Today we are sitting down with Ryan Petersen, CEO of Flexport. Founded in 2013, Flexport combines powerful technology with physical transportation infrastructure to modernize freight forwarding. Today, nearly 10,000 companies ranging from emerging brands to Fortune 500s use Flexport to move nearly $19 Billion dollars worth of merchandise across 112 countries. Join us as we talk about what got him here, and the company Ryan built from just an idea, to an $8 Billion Startup.

Work at Flexport: https://www.flexport.com/careers/jobs/

You can beat Google the way Amazon does: https://www.youtube.com/watch?v=9Fq15k9QPv8&t=2s
Turning $300K into $2B with Coinbase: https://www.youtube.com/watch?v=x5YApjnTG10
Roll your way to a Startup Unicorn: https://www.youtube.com/watch?v=r8hhvw-1b-M&t=0s 


00:00 Introduction
01:12 Meet Ryan Petersen
03:01 Ryan’s Startup Journey
09:08 Flexport’s Value Proposition
14:11 Flexport’s Goals & Initiatives
18:45 Flexport Capital
22:15 How Software is Flexport’s leg-up
25:19 Autonomy through Leadership
33:15 Flexport’s Expanding Vision
37:11 "Knowing How to Know"
41:14 Building a Talent Engine

100% of the revenue from this channel is donated to https://www.code2040.org​ - thank you for helping me help the engineers of tomorrow.

I’m Garry Tan, venture capitalist and founder at Initialized Capital. We were earliest investors in billion dollar startups like Coinbase and Instacart, and I’m a Forbes Midas List Top 100 venture capitalist in the world. We want these videos to be about helping people build world-class teams and startups that touch a billion people. Our startups have gone on to create more than $200 billion in market value so far, and Initialized has over $3.2B in assets under management.

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Directed by Chris Hall
Filmed by Michael Bliss & William Cenote

Everything from food to fuel is more expensive now, and we're feeling it.

Over the last few months, container ships have been stuck at US ports for an average of 7 days, 21% higher than at the start of the pandemic.

It can take up to 20 different companies to move just 1 shipment, because the system mostly still only uses paper and pencil.

Founded in 2013, Flexport turns that paper and pencil system into a modern marketplace driven by great software.

We were lucky to invest at the beginning.

They help nearly 10, 000 companies from tiny startups all the way up to Fortune 500s to move nearly $19 billion of goods across 112 countries.

Today, we're in San Francisco talking with Ryan Peterson, CEO and founder of Flexport.

You come from a family of entrepreneurs and software engineers.

My mom is probably the world's leading expert on food safety.

So she has this company, she's a biochemist.

And if you are a food company and you need to get something approved by FDA, USDA, California, EPA, all these different, there's so many different regulatory bodies.

She probably employed like a hundred PhDs when I was in high school.

And yet still find time to be an amazing mom.

So she was really my role model growing up.

Also, I didn't know, I didn't realize any of this was happening.

I'm not, we've never really talked about it, but I kind of think she trained me to be an entrepreneur from a young age.

So I used to, my brother and I both, we used to earn our allowance by doing work for her business and then her business would pay us.

I think it was like also a tax advantage.

So she could make our allowance tax deductible.

So we would go and pick up sodas and stock the snack cabinet at her fridge, and we'd sell them.

We'd buy it at the grocery store and then sell it to her company.

And then my dad is a computer programmer, so he taught us to write code to like invoice her.

In fact, he wrote his first software in 1970 for the Department of Defense that was analyzing Soviet defense spending and trying to smooth it out.

A lot of people are watching this channel wanting to start a company.

Through YC, we had known so many founders who have both made it and not made it.

Do you feel like that was a formative moment where you learned a bunch of things that now you actually sort of led to learning that Flexport was a need?

I mean, YC is an amazing opportunity to like go fast, meet, build a network, turn like venture capital from like an outbound sale, begging people to give you money to more of an inbound sale where they kind of come to demo day and come to you.

There's a lot of benefits to that, but like the downside of it is it's sort of like a really time bound pressure cooking situation.

You got 90 days and then if you don't raise money, you're kind of like, I don't know, you might die or you fail.

And Even if you do raise money, there's an expectation that's put on you that you're gonna like, go hire a bunch of people and have 18 months of runway.

And then if you don't achieve it in 18 months, you're dead.

