Introduction

Patrick: [00:02:22] My guest today is Laura Behrens Wu, co-founder and CEO of Shippo. Shippo started in 2014 after Laura realized with her own eCommerce start-up 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.

How Shippo Started

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 the 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.

Laura: [00:03:15] That's a path down memory lane. I haven't thought about Popout for a long time. What happened was, so I'm originally from Germany. Roughly six years ago, I came to San Francisco first as a summer intern to join a Y Combinator start-up called LendUp. That brought me to the city initially.

Working at LendUp, 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 were hitting the kinds of growth numbers that Series A investors would be looking for. So it was 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 was 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 stop was, given that I like the start-up 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 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 ecommerce business. That's what Popout was. So I built a small ecommerce 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 the existing building blocks. It wasn't supposed to be venture-backable or scalable. It was just supposed to be a tool to teach me how to run a small company.

I had never done ecommerce 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.

And then running that small ecommerce business, I realized that all of the different ecommerce building blocks were really easy and intuitive to use, to put together. I had never done ecommerce 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 realized 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 10:00 and 16:00, 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 can imagine that in FedEx API, UPS or USPS API, they are not as easy and simple to use as a Stripe 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, writing API documentations that are developer-friendly. From there, my realization was that it is too hard. If it is hard for me then it's probably hard for other people as well.

The founder I used to work for 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 ecommerce because every single ecommerce 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 logistics experts beforehand but we decided to just give it a try, build 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 it was extremely obvious. Shipping is actually more exciting than we thought mostly because there is so much low-hanging fruit, so many inefficiencies because this is such an old business, and also because ecommerce has advanced at such a rapid pace that the discrepancy between these two industries is giant.

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.

Patrick: [00:07:40] 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, I’m pretty confident shipping is 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 the very old industry? So what did you start with?

Laura: [00:08:07] 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, shipping is growing like crazy because ecommerce is still in its earlier days. So it's not an industry that is 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 with just chatting with potential ecommerce customers, ecommerce merchants. Our initial thought was that there are all these different shipping APIs that are 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 ecommerce merchants. And when we approached ecommerce merchants, I think, especially the mid-size to 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 go into much, much smaller customers. Customers who are, let's say, more desperate for a better, more efficient, cheaper, easier-to-use shipping technology. Going through much smaller customers or mom-and-pop businesses, we encountered a different challenge actually. The challenge with those customers was: they're 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.

When you approach 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. The beginning was really tiny mom-and-pop businesses before we started to go after large and larger ones. And it came out of necessity not necessarily a calculated decision.

Patrick: [00:10:36] Could you describe - for those early customers - what the experience was like for them to ship something before Shippo and then what it was like after? What was the change?

Laura: [00:10:45] 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, to UPS stores. So they were just walking there to hand over their packages.

After signing them up on Shippo, what we are able to do is we are 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 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.

Patrick: [00:11:38] 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?

Laura: [00:11:54] That's right. And, 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 this motto of build something that's a painkiller, not a vitamin. And I think, when we approach the larger companies, they already had some sort of shipping options in place. We could do it better but they were not in such a big pain that they were willing to take a risk to try an unproven start-up. When we approached the mom-and-pop businesses, there was 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.

Shippo’s First Big Break

Patrick: [00:12:30] 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?

Laura: [00:12:40] 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 also, it's not just the 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 mostly an API or a dashboard. And when we went deeper into the business, we realized that through economies of scale, we could remove another pain-point for our customers, which was around account setup with carriers. And that 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.

Patrick: [00:13:47] 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?

Laura: [00:13:57] 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, it was 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 where and are still more resistant. There is a big argument to be made that this is a win-win for both Shippo customers [they don't have to go through the sign-up process anymore] and shipping providers who don't have to do account management or customer support and it's an easy customer acquisition channel for them.

Patrick: [00:14:38] 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 is 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? Why is this such an arcane, strange industry? We read about this stuff at 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.

Laura: [00:15:10] First of all, everything in ecommerce 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 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 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.

Lessons & Advice from Early Company Building

Patrick: [00:16:25] What looking back was the most painful period of building to get through as you navigated this complex thing? If you had to rebuild Shippo from the ground, what part of it would be like, "Oh, god, I don't want to go through that again"?

