component subcomponent ecosystems of supply of moving goods all over the world and doing assembly and production in different countries and bringing things together. So it

1:07:27 Introducing massive changes on short notice to the tariffs has caused Borderline chaos, certainly a lot of disorder. in global supply chains, which ultimately affects All the stuff that we buy. Most It's not true that America doesn't make anything anymore, but like a lot of the kind of consumer goods that

1:07:44 They're all made over a lot of them are made overseas, obviously. When you talk to a lot of customers, are people onshore or are they just sort of accepting or or what's happening? Well, that's the thing. I think you have to judge policies not by their intention, but by their outcome. Like the One of the mistakes that I lot of people make is like, Oh, it's good intention, so therefore the policy's fine and that's

1:08:05 Not right. And these tariffs have had the opposite impact that Trump would like. I think there's intention or some dou some validity to it all, like some of the things I said from national security and employment, other things. But the um The result has been thus far and it's pretty early in the cycle. We're only a couple of months since the liberation day or whatever, but the um I've met way more I've met infinitely more. I haven't met anyone who said, Oh, because of these terrorists I'm gonna start doing production in the US.

1:08:29 I've read some headlines on it and they've done some White House announcements and things, but like those aren't my customer base. And my customer base Me at least a half a dozen companies that said stop production in the US. Because of the cost of the components coming in. Oh, interesting. Uh and there's kind of like three categories of these, two or three. Uh One is people

1:08:48 For example, we have a bicycle a company that makes bicycles in the US. Kids' bikes. And For some reason they made an exemption for importing bikes that are duty free. But not by components.

1:09:00 So their costs went way up and their competitors from overseas didn't So they are cheaper to manufacture Overseas. So they're moving their factory that like there's been a Well known brand, reasonably well known brand. known for being made in America and they're like doesn't work anymore.

1:09:16 So it's One example. Um two is if your ex Doing it for export. For exporting goods. You're paying your costs have gone up on the import.

1:09:24 Of the goods, of the components. doing assembly in the US and then exporting You're better off setting up that factory now. Somewhere else where you don't have the cost on the imported components. third would be machinery costs so like

1:09:37 Fact, a friend of mine was setting up a a line for a fab, like a semiconductor fab. Um and Just decide like the machines are made in German for that particular Why. And the cost was gonna go up thirty percent.

1:09:50 Build this line somewhere else in another country. And there's all sorts of like hedges and ways around this. Like one would I think a bonded warehouse is you don't actually technically pay the tariff until you take it out of so it's landed in the United States, but you don't pay the tariff until it comes out of the bonded warehouse. Yeah. Changing the nature. But it uh Barney We're outside. Make a bet that terrorists are gonna come down. So when terrorists were at one forty five on China. We helped a lot of companies move into bonded warehouses'cause

1:10:20 We all predicted that it would come down from there. So you're better off. Waiting. And Only enter the goods, only exit them out of the building, but enter them into the US.

1:10:29 commerce after they've uh after the terrorists have come down. So there's some There's some hacks around the edges. There's a lot that you need to do if Before you didn't care about valuation. The value of the goods, if it was time zero, who cares? Yeah. But now all of a sudden it's times thirty percent or whatever number, it you care a lot more of how is it valued.

1:10:48 Um and there are all kinds of legal ways and you need to get really great advice on legal advice or Uh adv trade advisory On how to do this, but there are ways. tracking that um you want to be able to really track every single component.

1:11:02 Of a product. Where is it made? Uh And what is its sub what is what is its cost. So like if you have a cow there's steel and aluminum duties right now. They're really high. Forget the exact number, but they're quite high. Think fifty fifty percent or more. Um

1:11:17 On on Chinese made stone aluminum. Maybe on all this I should know all these details, it's very complex. Um But if you have a couch that has ceiling aluminum You don't wanna pay that fifty percent you don't wanna pay that high duty on the entire couch, you wanna only pay it on the portion That steel and aluminum.

1:11:32 So you really have to build this great pro we call it a product library. Uh which Flashboard offers as technology product. So you You wanna be able to track all these things at the subcomponent level, where's every item made? And then there's all these new regulations that have been coming out for many, many years. There's one called the Uyghur Forced Labor Protection Act.