I never really liked that approach that much for me.

I was like, I kind of like Paul Graham's original teaching, which is like be a cockroach, stay alive, nobody can kill you.

So how do you set your life up in a way that you can't fail?

I mean, you had to grow as much as possible before you ever started your company.

Yeah, And like I started businesses and ran companies for

years and my brother for even longer than that, 11 years before I ever raised any venture capital and like started some successful businesses that generate millions of free cashflow every year.

It's like, How do you design your life in a way where you're, it's kind of like be ramen profitable, but in life instead of in your company.

So for example, the company that I started that is called importgenius.com, this is what I did right before Flexport.

And right before I joined Y Combinator, I was running this business that is 1 of the biggest, if not the biggest provider of data to the import export industry and global logistics industry who sell data on shipping manifests.

And when we were starting that business, I didn't know if it was gonna be successful.

I had never really heard of venture capital or been involved in that world.

It was like very much like, well, we figured out how to get this data.

We wrote software to create an interface where you could sell the data.

And I didn't know if it was gonna work if anyone would buy it.

I wrote business school case studies for Columbia Business School.

In fact, yeah, I wrote the first ever business school case study about an African business.

I went to Nigeria and I was making like 40 bucks an hour or something, but like I had income.

So that was like a job that I got, but it was part-time, it was flexible, so I could do that while working on my startup.

Teaching the GMAT, which is the business school entry class.

I had like a very high GMAT score, so that qualified me to teach that class.

Oh, and I had a third 1 doing consulting to help people with their website generate more traffic from Google.

And so I had 3 different flexible, I could work any time of day on those jobs.

And then that gave me like freedom to on any time horizon I wanted be successful because I couldn't die, my expenses were low.

My number 1 advice for people who wanna be entrepreneurs is get rid of your student debt.

And then, yeah, it took me a number of years before we found success.

But success was certain because like, we didn't have this like time horizon that it had to happen in 18 months or else we're all gonna go bankrupt and everyone's gonna be mad at us.

We never had investors, we just executed.

Actually, it had success pretty quickly, so I didn't do those things for very long.

I kinda prefer that setup than the pressure of you've raised money, now everybody, you have to succeed in 18 months or it's over.

Even if you are raising venture capital, I don't like the 18 month time horizon.

I'm like, raise more money, last 3 years, like give up more of your company, it's fine.

I mean, that's 1 of the reasons why we are totally cool with seed extensions.

Like we prefer, we actually like to do them because that actually gives the founders more time to develop.

month, it might be 36 months, it might be 40 months.

And if you're thinking long-term, actually trying to help people, you will actually help people get to product market fit on a longer timeframe, it's fine.

I mean, VC probably should do it that way because people have a 10 year horizon anyway.

And the amount of money that's getting thrown around is like great, raise a lot of money if it's there, but don't go spend it, but it's almost impossible.

I remember we raised our first big round at that time, it was pretty big.

And immediately, like the next day, I was like, all right, we're getting a shipping container and we're going to convert it into a booth for a trade show.

And we're going to like make it like a party container with a go up on top and party.

It was like $100, 000 like the next day that I committed.

Yeah, and I don't know how to avoid that.

And we saw it, that was true at like smaller dollar amounts all the way up to when we raised a billion dollar series D round and immediately like lost discipline, started overspending, Everybody could hire as many people as they wanted.

And we then spent another 2 years like paying that consequences of needing to tighten belts, having hiring freezes, like it's a really bad instinct to just go in.

And we just raised a lot, a series E round, $985 million.

But we were profitable when we raised this round.

And how do we avoid that happening again, right?

Having really tight capital allocation, accounting controls, like budgetary process.

It's, I hope it's good enough, but it's like my big fear right now is that happens to us all over again.

It just happens at a different scale, I guess.

But the tools sound like they're the same.

It's have an operating model, give yourself enough runway.

Of the cohort of startups that raised at a billion, for you to be profitable with the growth rate you have is sort of unheard of, isn't it?

I don't know that it helped us, by the way, being profitable.

And I think it raised some red flags and people were like, oh, why are you raising money if you're profitable?

And don't you have anything good to invest in?

For just startups period, but even huge startups like yours, it is still about return on invested capital.

If you want monthly or quarterly, you're doing it wrong.

