00:00for me it's like a wrinkle in the law of
00:01large numbers the law of large number
00:03says you get really big you can only
00:05grow you know your growth rate slows
00:06down but if in fact all you are is it an
00:09agglomeration of small companies well
00:11each one of those small units can grow
00:12really fast and then all of a sudden the
00:14whole thing can grow really fast
00:19in today's episode we have a special
00:20treat export CEO and founder Ryan
00:22Peterson sits down with a16's growth
00:26they start with the question of why Ryan
00:27has chosen of all the problem spaces out
00:29there improving the resiliency of the
00:32they also covered just how complex the
00:34supply chain is especially in the era of
00:36e-commerce evolving customer
00:38expectations and ultimately how we can
00:40re-architect the supply chain to meet
00:42them given the holiday shopping coming
00:44up you won't want to miss this if you
00:46like this episode I have a feeling
00:47you'll also like our recently published
00:49and first ever American dynamism 50 list
00:51the list of 50 companies building in the
00:53national interests that embody the ethos
00:55of American dynamism and guess who's on
00:57that list you can find it at our
00:58homepage at a16c.com or at a16c.com
01:05the content here is for informational
01:07purposes only should not be taken as
01:09legal business tax or investment advice
01:11or be used to evaluate any investment or
01:14security and is not directed at any
01:16investors or potential investors in any
01:18a16z fund for more details
01:21bca16d.com disclosures
01:34because you've really chosen to dedicate
01:38a lot of your adult life to this mission
01:41of improving supply chain and global
01:43global trade why why that mission in
01:46that problem space yeah
01:48um well thanks for having me here it's
01:49uh I think there's a couple of angles
01:52that I approaches from one is you kind
01:55of look at the pie chart of GDP like
01:58where is all the money spent where are
01:59the all the activity in the economy and
02:02if you were to divide each of those
02:04slices by the number of hours of
02:05computer programming that have been
02:07applied I think you would see that
02:09Logistics as one of the high biggest
02:10opportunities in the world of like
02:12there's just this is like an incredibly
02:14important space Trade is 47 of GDP
02:19and yet anyone who's ever tried to do it
02:22actually actively and when I used to run
02:24a business importing products from Asia
02:26motorcycles from Asia and selling them
02:28on the internet back in the early 2000s
02:30late 90s and it was just a nightmare and
02:33so you're like wait here's something
02:34that's really important I mean you can
02:35measure its importance by the number of
02:37dollars that are spent the size you know
02:39relative to GDP but also just like it
02:41has been the backbone of the world
02:43economy it's the circulatory system of
02:44the world economy and on on many levels
02:47it's I might argue that the shipping
02:50container was the most important
02:51invention of the 20th century I think
02:53we've reduced the cost of shipping
02:55things by like 99 percent we used to
02:58have to load these ships back-breaking
02:59labor and carrying stuff onto the ships
03:02and yet the shipping container was
03:04invented in the 60s and deployed in the
03:0670s and really hasn't changed much since
03:09um almost no innovation and and again
03:11anyone who's tried to do it tried to
03:13actively ship something across borders
03:15we'll tell you it's a nightmare and most
03:17small businesses never can do it they
03:20only three percent of companies in are
03:22buying and selling Goods across borders
03:24right now uh and what are the odds that
03:25every other company has all their best
03:27vendors locally yeah um so as you see
03:30there's something that's this important
03:31and this hard it's like a good heat map
03:33for and as many dollars being spent
03:36um good heat map for where to apply
03:37yourself and and so I started doing that
03:3920 years ago I mean it's interesting
03:41because you you use this metaphor like
03:43the circulatory system and kind of all
03:44the pain points which I think explains
03:47why people haven't really tackled it
03:48before it's one of the hardest most
03:50complex things uh or spaces to be in
03:53with the supply chain so knowing that
03:56kind of going in how did did you decide
03:58where to start and then how have you
04:00thought about kind of when and where to
04:02expand yeah so um we benefit a lot from
04:05my own naivete and that kind of naive
04:08optimism I like to call it I was like I
04:11didn't understand all I never worked in
04:13the industry I was a customer of the
04:14industry bought shipping motorcycles uh
04:16and later selling data to the industry
04:18and another company I started and so we
04:20I knew enough to be dangerous I knew
04:22what the customer experience should be I
04:24wanted this dashboard to give me
04:25visibility overall my Freight tell me
04:27what what it was going to cost when
04:29things were going to arrive what all
04:30these weird terms mean I mean the
04:33industry still uses Viking English we
04:36say bill of lading uh instead of loading
04:39I didn't know that there's a lot of like
04:41acronyms and code words and stuff so I
04:43wanted a simple dashboard to teach me
