Blog
Ivan Hofmann taught me to build the road, not the people. He learned this first hand when he worked for a trucking company that built the people, and subsequently went out of business when those people left. He then worked for a company that built the road, having everyone document how they did everything in a day. This left everyone free to grow into higher positions without getting caught up training new employees to do their old job. And it freed them to go on vacations, without constant calls asking how to do stuff, and where stuff is. And it protected the business from the occasional employee that ran off. That company still exists decades later, and it set the stage for him go on to co-found what became Fedex Ground. Fedex is one of the best examples of a business that built the road. They offer consistent, high quality service, entirely independent of the person.
Back when Shipwire was a two person company, we were already documenting everything we thought and did, excessively, in JotSpot, the predecessor to Google Docs. I remember when Google acquired the company. We were so worried about all that content not getting migrated over properly.
I also remember what happened when we did NOT build the road. One of our early warehouses built the people instead. There was one guy who knew where all our stuff was, and how we wanted each SKU picked, packed and shipped. Then one day he probably got in a fight with the owner about compensation or some such, and picked up and left. No one else knew the workflow associated with our inventory. Things went downhill fast, and we quickly fired that warehouse.
Then later when I hired a VP of Sales, I told him his primary mission was to build a sales operation that was completely automated and required no people. And that I understood my ask was impossible…in the short term. So he was free to build out his organization as he saw fit in the short term, and draw out his KPIs, but then I wanted to see him incrementally move closer and closer to a zero person organization with better and better KPIs.
In other words, I wanted him to hire a few really good salespeople, then document document document their workflow, and then document it some more. And then test out the documentation by hiring less qualified salespeople, and see if they could achieve the same KPIs, and if not, identify why, and update the documentation to fix the issues, and rinse, repeat. Slowly, his documentation, and templates, and supporting software, got good enough, and refined enough, that when we got acquired we had recent college grads from Enterprise Rent-A-Car onboarding customers very similar to the ones our acquirer’s sales reps were onboarding, only for 1/10 the cost. Yes 1/10 the cost. Building the road worked, at least for the medium term. In the long term, I am hoping to see autonomous workflow automation, with zero people.
I love cloud-based workflow automation. We massively integrated Shipwire’s main application with Salesforce, and became one of Marketo’s first and flagship customers. Marketo is, for me, a reinvention of marketing, where software engineers run the show. It’s cloud based workflow automation where the software sees someone on our website, calculates how many people from their organization are visiting the website and in what frequency, and then sees that this visitor visited the pricing page, hence this person’s contact info should jump to the top of the queue for an outbound call offering a free trial.
Every industry, every company, every department, every government office, needs workflow automation. And the cloud is proving the best model for rapidly iterating and delivering workflow automation on demand.
What do you see in your world that need workflow automation? Where do you see people doing the same thing over and over again? Where do you see people building people, rather than building the road? Please visit my office hours and continue this conversation.
The Internet enables small businesses to emulate the bulk buying and online retail of large businesses, but they need global logistical support. That’s why I founded Shipwire in 2006. In my eyes, there are basically two versions of such a network: Fulfillment By Amazon’s walled garden (think iPhone), and Shipwire’s agnostic open platform (think Android). There have been a lot of upstarts as of late vertically integrating (think iPhone) at small scale, trying to compete with Fulfillment By Amazon, but I believe they will inevitably find those smaller customers to be unprofitable at large scale on a total net cost basis, and struggle with moving upstream to larger customers who will prefer an open platform.
Now in June 2019, Shopify announced the Shopify Fulfillment Network, and in September 2019 announced the acquisition of 6 Rivers warehouse robots. It will be interesting to see how Shopify threads the open vs closed (iPhone vs Android) needle. They clearly want all their customers to stay in the Shopify garden, but they lack the scale of an Amazon. And while I respect the acquisition of 6 Rivers as a good use of highly valued stock, it’s not earth shattering from a cost reduction or service level standpoint. In other words, the Shopify Fulfillment Network is “sticky,” and will likely work very decently to lock customers onto the platform, but I’m seeing more of an incremental revenue play that builds on their expansion into payments, rather than a full-blown logistics powerhouse.
Now I do believe there is immense U.S. growth opportunity for ecommerce logistics, as online continues eating into offline retail. However I’m more excited by the non-U.S. growth opportunity, where Amazon doesn’t have a toehold. For example, Home Depot, one of the largest retailers in the world, has almost zero footprint in Latin America, and I’m sure the lack of seamless logistics infrastructure across the continent is a reason.
Where do you see opportunities to export eCommerce logistics? Please visit my office hours and continue this conversation.
Kiva Robots, bought by Amazon in 2012 for $775M…
6 River Robots bought by Shopify in 2019 for $450M, with $30M in expected revenue in 2020…
A smart buy for Shopify, but the technology is an expensive babysitter for a picker. You don’t get the same storage density that you do with Kiva robots, and you really aren’t reducing your work force if you have to have a picker with each robot.
