← The Knowledge Project
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- [00:00]
Ryan Peterson
It's a very addictive industry. It's always on, always different. Every day is unique. You see what's happening in the world in an insane degree. I've been working on my own thing which we came Flexport. Our goal is to be an asset light technology platform for freight forwarding.
- [00:15]
Shane Parrish
And you're the most tech forward of all the companies.
- [00:18]
Ryan Peterson
Kind of. We're the only one. I think most businesses like actually quality costs less. It's very counterintuitive.
- [00:24]
Shane Parrish
Go deeper on that.
- [00:25]
Ryan Peterson
Well, in logistics like all the costs come from. You make it a mistake. Like if you file a customs entry and you get the wrong classification code, you're gonna spend weeks on doing that. Hey, that's the game, you know, it's business. It's not a, it's not a socialist project.
- [00:40]
Shane Parrish
What did you learn from that?
- [00:41]
Ryan Peterson
This is proprietary secret. I'm gonna let you in on.
- [00:44]
Shane Parrish
We're gonna get into some of this.
- [00:45]
Ryan Peterson
These tariffs have had the opposite impact that Trump would like. I think there's intention or some validity to it all. Like some of the things I've said from national security and employment, other things. But the result has been.
- [01:01]
Narrator
Welcome to the Knowledge Project podcast. I'm your host, Shane Parish. In a world where knowledge is power, this podcast is your toolkit for mastering.
- [01:09]
Shane Parrish
The best what other people have already figured out. U.S. customs called Ryan Peterson with surprising news.
- [01:16]
Narrator
Steve Jobs was furious. Ryan had just used public shipping records to predict with Apple's secret iPhone launch. That same contrarian thinking would build Flexport into a multi billion dollar logistics company spanning 147 countries. But Ryan stepped down as CEO. He was certain that somebody else would.
- [01:36]
Shane Parrish
Do a better job.
- [01:37]
Narrator
His successor hired 900 engineers in 12 months and burned through cash. Customer satisfaction crashed from 70 to 17. Paul Graham's response to Ryan's decision cut deep. That's like saying this other guy would be a better husband for your wife. Ryan returned to a company hammerhaging cash. The turnaround forced him to embrace micromanagement. But he discovered it was just attention.
- [02:01]
Shane Parrish
To detail with bad pr.
- [02:02]
Narrator
In logistics, one customs error destroys a.
- [02:05]
Shane Parrish
Month of efficiency gains.
- [02:07]
Narrator
Most critically, he learned that every operation has a bottleneck. You either choose it or it chooses you. In this conversation, we explore stories you won't hear anywhere else. Like how he flew 500 million masks to US hospitals in empty passenger planes. And how tariffs accidentally push American factories overseas. We also explore the counterintuitive lessons he's learned from Charlie Munger and Peter Kaufman. Whether you're scaling a startup or managing any complex system. Ryan's journey will reshape how you think about growth, confidence and micromanagement.
- [02:39]
Shane Parrish
It's time to listen and learn. I love the idea of life's work. And it seems like your interest in logistics started really young. Can you tell me this story about your mom getting you to get soda?
- [02:59]
Ryan Peterson
Oh, wow. Yeah, well, my mom's a great entrepreneur. Started and sold two companies in the biotech biochemistry space and Washington D.C. and so I, both my brother and I had this job. It was like our first job was delivering soda. They're off like stacking the snacks cabinet and this sodas and stuff. So she. We basically just buy the stuff at a giant like Safeway and then mark it up 2x and put in your little like cart. Yep.
- [03:28]
Shane Parrish
Yeah.
- [03:29]
Ryan Peterson
And my dad's minivan, we would stack up the back of the, you know, the trunk full of cases of Coke and Diet Coke. And then my dad taught us to write software. He was a programmer. So we wrote software to generate the invoices so we could. She could submit the expenses to the IRS or whatever and make sure she got the tax deduction on our allowance.
- [03:46]
Shane Parrish
You were motivated to do it because you could just get paid for what.
- [03:50]
Ryan Peterson
Was the kind of 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.
- [03:57]
Shane Parrish
What were the dinner table conversations like? Do you remember growing up to entrepreneurial parents?
- [04:02]
Ryan Peterson
Yeah, super boring because they were talking about biochemistry and food safety and regulations. I couldn't understand any of it. I think I'm still like a very fast eater. As a result, I was trying to get out of there as quickly as I could.
- [04:12]
Shane Parrish
Did you always know you wanted to do your own thing or.
- [04:16]
Ryan Peterson
No. My brother was much more the entrepreneur than me. Maybe still is. And when I graduated, I went to UC Berkeley. When I graduated from college, it was 2002. I didn't. I was thinking I'd go into like international development or something. Cool. I like to travel internationally and I traveled a lot in the third world because I had no money. So I was like traveling places I could afford. And I was always very intrigued by like why some countries were poor and some were rich. So I wanted to work in some aspect. I would try to get 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 into entrepreneurship.
- [04:58]
Shane Parrish
Which startup was that?
- [05:00]
Ryan Peterson
Well, we didn't really call ourselves a startup, to be honest. We were like buying motorcycles in China and selling them on the Internet in the US and sort of this would have been. I graduated in 2002. He started it before that. And we were tech company, but we didn't call ourselves that. And we wrote all of our own software to do kind of like it was pre Shopify, right? So ecom, checkout, inventory management, billing, all this stuff. Like, if we'd have been smart like Toby was, we'd have sold subscriptions through our little platform and maybe could have been Shopify, but instead we just like bought motorcycles and sold them on ebay, motors and actually through live car auctions, our own website, et cetera.
- [05:39]
Shane Parrish
So you're arbitraging sort of buying in China and then selling everywhere else.
- [05:43]
Ryan Peterson
Yeah, buying in China, selling in the.
- [05:45]
Shane Parrish
US and you went to live in China, what was that like?
- [05:48]
Ryan Peterson
Well, I was very curious about the world and like, I had lived in South America. I speak Spanish and Portuguese. I was like, you know, we were making money, not a lot of money, but we were making money in China. Didn't have anyone. We had one employee actually in China, but we weren't like really deep in China. And I. It was very clear in 2002 that China was like just on a tear and that it would be maybe the future. It was like really obvious to me. So I moved there thinking, okay, if anyone could learn Chinese, I already learned Spanish and Portuguese, I could probably learn Chinese. Let's go for it. So I moved there, kept my work basically of like doing supply chain logistics, E. Comm. Development, web development, customer service, just attack of all trades for the startup that we had. And, and then also just like study Chinese for three hours every day for a few years while I lived in China.
- [06:38]
Shane Parrish
That's intense.
- [06:39]
Ryan Peterson
Yeah.
- [06:40]
Shane Parrish
Mandarin is supposed to be one of the hardest languages to learn as an adult, isn't it?
- [06:45]
Ryan Peterson
Isn't. It's very hard. But the Chinese people, if you give any effort at all, are like, wow, they love it. They compliment you, they reinforce you, they make you want to do more of it. So actually that part makes it kind of rewarding and easy.
- [06:59]
Shane Parrish
Right.
- [06:59]
Ryan Peterson
I feel like I've, I've tried to learn French and I get that. I'm like, way better at French than at Chinese, but nobody, everyone in France like, ah, you're terrible. You shouldn't even try. I'm like, all right, I won't yeah.
- [07:09]
Shane Parrish
They talk to me. I. I try to speak in French and they talk back in English. If you get like one word wrong.
- [07:14]
Ryan Peterson
Or like, yeah, the Chinese, the opposite of that. You know, you say hello and they're like, wow, your Chinese is amazing.
- [07:21]
Shane Parrish
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 had.
- [07:30]
Ryan Peterson
This business, which we were startup. But yeah, like that's like we call it that now. At the time, we were just trying to make money, honestly. And it was. We were building tech in the cloud. We were cutting edge in a lot of ways. Like in the early 2000s that weren't cloud. You know, I think Salesforce and Netsuite. Netsuite. I don't even know if it was cloud. Probably it was.
- [07:48]
Shane Parrish
Yeah.
- [07:49]
Ryan Peterson
We realized, and it was while I was living in China, we discovered that shipping manifests for ocean freight or 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 20 countries that you can get the shipping manifest data. So it tells you kind of like your plane ticket, your boat ticket for your cargo. So it tells you which factory, who made the products, where's it from, who bought it, who sold it, the dates, the ports, a lot of interesting data. And so we realized this data was incredibly useful for us in sourcing products for that company. We were always adding new products to the line.
- [08:23]
Shane Parrish
Like because you could find out who's manufacturing the products.
- [08:26]
Ryan Peterson
Yeah, you could look up any product type and see who the factories are, look up any importer, see who their factories are, et cetera. So we built a search engine for that data called importgenius.com, still a great business. We still own it. So we started that business sell subscriptions. And that was like again, bootstrap, not Silicon Valley. We started it in Arizona where the motorcycle business was. But we very much got into tech. Like it was a SaaS business. I started following, like trying to learn about SaaS. I wish we knew more the blogging podcast world. You can learn so much more about AI whatever. You can learn so much more now than you could back 15 years ago, how to run a SaaS business. But that got that. That's what really got us into the tech scene. We were still outsiders for sure. And then both my brother and I both started new companies at some point that that business, great business, but it's kind of like hit. Its keeps growing actually, but it Was it. It was. Stopped being a rocket ship. We had, like, a few years of, like, runaway growth, and then it kind of reached its place in the ecosystem. And it's been like a steady compounder for the last decade. But not. Wasn't enough for me to, like, stay engaged as. As I should have been. And I came back to this idea of, like, should be an online platform to help you with your logistics, with especially your customs clearances. Coming back to our motorcycle days of, like, man, this is way too important to be this hard. And this lack of tech. My brother had gone in this different direction, which was his. Is 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 BuildZoom in construct taking construction data. So you're building permits or public record in most places and building, like, rich profiles of contractors, or you can look up any building and see who remodeled it, et cetera. So it's kind of like both similar origin starting points, but very different businesses, obviously. And so he had. He did Y Combinator for that.
- [10:20]
Shane Parrish
And that was 2012.
- [10:22]
Ryan Peterson
He would have been 2013. And we were. And then I saw that, I got jealous. I mean, I'm like, you're moving from Arizona. I moved to Arizona. I'm not from there. I moved there for KPX after. Before China, Actually, no, after China. Excuse me. Both before and after. So I had moved there for this business, for these businesses. And then I saw him leave to go to the Bay Area, where I went to college at Berkeley, to work, to do Y Combinator. I was, like, jealous. So I followed him.
