Laura Behrens Wu - When Digital and Physical Worlds Converge - [Founder’s Field Guide, EP.5]
Invest Like the Best- 1,626 views
- 29 Oct 2020
My guest today is Laura Behrens Wu, co-founder and CEO of Shippo. Shippo started in 2014 after Laura realized with her own e-commerce start-up that shipping was an incredibly difficult task for most merchants, so she set out to fix the problem for everyone. Shippo let's merchants small and large use its dashboard or APIs to simplify the shipping and tracking process. Our conversation focuses on Laura's background prior to Shippo, how Shippo's business and business strategy have evolved, the inherent challenges of building a shipping platform, and the intersection of the physical and digital worlds. I hope you enjoy our wide-ranging conversation. This episode is brought to you by Microsoft for Startups. Microsoft for Startups is a global program dedicated to helping “enterprise-ready” B2B startups successfully scale their companies. If you’re a founder running a B2B company targeting the enterprise, you should definitely check them out. This episode is also sponsored by Vanta. Vanta has built software that makes it easier to both get and maintain your SOC 2 report, at a fraction of the normal cost. Founders Field Guide listeners can redeem a $1k off coupon at vanta.com/patrick. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes (2:57) – (First question) – The story of Popout and how it led to Shippo (7:40) – Challenge of working in a huge and crowded market (10:36) – How Shippo changed shipping for small businesses (12:30) – First big break in their favor (13:39) – Their master account with the major shipping companies (14:39) – Why is the shipping industry so complex (16:25) – Most painful part of building Shippo (18:20) – Advice for people in early company building (19:26) – Pricing software in early days (20:32) – The early days of Shippo and getting it to where it is today (23:17) – Going to market and targeting new customers when they’re mostly small businesses (25:48) – Partnering with a larger company, in their case Shopify (27:52) – How they think about their long-term planning (30:48) – Competing in a world where companies can own their own infrastructure (32:39) – How often they think about other competitive advantages (34:20) – Worst question an investor asked her: what if Amazon tries to copy them (35:17) – Her superpowers as a founder (36:41) – API vs dashboard and the difference in their customer bases (38:52) – What businesses that need shipping today need to know (40:14) – Changes in how businesses are being built today (41:28) – What excites her most about the future of this business (43:28) – Kindest thing anyone has done for her Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag
This episode of Founders' Field Guide is brought to you by Microsoft for Startups, Microsoft for Startups is a global program dedicated to helping Enterprise ready B2B startups successfully scale their companies. The program has been around for a couple of years, but I recently became intrigued when former investor like the best guest, Jeff Maas, took over Microsoft for startups, provides companies access to technology, including Azure, Cloud and GitHub, coupled with a streamlined path to selling alongside Microsoft and their global partner ecosystem.
Microsoft for Startups has a very compelling approach to working with startups and driving their long term business value. If you're a founder running a B2B company targeting the enterprise, you should definitely check them out at Startup Stop Microsoft Dotcom. To hear more about the program, stay tuned. At the end of the episode to hear from me and current program member Abnormal Security. This episode has also brought to you by Venta. Does your startup media stock to report to close big deals, or do you already have a stock to report and want to make it easier to maintain?
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Oh, hello and welcome everyone.
I'm Patrick O'Shaughnessy and this is Founders' Felgate. Founders Field Guide is a series of conversations with founders, CEOs and operators building great businesses. I believe we are all builders in our own way and this series is dedicated to stories and lessons from builders of all types. You can find more episodes at Invesco Field Guide dot com.
Patrick O'Shaughnessy is the CEO of O'Shannassy Asset Management, all opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shannassy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shannassy Asset Management may maintain positions in the securities discussed in this podcast.
My guest today is Laura Barens Woo, co-founder and CEO of Chipo Chipo started in 2014 after Laura realized with her own e-commerce startup that shipping was an incredibly difficult task for most merchants.
So she set out to fix the problem for everyone. Chipo lets merchants, small and large, use its dashboard or APIs to simplify the shipping and tracking process. Our conversation focuses on Laura's background. Prior to Chipo, how she business and business strategy have evolved, the inherent challenges of building a shipping platform and the intersection of the physical and digital worlds. I hope you enjoy our wide ranging conversation. Laura, I was thinking of an interesting entry point for this conversation, I'm always interested by how entrepreneurs come across the problem space that they then spend their careers on.
You had started a company called Pop Out prior to Chipo. I'd love to hear that story and how that experience led you to this problem that you're now building around in Chipo.
That's a path down memory lane. Have haven't thought about it for a long time. What happened was I'm originally from Germany and roughly six years ago I came to San Francisco first as a summer intern to join a Y Combinator startup called Lindop that brought me to the city. Initially working at Lindop, there were pretty serious. It was a team of roughly 20 people. We were working just day and night to make sure that we're hitting the kinds of growth numbers that serious investors would be looking for.