In order to actually take over an entire you know sort of section of the or sector of the economy that might take years or 10 years you know and then at that point can you have leadership like your leadership that is long-term enough that can actually think and think strategically about it and actually take big bets and sort of survive being wrong about things.

Yeah, it is pretty rare and you need real job security.

And frankly, most higher-end CEOs haven't earned the job security to be able to do whatever they want.

It's like, it's sort of something that comes with being the founder that people are like, yeah, well, he started the thing so he can do what he wants.

That it actually gives you then permission to go do the stuff.

So I'm not sure that there's a simple answer, like, oh, every CEO should be allowed to go spend as much as they want.

It's why Wall Street likes software companies, by the way, because there's not a lot of assets that they could buy.

In our space, the people who own ships, planes, trucks, historically, Wall Street hasn't loved these businesses.

They tend to be family owned, because it's capital intensive.

And when they do make a lot of money, what do they do?

And the return on those assets are not what Wall Street tends to look for.

It's like 5% a year maybe or something, right?

It's not, Wall Street, you know, you'd rather invest in a tech company where not only is the growth rate there, but there's nothing you could waste the money on in a typical tech company.

I mean, in your case, you're bringing basically structured data to an area that just never really had it before.

And so you can actually just deliver things that are better, faster, cheaper in that way.

How do you think the street should look at this?

You know, sometimes when you're creating a new category, you actually become the comp.

Yeah, well, I mean, fundamentally, the end of the day, in the long run, and I don't know what long run needs to mean, 5 to 10 years, let's say.

Really, I think longer term than that, but okay, let's say 10 years.

We're gonna be valued on the amount of cash that we generate, sort of similar metrics to any other business.

OpEx, the amount of headcount that you need to generate that cash, which is a sign of scalability, How big can you make the thing?

What's the transaction volume that's moving through this thing?

And what percentage of those transactions do you end up capturing for yourself?

So I don't think that it has to be fundamentally different.

I'm not looking to have a different price to earnings ratio on the long run than anybody else.

For example, let's say we wanna be a $100 billion company.

I think actually the $8 billion valuation is not really real.

There's some, within that is some probability that we're worth 80 billion and another probability that we're worth 800 and another probability that we're worth 0.

And like, you have to wait these things out and they get to 8.

You know, I'm not sure they actually did that math, but like, that's the mental model.

Our job is to dramatically improve the probability that you're worth 80 and then 800 billion.

Well, if you wanna be, just to make the math easy, if you wanna be worth $100 billion and you have a price to earnings ratio of 20, you need to make $5 billion a year in profit.

And you could be like, oh, but we're a tech company, we should have a price to earnings of 40 or something.

Like Apple's price to earnings is 30, Facebook's is

it was 20, it's probably lower right now.

You're not like that much better than these companies.

Even when you're a great company, at some point you're gonna have a price to earnings of

And a price earnings of 20 means that's a 5% return per year.

It's not like that great, unless there's growth.

So I need to be able to make $5 billion a year in free cashflow and be growing pretty fast.

Where we sit right now, it's a lot to do.

It's like, okay, what are the big buckets of businesses, investments, and things that we have to achieve to generate $5 billion in free cash flow?

Because we're not going to be valued on hype in the long term.

You're not going to be able to pull things off like that.

And I think there's, we try to ground it in reality and make sure everyone can see like, okay, here are the things that have to get done to be worth $100 billion.

And how does your work contribute to that?

So every single person in the company can know that.

Yeah, I was going to ask, even, you know, sort of going from a billion dollars valuation to 8000000000 and surviving and thriving, not merely surviving and like getting to break even, but becoming profitable with the top line growth that you've had, There must have been a transformation in the org around thinking about different initiatives, right?

Like when you're a tiny startup, you do basically 1 thing, and then now coming into this next phase, what are some of the things that are top of mind for Flexport?

Like, this is the core business, and then this is the thing that is, you know, we're investing very deeply into the next couple of years.

Yeah, I mean, number 1 is always customer experience.

Like how do we, we want to be the best way to move products anywhere in the world.

And what that means is we onboard importers and then for every importer we get, for every brand that is importing product for another country, we're getting 18 of their factories to come on board on average within the first 3 years.

And in fact, within 6 years, it goes to 36 factories.

Those importers place orders to their factories through our system and a factory becomes a user, places bookings to coordinate, okay, the cargo's ready, come and pick it up and we'll dispatch a truck, now in 112 different countries, dispatch trucks, we go and bring it to the port.