1:11:49 Requires you to track the cotton. Anything cotton, where was it made? Uh specifically like what down and then The EU has a new one, it's very similar, but Any forestry, any wood product. Maybe that'll show where

1:12:02 The wood was grown. Anywhere in the world. Track that. This is insanely complex. Yeah. Carbon. They want to know. The carbon border adjustment factor, I think it's called that

1:12:13 They wanna know. All the input. All the carbon inputs of every single subcomponent of every product in the world. how much carbon went into making it so they can measure the carbon footprint. Um and then you coming soon, um you're gonna have to provide a like a QR code on every

1:12:32 You can scan and it'll tell you the carbon footprint. So the world just keeps getting more and more complex, which plays into the hands of customs company companies like Flexport. You need technology to track all this stuff. Um Kind of classic regulatory capture type stuff. We're not lobbying for any of these things, but uh and you're the most tech forward of all the companies. Kind of we're the only one

1:12:56 founded only one of the top hundred in the world founded after the web browser was invented. A lot of good companies, but they're not tech companies fundamentally. So we have to uh We have the the world is our oyster. We should win it all. Are there any sort of creative strategies you've seen any of your customers use that you're like, Oh, that's novel or interesting? You have to be careful. There's some Um

1:13:16 There's some illegal stuff that I see. Not so much of our customers. We talk'em out of this, but um One of the temptations that a lot of people are falling into right now is Letting your factory import the goods for you. And then buying it from them in the US. And then not turning a blind eye if the factory cheats.

1:13:36 On the value of the goods or their classification. That's kinda rampant in the industry right now. That's just a matter of time before I would imagine who regulates that? Customs and border protection. Um and DOJ. Their uh their problem is

1:13:52 What the factories will do is set up a shell company. Not in the US. You don't have to have a US entity to import goods into the US. Oh, interesting. You can just or Canada or most of Western Europe. So you can just They set up this shell company in whatever country, it could be China, it could be anywhere. Um That company registers.

1:14:09 Not as an L L C or any kind of legal entity, but they just register with C B P with customs. They import the goods into the US from abroad. If they see They just disappear and ch Cust ch Customs doesn't have agents in China to go.

1:14:24 And so then they just do it again. under a different shell company. And that's a huge amount of what gets sold on Amazon. It's not not I'm not saying it's fraudulent, but is these foreign registered companies. Definitely like a grey area. Do you think they'll bring that back? I think they're gonna crack down that. I think they're gonna shut down that. Um And make it so you have to be a US entity to create L C it can be foreign owned L C, but you'll have to have like an L C that can be held accountable. Uh, but it's very unclear exactly how it will be or should be structured. Like does it need to have employees who could face jail time? Like what's the

1:14:57 You know, what uh does it need to have a certain amount of cash in the bank that can be Take in if there's fraud. There's a lot of ways, but I have no idea what's gonna pass. There's a couple I understand there's a few bills like looming, but I haven't read the text of them yet. um in Washington that would shut down the ability for foreign companies to import or put in new requirements for it.

1:15:16 So that's like one creative thing that will happen is You get offered as an importer, you've been buying these goods from your factory And then all of a sudden they offer'em to you for way cheaper than the duty alone. You're like, Yeah, it's not my problem, I just bought it in the US. Guarantee you like you are reliable for that. Like as a warning. Look at the camera. C D P DOJ has announced this their number two priority in White Collar Crime Division of the Department of Justice is um customs fraud.

1:15:41 I've done healthcare frauds number one and then customs fraud number two. Are there any other creative strategies we can sort of put out there in the world today that you've seen not your customers use? Yeah, well the good strategies, let's not talk about the illegal ones anymore. I mean, but be careful, make sure you're getting good advice. Um is have that database, know all the subcomponents. There's a few things like valuation. You can't there's a thing called first sale. I won't bore you all with the technicalities of it, but there's it's called first sale, which basically says that you Pay um The value of the goods based on the first time it was sold.