Long term, pairing 6 River robots with a robotic picking arm like Nimble AI will be a game changer for a lot of facilities. A warehouse can get rid of most of its pickers, and have the robots work in a facility that is laid out to support both people and robots at the same time.
(Nimble AI is a robotics company founded out of the artificial intelligence labs at Stanford and Carnegie Mellon.)
Next up: reducing the cost and footprint of this warehouse automation, so it can be exported to other countries. Where do you see non-US opportunities for logistics robots? Please visit my office hours and continue this conversation.
I’m not a big fan of the freight brokerage startups Flexport, Transfix, etc. It’s a seductive space, because top line revenue can grow quickly, but the bottom line can be very challenging. At Shipwire, I would describe logistics as getting stuff into a warehouse, storing it inside the warehouse, and then shipping it onto a customer. And Shipwire only dealt with the latter two. Getting stuff into a warehouse was left to freight brokers.
Over time we grew to like FreightQuote as a partner. I watched CEO Tim Barton build FreightQuote slowly but surely, from its founding in 1999, to its sale to CH Robinson in 2015. Here’s a quote from CH Robinson’s acquisition announcement:
Freightquote’s calendar 2014 gross revenues are projected to be approximately $623 million, net revenues are projected to be approximately $124 million and adjusted EBITDA is projected to be approximately $34 million.
So CH Robinson bought FreightQuote for $365 million in cash. Or 0.6x gross revenues, 3x net revenues, and 11x EBITDA.
For perspective, Shopify announced the acquisition of 6Rivers warehouse robots in September 2019 for $450M, which they expect to achieve $30M revenue in 2020. That’s 15x revenue, for a company that is 4 years old with no EBITDA. Not a fair comparison, but it goes to show that Tim stuck it out for 16 years, investing his own money alongside venture money, and as an exceptional entrepreneur he made it work.
Compare that to Transfix who has raised almost $80M, and Flexport who raised almost $300M, and recently topped it off with an additional $1B from Softbank. If they weren’t raising so much money, how different would they look from FreightQuote?
And by raising that much money, how different are they from WeWork?
I’m reminded of the financial ratio Raise On Revenue, which highlights how much a company pays for each dollar of revenue. If the Owler estimate of revenue is correct, then Flexport is running at $225M in revenue. Ignoring the new Softbank money, that means they’ve paid more than a dollar for every dollar of revenue.
Shopify has shown this to be a viable way to grow a business. So the model can work. However absent this obscene level of investment, freight is a tough slog. Time will tell whether Flexport grows into a Shopify or a WeWork. I’m rooting for Flexport from the sidelines, but am more excited by higher bottom line businesses.
Do you see an opportunity to build a more profitable freight brokerage platform outside the US? Please visit my office hours and continue this conversation.
These guys are very “fundable.” They’re “A” players that have an attention to detail and proven ability to get stuff done, and they aren’t turned off by the mundane side of building products. But this is little more than a class project. Let’s dive into the three problems they’re really trying to solve:
- The cost of packaging as a percentage of total selling price ranges from 1% to 40%, and the average cost of packaging is $1 for every $11 spent.
- There are three types of packaging: the primary can, bottle or carton, the secondary decorated carton, and the tertiary pallet of shrink-wrapped boxes. All of these have an associated labor cost that is buried in the manufacturing and picking line items.
- The U.S. Environmental Protection Agency warns that the largest segment of municipal solid waste is the Container/Packaging component. Containers and packaging are the dominant materials in the waste stream.
Now your first thought may be that you don’t really see much innovation in packaging since before eCommerce took off.
Well, ninety percent of the packaging market is within the food and drink industry. Take a look at this breathtaking cola can video, while thinking through how elegantly cola packaging navigates the three problems listed above:
So the challenge from all this is to first create zero footprint packaging for a specific product in a particular local geography. The packaging needs to contain the product, inform the customer about the product, protect against tampering, theft, breakage and spoilage, be easy to transport, and be attractive for display. Then we can consider if this packaging can be scaled up to other products and geographies.
Remember the rule of 10s. Your packaging innovation needs to be 1/10 the cost, 1/10 the labor, and 1/10 the waste of existing solutions.
If this all wets your whistle, then I suggest taking a look at our source documents below, and let’s engage in conversation about ways to export U.S. packaging innovations to other countries. Please visit my office hours and continue this conversation.
Bibliography
- https://ufdcimages.uflib.ufl.edu/IR/00/00/15/25/00001/AE20700.pdf
- https://www.amazon.com/Future-Packaging-Linear-Circular/dp/1523095504
- https://opexsociety.org/body-of-knowledge/unpacking-packaging-costs/