- [10:48]
Shane Parrish
Like, sleeping on the couch.
- [10:50]
Ryan Peterson
Literally. Yeah, sleeping in the air mattress in the. In our little apartment. And. And I would just go. Y Combinator at that time did not have great security, so I would just go with him to all the Y Combinator sessions and just said I, like, acted like I was part of his company, even though I kind of was. And then that inspired me to go. I've been working on my own thing, which became Flexport, inspired me to apply to Y Combinator and go through it as well.
- [11:13]
Shane Parrish
Okay, let's pause here for a beat. I want to go back because there's a Steve Jobs moment that we. We need to capture here with the import genius. You want to tell us the story?
- [11:21]
Ryan Peterson
Oh, so back in one of the early. We had built import genius. It's a great data set. It's really powerful, and you can look up companies and see what they're shipping who they're buying it from and stuff. And at that time, I guess still the big thing. When's the new iPhone gonna come out? I think we were just on that. There was the 3G iPhone. Forget. I think that's just like the second iPhone ever. It was kind of crazy. What are we on 5G now? But it was the 3G iPhone. We had built this product and we had like no users for it. It was a great example of like, if you build it, they will not come. Like you have to go get customer. We had a couple customers, but not really any. So I knew we needed to get some attention. People needed to know that this data is out here. And we had such interesting data about companies. And so I was searching in the data set for Apple shipments and saw it's public record. You can look it up. Saw that they were importing a new product they'd never imported before called an electric computer, which is very interesting. All computers are electric. It was like a silly name and it was a perfect storm, Perfect moment. Everybody knew it was already being rumored that the 3G iPhone was arriving. I don't even know if it was right. I just put out this blog post being like, Apple has this new thing, maybe it's the 3G iPhone. And it went very viral. We got within a week we were doing like $50,000 in monthly revenue. Like all of a sudden, you know, from 0 to 50,000 in a couple of weeks. And. And I got a call from U.S. customs saying, hey, we just talked to Steve Jobs and he's really pissed about this. You need to explain where you got this data. Sort of like threatening to shut us down, like. So I showed him the letter. We showed him the letter of the law explaining why this is public record and it's public record. And then he sent us a letter, an email later saying, hey, thank you so much. I had to explain. I shared that with Apple's team. Thank you for taking the pressure off of us. But it was a bit of the early days of like, you know, how do you get attention and traffic for a new product? That's pretty cool. It was kind of like a really viral marketing type thing. Even though it was in hindsight kind of.
- [13:34]
Shane Parrish
Couple questions here. One, did Apple change the name going forward to make it more sort of.
- [13:39]
Ryan Peterson
Like, I don't think electric computer's there anymore.
- [13:41]
Shane Parrish
What are some of the lessons you take away from import genius before we sort of move on to Flexport?
- [13:46]
Ryan Peterson
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, run your search, find the factory that you're looking for or the data and you don't need to keep subscribing. So we had a relatively high churn rate, certain type C. We've eventually figured out which type C customers like would pay every single month. Tended to be actually a lot of freight forwarding companies.
- [14:14]
Shane Parrish
Oh interesting.
- [14:16]
Ryan Peterson
We use it at Flexboard. It's for list construction, lead gen, like finding who's importing. They have my sales team call them, talk to them about their freight. Um, and hedge funds and analysts like Wall street types that want to see what's going on. They'll. 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 weren't that sophisticated and our rev. Our signups were always pretty good. Relatively consistent. Forgot the numbers. But we would sign up a few hundred customers every month and then. But eventually you know you're. The size of your business is just simply the number of new signups that you get divided by your churn rate, annual churn rate. And that tells you how many customers you're going to get at equilibrium when those. Because those two lines will cross. And we got to that point and then from there I tried everything I could to like we tried everything we could. Wasn't just me to bend that arc. Either make the signups go up or the retention change. And like we ended up just adding a lot of cost to the business without we did some stuff that works. But really your scale of your business is very much limited by your churn rate. If you have any churn at all, you have like a cap on how big you can be. Unless you're increasing the number of customers you're getting or the size of those customers.
- [15:32]
Shane Parrish
Like it's very.
- [15:33]
Ryan Peterson
It's pretty simple math. I teach a lot at Flexport. It's like how important it is to retain customers.
- [15:38]
Shane Parrish
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?
- [15:47]
Ryan Peterson
Yeah, I think so. My, well, my. That's what my brother largely does is take data sets and build businesses around them.
- [15:54]
Shane Parrish
Oh, outside of construction too.
- [15:55]
Ryan Peterson
Yeah. So he's now he's got that company build Zoom, but he has a few other he partners with great entrepreneurs.
- [16:01]
Shane Parrish
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?
- [16:07]
Ryan Peterson
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 make no effort whatsoever to make it useful. You don't have to do paper digitization, but they just give like data dumps. They won't give you past data.
- [16:20]
Shane Parrish
Oh, interesting.
- [16:22]
Ryan Peterson
And that's just custom. That's just us. We have data sets for Latin America, mostly Latin America, a couple other countries, India.
- [16:30]
Shane Parrish
Okay, so let's go back to y Combinator 2013, you're there with your brother. 2014, you apply, you get in. At that point you have the idea for Flexport.
- [16:40]
Ryan Peterson
No, we'd already gotten licensed and that was the thing. Like we had the idea. A lot of debate between me and my brother and our other partner who had the idea for full export. We all claim it, but first email that I can find discussing this was like in 2008 or 9. But it took a long time to get licensed by Customs and Border Protection. Had to go through an FBI background check. Had to do a whole bunch of. Yeah, it just takes two years. So it was when we got the license from CBP that I left, stepped down and started Flexport. And that was about 6 months before YC started. I forgot the timeline of the application, but about six months before. So we had. But we didn't. Like we had maybe one customer. We really didn't have any customers, but we had a V1 of the software app, had the license, like had a bit of a strategy for what we're going to go do.
- [17:29]
Shane Parrish
Take me through the. The Y Combinator experience.
- [17:32]
Ryan Peterson
It may have changed. This was already 10 years ago. They do a Tuesday dinner. PG used to cook it. I think it was really bad food.
- [17:42]
Shane Parrish
You were the last batch where he was the.
- [17:44]
Ryan Peterson
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 with Paul.
- [17:54]
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- [20:16]
Ryan Peterson
It was amazing because I'm not from. I hadn't been living in the Silicon Valley ecosystem. I didn't have connections. And the Evernote CEO, Phil Libman, he was hilarious. Brian Chesky yeah, kind of like somewhat eminent founders and investors and they just come and give a talk for a couple hours, do Q and A. So nothing amazing. But the real benefit of yc, 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 trying to find them online and stuff. So this like all of a sudden I had all these peers who were also building businesses and like that's, I don't know, that's just super valuable from a life experience standpoint. I don't know how much it helped a business, but just like made my life better. And then it Also, I guess that kind of understates, like, why see if you're one of the top companies. I think it's very important to be a top company. If you're going to do Y Combinator, there's a bit of a competition. A lot of people don't realize that. It's like, at the end of the day, there's only so many hot companies that can come out each year. And you want to be. If you're one of those, then it's tremendously valuable for you because fundraising. I could have raised money. I'd built a successful, profitable SaaS business. I'm sure I could have raised money. But I literally, like, tried at one point to raise money, and I showed up in Silicon Valley on Sand Hill Road wearing a suit and tie. I just didn't know. I think people, like, just were like, who's this guy? You know? And tried to raise money for it. I didn't try that hard. I did a couple pitches and they went nowhere. And then with yc, it was a feeding frenzy. It turned it from an outbound sale, which is hard doing outbound, kind of cold calling, to an inbound sale where everybody was, like, eager to invest. They heard about Flexport. PG himself really like, liked and likes Flexport and was telling investors, you should invest in this company. Which kind of controversial. YC partners, I think they're a little better about it now than they used to be, but they would kind of pick, choose favorites. And hey, that's the game, you know, it's business. It's not a. It's not a socialist project. We're here to, like, find the best businesses and back them. But it is. I try to tell every founder, like, you're going to go into yc, you're not there to have fun. You're trying to be the best. And it is a competition. You versus sure make friends with them, but I'm sure Michael Phelps is friends with the other swimmers, too. But, like, you're trying to beat them on some level.
- [22:34]
Shane Parrish
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.
- [22:41]
Ryan Peterson
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? You're not look. 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 Law winners that do 100,000x or whatever their best deals have done for them. Again, I was really lucky because we were in his last batch and he announced like halfway through the batch that he was stepping down and Sam was taking over. But he kept running the batch the whole way. So then when it came to demo day, the preparation for demo day for when you go pitch the investors, I barely worked on my pitch. In fact, my pitch was pretty bad. I think I'm like not very good at reading a script and they only give you two minutes. So you kind of have to have a script if you're going to do a two minute pitch. But also I was kind of back because I didn't practice very much. I had the opportunity to sit there, I'm in Picasso's studio, you know, watch Picasso paint. You know, he's about to retire. So I got to sit there and watch PG critique other people's pitches instead of go, I don't want to sit there and paint. Like, let me just watch Picasso paint, you know. So I sat next to him for 12 hours a day for like three days in a row watching him critique everyone else's pitch.
- [23:55]
Shane Parrish
What did you learn from that?
- [23:56]
Ryan Peterson
This is proprietary secret. I'm going to let you in on. You should tighten the aspect ratio on your graph and it'll make it the curve look steeper. I feel like he told everybody that. Just scrunch your graphs and watch how your startup looks hotter. There's something to that. You gotta appeal to investors. Greed. I don't know if he taught me that or someone else, but it's kind of the same thing. 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 very simple language. You won't read a PG sentence when you're like that word. I don't understand. He's like, very simple. It's easy to understand. My favorite PG moment from that period was one of my friends had a in the batch, did a presentation and PG was like, this is terrible, this is not good. And he rewrote the whole thing for 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 10 minutes of feedback and then the next group comes and he just does that over and over again all day. So there's a queue. So if you pitch and you want to do it again to come back and try again, you got to wait like three hours for your turn. So like three or four hours go by. My friend goes back up and presents the pitch and he says exactly word for word, everything that PG told him to say. And then PG was like, that's perfect. That's the best pitch I've ever heard. He totally forgot because he's doing too many pitches in a row. He totally forgot that. That was like, dude, you wrote that pitch. That was amazing. I learned a lot from all his essays and stuff too. It's hard to remember what I learned from him personally versus reading all of his stuff.