Laura: [00:16:37] I think what makes 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 to more countries, we add even more shipping APIs to the mix. And these different shipping companies change their API end points. 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 our customers don't have to do all of them 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'll just put that into a bucket where our customers expect this to work, but they're not going to give you…

Patrick: [00:17:30] Extra points.

Laura: [00:17:31] Exactly. They're not going to give you extra points for this kind of 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 and we have to 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. 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 ecommerce business should have to go through the challenge of figuring out API end point changes one by one. But we're the buffer in between. We can make sure that we take care of that.

Patrick: [00:18:19] Before we fast forward now to today and 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?

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 remained paralyzed trying to figure out what the best idea could be, we wouldn't have found this idea.

Laura: [00:18:33] Oftentimes, I talk to founders and I can see that they are 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 remained paralyzed trying to figure out what the best idea could be, we wouldn't have found this idea. 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 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.

Patrick: [00:19:25] 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.

Laura: [00:19:40] 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 attributes 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 sort of 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, with the kinds of rates we're allowed to pass on to our customers.

Patrick: [00:20:31] So talk to me now about the evolution of products. 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.

Laura: [00:20:48] Quite early on, we realized that our customers, when they were using Shippo, they held us accountable when 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 were pissed off if something else wasn’t 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 were making use of different shipping providers, that we controlled the entire technology experience. That we were able to guarantee uptime reliability, make sure that we were able to return shipping rates and shipping labels even if those carrier APIs were down. That involved a lot of work around storing 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, or 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 platforms.

And for us, for shipping specifically, 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 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 model 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.

Piggy-Backing on Big Companies

Patrick: [00:23:16] 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 like an expensive sales person doesn't make sense. How did you solve that problem? How did you go to market originally and what did you learn about that distribution side of the business, which is so important?

Laura: [00:23:34] SMBs, yeah, 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 piggy-backed on a bunch of super obvious SMB aggregators. So as an example, Shopify has already aggregated hundreds of thousands of SMBs. They were 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 and get customer referrals from. That was our early customer acquisition strategy, just piggy-backing on existing SMB aggregators.

Shopify was just starting to grow like crazy so they were a great customer acquisition channel. Then, of course, you run into the challenge of diversifying revenue sources. But to be honest, once it gets 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.

I think what works very well with SMBs as well, is when you have some early customers that are really happy with your product. There's great word of mouth. Online merchants, they have forums that they participate in, or through Facebook or 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 ecommerce merchants is a reflection of that. Now, I think paid has started to scale up nicely as well. We are 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 make it worth your time.

Patrick: [00:25:46] 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. 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 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?

I think Shopify has done that very well. Salesforce is another awesome example. Just creating this app store or this ecosystem for other start-ups, other developers to build services for their customer base. And that's what we did early on.

Laura: [00:26:56] I think a lot of these larger companies were starting to be in a similar position as well. At some point, they realized 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. They might as well enable third-party developers to help out and to create more value for the customer base. I think Shopify has done that very well. Salesforce is another awesome example. Just creating this app store or this ecosystem for other start-ups, 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 their approval process and as 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 where anyone could build to their app store. And as soon as you've done that and you start getting positive reviews, the algorithm just lists you upfront, that's where word of mouth kicks in.

Patrick: [00:27:21] Yeah, it's so interesting that it's sort of a mutually beneficial relationship. If you're making the overall experience for their customer better, you're actually helping them grow.

Laura: [00:27:29] 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.

Building the Next Flywheel

Patrick: [00:27:52] As you think about the future now, you sort of described 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 it's a mistake to plan too much and just let it continue to kind of grow organically? How do you think about the future?

Laura: [00:28:11] There are a lot of things that you can't plan. So, I'm not trying to figure out the exact product growth hack for the next 5 to 10 years. However, there are a few just underlying mechanisms of how this business works that we all need to understand and then make decisions around those. And for Shippo specifically there are few flywheels that are just in our favor. Our goal is to make sure that we keep fuelling those flywheels.

The number one flywheel is around shipping volumes. The more packages we ship, the better our shipping rates/our leverage becomes with carriers, and then we're able to offer more attractive shipping options for our customers, acquire more customers faster and get more shipping volume. 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 which shipping provider is seeing delays for very specific routes, for very specific service levels. So, there's a lot of data-driven optimization that we can start doing for our customers that we weren't able to do beforehand.