So it's an amazing and very energizing experience. And I think coming from a German environment where I was used to a lot more hierarchy in the workplace, it's nothing like I've ever experienced. I decided that I wanted to stay in San Francisco full time and keep working there from there. I think my next thought was given that I like the startup environment this much, maybe there is a company that I could start down the road. I started brainstorming, came up with a ton of different ideas.
I might still have that spreadsheet somewhere. The thought was really there are no bad ideas, anything that I can come up with. And truth to be told, at the end of the day, I didn't have any super disruptive ideas, so I decided to keep it simple and just get started with an e-commerce business. That's what Popat was. So I built a small e-commerce business that was never meant to be anything big. It was a side project to do on the weekends.
I was using Shopify, I was using Stripe just used all of the existing building blocks. It wasn't supposed to be venture packable or scalable is just supposed to be a tool to teach me how to run a small company and then running that small e-commerce business, I realized that all of the different e-commerce building blocks are really easy and intuitive to use to put together. I've never done e-commerce before that, but it wasn't too difficult to figure out how to set up a shop as I saw how to use Stryfe and how to start selling on the Internet.
What came as a surprise to me was that shipping was much more difficult. Early on, I first walked to the USPSTF location to the FedEx store and realized, first of all, the people working there, they're not super helpful. They're not going to give you any advice or tell you how to do things better. But then standing in line, there is a waste of time. These locations are only open between 10 and four. So these are normal working hours.
And then in addition to that, when I started looking into just the technologies that these companies provide, the interfaces were extremely clunky. And you could imagine that a FedEx API UPS for US API, they're not as easy and simple to use as a strike portfolio API because these companies, they're not tech companies. They're really good at doing the complex logistics of shipping, figuring out how to move packages across the country and across the world. But they're not good at building simple to use technology at writing API Documentation Center, developer friendly.
From there, my realization was that it is too hard. If it's hard for me, then it's probably hard for other people as well. The founder I used to work for get this kind of cheesy mantra that was build something that's a pain killer. Not if I am from there. I think putting these two things together, it is hard for a ton of people. And this is a giant pain point in e-commerce because every single e-commerce store needs to ship.
There's just no way around that at that point. Had had reconnected with a friend from college who is more technical than I am. And we decided to just jump on this opportunity and figure it out. And sometimes we joke about that still. But like at the beginning when I pitched my co-founder Simon, this idea, both of us, he asked me, is shipping something you'd be excited to get out of bed for for the next ten or fifteen years?
And I wasn't sure. He wasn't sure we weren't shipping or logistics experts beforehand, but we decided to just give it a try, built an MVP, talk to some customers and see what happens and not get paralyzed by this uncertainty from there. I think having talked to a few customers, extremely obvious. Shipping is actually more exciting than we thought, mostly because there are so many low hanging fruit, so many inefficiencies, because this is such and such an old business, and also because e commerce has advanced at such a rapid pace that the discrepancy between these two industries giant discrepancies.
That's the founding story. It's been more than five years by now getting out of bed every single day to work on shipping. I haven't regretted it.
I love this idea of entering what is obviously an enormous market. A lot of times investors will do a lot of research on market size, like pretty confident, shipping a massive market and growing like crazy.
But in the face of a market that big, I always wonder how founders approach.
What to do first? How do you decide what the first product will be so that you can stay focused and not try to solve every problem of a very old industry? So what did you start with?
So before you get to that, just double clicking on this being a giant market, I think a great piece of advice for founders is giant markets are awesome, but it's even better if this giant market is continuously expanding for us. When I looked at shipping or even today, shipping is growing like crazy because e-commerce is still in its earlier days. So it's not an industry that's going away. It's giant and the pie is continuously expanding. And I think those are really, really nice industries.
To begin to answer your question about what we decided to focus on, I think it was a little bit of a trial and error. In hindsight, everything seems like a fairly straightforward story. What you read out there, I don't know. On TechCrunch or Forbes, we started out just chatting with potential e-commerce customers, e-commerce merchants. Our initial thought was there. All of these different shipping APIs are really difficult to use. API documentation is are terrible.
You have to write in to get API access. The MVP was built a wrapper around existing APIs trying to sell that to a few e-commerce merchants. And when we approached e-commerce merchants, I think especially the mid-sized or larger ones, the first question that they asked us was how many packages are going through your API today? At the beginning, there are no packages going through API. We failed that. We weren't able to get through that question. That led us to going to a much, much smaller customers, customers who are, let's say, more desperate for a better, more efficient, cheaper, easier to use shipping technology going to much smaller customers.
So mom and pop businesses, we encountered a different challenge. Actually, the challenge with those customers was for superexcited. They wanted help. They needed help. That no idea how to do shipping, but they had no idea what an API was. We approached them with the wrong offering, then kind of putting two and two together. We decided to focus on the SMB and mom and pop businesses. First, we decided to build an easy to use user interface on top of our API to sell it to smaller businesses so they don't need to learn how to integrate.