We clear it out of customs, put it on a ship, clear it into customs in the destination country, again, anywhere in the world, and then deliver it to a warehouse.

So it's that loop that you're trying to run.

So we're trying to, That doesn't change that much.

We need to do that better, more efficiently, dramatically improve the efficiency, meaning removing the number of human interactions that take place in that chain.

There's some old school companies out there that are really good at some leg of it, customs in Nairobi or something, right?

And we don't always have it fully integrated.

So if a human is there, what is that human doing?

How do we get them to be either way more efficient or remove the need for them to do anything?

And that's probably like 80% of all the effort at Flexport right now is like, how do I just run that core loop for customers in a way that's easier and cheaper and make our teams more efficient.

But there's some real venture bets that come along the way and where the strategy gets really interesting is we want to do then is upsell them to other services.

We've got a financing group that grew 10X last year, making inventory loans to the company.

Flexport Capital is a beautiful business.

We do have some tricks up our sleeve that like new things that you can offer, but that's that core transaction of global trade.

And our vision is really, look, you're a brand, you've created amazing, beautiful products.

Make something people want is the YC slogan.

So like, it's really hard to make cool, awesome products at scale that stand out that there's something actually interesting about the thing.

Number 2 is find customers for this product, make a brand, connect.

It's like supply and demand, the 2 things.

And our vision is like, basically, companies should be really good at those 2 things.

That's all they should spend their time on.

And everything in between that sort of infrastructure layer to get the goods picked up and delivered, optimize how many units to order, when to order them, where to position them, to be able to hit customer demand.

So like you want to be able to do 2 hour delivery.

Here's when to order them, where to ship them, and then finance it, ensure it, do the compliance to get them across international borders, et cetera.

We want to be able to offer all of that stuff as automatic.

My analogy here is kind of like the electrical utility.

When you flip a light switch in your house, you're actually controlling a power plant.

It's probably coal-powered in most of America, but somewhere, that power plant is actually getting a little bit hotter just for you.

It's actually generating more electricity just for you on demand.

And people kind of assume that that must be how the economy works when you buy a product, but actually no, it's like there's duct tape, phone calls, emails, Excel file attachments, PDFs, getting emailed all over the place.

And we want to make it much more like the electrical grid where like you buy something and like this whole trigger, it triggers this whole series of events to take place and make that all seamless.

It's like a really hard, ambitious, multi-decade journey that we're on, but we've made a lot of progress so far.

I mean, to me, what you're doing, sort of taking paper and pencil process and turning into structured data, it actually unlocks all of these other markets and marketplaces.

I mean, we touched on Flexport Capital very briefly, but in FinTech and FinTech startups broadly, you know, sort of the buzzword of the day is like buy now, pay later.

And you know what the best buy now, pay later is?

It's actually things like Flexport Because you have many years and in the future decades of data on like absolutely every shipper, every buyer, every seller in the world.

You're going to have way more data to do way better lending and actually lower the cost of capital and like sort of grease the wheels of international commerce, actually.

So it is, our Flexport Capital is almost like a buy now pay later button for global trade.

So like you get a couple, all you need is a couple of basis points off that and it's a massive business.

So like any lending business, you basically need to have 4 things.

Usually a good lending business has 1 of these 4.

And there are some advantage in customer acquisition.

Underwriting, so how do you decide who to lend to and who's credit worthy?

Collections, what happens when it goes wrong?

Do you have an advantage of how do you secure a collection?

Well, Flexport Capital has huge advantages in the first 3.

Costly Capital, not really, like our investors wanna make 30% per year IRR, even at this scale, we dream big together.

So, but the first 3, we already have the customer here.

They're already placing orders to their factory.

So it can literally, we haven't actually integrated into the core platform yet, but it can easily be pay later.

You know, you're placing the order, now pay and pay later are obvious things to do.

Underwriting means deciding who to lend to.

Well, if you want to clear a product across international borders, you need to be able to show US Customs what you paid for that product.

You have to pay duties on that product, so you have to show the invoice.

So if we know your wholesale price, we know your retail price just by checking your website and seeing what you're selling.

I know your growth rate, how many units are you selling?

I know, do you pay your freight forwarder on time?

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Flexport CEO Ryan Petersen on Scaling a Startup from Zero to $8B