1:16:13 Not the price that you paid at import. So there's legal ways to do that. If you bought it like there was a middleman or an agent that bought it in China marked it up to you. You can actually Import the goods at the price they paid, not the price you paid. You can deduct the portion if you file it all correct, and don't quote me on this,'cause you want to get good legal advice, including from Foy Sports Team, but you uh you can deduct the portion that's U S made. But you have to you don't just get to automatically do that. You have to like file all the right paperwork and stuff. And then importantly

1:16:41 If you import something, you pay duties and then you later export. A product with the same classification. You owed a refund. On pass. Okay. You get your import back. Yeah. The import d you pay. Yeah. So every year in the United States, seven billion goes unclaimed. And that was pre

1:16:58 These new tariffs. So it's presumably much h much higher, yeah. So we we help companies with that. We've been getting people like big checks back that haven't and you can go back five years in time. So that's like a really important one if you haven't done it. It's called duty drawback, if you haven't done that. And other countries are for this too, most countries. So yeah, there's a lot of strategies. In fact, the one thing that people should really know is your data on all your past transactions with the US government are with US customs. Are your

1:17:23 It's your data, you have the right to it under the Freedom of Information Act. So you can pull your last five years of transactions. From CBP. Now they won't they'll give it to you uh in a very unusable format. I think like giant CSV dump, basically. Maybe even on C Vs, I forgot, but they give you like

1:17:40 Not not useful. It is still your data, so it's useful, but you have to know how to clean it up. So we've built this interface that like visualizes all of this for you and shows you every transaction you've done in and out of the country. And then our experts kinda walk you through and be like, Okay, here's our check list. This is ways that we think we can Maybe get you a refund. Now Trump has lost the lawsuit.

1:17:59 On these new duty on these new tariffs. Um They they it's going to appeal to the oral arguments for that start on July thirtieth. Next month. Is that at the Supreme Court level? No, it's the level below the Supreme Court. So presumably if he if he loses again, it'll get appealed again to the Supreme Court. So that's probably I don't know enough how this works, but towards the end of the year, uh i is my imagination, um is my guess. Then it would go to the Supreme Court.

1:18:24 Either way, it'll probably end up there. Probably it ends at the spring quarter, yeah. Um, that will be an really an interesting case. If they lose again, everybody gets a refund on all their duties. But it won't they won't just refund it. You're g then then gonna have to file paperwork. Of course. Yeah, they're not gonna like here's the magic check in the mouth. Yeah. So it's gonna be Uh and then it already takes like about a year. When you get one of these refunds from the government, it takes about a year to get your check. Yeah. When every single company in the country

1:18:51 Yeah. Applies for a reply. You probably won't see the check for like three years. There's gonna be so much fraud. Oh man, it's gonna be kind of Total mess if they lose that lawsuit. Where's traffic now? Is it back to normal? Is it down? Is it volumes from China collapsed sixty percent down. when on April ninth, the day the duties hit Stayed down for five weeks. Well and then as soon as he relaxed as soon as they the Trump administration relaxed the duties on China to thirty percent instead of one forty five.

1:19:19 It surged to eighty percent above pre tariff levels. That lasted for two weeks and then it came down It's still above pre tariff levels. I haven't studied enough the market data and now I'm looking at flexboard data. And we have got thirty percent growth over the last year.

1:19:38 So then I start to figure it w we're actually up again from the drop. Like it came down and now we're back up But I think that's a flexible thing. I think the markets Shrinking again from the peak that we hit. Post COVID, but uh our own volumes were like thirty percent year over year growth. So what are the markers you look for that are like public information or that you have as proprietary information that are sort of indicators like The economy's really good. Oh, we're gonna hit some trouble.

1:20:04 You know, one of the things that Buffett has always said is he looks at intermodal rail volume as a leading indicator for the economy. I'm curious, like given your aperture into everything. I've never been like a macro person. I'm not an investor like that, so it doesn't matter to me that much. I guess it's I mean Buffett's right like the logistics say, but it's the international stuff is so um Well, see, Ali there's a lot of weirdness in lately in this tariffs data that it's just like I don't know if that means you wanna know what the consumers are doing ultimately. Or are they buying and selling. And a lot of there's just a huge amount of noise. Like they didn't ship that much less or more because of consumer demand. That was like, you know, cost and inventory forecasting and So

1:20:48 I don't It's probably if I had my access to any data, it would be the consumer sa the you know sales data from all the customers and inventory levels. I just don't know. Uh The sales data find public companies report on their sales.

1:21:02 Inventory data, I I've never understood like the US government publishes these inventory Um metrics every month. Where did they cat that? I have no idea. Um I haven't gotten any good economists to answer that. They run a survey, I'm like yeah.