- [25:31]
Shane Parrish
You get out of YC 2014. Walk me through the major beats and milestones up until the softbank investment, which was 2019.
- [25:42]
Ryan Peterson
There's a lot, actually. One of the funniest things. One of our other investors is Ron Conway and he saved Flexport at one point. I don't know if I've ever told this story, but 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 of the things that made Flexport possible was that in 2007, I think it was the customs will change the rules to allow for electronic filing of customs entries. And it used to be that you had to have a license at each port where you wanted to clear goods. So a startup could not possibly enter unless you were just like a little mom and pop help the local companies. But there's no point in doing an Internet company to serve one port. And so that changed in 2007. We started applying for licenses in 09 or something. Markets aren't totally efficient, but kind of okay. So we had this license, but it was in Houston and we wanted to be in San Francisco after yc and in order to transfer it, it's just a administrative process, but you have to have a business license from the city of San Francisco. Simple, right? It's just a business license. Well, the city of San Francisco had an IT problem and was unable to issue business licenses. And this was in 2014. They were. They had not been issuing business licenses for several years. They could issue a letter that says you have a business license, but customs wouldn't accept that. They wanted the license and they printer problem. I don't know what the IT problem was. They wouldn't accept A letter on city letterhead saying yes, this company has a license on file with us. They wanted to see the actual license. It was kind of like Kafka S. At some point we just weren't going to be able to operate in San. We were like operating remotely in Houston and it just wasn't going to work. And customs was kind of clear, like you need to, you can only transmit entries physically sitting in Houston. So I told Ron Conway about this situation and he emailed the late Ed Lee who was our mayor and I Ron was like one of his big donors and friends and we got the license within six hours. They like went down. I don't know what happened at city Hall. They got the license printed and we, you know, sent it to customs. It all got moved. But like there was a moment there where like Flexport was not going to be able to operate in San Francisco if it was. And it was just crazy. Can't, can't issue a license. That's insane. So anyways, that was very early days. 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 not all success. Lots of mistakes and bumps in the road. But I guess the big, a couple of big milestones on there. One is we started out when we went through Y Combinator. Flexport was just a customs brokerage. We didn't do freight forwarding. And we said hey, we're going to do freight forwarding someday. But we wanted to just focus. The kind of dogma in startups is like be really good at one thing, really focus. You've written about this, like need to focus. We also the other dogma is talk, you know why Combinator talk to users and make something people want. And when we were just doing customs we get customers but like we get the worst kind. We get a lot of rough types of customers. One of the first things we ever imported was a, a tuk tuk which is like a. From Cambodia. Some guy went to Cambodia and bought like one of those little jeepney kind of scooters with the seats in the back. Like Berkeley professor wanted it for the nudist parade in Berkeley. Zig not. He was only going to be 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 knew what they were doing, they weren't probably going to recur. Some guy bought like a bouncy house for his kid's birthday party in China because he was too cheap to buy one locally. Like stuff like that.
- [29:42]
Shane Parrish
Is that because people want to deal with one thing, one interaction from a freight forwarding and customs brokerage point of view?
- [29:49]
Ryan Peterson
Exactly. And so like whenever we talk to real companies that were doing repeat transactions, they're like, we didn't want to separate customs from the freight and if they did, they were going to give the customs to like the best customs brokerage in the world with the best reputation for compliance. And like we were not to the startup. Now we actually have a lot of big companies that use Flexport for customs only because we've built our brand and our reputation and our technology systems to actually we can say, hey, we're the best. If you want to separate your customs from freight and are good reasons to do so, like it's a hub for your compliance data. You don't want to shop it out, you know, and have all these compliance records. Living in 10 different freight forwarder systems.
- [30:26]
Shane Parrish
Right.
- [30:27]
Ryan Peterson
People are much more likely to have a single customs broker and many forwarders that move the freight. But when we were starting out, like that wasn't us. So we, and when we only did customs, we were not getting like the legitimate companies that we wanted to build a business around. So that was the first kind of not really a pivot. We always knew we'd go into freight, but we went there much faster than we wanted to. And the moment we did that, it was again like back to couldn't keep up with the demand. And it became a much harder problem. Like customs, like, okay, cool, this is a contained environment here. I gotta collect the data, gotta Transmit it to U.S. customs, Freight Forwarding. All of a sudden I'm like unconstrained. I'm out here in the freaking wild giant round world.
- [31:09]
Shane Parrish
You're dealing with multiple parties, different interfaces to each party because you're trying to computerize things at this point. And I don't imagine there's API, like how does that even work, right?
- [31:21]
Ryan Peterson
There were no APIs, still very few APIs. A lot of manual work, a lot of like we've built like automation and software interfaces and wherever there are systems, like a lot of integration layers into different IT systems of all the vendors. But yeah, we open up a can of worms. Like we got unlimited demand, but like problem's much harder and hard to keep up that's why I say it's been like this race to like build the capabilities, tech, people, geographic footprint, infrastructure around the world to match the demand. But we went from, I forget the metrics at the moment of the first softbank investment, but one point Inc magazine rated Flexport the second fastest growing company in the world. They did this in the Inc 5000. We were, we were second place. But the first place company was started before us and was smaller than us.
- [32:16]
Shane Parrish
Okay.
- [32:17]
Ryan Peterson
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. But we should anyways. We were a very fast growing company and a lot of times, yeah, that, that can kind of like cover up a lot of problems that we had.
- [32:32]
Shane Parrish
Were you doing things manually and trying to computerize it as you go or trying to do it computerized from the get go?
- [32:38]
Ryan Peterson
We were doing a lot of stuff manually. We're still open to, we do a lot with people, but with this we're not satisfied with that. We're like constantly figuring out okay, we'll just do it. That's the secret to our success. We're willing to do what the customer needs with humans as needed but constantly say this is not good. What are we going to do software wise to take this and structure the workflow and put it into a automation. So we're now on like a freight, just a standard plain vanilla ocean container from any port in Asia to anywhere in the US inland all the way to destination. We break it down to about 108 steps that have to be completed and 92% of those are done either by software automation or sent out to like a third party BPO processing entity. So that gets our cost down and the quality is really good because everything's measurable and precise. So we've got that piece is like really took us a long time to build. It wasn't like that in the beginning. In the beginning it was people, people picking up the phone and sending a free email forwarding I call it. But that's the way every other freight forwarder in the world does it too. So we're like, okay, build a better interface for the customer, drive demand and then have this. We are not satisfied with the way the industry works. What are we going to do to structural. In fact, in many cases the car costs be higher because if you don't structure the data, you just forward the email, the PDF that could be cheaper than being like, oh, I got to structure that, put it into our database. And so your cost can be higher, especially if you're just doing one shipment one time. Like, why bother structuring the data? The whole point is that the second time you ship the same thing, your costs are really low because you just go, yeah, do that again.
- [34:27]
Shane Parrish
Yeah. So that leads to the SoftBank investment which was, I think they gave you a billion in cash. Yeah, 2019.
- [34:36]
Ryan Peterson
They and other investors in the round did, yeah.
- [34:38]
Shane Parrish
So what happened with that? Like, you get this money and are you like, we can put the pedal to the metal here because didn't something happen right after that? Somebody went bankrupt or something?
- [34:48]
Ryan Peterson
Oh, that was even before Hanjin was the big ocean carrier. They went bankrupt in 2016.
- [34:52]
Shane Parrish
Oh, it was 2016.
- [34:53]
Ryan Peterson
2016 was very interesting year for, for freight forwarding that everyone's forgotten about because we all keep talking about expensive freight and all the chaos and problems in supply chain now tariffs. But Covid, a whole bunch of other things. The, the Red Sea crisis, like wars.
- [35:07]
Shane Parrish
But we're going to get into some of that stuff.
- [35:09]
Ryan Peterson
Yeah, I'm sure we will. But in 2016, it's kind of the opposite. There was so much capacity, it was so cheap, you could ship a container from China to the US for our cost was like $600 normal long run average about 2000 today. I didn't check the price this morning, but it was probably 4 or 5,000 right now. And the peak Covid was, you know, famous. It got to like 20,000. So but it was 600 bucks that year and that was an early year. We did YC in 2014 and in 2016 we took those cheap prices and just pass them through to customers and it led to crazy growth for us. Good lesson, actually, that we want to be able to play that strategy, pass through low costs and you'll grow really fast.
- [35:48]
Shane Parrish
So it was 2019 when you started to look for COO.
- [35:51]
Ryan Peterson
2019 we got the funding from SoftBank and then we did. I hired a CTO that year.
- [35:57]
Shane Parrish
Okay.
- [35:58]
Ryan Peterson
Really upgraded co invest in our tech. We hired a CTO from Amazon Logistics and he was, he helped us build like some of that workflow software that I just described. Was like kind of the architect for that. And then Covid hit and that's where I say flight support looked really great. Like we were. We turned profitable in 2022. Our revenue peaked at 3.8 billion because the price of freight was so high.
- [36:20]
Shane Parrish
But pause, like you knew Covid was Going to hit in February before it.
- [36:24]
Ryan Peterson
Actually hit January even. Yeah, I mean, well, it was. It was in the newspaper. But we have a group called Flexport.org we do shipping for humanitarian causes like refugee camps and hospitals, nonprofits at cost, sometimes below cost. We had been part. We're partnered with a lot of great groups, like international aid groups and things like this. And Covid. It was in the newspaper. It hit in Wuhan, and we actually got a ton of demand to ship masks to China for the doctors in China. And so in January of that year, we shipped about 300,000 95s from the U.S. to China, which then, like, two months later, when there were no N95s mass in the U.S. we're like, whoops. Like, so, yeah, we saw that pretty early. And then the other thing that came out in that period was people. About 50% of the world's air freight travel. We do air freight too, not ocean freight. And about 50% of the world's air freight flies in the belly of passenger planes. And those all got grounded because of COVID There was no reason to, you know, I think they're actually grounded legally. Um, and so we saw. We were at the heart of kind of bringing masks, bringing PPE generally in for US Hospital networks from mostly produced in China. And so we saw this insane demand for air freight, and there were no ships, no planes to move it, and the ships are too slow. Like, hospitals are running out of masks. So we saw that and got pretty active. Like, well, you can kind of see the solution to that problem is in the problem itself. It's like, well, all of the passenger planes are grounded, so we can't ship any mass. You're like, wait, the passenger planes are all grounded? And so with some of our connections, we got in touch with all the major passenger airlines, and we got 80 plane, 80 passenger aircraft and flew them to China.
- [38:17]
Shane Parrish
Because cargo planes are allowed to travel Internet.