04:44what all stuff means make it you might
04:46call it like Turbo Tax for importing and
04:49the place that we started was kind of
04:52Turbo Tax like its Customs which is
04:54where you pay your taxes to enter uh
04:57um this was I felt where most of the
04:59complicated paperwork lives where the
05:03data lives because if you want to clear
05:05a good through US Customs you have to
05:06provide the commercial invoice the bill
05:08of lading packing lists all this
05:10incredible Rich documentation and
05:12ultimately structured data that now lets
05:15you understand okay what is this company
05:17doing what what other services would
05:19they want to buy so we started as a
05:20Customs Brokerage it's the stickiness we
05:22say in the industry you date your
05:24Freight forwarder but you marry your
05:27um and it's it's a compliance service
05:29it's not where you're trying to cut
05:31costs like Freight is kind of a
05:33commodity and everyone wants to go with
05:34the cheapest Freight provider they can
05:35find but Customs you're not trying to
05:37save money you're trying to make sure
05:38you're compliant you're not making any
05:40rules you want it to be your system of
05:41record where you're tracking everything
05:43for future audits et cetera so started
05:46as a customs broker and then kind of
05:47have expanded from there what we found
05:50pretty early to my dismay was that we
05:54had to do it all much sooner I thought
05:56we'd just hang out as a custom broker
05:57for many years be the world's best most
06:00dialed in customs broker we found out as
06:03a startup Customs Brokerage nobody
06:05really trusted Us in the beginning we
06:07had to build our brand and so we were
06:10getting all the problem cases of people
06:12who like didn't they were
06:15other Freight forwarders didn't want to
06:16do their Customs it's a red flag right
06:18you're like wait why is this person
06:19doing customs with me and Freight with
06:22um so we had a lot of problem cases in
06:24the beginning quickly had to expand to
06:26offer freight services now we sell
06:27insurance cargo Insurance
06:29um we offer financing for the goods and
06:33probably the most important product we
06:34have is our order management product so
06:36this is where you place orders to your
06:37factories convert those to shipments and
06:39then now we've got that transaction
06:41running through our rails and we can
06:44offer you all the other services on top
06:45of that wow okay so you know kind of
06:48from that initial expansion you've kind
06:51of reached this point now where you are
06:53like a global logistics company and I've
06:55heard you refer to Amazon as kind of you
06:58know this company you really admire for
07:00how they handle the complexity of
07:01logistics and in fact you have kind of
07:04right now as your co-ceo Dave Clark who
07:06came over and was formerly um CEO of
07:09worldwide consumer um at Amazon uh can
07:12you talk a little bit about that
07:13decision like how and why you brought
07:15David yeah I mean I I I think Amazon's
07:19the most interesting important company
07:21in the world frankly
07:23um they have figured out a lot around
07:25how to be entrepreneurial at scale and I
07:28think a lot of it comes from operating
07:29in relatively low margin businesses that
07:31you don't have the luxury of just like
07:33hiring lots of people and opening that
07:35they do something interesting someday
07:37like some of the other Tech uh you know
07:38the big tech companies they got to keep
07:40executing constantly and delivering
07:42Innovation and it's pretty rare to see
07:45like a big giant Corporation that's
07:46figured out how to really be a team of
07:48small companies a small business units
07:51and it's for me it's like a wrinkle in
07:53the law of large numbers the law of
07:55large number says you get really big you
07:56can only grow you know your growth rate
07:58slows down but if in fact all you are is
08:00it in agglomeration of small companies
08:03well each one of those smaller units can
08:04grow really fast and then all of a
08:06sudden the whole thing can grow really
08:07fast so I've been a big fan of Amazon
08:08for a long time studying them from the
08:10outside and it's not like
08:13I'm I'm in I'm learning about this I
08:15really enjoy the the process I think
08:18it's intellectually stimulating how do
08:20you drive efficiency from a Workforce
08:22studying things like the Toyota
08:23production system or we Deming there's
08:25like a lot of great kind of almost
08:27deeply philosophical work about how do
08:30you get operational excellence and drive
08:33um but I'm like learning on the job
08:35which is kind of there's no excuse for
08:36that given our industry like we need
08:38more experience so I was looking for a
08:42that could immediately upgrade our
08:43ability to like run really high quality
08:46and highly efficient operations for on
08:49behalf of our customers and naturally
08:51Amazon's a place I'm looking and I one
08:53of my um secrets for recruiting the
08:55first time I do it myself when I'm doing
08:57exec recruiting I don't rely on outside
08:58search firms and I build my own list and
09:01track that in Google Sheets nothing
09:02fancy but I just go through my own
09:04network and ask everybody in my network
09:06to who they would introduce just to
09:08learn from and say look non-attachment