1:21:16 Interesting. Is that valid data? Is that accurate? I know how hard it is to get accurate data out of my own company. So the idea of the government economists getting accurate data about all of the companies, I'm like always very skeptical on these things. Correct. So skeptical on like big Government data sets. One of the things that you said that I came across that really stood out for me was When you're designing an operation, you're choosing your bottleneck. If the bottleneck appears somewhere you didn't choose it, you aren't running an operation, it's running you.

1:21:46 Double click on that for a moment. Wallek is gonna be Yeah, the point The choke point, the point at which the um The limiting factor.

1:21:55 And I think you're in a in a company your bottleneck should always be Customer demand. Should never be like bottlenecked, oh I can't we're right now we're bottlenecked in our customs team. Our trade advisory team. The people that are helping

1:22:07 So these problems that I was describing around how much dudes you owe and how to minimize it, how to be compliant. That team is super bottlenecked. We didn't plan for a world That would require this mut. Money this much expert headcount. And it's hard to find these types of people that really know the space. So we're bottlenecked in a place that we didn't plan. The bottleneck should be I don't have enough customers

1:22:27 Wanting my thing. Uh you'd like that to be in a B to B environment, that should be the problem there. But if it shows up somewhere else. Yeah, I'm not in control right now. It feels very uncomfortable. I'm like So I w I don't want to just hire more people, especially if it's not If it's the temporary surge.

1:22:42 So what uh it feels out of control as it Um and we need to get Yeah, their handle on that. And I I hate that. I want my problem always to be like, Oh, I need to be more creative in my marketing and sales and like Work on the pitch and the user experience and the things there. Uh yeah, if you're bottlenecks in how much space we've had a number of it, this is

1:23:01 Um been we've had bottlenecks move all over the place during Covid and and since um How much space there is on ships has been a bottleneck for us. Even as recently as last couple of weeks with this huge surge of new bookings following the relax relaxation of the terrace. Um That's

1:23:18 Not right. Like it should not be a bottleneck for I can't get cargo loaded on a ship and therefore I can't help the customer or the customers getting excused delay and getting loaded and getting their cargo delivered. It's a it is a fact of the industry right now, but that um bottleneck shouldn't be In a warehouse environment. You know, you've got picture of this flow of goods at the loading dock. You can choose where to put the bottleneck on the in the in the flow of those guys. Loading dock.

1:23:44 Unload. Put away. Pick, pack, outbound, you know, and and ship again. Um And the the way that Amazon does this

1:23:56 As I understand it is They they try to make the bottom like the most capital intensive piece. And then they over stack it. So that there's plenty of capacity on that. Whatever the machine is probably that is capital intensive, that requires a lot of capital. I have like lots and lots of that. Machine so that That way.

1:24:14 They're never it just keeps flowing the goods the the you don't hit the bottleneck. You don't actually hit it. And if you do it'cause'cause uh, okay, didn't Nothing I could do there isn't like more capital needed. Rather than if it's labor, you're like, Cool, just throw more labor at it. That should never be the bottleneck. It's only where Oh, I need a lot more capital here, even than I planned. And then they over invest in CapEx.

1:24:35 So they don't hit the bottom neck. Because you want the most asset intense part, sweating just nonstop. Yeah, the asset and tense part should be always should be operating. No, but you should have excess capacity there. That way You don't get stuck. With this machine holding you back. Like you have extra machine. But it's it's a um

1:24:52 That's a strategy for people with a lot of Cap X. That's Amazon's model, but plenty of Capac. Uh and I'm not sure that they do it right. Like one of the things that they do that pisses off their merchants is they have this endless line of trucks at the warehouse they can't unload. They've pushed the bottleneck off into the unload piece. the loading docs and truckers and can't get appointments and stuff, so

1:25:14 I think that'd be wrong in that framework. That like they should Wellow the goods to floor. It's a it's a fascinating world of like uh you know W E D W E Deming is the um Kind of business philosopher of quality. He's written a lot on um

1:25:30 statistical process control and creating even flow through a system that you don't want to have these spikes and uh of Of flow because it makes planning really hard and labor and assets uh people become idle You don't want any variance. Yeah, well eliminating variance is like

1:25:49 Lean six sigma type stuff. I I'm It's one of these things, it doesn't come naturally to me, so I'm like trying to study it and take an interest in it, but it's not my uh natural forte to go deep on this area. I do find it quite um Intellectually stimulating, but it hasn't it's not like my training and background. Is that like the whole To production system thing? It is, yeah. Do you guys use that?