An API started aggregating volume by aggregating a ton of Sunbus and in the meantime we that aggregated volume, we've been able to have a larger and larger customers because by now we're able to say that we actually have a lot of packages going through our API. That's how I would describe the progression of our focus at the beginning was really tiny mom and pop businesses before we started to go after larger and larger ones, and it came out of necessity, not necessarily a calculated decision.
Could you describe for those early customers sort of what the experience was like for them to ship something before Chipo and then what it was like after what the change was?
I think a lot of our earliest customers were using either the USPSTF interface directly so that USPSTF has an online interface on their website or they were going to FedEx and UPS store. So there were just walking there handing over their packages after signing them up on Chipo. What we're able to do as we're able to pull in all of the orders from whatever platform they're selling on. So Shopify, let's just take Shopify as an example. So we're pulling those orders automatically into the dashboard.
From there, we're creating shipmen for them. We show them all different shipping rates, shipping options, recommend them the cheapest, fastest, whatever preferences they have. And then with one click, they either print all the labels or label at a time and another click the postman comes to pick it up, the FedEx person comes to pick it up.
So it's literally going from this kind of manual step by step process to two clicks, print something, put it on the package. Someone comes and gets it at the right time and that's how you do everything and it's integrated with you automatically push that stuff to them when they sell something because you can see when they're selling.
That's right. That's right. And I think in the meantime, the platform has evolved quite a lot already. So I can talk about what it's like today and what we're thinking about for the future. But it really leads me back to his motto of build something that's a painkiller, not a vitamin. And I think when we approach to larger companies, they already have some sort of shipping options in place. We could do it better. They were not in such a big pain that they were willing to take a risk to try an unproven startup.
When we approached the mom and pop businesses, there's just such a giant pain point that they didn't care that we've only been around for a few months. They just wanted help to solve this problem in the early days.
If you think back, what would you describe as the first big break that you got in your favor or something that happened that created like a step change function in your business? What does that bring to mind?
It was a I mean, in hindsight, again, a very straightforward realization. But for us, it was the realization that in addition to giving our customers access to very easy and simple to use technology, they have a second challenge, which is they are. Too small to get access to any kind of shipping discounts or shipping rates, and they're also it's not just a technology that's challenging for them, it's also just going through sign up or account set up with all different shipping carriers and figuring out how to set up different accounts, what kinds of rates they qualify for, how to compare rates.
So when we started the business, we thought this would be mostly an API or dashboard. And when we went deeper into the business, we realized that through economies of scale, we can remove another pain point for our customers, which is around accounts set up with the carriers. And it gives us the additional advantage that we can aggregate volume and then give our customers access to better shipping rates before going into the business. That was not something that we were aware of.
But now this is a big part of our business model, the aggregation factor.
Say a bit more about that. So do you have one master account with each shipper via ship and then you're just letting others participate in that master account basically, so they don't even have to sign up each time?
That's right. That's right. And I think that's harder than you would think. It makes perfect sense that that's what it should be like when you sign up on a ship. You shouldn't have to get your own FedEx or your own UPS or UPS account in this industry is not a known way to do business. Before we started pushing for it, I think some carriers were more open towards this kind of set up. Other carriers were and are still more resistant.
There is a big argument to be made that this is a win win for both Chipotle customers. They don't have to go through the process anymore, but then also shipping providers who don't have to do account management or customer support. And it's easy customer acquisition channel for them.
My friend Blake and I were talking yesterday about this thesis of just backing businesses that make it easy for other entrepreneurs to run their business. And I love this idea of like a pain killer. No one's passionate about getting their packages somewhere. They're passionate about the product. And I'm curious what you think this industry, the shipping industry looks like just more holistically that makes it so complex. Like why is this such an arcane, strange read about this stuff with the Postal Service?
And it's kind of like, I don't know what's going on here. Talk to us a bit about just the complexity and the history of shipping generally.
First of all, everything in e-commerce happens online up until you need to ship. And then shipping is the convergence of online and offline or these two worlds meet and you have to find a way to make them fit. There are real life people involved in packing the boxes and figuring out what goes into which box and putting the shipping label on the box. So software needs to direct them to do all these things. And you have to take the workflow of real life people into account.
And then as a package is on its way, that's happening in the real world. And then we need to figure out how to translate what's going on in the real world, back to the Internet and relay that to the consumers and to the merchants. That's where it gets complicated. I think it's just different from payments or from text messaging. There is a real life component to this. That's where it gets messy because you don't know what's going on.
You have to find a way to figure out what's going on in the real world and bring that back to the Internet. Sometimes we have very strange messages. There can be an error message that there's a delay because the driver ran into a deer, ran over a deer. These are just very real life occurrences that will happen. And you have to figure out how to map that back to something that merchants and consumers understand.
What looking back was like the most painful period of building to get through as you navigated this complex thing. Like if you had to rebuild Chipo from the ground, what part of you would be like, oh, God, I don't want to go through that again.
