Creating a fast-growing startup in the traditionally inertial industry

Logistics and shipping are perhaps one of the most goliath-like markets for launching a startup.

It is one of the largest and oldest industries in the world with an annual turnover of about 9 trillion dollars. But it remains surprisingly far from high technology and difficult to manage for many companies.
Flexport is a startup that, using new technologies, intends to change the situation in order to make freight forwarding simple and effective. The company has been operating quite successfully so far: Flexport currently has more than 100 employees, and the company's income since its foundation in November 2013 has grown at a rate of about 25% every month.


Founder of Flexport Ryan Petersen

The Macro discussed with the founder and CEO of Flexport Ryan Petersen how start-ups in highly regulated industries can succeed at an early stage, bringing together products from the virtual and real world.
Below is a portion of his understanding of the situation.

Start small.

“When Flexport began, I didn’t even have thoughts about waving at all this 9 trillionth industry.” I did not have a business plan in which this would have been written from the very beginning. I just knew the problem I faced when I was engaged in a small export / import business. And I thought, "The programs could help here." I saw what the problem was, and I knew that I could sell its solution.
')
“I just knew the problem I was facing myself.”

Now we know that our clients are not only small businesses - even large companies have similar problems. Therefore, we are increasingly selling such companies and adjust our products to them.

Complex systems are evolving. They are not built carefully. If we from the very beginning tried to build this super-complex system that would work with both small and large companies, then we probably would not have advanced far. We had a classic “minimally viable product” approach, starting with a small business, from what we knew well and working our way. "

Choose investors carefully and explain them well.

“Many investors in Silicon Valley, by default, rely on exceptionally high returns, such as those they have seen in pure software companies. Non-software companies do not have such profits. Therefore, at Flexport, we ourselves choose those investors who accept this - those who realize that we are a mixture of software developer and non-software companies. ”

"We are going to do a serious thing - a product for the real, not the virtual world."

We met people who were really amazed, getting acquainted with what we were doing. They said: “Wait, but this is not a software business! The profits are too low! ”And we answered:“ Look at the cash flows. ”Many venture capitalists are used to seeing 90 percent profit with a million dollars in turnover. But considering non-software industries, one can see 10 percent profits, but on the back of a billion dollars. So this is just a different mindset.

We really had to focus on teaching investors how to run a business. Here we are talking, in particular, about not listening to every investor's advice from the very beginning. You need to know your business well enough and be confident in your knowledge. You have to properly evaluate yourself in order to have the firmness to say: “We are going to do a serious business - a product for the real, not virtual world, and this means that we are not going to be the“ baking cookie pattern ”that the software investors are used to. “Not everyone is willing to understand or accept this. But if you understand economics well, then you can build a serious company.

Structure is critical.

“It is necessary to carefully evaluate the work of your company from an organizational point of view. It is necessary, indeed, to set some organizational structure. It is required to invest in the company's culture and provide people with clear channels of information. An organizational scheme is needed that people understand and that is consistent with what you are trying to implement through your business. ”

“I even think I couldn’t do it myself again.”

“The problem for all startups in the early stages is to find a product-market match. But when this problem is solved, you begin, in fact, to grow very quickly. Then the existing organizational chart suddenly becomes a drag. Things that you are used to doing on an episodic basis will begin to fail. This could be tolerated for a long time in certain types of companies, but in our industry this is unacceptable. ”

The balance of old and new in the inner life, the culture of the company.

At Flexport, we have people who have come from various start-ups and Silicon Valley, have worked together with people who have worked in freight logistics for many years. These two "cultures" differ, of course, significantly. I think that the secret of our company's success is to bring together both of these groups, which under normal conditions would never have met each other, as well as being friends and helping to solve each other’s problems.

We have 7 licenses from government agencies that are quite difficult to obtain, but I would say that the real barrier to entry for anyone who would try to compete with us is to be culturally appropriate. How to gather software developers and logisticians under the same roof, so that they work in the same team? I am happy that I did it. I am quite sure that I could tell someone everything that we did, but the listeners could not repeat it themselves. I even think I could not do it myself again.

"The founders are, for the most part, very unimportant managers."

“Most of our success has been achieved thanks to the belief in people: we delegated authority, not controlled every step. We must give people the opportunity to make their own decisions and create a culture of independent work.

We do our best to recruit people who are receptive to new ideas. Our business is very dynamic - we update our application 5 times a day. This means that we need people with knowledge of freight, but they must have a proper mindset. And specialists from the world of information technology startups should respect professionals with experience in the real industry. ”

Ask for help.

“The implementation of this step in the formalization of a business is, indeed, difficult for a person who has established a company for the first time. The founders, for the most part, are very unimportant managers. Appropriate skill is not easy. I would advise you to hire strong specialists who will compensate for your weaknesses. You need to learn how to do business. ”

“I would advise any founder to invest in training.”

This was the case when my foundation was useful in a single person. When business develops, you get to the “product-market” compliance debugging stage and it’s time to hire a higher management team to help improve the structure, then my position for making an informed decision is much better. You can hire people who can become effective equity partners in the business. I was able to attract very experienced high-level people to the team.

I also hired a responsible consulting instructor, and this was of great benefit. If I had to start over, I would have done it before. The training was extremely useful. It is difficult to organize, and it is quite expensive, but its benefits are immense. Being a founder, managing a fast-growing startup, you have to do a lot of things that you have never done before. When entering the product-market conformity debugging stage, I would advise any founder to invest in training to help prepare for what lies ahead.

Observe the regulations, whatever the cost.

“From the first day we strictly observed all legal norms. We took all this very seriously, because there is the greatest risk for our business. ”

Customs and freight control authorities are on the front line of the fight against drugs and terrorism. Therefore, the regulatory bodies we work with differ from such structures in other industries. Their employees carry weapons. If you break something, do not expect to politely knock on your door. To you will rush through the window. If we somehow suddenly miss the loading of, say, lithium batteries onto a passenger plane and something happens, then the penalty is not about us. Our business will be closed, and someone - most likely, I - will go to jail.

“This should be taken much more seriously than in a regular start-up company.”

The priority of complying with all legal norms means that we had to limit our growth from time to time. 99% of our customers, when they register, fall into our waiting list. We cannot immediately accept all companies that would like to register. We must be sure that our resources will allow us to comply with all legal norms at every technological stage.

Must be immaculate in checklists and management forecasts. This means that we need to slow down our employees when they make a deal. This means that we need to send specialists to work on something boring for them, but connected with the observance of legal norms, instead of some amazing, well, just a wonderful function that they crave to build into the program. I began to pay for the work of a legal adviser in customs matters before paying for any of the other employees of the company. This should be taken much more seriously than in a normal start-up company, and inculcate such an attitude at every level.