Laura Behrens Wu - When Digital and Physical Worlds Converge - [Founder’s Field Guide, EP.5]

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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Founders Field Guide. 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 InvestorFieldGuide.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. 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 startup that shipping was an incredibly difficult task for most merchants, so she set out to fix the problem for everyone. Shippo 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 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. So 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 PopOut prior to Shippo. I'd love to hear that story and how that experience led you to this problem that you're now building around in Shippo. That's a path down memory lane. I haven't thought about PopOut for a long time. What happened was, I'm originally from Germany. Roughly six years ago, I came to San Francisco first as a summer intern to join a Y Combinator startup called Lendeb. That brought me to the city initially. Working at Lendeb, they were pre-series A. 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 Series A 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, 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, just get started with an e-commerce business. That's what pop-out 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 backable or scalable. There's 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 Shopify store, how to use Stripe, 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 USPS location, to the FedEx store. And realize that, 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 4. So these are normal working hours. In addition to that, when I started looking into just the technologies that these companies provide, the interfaces were extremely clunky. And you can imagine that a FedEx API, a UPS or a USPS API, they're not as easy and simple to use as a Stripe or a Twilio 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 and writing API documentations that are 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, he had this kind of cheesy mantra that was build something that's a painkiller, not a vitamin. From there, I think putting these two things together, it is hard for a ton of people. 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, I 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 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 10, 15 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, build an MVP, talk to some customers and see what happens and then not get paralyzed by this uncertainty. From there, I think having talked to a few customers, It's extremely obvious. Shipping is actually more exciting than we thought, mostly because there's so many low-hanging fruits, so many inefficiencies, because this is 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 shippings from 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 I 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, like 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 be in. 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 are all these different shipping APIs. They're really difficult to use. The API documentations are terrible. You have to write in to get API access. The MVP was to build 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 were no packages going through our API. We failed that. We weren't able to get through that question. That led us to going to much, much smaller customers, customers who were, 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 they were super excited, they wanted help, they needed help, they had 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 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 that they don't need to learn how to integrate an API.

started aggregating volume by aggregating a ton of SMBs. And in the meantime, with that aggregated volume, we've been able to go after 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, it 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 Shippo and then what it was like after, what the change was? I think a lot of our earliest customers, they were using either the USPS interface directly, so the USPS has an online interface on their website, or they were going to FedEx, the UPS store. So they were just walking there, handing over their packages. After signing them up on Shippo, what we're able to do is 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 Shippo dashboard. From there, we're creating shipment 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 of the labels or a 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. When we approached the larger companies, they already had 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 pinpoint 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 setup 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 a... mostly an API or a 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 account setup 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. By 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 Shippo 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'd think. It makes perfect sense that that's what it should be like when you sign up on Shippo. You shouldn't have to get your own FedEx or your own UPS or USPS account. In this industry, there's not a known way to do business before we started pushing for it. I think some carriers were more open towards this kind of setup. Other carriers were and are still more resistant. There's a big argument to be made that this is a win-win for both Shippo customers. They don't have to go through the signup process anymore, but then also... shipping providers who don't have to do account management or customer support. And it's a 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 painkiller. 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? We 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, where 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, in 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's 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 error 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 Shippo from the ground, what part of it would you 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, and 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 prop 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, I would 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... carve out 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 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 UPS endpoint, API endpoint 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 Shippo, what advice looking back would you have for others that are about to embark on that same early company building journey? Oftentimes I talk to founders and I can see that they're overthinking just what they want to build. And what's worked very well for me and my co-founder is that when we had an idea, we just started building and then other ideas come up. Shippo 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's 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 tying 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 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 and 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 attributing value to our software. 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 an SMB-focused business. So everything that's public out there in terms of pricing is for SMBs. 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 we're 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 V1 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 that Our customers, when they were using Shippo, they held us accountable for if the FedEx API was down or the UPS or the USPS API. So even though they knew that the shipping was done by different shipping providers, that was not the issue. They were well aware. By using the Shippo interface, they trusted our technology and wanted...

were pissed off if something else was not working. And we couldn't point to, let's say, USPS 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 storing our rates, our shipping rates, our customer shipping rates on our own servers instead of calling upstream APIs. Again, harder than you'd think. In our minds, at least, it was absolutely necessary before we started 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, a shipping API, a payments API, whatever that is. And then from there, you think about... How else can we create value for the customers? What else in shipping do they need? Where are the other shipping-related pain 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 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 aggregator, we aggregated a ton of SMBs 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? SMBs, I mean, yeah, they 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, Shopify has already aggregated hundreds of thousands of SMBs. They're a great place to start. WooCommerce has done the same. Probably BigCommerce as well. So there are a bunch of known SMB aggregators out there that have ecosystems where you can participate in. get customer referrals from. So that was our early customer acquisition strategy, just piggybacking on existing SMB aggregators. Shopify was just starting to grow like crazy. So there were a great customer acquisition channel. 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's 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 SMBs as well is when you have some early customers that are really happy with your products, there's great word of mouth. Online merchants, they have forums that they participate in or Facebook or on other channels where they recommend what they're already using. So 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. SEO, SEM, let's see what else. Content, content is a big one. And that ties very well into our mission as well of making shipping easy, bringing easy to read and accessible shipping content to e-commerce merchants is a reflection of that. Now, I think paid has started to scale up nicely as well. You're trying to find ways to

bringing 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 an AE's 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 there's sort of this huge business that has... a sort of similar mission to you, enable merchants to do a better job. How did that literally 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 800 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 were 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. Just 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 the Shopify people. But I think early on, it was a very nice merit-based system of 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 relationship. 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 Shippo 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. So 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 Shippo. 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 the one around data. And I think this is now where a few companies, they 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 from the shipping industry that we see across the board. We can also tell them what shipping provider is seeing delays for very specific routes, 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 beforehand. 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 SMBs have their own data set. There's not a lot of optimization that they can do given their limited data set. We want to bring those kinds of shipping best practices, the Walmarts and 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 ship at the most cost effective, the fastest way. Toby Lutke, the Shopify founder, has the classic arm the rebels line. And you brought up Amazon, not me. So I have to ask about them. 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 sort of do their own infrastructure and you want to be competitive so that SMBs 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 is spread all across the country. And we're working with more than, I think, 50,000 SMBs right now. So they're all across the U.S. We can't pick up from 50,000 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 side, there is no dynamic pricing.