I think what's making this industry really hard is that we're built on top of a bunch of other APIs that we don't really control. As we grow our business and expand into more countries, we add even more shipping APIs to the mix. And these different shipping companies, they change their API endpoints. They don't really let us know when they do that. They have compliance certification, things that come up once a year. Then we have to go through certification again.
When I say that, on the one hand, the fact that we're doing all of this and customers don't have to do all of this one by one is a big value for our customers. So I think it is already a mode or a competitive advantage if we can do this. Well, on the other hand, it is taking up a lot of engineering resources and it's tying them up to do something. Well, just put that into a bucket where customers expect this to work, but they're not going to give you extra points.
Exactly. They're not going to give you extra points for this to work, but they'll be really pissed off if it doesn't work. So all our engineers are tied up doing this kind of critical infrastructure work. We have to find carveout, engineering teams to be able to build new features, functionalities that we're actually excited about and make sure that we're able to balance both. So I think that's the hardest part and it's something that's never going to go away.
It's expensive and it's. Sometimes annoying work, I always just remind our team members that if we're doing all of this annoying work for our customers, our customers don't have to do it. That's exactly the point. Not every e-commerce business should have to go through the challenge of figuring out your end point API and point changes one by one. But we're the buffer in between.
We can make sure that we take care of that before we fast forward now to today and kind of what you're building and what's changed before we leave the kind of early aspects of Chipo. What advice, looking back, would you have for others that are about to embark on that same early company building journey?
The times I talked to founders and I can see that they're over thinking just what they want to build. And what's worked very well for me and my co-founder has said when we had an idea, we just started building and then other ideas come up. So today is nothing like what we started out with. If we remain paralyzed trying to figure out what the best idea could be, we wouldn't have found this idea. So I think there is a lot to be said about just getting into action, starting to build something, and then you'll figure it out as you go.
There is no shame around pivoting or changing your idea, but I think that all of that is better than trying to overthink it. I'm trying this thought into talking to customers as well. I think by talking to people, to customers specifically, your ideas will evolve. That's only for the better.
One of the things I'm most interested in the technology and software world is how you decide to price your services in the early days. Talk me through that process and how it's evolved over time because it just seems like pricing in software is such a difficult task.
Yeah, we're really bad at pricing. We didn't really treat it as a science. I think at the beginning, even nowadays we're looking for growth over anything else. So we're looking at pricing our product in a way that is contributing value to our software. As our merchants understand that our software is not free. We're not trying to price it too high for merchants to not want to give this a try. I'm saying this from a perspective that we're still mostly in SMB focused business.
So everything that's public out there in terms of pricing is for As and BS. However, I think the difference between us and most other businesses is that our software fees are only part of our business model. The other part is really our ability to resell discounted shipping rates. So it's this aggregation model that is more about what we're able to negotiate with the shipping providers, what kinds of rates were allowed to pass on to our customers.
So talk to me now about the evolution of products. So I think probably everyone listening can imagine this great one where it's like no longer hard. Now it's a couple of clicks and I put a thing on a package and I put it outside from there. Talk to me about how you felt your way to the next set of things to be solved.
Quite early on, we realized our customers when they were using Shuko, they held us accountable for if the FedEx API was down or the UPS or the USB API. So even though they knew that the shipping was done by different shipping providers, that was not the issue. They were well aware of using the shipping interface. They trusted our technology and were pissed off if something else was not working. And we couldn't point to, let's say, UPS or FedEx, that was not good enough of an excuse also not for us to accept.
So we started investing into making sure that even though we're making use of the different shipping providers, that we're controlling the entire technology experience, that we're able to guarantee uptime reliability, making sure that we're able to return shipping rates and shipping labels even if carrier APIs are down. So that involved a lot of work around, like storing our rates, our shipping rates, our customer shipping rates on our own servers instead of calling upstream APIs again harder than you would think in our minds at least, it was absolutely necessary.
Before we start adding more customers and especially larger customers to our platform, we invested a bunch into the infrastructure and making sure that we're ready to scale that we're selling something to larger customers that we're actually proud of. And then from there, we started thinking about expanding the platform. That is a fairly common evolution in SaaS companies. You start by just selling something very simple a shipping interface or shipping API, your payments, API, whatever that is. And then from there, you think about how else can we create value for the customers?
What else and shipping do they need? Where are the other shipping related points? So now we are in that phase of expanding the platform, adding other products or other features to our platform. And for us for shipping, specifically shipping is it touches a few things for the merchants. It can help merchants save money, but it can also help merchants grow their businesses. That's the step we're at right now. And I would call that turning from what we used to be, let's say an.
Gator, we aggregated a ton of Sunbus and we offered them a fairly simple product. All we do is give them the right shipping label and now we turn this into a platform and we have a nice mode already because we figured out how to acquire customers in a scalable way and now we can just solve more problems for them, which also translates into sell them more products.
I love that idea of aggregating the SMB demand. And you just mentioned you figured out how to acquire them. I'm always interested in SMB space where sometimes, you know, like an expensive salesperson doesn't make sense how you solve that problem. How did you go to market originally and what have you learned about that distribution side of the business, which is so important?