- [38:19]
Ryan Peterson
Well, passenger planes can travel too, just not with passengers. Right. So we got the airplane, the airlines to give us great deals because otherwise.
- [38:29]
Shane Parrish
The planes are just idle, just sitting.
- [38:30]
Ryan Peterson
There in the desert and stuff, just sitting at the airport. So we got all this. We got 80. We did 88. I think it was 87. 88 passenger planes full of masks in the overhead compartments, in every seat, obviously the belly. And we just. We flew 500 million masks and other object, other PPE items in for US hospital network in March and April of 2020.
- [38:52]
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- [40:07]
Ryan Peterson
This episode is brought to you by LifeLock. Between two factor authentication, strong passwords, and a VPN, you try to be in control of how your info is protected. But many other places also have it and they might not be as careful. That's why LifeLock monitors hundreds of millions of data points a second for threats. If your identity is stolen, they'll fix it, guaranteed, or your money back. Save up to 40% your first year. Visit lifelock.com podcast for 40% off terms apply. It was crazy. It was like one of the most meaningful parts of my career and everyone at Flexbora. It was great because we were like not in it. None of us in the world was in a good place, but it all of a sudden totally distracted us from whatever problems. Trade fell off a cliff. It was really bad for business. In the first month or two we're like, who cares? Like we get a hospitals. Like there's civilizational collapse if the hospitals don't show, if the doctors don't show up for work and became friendly friends with the guy who runs ucsf, Sam Hoggett. He's the chancellor of ucsf, our local hospital. And remember years later I met his wife dinner and she was like, it was when, when I saw this zoom call of you talking to Sam was the first moment when I realized everything's going to be okay. Because you guys, it really touched me. He was like, I saw you guys are highly competent people are going to get masks delivered, you know, the day before they run out. Now another thing that came out of that was in April of 2020, same problem statement. The passenger planes weren't very economic. They were giving us great deals because we were serving hospitals. It was all like kind of pro bono, not for profit work. They were giving us great deals. It was. I remember once we. One of the planes, the one I remember was a Dreamliner, only charged us $200,000 to fly a Dreamliner to China and back.
- [41:56]
Shane Parrish
Oh wow.
- [41:57]
Ryan Peterson
It's like if you, anyone's ever flown private, that would be like a Dreamliner. I mean this is many millions of dollars, probably round trip couple. I'm like a million probably or 500k, I'm not sure. So they give us a great deal. We saw lots of things like that, but it wasn't sustainable for the business side of things now. And we had a lot of ongoing demand for air freight, but all the passenger planes are grounded. So we signed a long term deal for three 7 47s from Atlas Airlines, the biggest cargo airline in the world, dedicated to Flexport. And it was in that response to that, like hey, the passenger plane, we have this vision, this view, this perspective that air freights can be very expensive because all the capacity is grounded and stuff still needs to move. People still need to ship stuff. So we signed a deal with the airline, with that airline at a great rate. And I think they were, their stock Atlas was in is in these airline indices because actually if we were smarter, we just bought their stock because they were a public company and they were in these public these indices for airlines and those tanked. Yeah, but the cargo airline, the price should have gone to the roof because they're still. The price of air freight is going to go crazy. I think I probably haven't really talked to them about why they signed the deal with us, but we got a good deal as a result of that moment where there was this dislocation. I assume that their stock price going down was like part of their anxiety to get these things signed off with us. So we got a good deal, but it did kind of turn Flexport into a cargo airline and we've had those planes ever since. So it's not our, it was more of a tactic than a strategy. Like our goal is to be an asset light technology platform for freight forwarding and work be like more neutral and agnostic and move the cargo on anybody's planes. But we saw that moment.
- [43:40]
Shane Parrish
Has that helped you in other ways? Not from a business point of view, but like learning and being more responsive to customers.
- [43:47]
Ryan Peterson
I mean, it really helped us during those few years of COVID when there's tight capacity, we could serve people and no one else could. It really an education about asset ownership in logistics, in. In that it kind of turns you against your customers in some ways that can be unhealthy. You have to really overcome that, inert that. Because your job, when you have a plane or a ship, is to fill the plane or the ship. It's not to serve the customer anymore. Like, if the customer's cargo needs to go to a different airport, you'll try to convince them to fly it where your plane is going and then truck it a long distance. Or, you know, it's like, oh, you just wait three days. The plane's leaving in three days. Instead of going, hey, let me find you a different option. So you have to overcome that culturally. Like, if you're an asset owner, it's pretty hard to be customer centric because your job is like, fill the asset or you don't make money.
- [44:34]
Shane Parrish
Which is interesting because later on you get warehouses. But we'll get to this and okay, so fast forward a couple years and you're looking for a coo. What was the thought behind that?
- [44:47]
Ryan Peterson
Yeah, so Covid, it did some interesting things for us. It made us kind of famous in part because the hospital stuff and some other things that we did during that time when supply chains got dislocated. So it helped the business and the profile of the business. It financially returned profitable, but it really exposed some flaws in our operations. And we were remote for way too long. Work from home, which just doesn't work in our industry. Maybe in any industry, but certainly not in logistics. You need to be like, in person, collaborating, partnering on the. With the assets, et cetera, really expose some flaws. Like when you. We would just prior to Covid, just send a truck to the port, pick up the container.
- [45:28]
Shane Parrish
Yeah.
- [45:29]
Ryan Peterson
And you take it for granted. But during that time, you couldn't get appointments, you couldn't get trailers, the chassis to go to haul the containers. There's not enough capacity. It was like it. The operation was really failing in a lot of ways. By the way, same for all of our peers and other freight forwarders. Everyone was kind of in the same boat. But that's not how. That's not an excuse. We want to be the best, and we didn't feel like we were winning For a period there operationally and like, how we serve customers. Our net promoter score, like was always in the 70s, which is a great, good metric for customer satisfaction. And that like collapsed. I forgot how got to like 17 at one point. It was pretty bad. So had a lot of operational problems. And I'm much more of a creative type.
- [46:13]
Shane Parrish
Okay.
- [46:14]
Ryan Peterson
Than I am. And operators, like do the same thing every single day and a little bit better measure every detail. And that, that, it's not like I've gotten good at that, but that's not like naturally who I am, what my background is. I'm more just like a freewheeling entrepreneur. So we're looking for a partner to kind of take that on for me and help Flexport mature and grow. So yeah, that was in. That would have been in 2022 when we really like kind of launched in earnest search for business partner, helping out the operations side of things.
- [46:44]
Shane Parrish
And then you end up meeting Dave Clark, who would go on to take over as CEO for a period of time. But he was originally where you were thinking coo.
- [46:56]
Ryan Peterson
I was trying to hire COO and met Dave Clark. He was the CEO of Amazon.com, he'd run Amazon's logistics and supply chain for many years. So it seemed like great fit tech and logistics. It wasn't actually in many ways.
- [47:08]
Shane Parrish
And you had the good Amazon hire in 2019, the CTO.
- [47:11]
Ryan Peterson
Yeah. And a lot of people I hired from Amazon, we'd hire a lot of great people. We still have a lot of good people who worked at Amazon Logistics and tech. Like they're probably the best at. I think we're the best now, but I think the. I don't think I could always say that. I think we keep getting better. But yeah, Amazon logistics and tech, that's what they're known for. Right. So it seemed like a perfect fit.
- [47:33]
Shane Parrish
Walk me through how we get from that moment of hiring to you stepping down as CEO.
- [47:38]
Ryan Peterson
Well, it was kind of an orderly transition when we hired him. I was like, hey, let's have a path for you to become a CEO. It became pretty clear that like, I don't know, it's hard for me to picture like, what am I going to be better at today because run this.
- [47:46]
Shane Parrish
Big company and was that a confidence thing for you?
- [47:49]
Ryan Peterson
Yeah, I mean I feel a lot more confident now having seen done a much better job in the last 18 months than we ever did before. So yeah, Dave, he was only the. He was with us for years the C CEO for we were co CEOs and then CEO by himself for six months while I became chairman of the board. Didn't work out. I think these hires are really hard in hindsight.
- [48:11]
Shane Parrish
What was the first sort of sign or first moment you realized, oh, there.
- [48:17]
Ryan Peterson
Are a lot of things it was building up. I mean honestly it was the P and L. At the end of the day, like we just started burning too much money. Some of that was market forces turned against us. Like we, we over hired. I, I approved all those hires. Like we wanted to go big on tech and just dominate. We kind of read the market. It was like trying to be contrarian. So they had a really strong balance sheet at like 1.6 billion in bank. And everybody was cutting tech hiring in 23. And we felt like, let's go lean.
- [48:48]
Shane Parrish
In, put the pedal to the mud.
- [48:50]
Ryan Peterson
And go hire a bunch of engineers. I think we added 900 software engineers in like 12 months.
- [48:56]
Shane Parrish
Oh wow.
- [48:58]
Ryan Peterson
And turned out they're all in the US or almost all in the US Seattle mostly. It was like very expensive. People had a lot of senior execs. We just like over invested in the business. And at the same moment like the freight markets were collapsing, capital markets got ugly. It like became clear like, hey, you're not going to 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, 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 that workflow system I was describing where you have like all these tasks that have to get completed. And we had taken this idea of efficiency way too seriously to where an operator would just do like 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 50 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 going to have the same person like unload the truck, put away the goods, take the good bout, put it in a box, like you break it into stages, right? And so that's where the Amazon background and Flexboard background really came in conflict actually because they break it apart into simple tasks and have the same person do it over and over again. And like kind of robot, human Robots, almost like. Or literal robots. And. And forwarding. It's much more of a service business. There's a lot more exceptions that can go wrong. You're out there in a messy world. You don't own all the assets. You don't control all the things that are happening. You need to, like, oversee these things. And, oh, the trucker didn't pick it up. Like, better call a different trucker. Like, oh, they're not responding on the API. Okay, pick up the phone. You know, go to there. Lost the car. Go. All right, Drive to the airport. Like, you know, I mean, it's. It's a service business for. And it's B2B. You spend a lot of time with the customer. So. But especially that. That piece, the quality really started to suffer. And it's a really good lesson in business. And I think most businesses, like, actually quality costs less. It's very counterintuitive.
- [51:06]
Shane Parrish
Go deeper on that.