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 analysing the data. We tell them how to best ship at the most cost effective, the fastest way.

Patrick: [00:30:47] Tobi Lütke, the Shopify founder has the classic "arm the rebels" line. And you brought up Amazon, not me, so I have to ask about them. I love how you said earlier like you don't get credit when stuff works but you get yelled at when stuff breaks. In today’s world, 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?

Laura: [00:31:31] 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 US. 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, 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's no dynamic pricing. Everyone is 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 number of packages for the capacity level that they're at.

Leadership & Moats

Patrick: [00:32:39] You mentioned already one obvious competitive advantage that you're building in that original flywheel of your scale being able to pass on more the price advantages to your customers and obviously that keeps spinning. So, I would call that 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? Do you have time to sit back and do that sort of thing or is that for investors to figure out?

Laura: [00:33:03] I have a few investors who have reminded me over the course of the years, they’ve said it's important to figure this out and I’ve found this annoying when they kept reminding me, but in hindsight, I think it’s a good call out.

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.

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 those 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 it 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.

Patrick: [00:34:19] What is the best question that an investor has ever asked you?

Laura: [00:34:23] I can tell you what the worst question is.

Patrick: [00:34:27] Okay, let's start there.

Laura: [00:34:30] The worst question is always, "What if Amazon does this?" It's the worst question because you can ask this to any company. You can ask it to any company out there. You could ask what if Amazon does this.

The best question is 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 use a 3PL or 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 the 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 that end.

The worst question is always, "What if Amazon does this?" It's the worst question because you can ask this to any company.

Patrick: [00:35:16] 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?

Laura: [00:35:30] I think in terms of character, persistence is an underrated superpower. And it sounds gritty and it is gritty. But I think I could have given up a lot earlier. There were times in the business that weren't fun. They still come up but there were 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 that I have to hire for those weakness. 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.

Patrick: [00:36:41] 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 of 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?

Laura: [00:37:07] 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 use 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 hard challenge in terms of focus.

The customers who are using the API, they're typically very much like Stripe or Twilio's customers. They're tech companies. So, everyone who's using an API, they're probably start-ups. 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 start-ups, started with us when they were in NYC or even before pre-funding looking for a shipping API. And once you've integrated a shipping API, unless we really screw up, they'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. It would be too much 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. 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 - basically as 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 dev perspective.

Patrick: [00:38:50] The 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 ecommerce companies maybe don't appreciate about what to expect here?

Laura: [00:39:13] Most people, when they're getting started with an ecommerce 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 a 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, shipping free, is there a free shipping threshold. And consumers might not even buy with you unless they see the right shipping options at check-out or on the website. Most merchants think about shipping coming in after purchase. What's needed is the change in perceptions 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 expectation.

Future Trends, Challenges and Opportunities

Patrick: [00:40:13] I always think founders have sort of the best view on the ground of growing businesses especially technology businesses. What are the most interesting 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 built and how they're being built?

There is one trend 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.

Laura: [00:40:52] 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. Wagyu 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 direct-to-consumer model.

Patrick: [00:41:13] We literally just got our first Misfits Market 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 building this business and continuing to learn about this space? Another way of asking this, what do you not understand really well yet today that you wish you did?

Laura: [00:41:39] We've only scratched the surface. I don't want to downplay 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, I'm 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 create more high margin products for our customers that were reselling shipping rates - 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 stand-alone products? When I look at Stripe and Twilio - two companies that are very similar: Stripe connects, Stripe relays, 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 why no other shipping software company before us has been able to make that step? So maybe there's 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?

Patrick: [00:43:10] It's very cool to be in a position of success already so 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?" It seems like a fun challenge.

Laura: [00:43:25] Yeah. That's exactly right.

Patrick: [00:43:27] My closing question for everybody is to ask you for the kindest thing that anyone has ever done for you.

Laura: [00:43:33] 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. I 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 start-up here. By chance, I ran into someone at a tech conference, who happened to be a YC founder. It was in Zurich, in Europe. I chatted with him over coffee, shared on the side 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 from me, I think it got me roughly 27 responses, ended up with my internship job at LendUp. 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.

Patrick: [00:44:55] Fantastic. Well, I love this 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 conversations. So, thanks so much, Laura, for your time.

Laura: [00:47:22] Thank you.