Some of these I mean, you said very different from enterprise clients. First of all, it's hard to figure out where they are. How do you reach someone, I don't know, knitting cat sweaters in the middle of America? How do you market to them? So we at the beginning really nicely piggybacked on a bunch of super obvious SMB aggregators. So as an example of Shopify has already aggregated hundreds of thousands of SMB, is there a great place to start?
Well, commerce has done the same, probably big commerce as well. So there are a bunch of known SMB aggregators out there that have ecosystems where you can participate and get customer referrals from. So I was our early customer acquisition strategy just piggybacking on existing SMB aggregators. Shopify was just starting to grow like crazy. So there were great customer acquisition channels. Then, of course you run into the challenge of you have to have diversified revenue sources. To be honest, once you get to that point where you can think about diversifying revenue sources, it's a luxury problem to have.
You're no longer in the bucket of there is not enough revenue. We might die tomorrow. So it's a good problem to have, but that's the next problem. And I think what works very well with SMB is as well as when you have some early customers that are really happy with your products, there's great word of mouth online merchants to have forums that they participate in or Facebook or in other channels where they recommend what they're about. Using word of mouth has been great for us.
And then at some point you realize that organic growth is just not going to cut it anymore. You've grown to a size where organic growth has taken you there, but it's not going to take you to the next level. SOCOM, let's see what else. Content content is a big one, and that ties very well into our mission as well, making shipping easy, bringing easy to read and accessible shipping content to e-commerce merchants is a reflection of that.
Now, I think it has started to scale up nicely as well. You're trying to find ways to bring demand to your website and do that in a scalable way instead of trying to find customers one by one and hit them up one by one because the contract values are just not big enough to be worth.
And this time I love the idea of in the early days being almost like a pilot fish on another bigger aggregator. Talk to me a bit about Shopify. So obviously they're sort of this huge business that has a sort of similar mission to you, enable merchants to do a better job. How did that literary work in the early days? How do you make them a partner when you're small and they're big? And how do you think about nurturing good relationships with sort of the eight hundred pound gorilla type firms that are adjacent to you and have the same sort of general interest as you?
There were two I think a lot of these larger companies. We're now starting to be in a similar position as well. At some point they realize there are a lot of features that their customers are looking for, but they just can't keep up building all these features themselves. Plus, it's not the core of their business. Might as well enable third party developers to help out and to create more value for the customer base. So that's I think Shopify has done that very well.
Salesforce is another awesome example, is creating this app store, this ecosystem for other startups, other developers to build services for their customer base. And that's what we did early on. You can do that without a lot of contacts at these companies. Anyone can submit an app. You have to go through approval process. We've been growing in those ecosystems. We started to get to know that the Shopify people. But I think early on it was a very nice merit based system.
If anyone can build to their app store. And as soon as you've done that and you start getting positive reviews, the algorithm just lists you up front. That's where word of mouth kicks in.
Yeah, it's so interesting that it's sort of a mutually beneficial relationships. Like if you're making the overall experience for their customer better, you're actually helping them grow.
Exactly. Exactly. And I think there's a lot to be said about this Shopify ecosystem, the App Store ecosystem. I think it's the most vibrant compared to all the other shopping cart builders out there. I think it is actually a big draw for merchants to figure out where they want to start building their website.
As you think about the future now, you sort of describe now where you're at today. I guess you're going deeper into the problem space that your clients have or your customers have. How do you think about the three, five, seven, 10 year type plans? Do you think that way? Do you think that's a mistake, to plan too much and just let it continue to kind of grow organically? How do you think about the future?
There are a lot of things that you can plan, so I'm not trying to figure out the exact product roadmap for the next five to 10 years. However, there are a few just underlying mechanisms of how this business works that we all need to understand in this business and then make decisions around those. And for Chicco specifically, there are a few flywheels that are just in our favor. So our goal is to make sure that we keep fueling those flywheels.
The number one flywheel is the one around shipping volume. So the more packages we ship, the better our shipping rates, our leverage become with the carriers and then we're able to offer more attractive shipping options to our customers, acquire more customers faster and get more shipping volumes. That's a really nice flywheel. And we've had by now five years of data to prove that this is a flywheel that works for Chipo. We're starting to roll this out across most shipping providers out there.
Now I'm thinking about what's the next flywheel, what else is in our business? The other one that we've been excited about for a really long time is one of our own data. And I think this is now where a few companies get easier as they scale, as they grow. With our current scale, we're taken much more seriously by the different shipping providers than we were four or five years ago. This is easier for us now. And now that we've aggregated all of that shipping data from our customers, I think we can build our product in ways that are more intelligent than we could do in the past.
What I mean by that is we can start making recommendations to our customers around which shipping provider to choose. We can share with them benchmarks and from the shipping industry that we see across the board. We can also tell them what shipping provider is seeing delays for very specific markets, for very specific service levels. So there is a lot of data driven optimization that we can start doing for our customers that we weren't able to do before. And my goal is, I think the reason why, let's say an Amazon or Walmart is significantly better at shipping compared to an SMB is of course, they have a much bigger engineering team.