- [51:07]
Ryan Peterson
But, well, in. In logistics, like, all the costs come from you making a mistake. Like, like, if you file a customs entry and you get the wrong classification code, you're gonna spend weeks on doing that with the customs agencies. And, like, you might have license issues or regulatory problems, like, getting it right the first time. Costs way less than one mistake will undo all your efficiency gains for the month, you know, in logistics. So I had to learn that the hard way. Our customer NPS really started to suffer. So the board was looking at it and going like, okay, you're burning too much money. You're gonna have to cut costs. And that means cutting headcount. Like, that's where most of the costs at. So you gotta cut costs and you gotta improve your quality. That's a kind of a hard thing to do. And our culture had been suffering. We brought in all these new leaders and, like, the core people that built the business were like, we grew an insanity, leaving. We had grown. It's a really hard business because it's so global. Like, we ship to and from 147 countries. You gotta have. We got people all over the world. And so the board kind of looked at this problem and said, like, this is a problem for the founder of the business. Like, you need to come back. Nothing against Dave per se, but it was, like, very clear. Like, okay, you're going to cut people and tell them you care about the culture and tell them, I need you to work harder to solve, like, customer problems and do a giant reorg back to the way we'd always been organized. That led to all the growth, which was Operator would take a shipment end to end and own all the tasks. Own, own that. And so just like the board was like, ryan, we need, you know, you got to come back and step in and do this. And I had already taken a job at Founders Fund as a partner, so it was a little. It was. It's so embarrassing for me. Like, I'm like, I just took this job and now I gotta go back. Like, what am I doing? I gotta follow through on my commitments. But it was obviously like, I'm honor bound to, to make Flexboard work, make it successful. So I, I was very happy and excited to come back.
- [53:01]
Shane Parrish
What happened when you told PG you were stepping down?
- [53:05]
Ryan Peterson
I didn't tell him until later. I forget when, but, like, after I'd. I was the chairman, so I think I was already at Founders Fund. He was pissed because he thought I should go be a partner at Y Combinator instead of Founders Fund first off. But I went for a walk with him when he came back to Palo Alto one time and he, he asked me why he did it, why I stepped down. I said, well, I thought, I think Dave's going to be better at the job than I am. There's a Genuinely true. That's why I did it. It wasn't because I was burnt out or something. I just thought he would be better for the company. Thought we needed to mature and be better at operations and better at building tech than we were. And I thought he'd be better at that. And Paul had this amazing line. He said, that's like saying this other guy will 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? He heard you say that earlier. Is this your life's work? Is Flexport your life's work? I was like, yeah, it is. He's like, well, then you need to figure out all the things that he's better than you at and go learn them. Go learn them from him, learn them from other people. Like, figure out what are these things that you think he's better than you so you can be the next CEO after he steps back. Like Larry Page did after he came back. You know, he hired Eric Schmidt for a decade and then came back. He's like, you need to go learn those skill sets. But it happened much faster than pg and I could have imagined on that walk.
- [54:28]
Shane Parrish
Did you go and learn those? Was there a conscious effort on your part?
- [54:32]
Ryan Peterson
I don't know. It all happened so fast. Not really, but I've learned plenty of lessons along the way.
- [54:38]
Shane Parrish
Yeah, walk me through some of those.
- [54:40]
Ryan Peterson
Well, the number one thing I think is I learned from Toby, from Shopify and Brian Chesky, who've been good advisors. For me, 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. Don't trust. Don't like, hire big executives and then just trust them. Like, treat them like a black box. Like I had when I heard him say this. I was like, oh, my God, he's committed to sin at the highest possible level. Right. But, like, don't do that at any level. Like, it's all my company. Audit everything, inspect everything. It's. You can't just, like, give people too much leash to run things their way. And if they disagree with me, like, sure, I wanna. I wanna debate it, I wanna hear from them. But, like, at the end of the day, I know I'm gonna still work at flexboard in 10 years. And I don't know if that's true about anyone else. And that's something I heard from Chesky and I was like, you know, it's like, it's probably true. I hope that my team stays and I got the team for 10 years, but I'm positive that I'll be here. And so if they really don't like the way I wanna do something, like, okay, no problem, but it's my company and they can move on. Like, that's a level of confidence that I didn't have prior.
- [55:54]
Shane Parrish
I heard from people that we have in common that when you came back, you were a different CEO and you were like, founder mode before it became founder mode.
- [56:03]
Ryan Peterson
Yeah, I mean, Jet Ski's like, way more hardcore, I think. I try, but I didn't have as many frameworks for it. I was just like, oh, I got to do what I have to do. And there was a lot of stuff that I really didn't understand about the company. I had way too much committed all these sins of just like, okay, there's a problem in some department. Hire a big exec, let them, and then don't get in their way. Like, that is the kind of the corporate way that most People teach or like most people expect, like, this is how companies should be run. Micromanagement's a bad word. Toby's the first person I ever heard that from. That, like, it's not a bad. It's like a great thing. Get involved, you know, why would you ever want, like, micromanagement and attention to details? Same two words for the same day, right? Attention to details, great. Like your boss is involved in your stuff. Like, that's only a problem if your boss is an idiot and out of touch and making bad decisions. But, like, if your boss, like, genuinely cares about your work, is involved in tune, knows what you're doing, has good judgment, like, why would you not want them looking over your shoulder and participating with you and what you're doing? So. But flight board is a much. I don't know. I don't know. I've never worked at another company really. But it's compared to other businesses, I think, far more complex. So it's hard, it's really actually quite hard for me to live up to Chesky's ideal of, like, I think he says, like, if the company should only do as many things as the founder can be personally involved in, it's a nice ideal. It doesn't work. At my company, we're like, in all these different countries and all these different modes of transport that like, one person can't actually keep it all in their head. But I tried my hardest.
- [57:35]
Shane Parrish
How do you hire differently? What do you look for differently? And then how do you integrate people differently? Now, as a result of these experiences.
- [57:45]
Ryan Peterson
I just like, only promote from within. Except for very rare cases where just like, really can't find the person. And then I spend a lot more time with new hire. I've only hired one person actually from external in the last couple years and I spent just like loads of time with him and I told him he's not allowed to make any decisions for 90 days.
- [58:08]
Shane Parrish
How did that play out?
- [58:09]
Ryan Peterson
It was perfect, honestly. And he even told me, like, maybe I should have done more time. Because I remember he told me at like day 88, but no, he told me day 91, that if I had let him, if I told him 80 days, he would have made different decisions than he made. And like, Even those last 10 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. And we've been obsessed with the problems that we're working on for a decade and like the idea that some big shots gonna come in here. This is no knock on any particular person. It's just like a classic. Like what are the odds that anyone could come in and know, you know, on day one do figure out problems that we couldn't think of or solutions that we couldn't think of. That's why no investor ever gives me useful advice really? Because sure they can't about people and some high level stuff for sure, capital markets, but business strategy, how could they ever know my business better than me? I obsess about it every waking hour.
- [59:19]
Shane Parrish
I'm always skeptical of people who run businesses or even government and they contract things out to consultants and it's like, well how is that consultant? Know your business better.
- [59:28]
Narrator
That scares me.
- [59:30]
Ryan Peterson
Yeah, PG wrote about that in his founder mode days. Like, well if you're a professional manager, your mindset is you can run any companies, how do you go in? And in that world you shouldn't be too involved in all the things because like you know, you don't know about that particular domain, that industry. So just trust the people that are already there. Your job is kind of babysitting it all. But that's not like founder Founder mode as they come to be called is like you should know all the stuff like more or less.
- [60:02]
Shane Parrish
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?
- [60:09]
Ryan Peterson
Oh my God, I wish I could. I wish it was recorded. He went on rant like four, three hours. Just like he's a very intense guy. I took like four or five pages of notes. I was definitely like enthralled in the back and like a lot of stuff deeply resonated but I don't remember any. Yeah, I've shared already some of the specific things. A lot of it is like, yeah, just be way more involved in the day to day and if the people don't and do a lot more skip levels like meet the people who report, don't trust the managers. Not a bad way. Hey, like you know, I'm here to help. Like actually I'll. When I go skip level meaning like go talk to the people who work for, I talk to anyone. I'm, I've, I've talked to 40 or 50 people every day on slack or text or phone. At Flexport. And if I talk to somebody who works for you, I'm not, like, trying to undermine you. I'm going to come back to you and be like, here's what they said. Like, here's what I think we need to do. And if the person asks me to keep it confidential, I'll do my best. But ultimately, I'm trying to solve problems together with my exact. So, you know, and if people have a problem, thus far, they haven't. But if someone had a problem with that, I'd be like, well, it's probably not a fix. This is my company. I'm going to talk to anyone I want in this company.
- [61:13]
Shane Parrish
I find it interesting because you remember that telephone game in, like, preschool where you sit in a circle and there's like, 10 of you.
- [61:19]
Ryan Peterson
Yeah.
- [61:19]
Shane Parrish
And the teacher, like, passes a message to some kid on the right. And then it goes through 10 kids, and by the time it gets back to the teacher, it's like this completely different sentence. And meeting. And organizations sort of filter this way unconsciously. Nobody's trying to make a mistake, but people just filter information differently. And what's important to somebody on the front line might be different to the manager, to the team leader, to the. All the way up to you. And so by the time you get it, it's like, how accurate is this information?
- [61:47]
Ryan Peterson
Vice versa. Like, he's like, what are the odds? People don't know what I want.
- [61:52]
Shane Parrish
Exactly. And so the other way just. Well, right. It's an interesting way to think about it.
- [61:57]
Ryan Peterson
Yeah, they lean, like, lean in way more than I realized, into communications and enablement training. Like, we've been doing the last year, huge amount of, like, strategy sessions and teaching and, like, traveling the world and doing these, like, little. Almost like a little music festival. It's the wrong analogy, but, like, you know, music festival, they give you, like, multiple tracks that you could. You know, you go see different acts like we have, that will come to different offices and have different tracks that learn about different things. I think it's very important that the people have agency. You show up in an office and you're like, okay, we're going to do a half a day of training. You have to sit through, like, 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 16 talks, right. For the next four hours, you can just choose your own adventure. Which talk would you want to go to? People all of a sudden, like, this is amazing. I get to go learn about and our business is super interesting geographically. We're in all the different countries and almost all the countries we different modes of transport, different technologies. There's like it's actually an incredible thing. So if you give people agency. So we trying to do that to like overcome this problem of. I just realized I, I we have an really I think we're a pretty well run company. We have everybody writing teams like write these documents of what their strategy is. What happened this month? Like these six pager kind of. We took this from Amazon years ago before we ever heard Dick Clark. There's six pagers 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, we're not that secretive but just like it's not part of the structure. It was like they don't disseminate. So I was just realizing like no one else has such incredible things happening at this company but nobody knows about it or not enough people know. So we started. I'm trying to work on that problem more. It was kind of to overcome this telephone problem. I just realized, oh no one else has the access. I do.