09:10outcomes I just want to learn and if
09:12each of those people gives me three
09:13people and each of those people give me
09:14three people you have kind of this um
09:16cancerous growth that eventually you get
09:18to I was gonna say Talent supply chain
09:20you know I wanna I wanna Circle back too
09:22I think this idea of like what it's
09:24going to take to become that you know
09:26world best operational company but I
09:29want to actually step back first and
09:31talk a little bit more generally about
09:32the supply chain you know you've
09:34mentioned like the the admiration that
09:37um and really you know nobody epitomizes
09:40the rise of like e-commerce more
09:43um what have you seen as the impact
09:45really of e-commerce and the internet on
09:48on the supply chain and on how it works
09:50yeah well I think you want to start with
09:51the with the customers with all of us
09:53and the internet has really put us us
09:55you and me and everybody else out there
09:57in charge in a way that we've never seen
10:01um that the world you know in the in the
10:06only would run a television ad
10:09for whatever product they were selling
10:11and then they would just kind of pump
10:13that down your throat and they only
10:15needed to have a limited number of skus
10:16whatever was on television basically
10:18customers didn't have a lot of choice
10:20they could buy this you know the
10:21Energizer or the Duracell and there were
10:23two choices for what battery and there
10:25happened to be in the stores and you and
10:27so you the brands were in control those
10:29who could afford mass media were in
10:31control now with the internet there's
10:33just like a million choices you have
10:35every kind of possible brand of battery
10:38that's out there a battery is probably a
10:39weird case but still for every product
10:41category there's a million choices
10:43everybody's unique you can get the thing
10:45that matches your own personal taste um
10:48you were in charge as well in that
10:51they better have that product now you're
10:54not willing to wait a week like in the
10:56series catalog you're uh you can order
10:58and you get it in three weeks well
11:00you're gonna go out of business if you
11:01can't deliver you know it's becoming two
11:03hour delivery delivery like if you can't
11:07um and so that is a very different
11:09supply chain and what's happened is
11:11companies that haven't been able to run
11:13a supply chain that's that responsive
11:14that can have many a wider assortment of
11:18choices because we're all unique and we
11:20want our choices and and and have it
11:23sort of edge cached to use an internet
11:25analogy like a CDN like you want to have
11:28these Goods like close to the customer
11:30so that it can get there really really
11:31fast the old world you could have one
11:33Distribution Center in the middle of the
11:35United States and distribute out to your
11:37store network from there uh but it
11:40didn't have to be like super responsive
11:41to customer demand customer demand was
11:43pretty predictable kind of always bought
11:45the same number of this batteries or
11:47whatever product uh and and it was it
11:49didn't have to be very agile the modern
11:51world all of a sudden
11:53there's this proliferation of Brands and
11:55it all has to be stored close to the
11:56edges so custom so Brands need to have
11:58multiple fulfillment centers uh you need
12:01about five fulfillment centers to get
12:03two-day delivery Nationwide and you need
12:05probably to do next day it's more like
12:0816 fulfillment centers and you want to
12:10do same day well you need one in almost
12:12every ZIP code right uh if you want to
12:14have two hour delivery so that's a
12:17really really different configuration of
12:18supply chain and now
12:20um you want to be able to get to that
12:22world where you're doing same day or
12:24next day delivery you now need to load
12:26balance your inventory because if you
12:27put too much inventory out there and it
12:29doesn't sell you're going to go bankrupt
12:31right you're sitting on all this working
12:32capital it's inventory that's not
12:34earning a return too little and you lose
12:37the customer and they'll never come back
12:39right they buy your competitors brand
12:40and so that's the fundamental problem
12:42and these Logistics teams don't even
12:43really at the typical brand don't even
12:46really know that that's the problem
12:47they're solving they're they're just
12:49still used to a world where all they
12:52care about is the price of freight yeah
12:54and they want to buy the cheapest rate
12:55and that's what they think their job is
12:56when their job has become how do I
12:59ensure a customer experience how do I
13:02enable our sales and marketing to have
13:04the product in stock
13:06uh so that they can win those customers
13:08help be a growth engine and a customer
13:10experience engine and then how do they
13:12Empower their CFO yeah to not sit on too
13:16um and so it's a really different
13:17proposition and frankly most of the
13:20that that we grew up with these iconic
13:23brands have been going bankrupt left and
13:24right if you Google retail apocalypse
13:28just look like the number of companies
13:31that have failed that are iconic brands
13:33that we grew up with
13:34it's really sad actually and I don't