And then on the other hand, they just have access to a lot more shipping data. Most SMB, they have their own data set. There's not a lot of optimization that they can do given their limited data said we want to bring those kinds of shipping best practices. The Walmart said the targets of the world. Actually, Amazon is the one that I should call out that the Amazons of the world can do bring those shipping best practices to the masses and make sure that everyone has access to them with just minimal cognitive overhead.
They shouldn't have to think about it. We're doing the thinking. We're analyzing the data. We tell them how to best chip at the most cost effective, the fastest way to be Lukie.
The Shopify founder has the classic arm, the rebels line. And you brought up Amazon, not me. So I have to ask about them. So in a world where people consumer demand, I love how you said earlier, like, you don't get credit when stuff works, but you get yelled at when stuff breaks and consumer expectations. We've just gotten greedy. We want our things and we want them. Now, I know that you're built on top of other shipping providers.
You're not literally shipping things yourselves. But how do you think about that competitive positioning where Amazon and other massive retailers can do their own infrastructure and you want to be competitive so that S&P can compete against them independently? How do you think about that problem where you're sort of out of control, like it's not really in your control, but nonetheless, it's an important thing for your business?
Yeah, it's an interesting question. I think the reason why, let's say an Amazon or a Walmart can have their own shipping infrastructure is because their pickup locations are very predictable. They know where their warehouses are. They know where to pick up from. Our customer base spread all across the country and we're working with more than, I think, fifty thousand some views right now. So there are all across the US, we can't pick up from fifty thousand different locations.
So it's actually more cost effective to have other carriers do this. I think this is where it gets interesting around. It's getting a little obscure. But if we compare this to, let's say, the airline industry in the airline industry, we have dynamic pricing. So if the plane is full or about to get full, you're paying more than if the plane is half empty. On the shipping provider's side, there is no dynamic pricing. Everyone's always paying the same for the same package.
And I think we're as we grow, instead of trying to figure out our own shipping provider, there are things we can do with the carriers to help them optimize to make sure that the right carrier is getting the right amount of packages for the capacity level that they're at.
You mentioned already one obvious competitive advantage that you're building in that original flywheel of your scale, being able to pass on more of the price advantages to your customers. And obviously that keeps spinning. So I would call that like scale economies. How often do you think about the other famous competitive advantages and. They're not you deliberately try to cultivate them in your business, you have time to sit back and do that sort of thing, or that's for investors to figure out.
I have a few investors have reminded me over the course of the years. So it's important to figure this out. And I felt this annoying when they kept reminding me. But in hindsight, I think is a good out. Not a lot of time comes up for this kind of work because day to day it's not pressing. It's not as if I have a meeting or I need to have understood all of my flywheels and I can't go into a meeting without.
Seems to be nice to have given up my daily schedule on my calendar. I have to deliberately carve out time to do that. And I think it's become not easier to do, but maybe more important to do as we've got to be a larger business. Early on it was all about survival. It's been a very deliberate shift of mindset for me and becoming aware we're not just going to die tomorrow. We're out of that phase. We will die if I don't spend time on making sure that we have our longer term strategy in place.
And it might not be an immediate death. It used to be running out of money. It's like a slow death. When someone else comes up and has a better strategy. That's been interesting. I think for founders, at least for me, this was a hard transition to make. Just getting out of fire-fighting and getting out of that mode. I still think we're a small company when in reality we're not that small of a company anymore. What is the best question that an investor ever asked you so I can tell you what the worst question is?
Let's start there. The worst question is always, what is Amazon best is it's the worst question, because you can ask this to any company. You can ask to any company out there. You could ask, what if Amazon is the best question? It's specific. Actually, I think there's always the question of what happens when our customers grow, when our customers grow and become big enough to be using a 3:00 p.m. to even have their own warehouse when our shipping discounts might not be as relevant to them anymore compared to our technology advantages.
How do we make sure that we don't have a leaky bucket with our best customers? That's a very good question, not because I have the best answer to it, because it's actually something to look out for in the future as we're going to make sure that we don't have a leaky bucket at an end.
How would you describe your own powers as a founder or business leader? And are those things that you try to focus your efforts around play to your strengths versus shore up areas where you're not as strong in terms of character?
Persistence is an underrated super power and sounds gritty and it is gritty, but I think could have given up a lot earlier. There were times in the business that weren't fun. They still come up, but they're also longer times in the business that weren't fun. And especially when starting a company, you just have to be so persistent in making sure that you get to early Proofpoint to get to people who believe in you enough to put money in. So persistence is a personal characteristic.
I really appreciate also in my team members and then what my strengths are. Again, I know more about what my weaknesses are and that I have hired for those weaknesses. I'd say a more high level than in the detail. So when I'm hiring for people, I'm looking for people who can just at this point at least take the ideas that I have and turn them into execution. On the executing side, I was fine as an individual contributor early on.
