The Exchanges

Q Actually, walk me through that. Why does he love inventory?

A Well, because everyone else hates it. I think it was a contrarian element to it. Everybody went to business school and learned that extras inventory is, uh, evil and carries working capital costs, et cetera. But he's in his business, which is airline, airport, airplane parts, aviation, aviation parts, uh, having excess inventory means you can provide the part on demand, any part, and you have it. No one else does. So people are willing to pay a real premium if you're, especially in aviation. If your line is down or your plane's not flying, we have a whole branch of logistics called Air, Aircraft on Ground Logistics, AOG, Aircraft on Ground. People will pay any price. I once, um, Fluent. This is not what Flexport does, but I know this guy's a billionaire and his plane, his G-Six-Fifty Goldstream, uh, private jet broke down in Antarctica or, uh, in Southern Chile, like right next to Antarctica. Somebody crashed, uh, like a tractor into the wing and he called me. He's like, can you get me a, I need this, I have the wing. I need to fly it to Chile. I will pay any price. Like, and then connecting with this guy, he 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, uh, for that type of customer.

AI assessment note: “having excess inventory means you can provide the part on demand, any part”

Q So let's go back to Y Combinator. In your, you're there with your brother. In your, you apply, you get in. Uh, at that point you have the idea for Flexport?

A No, we'd already gotten licensed. Um, and that was the thing, like we had the idea of a debate between me and my brother and our other partner who had the idea for Flexport. We all claim it. Uh, but first email that I can find like discussing this was like in 2008 or nine. But it took a long time to get licensed by Customs of Border Protection. Had to go through an FBI background check. Had to do a whole bunch of, yeah, it just takes years. Um, so it was when we got the license from CBP that I left, stepped down, and started Flexport, and that was about six months before YC started. I forgot the timeline of the application, but about six months before. So we had, we didn't, like, we had maybe one customer. We really didn't have any customers, but we had a V-One of the software app, Had the license, like, had a bit of a strategy for what we were gonna go do.

AI assessment note: “No, we'd already gotten licensed... started Flexport, and that was about six months before YC”

Q What happened when you told PG you were stepping down?

A 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, um, he asked me why he did it, why I stepped down, and I said, well, I thought, I think Dave's going to be better at the job than I am. That was 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. I 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. Um, and Paul had this amazing line. He said, uh, that's like saying this other guy would be a better husband for your wife. Might be true, but like, don't act on it. Like, this is your company. You need to stay in there. I thought that was funny. Super hilarious. And he then told me, okay, if he's better than you at these things. And he asked me, is this your life work? I heard you say that earlier. Is this your life's work? Is Flexport your life's work? And I was like, yeah, it is. And 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 fig…

AI assessment note: “He was pissed because he thought I should go be a partner at Y Combinator”

Q Did you always know you wanted to do your own thing or?

A No. My brother was much more of an entrepreneur than me. Maybe still is. And when I graduated, I went to UC Berkeley when I graduated from college, I could, 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 cause 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 a job in microfinance or government or something. And no one, no one was hiring. I got it. 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.

AI assessment note: “No. My brother was much more of an entrepreneur than me.”

Q Is that because people want to deal with one, one interaction from a freight forwarding and customs brokerage point of view?

A Exactly. And so like when, 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, uh, because we've built our brand and our reputation and our technology systems to actually, we can say, hey, we're the best. If you want to separate your customs from freight, and there 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.

AI assessment note: “Exactly. And so like when, whenever we talk to real companies”

Q Has that helped you in other ways? Not from a business point of view, but like learning. And being more responsive to customers.

A I mean, it really helped us during those few years of COVID when there's tight capacity, we can serve people and no one else could. It really an education about asset ownership in logistics in, in that it kind of turns you against your customers in some ways that can be unhealthy. You have to really overcome that inner, that because, um, 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. Yeah. 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, alright, 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.

AI assessment note: “It really an education about asset ownership in logistics in, in that it kind of”

Q 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?

A Yeah, well, the good strategies, let's not talk about the illegal ones anymore, I mean, but be careful, make sure you're getting good advice, um, is have that database, know all the subcomponents, there's a few things like valuation, you can, there's a thing called first sale, I won't bore you all with the technicalities of it, but there's, it's called first sale, which basically says that you pay, um, the value of the goods based on the first time it was sold. 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 and 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, uh, you can deduct the portion that's U.S. made. But you have to, you don't just get to automatically do that. You have to like file all the right paperwork and stuff. And then importantly, if you import something, you pay duties, and then you later export a product with the same classification, you're owed a refund on the first pass.