1:26:09 A little bit. Yeah. I mean the the toilet production system, I think There's like two companies that have taken it really, really seriously and advanced it in the United States. One is one is Amazon and one is uh Donaher manufacturing company. The idea is One is We one things that we do that is very Toyota production system w like is In the toilet production system, and I've never been to it. I got a proper tour of this. I'm I'm a bit of a chauffeur knowledge like repeating what I've heard and learned a little bit from a distance, but is um

1:26:36 the the worker, the the line worker follows the part down the line and does many of the steps, operates several of the or many of the machines. Instead of like in a US Production. Toilet auto production.

1:26:50 Each guy does one job. Kind of more robotic like I was describing earlier. And And our model's very similar to the Toyota one in that sense that we're like the same worker follows this shipment. Down the line, as it were. Doing all the tasks until it's complete.

1:27:05 Um That that I think Toyota kinda pioneered that. That piece of it. Better for the worker for sure. You like have more agency, you're more involved, you know more of the details, you're like your career's more interesting, you're learning all the steps. Um, but they really the other thing that Soda really does is empower the workers to like elevate problems that they Right. They famously have their rope they can pull to shut down the whole line.

1:27:26 Uh if things aren't right. And take quality super seriously. Quality costs less. I think that comes from W Deming. So it's all it's all a very interesting area, uh, that we try to apply This is where I needed help at some point he's I'm not like a natural on these things. You mentioned chauffeur knowledge, which is uh such a tell that you're a Charlemongers.

1:27:47 Uh, devotee. I would love to hear some of the lessons you take away from Uh, reading him or interacting with him. I got to become friendly with Munger towards it's probably towards the end of his life. I went to his ninety ninth birthday party that last year, actually. Um Before he passed. I got lucky. I got real in fact his um the person I'm closer with is Peter Kaufman Who's the author of uh Poor Charlie's Almanac.

1:28:11 And that's like one of my favorite books. And when I lived in China, I've got a copy of that book. And really li It's like a coffee tape but Stripe just re released a copy of it. It's now available in print again. It used to be kinda out of print. And I had that book and I loved it. It really inspired me. Munger has this really wonderful essay, which I actually discovered on the Y Combinator website. Um

1:28:33 The Art of Worldly Wisdom or something to that effect. If you if you Google Monger Worldly Wisdom, you'll find it. And it's a US it's a speech of That he gave at USC. We'll link to it in the show. Yeah, you should link to it. It's wonderful. And it's about this idea. That there's like three hundred

1:28:52 Domains in the world. of knowledge, three hundred. It's kind of an arbitrary. I don't I don't remember if he says three hundred or not, but there's some number of limited quantity of domains in the in each of these there are two or three big ideas that carry all the eighty percent of the freight, as he said it. Uh And so if you were to go and learn those two or three big ideas from each of the disciplines Yeah, but you're Ally, I'm sure you've written about this before. You have all these mental models and you've got lots of stuff to hang things on.

1:29:17 Uh, and then also a lot of the innovation in the world comes from taking an idea from one domain and applying it elsewhere, or a mental model from one and applying it elsewhere. So I learned about this when I was like twenty-five or so living in China. That really set me off on a lifetime journey of like trying to re become like learn as many of these domains as I could. Just try to be worldly wise. Um And so I I I love that. It really inspired me. And then one day I was at a party at a house in Silicon Valley. Not like a fun party, but like a you know a gathering a cocktail event or something. And

1:29:50 Um I didn't know anybody and I this older guys, older gentleman was there and I struck up He struck up a conversation but he told me not talking to anyone or something. We started talking to each other. And he at some point asked me what my favorite book was. I told him, Oh, it's it's Poor Charlie's almanac and because he's like, Why do you like that book? And I told him all this and he's like, Well, I know that book really well, actually.