13:36think it has to be that way so one of
13:38our we kind of have dual purpose here
13:40one is help the new age of Brands rise
13:43up and not need to hire this big
13:44Logistics supply chain team who just
13:46pushes paper and you know just all they
13:50care about is the price of freight but
13:51actually it's empowered to solve these
13:53problems without hiring a big team
13:54because you don't need it anymore you
13:55kind of Outsource that to the cloud
13:57um that's that's one aspect of what we
13:59do we help these small businesses grow
14:00really fast without the bureaucracy the
14:02other is how do you help these
14:03Enterprise Brands these famous companies
14:04transform themselves for a world of
14:07e-commerce and not die and I think that
14:09both of these are really important
14:10missions for us yeah and in some sense
14:12the second one I think can almost be
14:13harder and I've heard you say kind of in
14:17um that like one of your goals is to
14:18make the supply chain like as resilient
14:20and reliable as the power grid yeah you
14:22know it's like one thing to do that you
14:25know in the in normal times it's another
14:27thing to do it as you kind of have like
14:28a pandemic occurring you know you now
14:30have like a war in Ukraine that are
14:32creating these kind of delays and
14:33disruption and shortages that we that we
14:36read about how like what will it take to
14:39get the supply chain kind of to that
14:41point and in particular kind of because
14:43you're talking about an architectural
14:44shift really in the supply chain
14:47um what will it take to help those
14:49Legacy players get there uh well the
14:51fundamental problem in supply chain is
14:53that it is it that word chain
14:55um that there's there's many companies
14:57in fact on a typical transaction where
14:59we're moving let's say a pallet of goods
15:01cubic meter of goods from a factory in
15:06pick a city in Hangzhou China to St
15:11Louis Missouri if you on a transaction
15:14like that you'll have is at least 12
15:16companies that either touch the goods
15:19or are involved providing Capital like a
15:23trade Finance or a letter of credit
15:25cargo Insurance kind of Bank payments uh
15:2912 at least 12 and as many as 20
15:31companies involved in that transaction
15:33and so you get information
15:36bottlenecks the goods bottlenecks are
15:39famous and we see the ships waiting
15:41offshore and all the problems but what's
15:43happening in parallel is that the good
15:44the data is not flowing that people at
15:47each stage are having to re-key data
15:48into a system or not bothering uh
15:52forwarding PDFs we call it Freight
15:54forwarding I often joke it should be
15:55called Freight email forwarding because
15:57you're just emailing attachments between
15:58all these different companies and trying
16:01um and so it leads to in a sub-optimal
16:04decision making if you don't if you had
16:07perfect information you would be able to
16:09make sure that that truck is waiting at
16:11the airport when the plane lands or at
16:14the seaport when the container shows up
16:16and you would get it all dialed in and
16:18you know every truck would be scheduled
16:20appropriately and you would be
16:21re-planning every five minutes so that
16:24if there's any delay you're like
16:25automatically generating a new plan and
16:27reallocating containers almost none of
16:29that can happen because there's not a
16:31system it's it's 12 different companies
16:33each running their own I.T system or
16:36many cases guys with clipboards and
16:39warehouses like no I T system at all or
16:42um and so what there's two possible
16:43solutions to this one is a giant mega
16:46corporation owns all the assets
16:48door-to-door and creates one it backbone
16:52uh the other is use machine learning and
16:55data science and make it in the interest
16:57of these asset owners to participate to
17:00come onto the platform almost like data
17:02is the new kind of killer asset it it
17:04should be and you should be able to
17:07really generate insights the more
17:09transactions that are flowing the
17:10smarter you get how do we how are we
17:12going to Route this container yeah no in
17:14advance oh you know what there's
17:15actually a bottleneck in LA right now
17:16let's route it through Oakland yeah um
17:19things like this that you know the
17:20industry hasn't been that good at it was
17:21really interesting to watch last year
17:23um we had 100 container ships waiting
17:25off the port of LA and only five waiting
17:28off the coast of Oakland here in the bay
17:30you're like why don't it's it's you have
17:32to go past Oakland to get to La why
17:35don't they stop you know I just unload
17:37the stuff and and it's hard they don't
17:38have the data they're not able to
17:40communicate in real time make agile
17:42decisions Etc so but that's going to be
17:44the future is actually like using Tech
17:46and using data to Route Assets in a
17:48smaller way yeah well I know I could
17:51easily stay and talk all day about
17:53supply chain but I know that we are at
17:56time now so I want to thank you so much
17:58Ryan for for coming in and and and
18:00talking to us today my pleasure my
18:01pleasure thanks for having me
18:05thanks for listening to the a16z podcast
18:07if you like this episode don't forget to
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