- [63:51]
Shane Parrish
What's the cadence and frequency of those six page updates?
- [63:55]
Ryan Peterson
Monthly. There's about 26 teams that do an MBR monthly business review in the six pager. And then that's just like it doesn't, I think we cap it at 6 but it's the 6 isn't that important. It's mostly Honestly I actually think the six pager is sort of maybe wrong. I'm not sure. But it's more how much time it takes to read.
- [64:15]
Shane Parrish
Right.
- [64:16]
Ryan Peterson
You know what's Twain say? Like it's harder to write a six pager than it is to write a 12 pager.
- [64:20]
Shane Parrish
Yeah.
- [64:21]
Ryan Peterson
For a lot of businesses. And so like if you had more empathy for the people who were working hard, you'd let them write the 12 pager and spend more time reading it. Yeah. But it turns out you that six pages seems fine. So we have I think 25 or 26 teams that write those monthly and then they do an annual plan two year rolling but once a year update. Okay. Chesky does his twice a year update.
- [64:43]
Shane Parrish
Okay.
- [64:44]
Ryan Peterson
I don't know if that's secret but I haven't moved to that yet.
- [64:48]
Shane Parrish
You mentioned the word obsessed. I want to talk about that for a beat before we move on to tariffs. What does that mean to you?
- [64:55]
Ryan Peterson
I was just like I can't Stop thinking about Flexport.
- [64:58]
Shane Parrish
It's just all the time. It's like consuming problem.
- [65:01]
Ryan Peterson
It's a very addictive industry. It turns out. It's always on, it's always different. Every day is unique. You got a front row seat, you have backstage pass. You see what's happening in the world in an insane degree. And there's infinite problems to solve. Ours and our customers and our vendors, like, I mean it's just like a crazy landscape of problems to solve. So yeah, it's a pretty awesome industry. And I think one of the things that we've done well is show people that actually this thing that looks boring, you don't think about it. Actually a really interesting place to build a career.
- [65:33]
Shane Parrish
Let's talk about what's going on in the world and let's start with tariffs a little bit. And I think it would just help orient people for the conversation. Conversation. What are tariffs? When do they apply? Is this a simple question or is this not tariffs?
- [65:46]
Ryan Peterson
I think it's an Arabic word. It goes back a long time. Governments have always had tariffs thousands of years control their borders and make money. It used to be the primary source of revenue for most countries is the tariff. In the United States that was for sure true. The income tax wasn't introduced until Abraham Lincoln in the Civil War. And it's a percent of the value of the goods that are imported that you have to pay to the U.S. treasury. Primary reason for it. I guess there's a few revenue is real. In fact, Trump's chief economic advisor 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 is a guy named Steven Moran. And he in his current administration he said that in the Trump one first term that the tariffs on China paid for one third of the tax cuts that Trump did. It's pretty meaningful. I mean it's an. It's an interesting alternative way to fund the government via tariffs instead of income tax. Like I'm not sure, I hate that idea. I don't know what would happen. So it's source of revenue is very, very important and valuable to the government. It's a way to control protectionism for companies. That's been a major reason to use tariffs over the years is to protect US businesses from competition. In part just for employment reasons, in part for national security reasons. Like you want to have certain industries be successful. Steel has always been one of these and autos. Most major countries like believe their auto industry is like important, not Just for jobs, but for armaments, like you make tanks out of your Ford factory during a war, et cetera. So, yeah, those are legitimate reasons for terrorists.
- [67:27]
Shane Parrish
Why do they matter? In the context of like the global.
- [67:30]
Ryan Peterson
Politics, obviously it increases the cost for companies that are sourcing goods. And we've become so globalized, our economy is just like supply chains are unfathomably complex and interdependent and they're full of independent actors making their own decisions about how they want to do things. And there's these component subcomponent ecosystems of supply moving goods all over the world and doing assembly and production in different countries and bringing things together. So it's 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 they're all made over, a lot of them are made overseas.
- [68:16]
Shane Parrish
Obviously when you talk to a lot of customers, are people on shoring or are they just sort of accepting or what's happening with.
- [68:24]
Ryan Peterson
Well, that's the thing. You have to judge policies not by their intention but by their outcome. Like they. One of the mistakes that a lot of people make is like, well, it's good intention, so therefore the policy is fine and that's just not right. And these tariffs have had the opposite impact that Trump would like. I think there's intention, there's some, some validity to it all. Like some of the things I said from national security and employment, other things. But the, the result has been thus far, and it's pretty early in the cycle, we're only a couple months since the Liberation Day or whatever. But the. I've met way more. I've met infinitely more. I haven't met anyone who said, oh, because of these tariffs, I'm going to start doing production in the US I've read some headlines on it and they've done some White House announcements and things. But like, those aren't my customer base. In my customer base met at least a half a dozen companies that said stop production in the US because of the cost of the components coming in.
- [69:12]
Shane Parrish
Oh, interesting.
- [69:13]
Ryan Peterson
And there's kind of like three categories of these two or three. One is people. For example, we have a bicycle, a company that makes bicycles in the US Kids bikes. And for some reason they made an exemption for importing bikes. They're duty free, but not bike components. So their costs went way up and Their competitors from overseas didn't said they are cheaper to manufacture overseas. So they're moving their factory. That has been a well known brand, reasonably well known brand known for being made in America. And they're like doesn't work anymore. So that's one example. Two is if you're doing it for export, you're exporting goods, you're paying your costs have gone up on the import of the goods, of the components, doing assembly in the US and then exporting. You're better off setting up that factory now somewhere else where you don't have the cost on the imported components. Third would be machinery costs. So like in fact a friend of mine was setting up a line for a fad like a semiconductor fabric and just decided like the machines are made in Germany for that particular line and the cost is going to go up 30%. He's like oh, all right, I'll just build this line somewhere else in another country.
- [70:23]
Shane Parrish
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 work.
- [70:36]
Ryan Peterson
Yeah, it's temporary that you're still going to pay the tariffs. So it doesn't really work for like changing the nature. But bonded warehouse will let you make a bet that tariffs are going to come down. So when tariffs were at 145 on China, we helped a lot of companies move into bonded warehouses because we all predicted that it would come down from there. So you're better off waiting and only enter the goods, only exit them out of the building, but enter them into the US Commerce after the tariffs have come down. So there's some hacks around the edges. There's a lot that you need to do. If you before you didn't care about valuation the value of the goods, if it was times zero, who cares?
- [71:12]
Shane Parrish
Yeah.
- [71:12]
Ryan Peterson
But now all of a sudden if it's times 30% or whatever number you care a lot more of how is it valued. And there are all kinds of legal ways and you need to get really great advice on legal advice or advice trade advisory on how to do this. But there are ways tracking that you want to be able to really track every single component of a product. Where is it made and what is its, what it, what is its cost. So like if you have a cow, there's steel and aluminum duties right now that are really high. Forget the exact number, but they're quite high. I think 50% or more on. On Chinese made sealed aluminum, maybe on all. I should know all these details. It's very complex. But if you have a couch that has seal and aluminum, you don't want to pay that 50%. You don't want to pay that high duty on the entire couch. You want to only pay it on the portion that's steel and aluminum. So you really have to build this great. We call it a product library, which Flexport offers this technology product. So you, you want to be able to track all these things at the subcomponent level. Where's every item made? And then there's all these new regulations that have been coming out for many, many years. There's one called the Uyghur Forced Labor Protection act, requires you to track the cotton, anything cotton, where was it made specifically, like wet down. And then the EU has a new ones, very similar. But any forestry, any wood product, you'll be able to show where the wood was grown anywhere in the world. Track that.
- [72:36]
Shane Parrish
This is insanely complex.
- [72:38]
Ryan Peterson
Yeah, carbon. They want to know the carbon border adjustment factor, I think it's called that. They want to know all the input, all the carbon inputs of every single subcomponent of every product in the world, how much carbon went into making it. So they can measure the carbon footprint. And then you coming soon, you're gonna have to provide a, like a QR code on every item that you can scan and they'll tell you the carbon footprint. So the world just keeps getting more and more complex, which plays into the hands of customs company companies like Flexport because you're like, cool. You need technology to track all this stuff. Kind of classic regulatory capture type stuff. We're not lobbying for any of these things, but.
- [73:21]
Shane Parrish
And you're the most tech forward of all the kind of.
- [73:24]
Ryan Peterson
We're the only one founded, only one in the top 100 in the world founded after the web browser was invented. A lot of good companies, but they're not tech companies fundamentally. So we have to, we have the. The world is our oyster. We should win it all.
- [73:37]
Shane Parrish
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.
- [73:44]
Ryan Peterson
You have to be careful. There's. There's some illegal stuff that I see not so much on our customers. We talk them out of this. But 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 of the factory cheats on the value of the goods or their classification. That's kind of rampant in the industry right now.
- [74:12]
Shane Parrish
That's just a matter of time before I would imagine. Who regulates that?
- [74:16]
Ryan Peterson
Customs and Border Protection and doj. Their, their problem is what the factories will do is set up a shell company. Not in the us. You don't have to have a US entity to import goods into the us.
- [74:29]
Shane Parrish
Oh, interesting.
- [74:30]
Ryan Peterson
You can just work Canada or most of Western Europe. So you can just. They set up the shell company in whatever country. It could be China, it could be anywhere. That company registers not as an LLC or any kind of legal entity, but they just register with cbp, with Customs. They import the goods into the US from abroad. If they cheat, they just disappear. And customs doesn't have agents in China to go chase it down. So then they just do it again under a different shell company. And that's a huge amount of what gets sold on Amazon. It's not, I'm not saying it's fraudulent, but is these foreign registered companies.
- [75:05]
Shane Parrish
It's definitely like a gray area. Do you think they'll bring that back?
- [75:09]
Ryan Peterson
I think they're going to cry down that. I think they're going to shut down.
- [75:10]
Shane Parrish
That and make it so. You have to be a US entity to import.