AI assessment note: “there's a thing called first sale... you can deduct the portion that's U.S. made”

Q 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.

A 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? He's not, you know, and that's like for a seed investor, the obviously correct way, because the losers don't matter. All that matters is you get the power of all winners that do a 100,000 X 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, um, 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 bad 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 going, I don't want to sit there and paint, like, let me just watch Picasso paint, you know? Um, so I sat next to him for 12…

AI assessment note: “He only looks at what could go right. And like how big and awesome”

Q Because you could find out who's manufacturing the products?

A Yeah, you could look up any product type and see who the factories are, look up any importers, see who their factories are, etc. So we built, um, a search engine for that data called importgenius.com. Still a great business, so we still own it. So we started that business, sell subscriptions, and that, that was like, Again, bootstrap, not Silicon Valley. We started in Arizona, uh, where the motorcycle business was, but we very much like got into tech, like it was a SaaS business. I was started following, like trying to learn about SaaS. I wish we knew more the blogging and podcast world. You can learn so much more about, uh, AI, whatever you can learn so much more now than you could back. 15 years ago, how to run a SaaS business. Um, but. That got, that, that's what really got us into the tech scene. We were still outsiders for sure. Uh, and then both my brother and I both started new companies. 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 l…

AI assessment note: “Yeah, you could look up any product type and see who the factories are”

Q 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?

A I wish I could, I wish it was recorded. He went on a rant like four out of 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'm already, um, 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 in 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've, I've talked to four or 50 people every day on Slack or text or phone, um, 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, um, ultimately I try to solve problems together with my exec. So, you know, and if people have a problem thus far, they haven't. But if somebody 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.

AI assessment note: “A lot of it is like, yeah, just be way more involved in the day-to-day”

Q Which is interesting, because later on you get warehouses, but we'll get to this. Uh, and Okay. So fast forward a couple of years and you're looking for a COO. What was the thought behind that?

A Yeah, so COVID, it did some interesting things for us. It made us kind of famous in part because of the hospital stuff and some other things that we did during that time when, when supply chains got dislocated. Um, but it, uh, so it helped the business and the profile of the business. It financially was, we turned profitable, but it really exposed some flaws in our operations. And we were, we were remote for way too long, um, work from home, which just doesn't work in our industry, maybe in any industry, but certainly not in logistics. You need to be like, In person, collaborating, partnering on the, with the assets, et cetera. Um, really exposed some flaws. Like when you, we would just prior to COVID just send a truck to the port, pick up the container.

AI assessment note: “it financially was, we turned profitable, but it really exposed some flaws in our operations.”

Q And you went to live in China. What was that like?

A 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. Uh, so I moved there, kept my work basically of like doing supply chain logistics, e-com, uh, Development, web development, uh, customer services, jack of all trades for the startup that we had. Um, and then also just like studied Chinese for three hours every day for a few years while I lived in China.

AI assessment note: “kept my work basically of like doing supply chain logistics... studied Chinese for three hours”

Q Why do they matter in the context of, like, the global politics?

A Obviously it increased the cost for companies that are sourcing goods and we've become so globalized. Our economy is just like the 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, um, 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 introducing massive changes on short notice to the tariffs has caused Borderline chaos. Certainly a lot of disorder in global supply chains, which ultimately affects all the stuff that we buy. Most, it's not true that America doesn't make anything anymore, but like a lot of the kind of consumer goods that are all made over, a lot of them are made overseas, obviously.

AI assessment note: “introducing massive changes on short notice to the tariffs has caused Borderline chaos”

Q You're dealing with multiple parties, different interfaces to each party. Cause you're trying to computerize things at this point. And I don't imagine there's API. Like, how does that even work? Right.

A There's, there were no APIs, still very few APIs. Um, 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, mold the vendors. Um, but yeah, we opened up a can of worms. Like we got unlimited demand, but like problems much harder and hard to keep up. And as I say, it's been like this race to like build the capabilities, tech people, geographic footprint infrastructure around the world to match the demand. Um, but we went from, I forget the metrics at the moment of the first soft bank investment, but, um, One Point Inc. Magazine rated Flexport the second fastest growing company in the world. They did this in the Inc. 5000. We were in, we were second place, but the first place company was started before us and was smaller than us.

AI assessment note: “There's, there were no APIs... a lot of manual work, a lot of”