1:30:10 I'm The author of that book. Uh Peter Kaufman. And so he's like one of Munger's really good friends. w uh for many, many years, and he's the one that put together

1:30:21 This almanac. So he just thought that was so funny that he started bringing me to Charlie's house and like tell Charlie the story. One of my favorite things that Charlie told me. And one of these dinners at his house was uh when I told him about Flexboard, he was like, Oh, you had a great business because the key to success is dumb competition.

1:30:40 Which uh that's kind of insulting. We have some really smart competitors, but I I always s say that to people who are like Building AI companies. Just like what a nightmare. Your your competitors are literally AI geniuses. Like you should find a way to apply AI in some other domain, so you're not competing with the smartest people on planet Earth, because like the odd It's like trying to be a boxer, like you're kinda You might beat all the people in your local gym, but at some point you're gonna run into

1:31:05 Uh somebody bigger, stronger, faster. John Jones or somebody's gonna kick your ass. Yeah. I don't think we're the smartest people in the world, but within our little old school industry we can we can do some damage. Funny story about Peter before uh he's a mutual friend years on mine. And the way that I met him, I was at a Berkshire Hathaway meeting. And I had went up to the uh the hotel, you know, naively. This is my first meeting ever, you know, I just show up and I'm like, Can I get a hotel room?

1:31:33 And the person behind the counter starts laughing. And I was like oh no problem, I'll just sleep in my car, you know, whatever and Peter walks up to me and he's like, I hear you you need a hotel room and he ends up giving me he had a block of rooms and he ends up giving me one of his rooms. That's amazing. Which is the perfect Peter move. It is totally. And it's the most perfect embodiment of one of his phrases, which is go positive and go first. Yeah. And He we end up striking up a conversation. Uh we had a mutual friend who joined us in that, which was Peter Bevlin. And we just ended up chatting for a long time and he's like, If you're ever out in California

1:32:09 You know, come see me and I was like, Oh, I just so happened to be there next week. I had no plans to be there at all. Right. But if you ever go in there? Uh yeah, totally. And uh that struck out my friendship with him, which has been he's been an incredible influence. Yeah, yeah, okay, that makes sense. That's hilarious because he loves inventory. Yeah. And he had it he also had an inventory of extra rooms just in case somebody needed one. Actually walk me through that. Wha why does he love inventory? Well, because everyone else hates it. I there's a contrarian element to it. Everybody went to business school and learned that extras inventory is uh evil and carries working capital costs, et cetera. But he's in his business, which is airline, airport, airplane parts, aviation aviation parts, uh Having excess inventory means you can provide the part on demand, any part

1:32:51 You have it. No one else does. So people are willing to pay a real premium if you're especially in aviation. If your line is down or your plane's not flying We have a whole Branch of logistics called air.

1:33:02 Aircraft on ground logistics A O G aircraft on ground. People will pay any price. I once um Fluent. This is not what Foxport does, but I know this guy's a billionaire and his plane his G six fifty

1:33:16 Coldstream uh private chat. Broke down. In Antarctica, or uh in southern Chile, like right next to Antarctica. Somebody crashed it. Uh Like a

1:33:25 tractor into the wing. And he called me and said, Can you get me a I need to sh I have the wing, I need to fly it to Surely I will pay any price. Like then connect me and this guy and he told us like ten times like if there's a way to pay more to get this there faster, we will do it and so

1:33:42 Being the guy with all the parts. Uh for that type of customer. If you think about it, you have this like in some cases, you know, ten million to two hundred million dollar plane or more sitting grounded from a like thousand dollar part, or could be ten thousand, you could charge a hundred K for that part and then be like no problem. Yeah, and the immersory I mean Inventory should be not that expensive. to keep around, but it depends if it's perishable. Like the COVID was a great example, like people the hospitals didn't have enough inventories all run just in time, which is just a ridiculous way to run a

1:34:13 healthcare network just in time because in a crisis we better have some inventory. But the problem I think becomes that these the PPE that mass and stuff has in it shelf life and expiration mode. So you can't just build a warehouse totally full of stuff and let it sit there. You only need it to be a little bit more than pull it out twenty years. Yeah. So it's a hard problem. Similar with like Military like How much artillery do you want to just produce and just have sitting around just in case there's a war? But like You want some. When there's a war, you're not you don't want to start your production then. Are there any other Peter Kaufman lessons that stand out?