- [75:14]
Ryan Peterson
That's a created llc. It can be foreign owned llc, but you'll have to have like an LLC that can be held accountable. But it's very unclear exactly how it will be or should be structured. Like, does it need to have employees who could face jail time? Like, what's the, you know, what does that need to have a certain amount of cash in the bank that could be taken if there's fraud? There's a lot of ways, but I have no idea what's going to pass. There's a couple. I understand there's a few bills like looming, but I haven't read the text of them yet in Washington. That would shut down the ability for foreign companies to import or put in new requirements for it. So that's like one creative thing. Now what'll happen is you get offered as an importer, you've been buying these goods from your factory and then all of a sudden they offer them to you for way cheaper than the duty alone. You're like, yeah, it's not my problem. I just bought it in the US Guarantee you, like you are reliable for that. Like, so as a warning, look at the camera. CBP DOJ has announced it's their number two priority in white collar crime division of the Department of Justice is customs fraud after healthcare frauds number one, and then customs fraud number two.
- [76:14]
Shane Parrish
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?
- [76:20]
Ryan Peterson
Yeah, well, the good strategy is let's not talk about the illegal ones anymore. I mean, but be careful. Make sure you're getting good advice is have that database know all the subcomponents. There's a few things like valuation you can. There's a thing called first sale. I won't bore you all with the technicalities of it, but there's. It's called first sale, which basically says that you pay the value of the goods based on the first time it was sold, not the price that you paid at import. So there's legal ways to do that if you bought it, like there was a middleman or an agent that bought it in China marked it up to you. You can actually import the goods at the price they paid, not the price you paid. You can deduct the portion if you file it all correctly. And don't quote me on this because you want to get good legal advice, including from Flexport's team. But you, you could deduct the portion that's US made. But you have to, you don't just get to automatically do that. You have to like file all the right paperwork and stuff. And then importantly, if you import something, you pay duties and then you later export a product with the same classification, you're owed a refund on that.
- [77:20]
Shane Parrish
Okay. You get your import back. The import duties you pay.
- [77:23]
Ryan Peterson
Yeah. And so every year in the United States, 7 billion goes unclaimed. And that was pre these new tariffs, so it's presumably much higher. Yeah, so we, 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's called duty drawback. If you haven't done that. And other countries offer this too, in 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. 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 give it to you in a very unusable format, I think like giant CSV dump basically, maybe even on cvs. I forget. But they give you like not, not useful. It is still your data. So it's useful, but you have to know how to clean up. So we've built this interface that like visualizes all of this for you and shows you every transaction you've done in and out of the country. And then our experts kind of walk you through and be like, okay, here's our checklist. This is ways that we think we could maybe get you a refund. Now, Trump has lost the lawsuit on these new duty, on these new tariffs. And they, they, it's going to appeal to the oral arguments for that start on July 30th next month.
- [78:40]
Shane Parrish
Is that at the Supreme Court level?
- [78:42]
Ryan Peterson
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. I don't know enough how this works. But towards the end of the year is my imagination, is my guess that it would go to the Supreme Court.
- [78:54]
Shane Parrish
Either way, it'll probably end up there.
- [78:56]
Ryan Peterson
Probably it ends at the Supreme Court. Yeah. That will be really an interesting case. If they lose again, everybody gets a refund on all their duties, but they won't just refund it. You're then going to have to file paperwork, of course.
- [79:08]
Shane Parrish
Yeah. They're not going to like, here's a magic check in the mail.
- [79:11]
Ryan Peterson
Yeah. So it's going to be. And then it already takes like about a year when you get one of these refunds from the government. Takes about a year to get your check. Yeah. When every single company in the country applies for a refund, you probably won't see the check for like three years. There's gonna be so much fraud. Oh man. It's gonna be kind of a total mess if they lose that lawsuit.
- [79:30]
Shane Parrish
Where's traffic now? Is it back to normal? Is it down? Is it.
- [79:34]
Ryan Peterson
Volumes from China collapsed 60% down. When on April 9, the day the duties hit, stayed down for five weeks. And then as soon as he relaxed, as soon as they, the Trump administration relaxed the duties on China to 30% instead of 145. It surged to 80% above pre tariff levels. That lasted for 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 flexport data and we have got 30% growth over last year. So then I start to figure we're actually up again from the trough. Like it came down and now we're back up. But I think that's a flexible thing. I think the market's shrinking again from the peak that we hit post Covid but our own volumes were like 30% year over year growth.
- [80:24]
Shane Parrish
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 is really good. Oh, we're going to hit some trouble. You know, one of the things that Buffett has always said is he looks at intermodal rail volume as a leading indicator for the economy. I'm curious like given your aperture into everything.
- [80:45]
Ryan Peterson
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 here, but it's the international stuff is so less seasonality. There's a lot of weirdness. And lately in this tariff state of it's just like, I don't know if that means you want to know what the consumers are doing ultimately. What are they buying and selling? And a lot of there's just a huge amount of noise like they didn't ship that much less or more because of consumer demand. That was like, you know, cost and inventory forecasting. And so I don't, it's probably if I had my access to any data, it would be the consumer, you know, sales data from all the customers and inventory levels. I just don't know the sales data. Fine. I like public companies report on their sales inventory data. I, I've never understood like the US Government publishes these inventory metrics every month. I, I, where do they get that? I have no idea. I haven't gotten any good economists to answer that. They run a survey. I'm like, interesting, 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.
- [81:56]
Shane Parrish
100% correct.
- [81:58]
Ryan Peterson
So skeptical. I'm like, big government data sets.
- [82:01]
Shane Parrish
One of the things that you said that I came across that really stood out for me was when you're designing an operation, you're choosing your bottleneck. If the bottleneck appears somewhere, you didn't choose it. You aren't running an operation. It's running you double click on that for a moment.
- [82:18]
Ryan Peterson
Bottleneck is going to be, you know, the point, the choke point, the point at which the. The limiting factor. And I think you're in a. In a company, your bottleneck should always be customer demand should never be like bottlenecked. Oh, I can't right now. We're bottlenecked in our customs team, our trade advisory team, the people that are helping solve these problems that I was describing around how much due to you owe and how to minimize it, how to be compliant. That team is super bottlenecked. We didn't plan for a world that would require this much 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 wanting my thing. You'd like that to be in a B2B environment. That should be the bottleneck. But if it shows up somewhere else. Yeah, I'm not in control right now. It feels very uncomfortable. I'm like, do I want. I don't want to just hire more people, especially if it's not. If it's a temporary surge. So what. It feels out of control as it. And we need to get. Get our 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. So, yeah, if you're bottlenecked in how much space We've had a number of it. This is been. We've had bottlenecks move all over the place during COVID and. And since how much space there is on ships, there's been a bottleneck for us even as recently as last couple weeks with this huge surge of new bookings following the relax relaxation of the terrace. That's not right. Like, there 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 customer's getting this huge delay and getting loaded and getting their cargo delivered. It's a. It is a fact of the industry right now. But that 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 in the flow of those goods. Loading dock, unload, put away, pick, pack, outbound, and ship again. And the way that Amazon does this, as I understand it, is they try to make the bottleneck the most capital intensive piece and then they overstack it. So that there's plenty of capacity on that. Whatever the machine is probably that is capital intensive. It requires a lot of capital and have lots and lots of that machine. So that that way they're never. It just keeps flowing the goods. You don't hit the bottleneck. You don't actually hit it. And if you do it's because okay, didn't nothing I could do. There is like more capital needed rather than if it's labor you're like cool, just throw more labor at it. That should never be the bottleneck. It's only where oh I need a lot more capital here even than I planned. And then they over invest in capex so they don't hit the bottleneck because.
- [85:07]
Shane Parrish
You want the most asset intense part sweating just non stop.
- [85:12]
Ryan Peterson
Yeah, the asset intense part should be always should be operating. No, but you should have excess capacity there. That way you don't get stuck with this machine holding you back. Like you have extra machine. But that's a strategy for people with a lot of capex. That's Amazon's model with plenty of capex. And I'm not sure that they do it right. Like one of the things that they do that pisses off their merchants is they have this endless line of trucks at the warehouse they can't unload. They've pushed the, the bottleneck often to the unload piece, the loading docks and truckers and can't get appointments and stuff. So I think that'd be wrong in that framework that like they should allow the goods to flow through. It's a, it's fascinating world of like you know, we d W E. Deming is the kind of business philosopher of quality. He's written a lot on statistical process control and creating even flow through a system that you don't want to have these spikes of flow because it makes planning really hard and labor and assets or people become idle.
- [86:15]
Shane Parrish
You don't want any variant.
- [86:17]
Ryan Peterson
Yeah, eliminating variance is like lean six sigma type stuff. It's one of these things that doesn't come naturally to me. So I'm like trying to study it and take an interest in it. But it's not my natural forte to go deep on this area. I do find it quite intellectually stimulating but it hasn't. It's not like my training and background.
- [86:34]
Shane Parrish
Is that like the whole Toyota production system thing?
- [86:37]
Ryan Peterson
It is, yeah.
- [86:38]
Shane Parrish
Do you guys use that a little bit?
- [86:40]
Ryan Peterson
Yeah. I mean the Toyota 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 Donahuer Manufacturing company. The idea is a couple of things. One is one thing that we do that is very Toyota production system like is in the Toyota production system. And I've never been to Toyota. I got a proper tour of this. I'm a bit of a chauffeur of knowledge, like repeating what I've heard and learned a little bit from a distance. But is 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, Toyota auto production, each guy does one job and kind of more robotic like I was describing earlier. And you know, our model is 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. I think Toyota kind of pioneered that piece of it. Better for the worker for sure. You have more agency, you're more involved, you know more of the details. Your career is more interesting. You're learning all the steps. But the other thing that Toyota really does is empower the workers to elevate problems. They famously had that rope they can pull to shut down the whole line if things aren't right and take quality super seriously. Quality costs less. I think that comes from wdemming. So it's all a very interesting area that we tried to apply. This is where I needed help at some point because I'm not a natural on these things.
- [88:12]
Shane Parrish
You mentioned chauffeur knowledge, which is such a tell that you're a Charlie Munger devotee. I would love to hear some of the lessons you took away from reading him or interacting with him.
- [88:24]
Ryan Peterson
I got to become friendly with Munger towards the. With Charlie towards the end of his life. I went to his 99th birthday party late last year, actually before he passed. I got lucky. I got real. In fact, his. The person I'm closer with is Peter Kaufman, who's the author of Poor Charlie's Almanac. And that's like one of my favorite books. And when I lived in China, I got a copy of that book and really it's like a coffee table. But Stripe just re released a copy of it. It's now available in print again. It used to be kind of out of print and I had that book and I loved it and it really inspired me. Munger has this really wonderful essay which I actually discovered on the Y Combinator website called the Art of Worldly wisdom or something to that effect. If you Google Munger worldly wisdom, you'll find it. And it's a us. It's a speech that he gave at usc. It's like a graduation speech.