I think as the company is at the scale, there are much better executer that are able to figure out how to do this at the size of the business we're at right now. Yeah, I spent a lot of time this year hiring just people who've been there and done that.
I'm fascinated to know how you think about choosing your customer. You mentioned at the beginning you thought about building this great API and then realized that none of these assemblies knew what that was.
So we had to build them a dashboard. If you go to your site now, it appears you can choose, you can access via API or you can get a simple software dashboard to use. How do you think about doing both those things? Well, at the same time, and who is it that we've talked about the dashboard and the small customers, but who is it that uses the API?
This is the hardest question and I think operationally it is. And an insanely hard question, because what we're looking at is that roughly 80 percent of our customers, just the amount of our customers, they're using the dashboard together. They're only shipping twenty percent of our shipping volume. And then twenty percent of our customers are using the API and doing 80 percent of the volume. So really, our challenge in terms of focus the customers for using the API, they're typically very much like stripe workflows, customers.
They're tech companies. So everyone was using an API there, probably startups. They have a few WDEF resources in-house. And because of that, they're also scaling much faster. Sometimes, like we've acquired a bunch of now large enterprise or mid-sized startups started with us when they were in NYC or even before prefunding looking for a shipping API. And once you've integrated a shipping API, unless we really screw up, you're not going to rip it out again. Everyone else, they don't know what an API and some never have any in-house developers.
And it would be a friction, too much of a friction to teach them what an API is, was talking to friends the other day and I think strikes as an example. They're only selling to people who know what an API is. And then you've got a different company like Square selling to S&P as a mom and pop businesses that need an interface. And we are trying to do both at once. I think the upside here is how we've tried to minimize overhead is that our dashboard is built on top of the API is basically a client of the API.
So these are not two different products. But I think you're completely right as we're talking about prioritization day to day in our company, this is the hardest to prioritize from a product perspective.
World of shipping obviously has gotten more complicated and more international and kind of more global. If I was starting a new direct consumer brand based company, I was planning on shipping a bunch of stuff. What would you want me to know about shipping that would be surprising or interesting? What are the things that new entrants into this space as ecommerce companies maybe don't appreciate about what to expect here?
Most people, when they're getting started with an e-commerce business, they're mostly thinking about what an order. And how do I make sure that this order arrives at the consumer's doorstep? That's the part about where you print out a shipping label, put it in a box, make sure that it goes to the carrier and it's on its way. What we've been realizing over the course of the last four or five years is that shipping comes in much earlier than when a merchant actually needs to put a label on the box even before a consumer chooses to buy it.
At your store, they're looking at how much is shipping, shipping free? Is there a free shipping threshold? And consumers might not even buy with you unless they're seeing the shipping options at checkout or on the website. Most merchants think about shipping coming in after purchase. What's needed is a change in perception, like shipping comes in even before a purchase is being made. And again, this is something that's taught to us by Amazon and Amazon Prime, those kinds of skyrocketing customer expectations.
I always think founders have sort of the best view of the ground of growing businesses, especially technology businesses. What are the most interesting, like winds of change that you sense in companies or other founding teams that you're friendly with or close with in terms of what businesses are being built and how they're being built?
There is one trend that I've been investigating that I just love so much. I love farmers. I love the disruption of the supply chain. Instead of consumers buying farm products or produce in grocery stores, I'm seeing the trend of farmers becoming direct to consumer as well and just letting consumers order from their own websites while beef. I've ordered purple potatoes from Hawaii. You can order just a ton of produce on the Internet, get higher quality, get it delivered to your door, sometimes cheaper than buying it from the grocery stores.
Bypassing the grocer has been an interesting trend and farmers moving online, becoming a direct to consumer model.
We literally just got our first Misfits markets package at our house today. Really is interesting. I love that answer of more middlemen being cut out. Seems to be like that. Is the trend worth watching, less friction and steps between value and the customer? What are you most excited about for the future of kind of building this business and continuing to learn about this space? Another way of asking it is what do you not understand really well yet today that you wish you did?
We've only scratched the surface. I don't want to downplay it because we've done a lot. But up until now, we're really just offering a very simple product to our customers, which is we give them shipping labels in a straightforward fashion as we're thinking about what's next. The majority of our competitors, all of our competitors, they're making revenue by mostly this arbitrage model of the shipping discounts. How do we turn this really into much more of a software platform?
And again, not saying that we're not a software company today. We are, but how do we generate more software revenue by creating more value to our customers and creating more high margin products for our customers that were reselling shipping rates and shipping label arbitrage can always be the foundation of our platform and is an awesome foundation to have as we grow up. How do we make sure that we start building almost standalone products? When I look at strapon tullio like two companies that are very similar stripe connect stripe, really straight atlas, their fraud detection tool or portfolio has a bunch of separate product lines as well.
How do we make sure that we can make that next step in the evolution? And also I'm wondering what's up that no other shipping software company before us has been able to make that step. So maybe there is something that I don't know yet that's making this particularly hard. I'm optimistic. This is really not rocket science. How come no one else has been able to make that shift?