Everyone's always paying the same for the same package. And I think 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 whether or 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 that it's important to figure this out. And like, I found this annoying when they kept reminding me, but in hindsight, I think is a good call 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 where I need to have understood all of my flywheels and I can't go into this meeting without that. Seems to be nice to have given 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. I'm 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 firefighting 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. Okay, let's start there. The worst question is always, what if Amazon does this? It's the worst question because you can ask this to any company. You could ask it to any company out there. You could ask what if Amazon does this. The best question.

It's Shippo-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 3PL, 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 growing to make sure that we don't have a leaky bucket at end. How would you describe your own superpowers 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? I think in terms of character, persistence is an underrated superpower. And it 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 there are 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 proof points, you 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 then have hired for those weaknesses. I'd say I'm 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 this scale, there are much better executors 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 SMBs knew what that was.

So you 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 an insanely hard question. Because what we're looking at is that roughly 80% of our customers, just the amount of our customers, they're using the dashboard. Together, they're only shipping 20% of our shipping volume. And then 20% of our customers are using the API, doing 80% of the volume. So really a hard challenge in terms of focus. The customers who are using the API. They're typically very much like Stripe Portfolios customers. They're tech companies. So everyone who's using an API, they're probably startups. They have a few dev resources in-house. And because of that, they're also scaling much faster. Sometimes we've acquired a bunch of now large enterprise or mid-sized startups. It started with us when they were in YC or even before. pre-funding 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 is they'll never have any in-house developers and it would be a friction too much of a friction to teach them what an api is i was talking to friends the other day and i think Stripe, 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 SMBs and 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 depth perspective. World of shipping obviously has gotten more complicated and more international and kind of more global. If I was starting a new direct to 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 like surprising or interesting? What are the things that new entrants into this space as e-commerce 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 when an order comes in, 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 at your store, they're looking at how much is shipping, is shipping free, is there a free shipping threshold? And consumers might not even buy with you unless they're seeing the right 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 consumers as well and just letting consumers order from their own websites. Waigu 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 store. 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. It 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 we're 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 Stripe and Twilio, like two companies that are very similar, Stripe Connect, Stripe Relay, Stripe Atlas, their fraud detection tool, or Twilio 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. If 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. Asking them, what else is a pain in your ass that we can solve for? It 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 that is work-related, which is before I came to San Francisco to intern at LendUp.

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 AngelList 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 YC founder. It was in Zurich, in 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 YC mailing list. He didn't know me. We only just met. That email that he forwarded for me, I think it got me roughly 27 responses, ended up with my internship job at Lendev. None of this could have happened if it wasn't for that. really friendly forward 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. While 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, Laura, 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 miniseries, we are talking to Evan Reiser, 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 AI being thrown around like crazy and attached to seemingly every PowerPoint deck and pitch. Just say a bit about what specifically that means to you guys. I think you are actually an AI 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, ultimately, AI is a tool, right? And you could also say sorting algorithms. It doesn't sound quite as sexy in the marketing. Say, oh, we use great sorting algorithms. At the end of the day, the customer doesn't really care about what technology you use. They care about, are you creating a great solution to my problem? When we talk to customers, we try to not talk too much about our AI and machine learning, at least not at first, because they've heard all the buzzwords before and they're all meaningless. Instead, what we try to do is we try to show people value as quickly as possible. And so when customers are able to install a product in one click and see immediate 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, okay, well, it's actually an AI system under the hood. And here's some of the data that the system is analyzing and trying to assess in order to make this judgment. Internally, we're an AI first company, but I think from a customer perspective, it's kind of noise, right? It can be very distracting. We found it much more effective. Here's the use case we solve. Here's what the solution does. Try it yourself because it's so easy to evaluate. When they're super surprised and impressed, then we kind of peel back the onion a bit and explain what novel AI techniques we're using 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? Yeah, so I think increasingly, I mean, there's been a huge explosion of new security startups, new IT startups, right? And there are some very good tools and point solutions. I think increasingly as enterprises consolidate their movement into the cloud, they're also going to 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 had, which is Microsoft. So products that integrate really nicely to the entire tool set, like that's a differentiation between different solutions. And ultimately customers want...

If you really want to be enterprise ready, it means you really have to integrate into the way the enterprises do work. And I think that there's an increasingly standardized set of tools we're seeing in the enterprise. The more easy you plug in an 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 like discover and explore that from like the same resources, whether it's Azure Marketplace or Microsoft sales team. I think that's a big difference for... IT and 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 the enterprise. And I suspect we'll see a lot more enterprise startups following that in the future. Well, Evan, 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, use your product. So thanks so much for your time today. It's been great. To find more episodes or sign up for our weekly summary, visit InvestorFieldGuide.com. Thanks for listening to Founders Field Guide.