1:34:45 So many. I don't know if uh you know, hopefully he publishes more books at some point. He's written a lot of stuff that he keeps offline. I really like his um competitive exclusion principle. What is that? It's basically it comes from biology and it's this idea that um In a niche, in an ecological niche.

1:35:01 Ecosystem there's only uh Two two. species can't occupy the same niche. One of them must out compete the other one. If they're like for life, if they're both occupying the exact same niche, one will win, the other will get pushed aside and go extinct or have to m adapt. And so in business

1:35:18 the way to apply that is like you should be able to do all the things that your competitor can do. You can't leave any room for them. To exist. Because they can do something you can't do. The opposite of this dogma that you should only do one thing and do it really, really well. It's like actually you should spread out and make sure there's no room for the other guy to stick around and maintain a relationship with your customer just because you're not able to do that thing.

1:35:40 And we still have some of these. I mean we're very hard to do everything. What he calls it it's a there's a Wikipedia article about it, the comp competitive exclusion principle. I think that's pretty interesting. I learned from actually just generally Peter's whole thing is um Is the worldly wisdom idea. Uh the ideas from biology and physics and uh what's his other one is the um formula for kinetic energy. It's one half of mass times velocity squared.

1:36:05 We use velocity as like our main word at Flexport. Velocity. Go deeper on that,'cause velocity matters more because it's It's powerful. Kinetic energy formula. It's a square function and mass is only a Winnier.

1:36:19 And so This is why um In football. American football is hitting so hard. It seems like this little guy can just like create more way more energy. Well they are. They the their velocity, they're running really fast. Yeah. It's more important than how big you are, is how fast you're moving.

1:36:34 And now velocity is different from physics. than speed. Uh velocity has a vector. So you gotta go in the right direction in business. But it also it's kind of an explanation for why Startups out compete. Big companies have way more mass, but they start to become slow and bureaucratic and three guys in the garage can often out compete.

1:36:53 It it's interesting to sort of visualize as like the incumbent being fat and you being You know, skinny and quick and agile, and you kinda want to run upstairs and it sucks for you, but it really sucks for them. Yeah. That's how I sort of think about that. Yeah. Like how do you how can you cause pain in a way that like it's gonna suck for you, but it sucks more for them. What are some things that you got from Peter? Well the go positive go first thing is just such an unlock in life.

1:37:21 And the demonstration, like I'd never talked to him or or sort of like had any conversations with him at that point. And it's just stuck with me. It's stu it's these examples from the elevator. You're stuck in an elevator with someone, most people will say nothing. Which is like kind of polite to not say anything. But if you say hello, they'll actually turns out most of the people will say hello back and be nice to you. And then we don't do it because like the two percent of people will sort of scowl at us. Yeah, I mean it's an interesting uh point. Well, now everybody's on their phones. It's it's it's a different world. Ryan. We always end these interviews with the exact same question, which is what is success for you? I like to be worldly wise, uh try to keep learning. I'm I'm lucky to have that learned that value early on in my life that learning is the most important thing. I mean now I've got kids, so it's love, but learning is right there is a close second for what my number one value is.

1:38:10 That's why I like flex sports so much. It's like I really Incredible vehicle to learn. And the best way to learn is to solve a pro you know, be really engaged and do things and solve problems for people. in the business context for Flexport, we wanna be The number one logistics company in the world by far. Uh, we think there's real at scale economies in this industry that you can unlock.

1:38:30 But We're pretty far from that. We're only about Point one percent of global Trade. Uh in the containerized in the world in in the domain in which we play.

1:38:40 So then we got twenty, thirty years of just like building, going global. We we got Flexboard employees and eighteen countries I wanna be in All the world countries. Be like a true network business or ship anything anywhere.

1:38:56 Make it super easy with tech. Uh actually I think we can lower the cost of shipping anything. By five to ten percent. And I think it could have just like a massive impact on the world economy.

1:39:08 So all those things all those things are like part of the success path. But we're trying to enjoy the journey, like learn every day. Help our customers on that. I'm looking forward to rooting for you from the sidelines. Thanks. Thanks for listening and learning with us. Be sure to sign up for my free weekly newsletter at fs.blog slash newsletter. The Farnum Street website is also where you can get more info on our membership program.

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