It's very cool to be in the position of success already so that I'm sure there's an interesting conversation or two to be had with whoever the developers are that are your biggest API users and asking them what else is a pain in your ass that we could solve for this seems like a fun challenge.
Yep, that's exactly right. My closing question for everybody is to ask you for the kindest thing that anyone's ever done for you.
One thing that comes to my mind immediately, if that is work related, which is before I came to San Francisco to Internet Lindop, I was actually looking around for quite a while by myself to see if there are any internship opportunities that I could find. I was using Angels' for that, mostly didn't get any responses at all. I was already starting to just accept that I wouldn't be able to come see San Francisco and work for a startup here by chance ran into someone at a tech conference who happened to be a wiki founder.
It was in Zurich and Europe chatted with him over coffee shared on the site that I'm trying to find an internship job in San Francisco. He just offered to forward my resume to the wiki mailing list.
He didn't know me. We only just met that email that he forwarded from me. I think it got me roughly twenty seven. The responses ended up with my internship job at Glendive. None of this could have happened if it wasn't for that really friendly foreword of the email. Yeah, a great taste of how open minded the network in San Francisco is around introductions. In Europe, it's much more tight knit. They don't want to let you in as easily.
Well, in Silicon Valley, I've repeatedly just experienced people being really kind about opening up their networks for me. Fantastic.
Well, I love the space in which you're operating. I love the idea of solving weird, sticky, hard problems for customers. I've learned a lot from our conversation. So thanks so much for your time.
Thank you. This episode was brought to you by Microsoft for startups, Microsoft for Startups is a global program dedicated to helping enterprise ready B2B startups successfully scale their companies. In our five part mini series, we were talking to Evan Riiser, CEO of Abnormal Security, about his experience with Microsoft for startups. In this week's episode with Evan, we talk about choosing to work with Microsoft for startups and his advice for B2B enterprise entrepreneurs. One of the things that always frustrates me is the term being thrown around like crazy, attached to seemingly every PowerPoint deck and pitch to say a bit about what specifically that means to you guys, I think you are actually in high security company that is deploying actual machine learning techniques to improve your product.
Say a few words on what you think about this buzzword and when it's real and when it's not. Yeah, I mean, as a tool.
Right. And you could also say sorting algorithms doesn't sound quite as sexy in the marketing to say, oh, we use great scoring algorithms. At the end of the day, like the customer doesn't really care about what technology use they care about. Or you have a great solution to my problem. When we talk to customers, we try to not talk too much about our A.I.M. machine learning, at least not at first, because they've heard all the buzzwords before and they're all meaningless.
And so what we try to do is try to show people value as quickly as possible. And so when customers are able to install a product and one click and see me results about all the attacks, we've stopped and they say, how did you guys catch this? Like, how is that possible? Then we explain, OK, well, it's actually a system under the hood. And here's the data that the system is analyzing and trying to assess in order to make this judgment internally within the first company.
But I think from a customer perspective, it's kind of noise, right? It can be very distracting. It's we found it much more effective. Here's the use case we solve. Here's the solution does try it yourself because it's so easy to evaluate when there's super surprised and impressed, then we kind of peel back a bit and explain what novel techniques we're using to to deliver those results.
The partnership aspect of all of this with Microsoft in this case specifically, but more generally, just plugging into existing ecosystems is really important for businesses like yours. Any closing thoughts on how you think about the progression of your business and how it gets distributed over the next couple of years?
Yes, I think I think increasingly I mean, there's been a huge explosion of new security startups and you might startups. Right. And there are there are some very good tools and point solutions. I think increasingly as enterprises consolidate their movement into the cloud, they're also gonna want to consolidate architectures and they're going to want to have or at least consolidate into like a single ecosystem. And so I think there's a lot of value that customers get by building on top of the ecosystem they've already have, which is which is Microsoft.
So products that integrate really nicely to the entire toolset, I think that's a differentiation between different solutions. And ultimately, customers want if we want to be enterprise ready, it means you really have to integrate into the way that enterprises do work. And I think that there's an increasingly standardized set of tools we're seeing in enterprise. The more easily the ecosystem, whether it's technically right into APIs and tools, whether it's in through procurement, where it all comes on like one bill, and whether you can discover and explore that from like the same resources, whether it's Azure Marketplace or Microsoft sales team, I think that's a that's a big difference for security buyers, which are just pummeled by cold calls and cold emails all day.
So I think that's going to be for us. We're investing as our first class way of bringing our products to Enterprise. And I suspect we'll see a lot more enterprise jobs following that in the future.
But I'm going to go from here and tell my CTO to go make sure I'm not being impersonated anywhere, hopefully, given that we're on the Azure stack as well, you use your products.
So thanks so much for your time today. It's been great to find more episodes. We're sign up for our weekly summary visit, Investor Field Guide. Dotcom, thanks for listening to Founders' Field Guide.