- [89:15]
Shane Parrish
We'll link to it in the show notes.
- [89:16]
Ryan Peterson
Yeah, you should link to it. It's wonderful. And it's about this idea that there's like 300 domains in the world of knowledge. 300. It's kind of an arbitrary. I don't remember if he says 300 or not, but there's some number of limited quantity of domains. And in each of These there are two or three big ideas that carry all the 80% of the freight as he said it. And so if you were to go and learn those two or three big ideas from each of the disciplines, your alley. I'm sure you've written about this before. You have all these mental models and you have lots of stuff to hang things on. And then also a lot of the innovation in the world comes from taking an idea from one domain and applying it elsewhere. A mental model from one, applying it elsewhere. So I learned about this when I was like 25 or so living in China. 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. You try to be worldly wise. And so 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, you know, gathering a cocktail event or something. And I didn't know anybody. And I. This older guy, this older gentleman was there and I struck up. He struck up a conversation. He saw me not talking to anyone or something. We started talking to each other and he at some point asked me what my favorite book was. I told him, oh, it's poor Charlie's Almanac. And because he's like, why do you like that book? And I told him all this and he's like, well, I know that book really well, actually. I'm the author of that book, Peter Kaufman. And so he's like one of Munger's really good friends for many, many years. And he's the one that put together this almanac. So he just thought that was so funny that he started bringing me to Charlie's house and tell Charlie the story. One of my favorite things that Charlie told me at one of these dinners at his house was when I told him about Flexport. He was like, oh, you had a great business, because the key to success is dumb. Competition, which, that's kind of insulting. We have some really smart competitors. But I always say that to people who are like, building AI companies, it's just like, what a nightmare. Your competitors are literally AI geniuses. Like, you should find a way to apply AI in some other domain so you're not competing with the smartest people on planet Earth. Because it's like trying to be a boxer. Like, you're kind of. You might beat all the people in your local gym, but at some point you're going to run into somebody bigger, stronger, faster. Jon Jones or somebody 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.
- [91:47]
Shane Parrish
Funny story about Peter before. He's a mutual friend. Here's on mine and the way that I met him. I was at a Berkshire Hathaway meeting and I had went up to the. The hotel. You know, naively, this is my first meeting ever. You know, I just show up and I'm like, can I get a hotel room? And the person behind the counter starts laughing. And I was like, oh, no problem. I'll just sleep in my car, you know, whatever. And Peter walks up to me and he's like, I hear you. You need a hotel room. And he ends up giving me. He had a block of rooms, and he ends up giving me one of his rooms.
- [92:19]
Ryan Peterson
That's amazing. Which is the perfect Peter move.
- [92:22]
Shane Parrish
It is, totally. And it's the most perfect embodiment of one of his phrases, which is go positive and go first.
- [92:28]
Ryan Peterson
Yeah.
- [92:28]
Shane Parrish
And we ended up striking up a conversation. We had a mutual friend who joined us in that, which was Peter Bevelin. And we just ended up chatting for a long time. And he's like, if you're ever out in California, 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.
- [92:45]
Ryan Peterson
Right, you were Glen Eric.
- [92:46]
Shane Parrish
Oh, yeah, totally. And that struck up a friendship with him, which has been. He's been an incredible influence.
- [92:52]
Ryan Peterson
Yeah. Yeah. Okay, that makes sense. That's hilarious. Because he loves inventory.
- [92:56]
Shane Parrish
Yeah.
- [92:56]
Ryan Peterson
And he had. He also had an inventory of extra rooms just in case somebody needed one.
- [93:00]
Shane Parrish
Actually, walk me through that. Why does he love inventory?
- [93:03]
Ryan Peterson
Well, because everyone else hates it. I think there's a contrarian element to it. Everybody went to business school and learned that extras inventory is evil and carries working capital costs, et cetera. But he's in his business, which is airline, airport, airplane parts Aviation parts having excess inventory means you can provide the part on demand. Any part, you have it, no one else does. So people are willing to pay a real premium. If you're, especially in aviation, if your line is down or your plane's not flying. We have a whole branch of logistics called aircraft on ground. Logistics AOG Aircraft on ground. People will pay any price. I once flew, and this is not what Flexport does, but I know this guy's a billionaire and his plane, his G650 Gulfstream private jet broke down in Antarctica or in southern Chile, like right next to Antarctica. Somebody crashed like a tractor into the wing. And he called me, he said, can you get me? I have the wing, I need to fly it to Chile. I will pay any price. Told us like 10 times, like, if there's a way to pay more to get this there faster, we will do it. And so being the guy with all the parts for that type of customer.
- [94:16]
Shane Parrish
You think about it, you have this, like, in some cases, you know, 10 million to $200 million plane or more.
- [94:22]
Ryan Peterson
Yeah.
- [94:22]
Shane Parrish
Sitting grounded from a like thousand dollars part or could be 10,000. You could charge 100k for that part and then be like, no problem.
- [94:30]
Ryan Peterson
Yeah. And the inventory, I mean, inventory should be not that expensive to keep around, but it depends if it's perishable. Like the COVID was a great example. Like people, the hospitals didn't have enough inventories all run just in time, which is just a ridiculous way to run a healthcare network. Just in time, because in a crisis. So you better have some inventory. But the problem, I think becomes that these, the ppe, the masks and stuff, has a shelf life and expiration load. So you can't just build a warehouse totally full of this stuff and let it sit there. You only need it pull it out 20 years. Yeah, it works. 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 war, you know, you don't want to start your production then.
- [95:12]
Shane Parrish
Are there any other Peter Kaufman lessons that stand out so many?
- [95:16]
Ryan Peterson
I don't know. Hopefully he publishes more books at some point. He's written a lot of stuff that he keeps offline. I really like his competitive exclusion principle.
- [95:24]
Shane Parrish
What is that?
- [95:26]
Ryan Peterson
Basically it comes from biology and it's this idea that in a niche, in an ecological niche ecosystem, there's only two species can't occupy the same niche. One of them must outcompete the other one. If they're like for life, they're both occupying the exact same niche. One will win, the other will get pushed aside and go extinct or have to adapt. And so in business, the way to apply that is like, you should be able to do all the things that your competitor can do. You can't leave any room for them to exist because they can do something. You can't do the opposite of this dogma that you should only do one thing and do it really, really well. It's like actually you should spread out and make sure there's no room for the other guy to stick around and maintain a relationship with your customer just because you're not able to do that thing. And we still have some of these. I mean, it's very hard to do everything. But he calls it, there's a Wikipedia article about it, the competitive exclusion principle. I think that's pretty interesting. I learned from actually just generally Peter's whole thing is the worldly wisdom idea. Just taking ideas from biology and physics. And what's his other one is the formula for kinetic energy is one half of mass times velocity squared. We use velocity as our main word at flexport velocity.
- [96:39]
Shane Parrish
Go deeper on that because velocity matters more because it's power law. Right.
- [96:44]
Ryan Peterson
From the kinetic energy formula. It's a square function and mass is only linear. And so this is why in football, American football is hitting so hard. Knocking often it seems like this little guy can just create more, way more energy. Well, they are their velocity. They're running really fast. It's more important than how big you are, is how fast you're moving. And now velocity is different from physics than speed. Velocity has a vector, so you got to go in the right direction in business. But it also, it's kind of an explanation for why startups outcompete. Big companies have way more mass, but they start to become slow and bureaucratic and three guys in the garage can often out compete.
- [97:24]
Shane Parrish
It's interesting to sort of visualize as like the incumbent being fat and you being, you know, skinny and quick and agile and you kind of want to run upstairs and it sucks for you, but it really sucks for them. Yeah, that's how I sort of think about that.
- [97:39]
Ryan Peterson
Yeah.
- [97:39]
Shane Parrish
Like how do you, how can you cause pain in a way that like, it's going to suck for you, but it sucks more for them.
- [97:45]
Ryan Peterson
What are some things that you got from Peter?
- [97:47]
Shane Parrish
Well, the go positive go first thing is just such an unlock in life and the demonstration, like I'd never talked to him or sort of like had any conversations with him at that point, and it's just stuck with me.
- [97:58]
Ryan Peterson
This example is from the elevator. You're stuck in an elevator with someone. Most people will say nothing, which is like kind of polite to not say anything. But if you say hello, they'll actually turns out most people would say hello back and be nice to you.
- [98:09]
Shane Parrish
And then we don't do it because like the 2% of people will sort of scowl at us.
- [98:13]
Ryan Peterson
You know, I don't really have to talk to people about elevators either, but I get that. Yeah, I mean, it's an interesting point.
- [98:17]
Shane Parrish
Well, now everybody's on their phone.
- [98:19]
Ryan Peterson
It's.
- [98:20]
Shane Parrish
It's a different world, Ryan. We always end these interviews with the exact same question, which is, what is success for you?
- [98:26]
Ryan Peterson
I like to be worldly wise. I try to keep learning. I'm lucky to have that, learned that value early on in my life. That learning is the most important thing. I mean, now I've got kids, so it's love. But learning is right there is a close second for what my number one value is. That's why I like Flexport so much. It's like a really incredible vehicle to learn. And the best way to learn is to solve a problem, you know, be really engaged and do things and solve problems for people. In the business context for Flexport, we want to be the number one logistics company in the world by far. And we think there's real scale economies in this industry that you can unlock, but we're pretty far from that. We're only about 0.1% of global trade in the containerized in the worlds in the domain in which we play. So I mean, we got 20, 30 years of just like building, going global. We got flexport employees in 18 countries. I want to be in all the world's countries, be like a true network business or ship anything anywhere. Make it super easy with tech. Actually, I think we can lower the cost of shipping anything by 5 to 10% and I think it could have just like a massive impact on the world economy. So all those things, all those things are like part of the success path. But we're trying to enjoy the journey, like learn every day, hopefully help our customers on that along that path.
- [99:47]
Shane Parrish
I'm looking forward to rooting for you from the sidelines.
- [99:50]
Ryan Peterson
Thanks.
- [99:51]
Narrator
Thanks for listening and learning with us. Be sure to sign up for my free weekly newsletter at FS Blog Newsletter letter. The Farnum street website is also where you can get more info on our membership program, which includes access to episode transcripts, my repository, ad free episodes and more. Follow myself and Farnam street on X Instagram and LinkedIn to stay in the loop. Plus you can watch full episodes on our YouTube channel if you like what we're doing here.
- [100:18]
Shane Parrish
Leaving a rating and review would mean the world.
- [100:20]
Narrator
And if you really like us, sharing with a friend is the best way to grow this community. Until next time.