Ryan Petersen founded Flexport, a shipping logistics company that manages and tracks inventory as it crosses the globe by ship, plane, truck and warehouse. They recently closed a $65 million round after taking seed investment with Initialized back in early 2014.
The genesis of the company is rooted in Petersen’s teenage years, when he was buying and selling products from mainland China by arbitraging costs between marketplaces like Alibaba and other U.S. sites. His second company, ImportGenius, played off the first one, when he and his brother realized that all manifests for ocean freight shipments entering the U.S. were a matter of public record. He started digitizing these documents — around 300 million so far, made them searchable and began selling subscriptions to that data.
But when Petersen started Flexport, he didn’t want to just re-think shipping. He wanted to take a wholly different approach to structuring a company.
Companies as Biological Organisms
While in business school, Petersen wrote an essay, called “Out of Control By Design.”
His idea was that corporations, as we know them today, are a relic of a bygone military era. They have teams that are siloed and split by function, which centralizes decision-making power and makes companies less nimble and responsive to customer needs.
But as the nature of warfare and security threats changed, the military adapted. They’ve created special forces and squads that flexibly operate where traditional top-down control structures once dominated. Companies haven’t.
Petersen argues that the militaristic approach of the past has to be replaced by a more accurate metaphor. Businesses, made of people, behave much more like biological systems.
“We want our company to behave like an immune system, where people see a problem and kill it rather than waiting for permission,” he told me.
Making Customer Service Central, Rather Than Peripheral
And so, rather than having siloed teams in sales, customer service and operations, Petersen and his onetime business school classmate, COO Sanne Manders, structured an organization where small teams or “squads” of account executives, account managers, operations associates and customs compliance specialists work together to address client needs on the fly. It’s totally different from how customer service is usually a more peripheral function inside tech companies.
“Companies often treat customer service as something that can be like a coin-op. They don’t empower reps to solve problems,” Petersen said. “But employees would rather be much more than a cog in the machine. You want bottom up decision-making, not top-down control.”
Every Flexport customer has a lifetime relationship with just one team or squad. And every customer service rep has autonomy within the squad to make on-the-spot decisions to make customers happy without needing to go up a hierarchical chain of approval or following a rigid protocol.
“When I reflect on bad customer experiences I’ve had with companies, it’s always because the person I was talking was not empowered to do the right thing to help solve my problem,” Petersen said.
In Flexport’s case, a customer can have an extraordinarily valuable lifecycle. Earlier on in his career, Petersen learned that the yoga brand Lululemon has used the same freight forwarder from when they were doing only $1.5 million in revenue. Today, Lululemon does more than $2 billion in revenue.
While Lululemon isn’t a Flexport customer, this realization ended up informing Petersen’s strategy. The goal is to lock in valuable companies as customers when they’re young and to grow up with them. Petersen estimates that Flexport’s clients could spend up to 5 percent of their revenue on freight.
Tracking Your Net Promoter Score
To make sure his customers are happy, Petersen measures Flexport’s net promoter score or NPS daily on Delighted. The net promoter score measures how many customers would refer a friend, colleague or client to the business. Flexport’s current score is 79, which would put the company among brands such as Starbucks and Apple.
“In the old world, the executive committee or a CEO was in charge. In our world, the customer tells people what to do,” Petersen said.
When Harj Taggar founded Triplebyte a year and a half ago, he wanted to take lessons from evaluating thousands of startups as a former Y Combinator and Initialized Capital partner into helping companies put together the very best technical teams -- regardless of background or pedigree.
Here are metrics that CEOs emphasize to recruiters that Taggar thinks can sometimes have unintended effects:
The on-site offer rate: This is percentage of candidates who come to on-site interviews who you ultimately end up approving and offering positions to. Taggar says some CEOs tell their recruiters to optimize for this. But the problem is if you’re trying to maximize on-site offers, recruiters will end up becoming more conservative. They’ll go for safe, recognized engineering schools rather than lesser-known ones that may produce a more diverse engineering team, but a lower on-site offer rate. “Recruiters will dig in, and start making sure they’ve only gone to certain schools, which reinforces their pattern-matching and could hurt diversity efforts,” he said.
The offer acceptance rate: This is the percentage of offers that are being accepted. Because you’re putting recruiters on the hook for closing candidates, they’ll get penalized or feel bad if few people or no one accepts the company's offers. When CEOs emphasize this metric, Taggar says recruiters will start advocating for avoiding making offers to candidates that they think won’t accept deals, which means a company could miss out on good potential hires.
- The “culture fit” rationale is probably overrated: When Taggar started Triplebyte, the company made the deliberate decision to only screen for technical skill rather than soft skills or “culture fit” on top of that. Even with this decision, the company still has a 60 to 70 percent placement rate for the candidates it forwards to startups. “For engineering hires, this suggests that the bottleneck isn’t “culture fit,” it’s just getting people who have the skills.”
Here are metrics or practices Taggar thinks CEOs should optimize for:
Minimizing response time to candidates: “From a procedural perspective, the best engineering organizations never seem to leave a candidate waiting for more than 24 hours,” he said. “Usually, founders have no visibility into this.” Taggar said if he were starting another company, he’d try and monitor response times to candidates through Lever (another Initialized-backed startup) or e-mail. “I’d monitor how long it takes my recruiting team to get back to candidates and relentlessly optimize that,” he said.
Keeping the hiring process centralized as long as possible: Early on, it’s very easy for startups to have a centralized decision-making process where founders and early team members can have input on every new hire. But this obviously becomes more difficult as a company grows. “When you don’t centralize your process, it’s hard to maintain consistency. If you don’t have consistency, you will be more likely to miss out on good people,” he said. Taggar said Coinbase and Mixpanel still have centralized processes where a single-person has input in end-decisions on hiring.
Emphasizing the match between candidates and technical projects they’re interested in over selling the grand vision of the company: Taggar says the best engineering organizations pay a lot of attention to matching the personal interests that every candidate has with what they end up working on inside a company. “It’s less about selling the big vision of the company and more about being really specific and getting people to work on something they’re really excited about.”
- The false negative rate: Taggar says growth-stage CEOs could start measuring the percentage of candidates that they reject that go on to get offers at companies whose hiring processes they respect. “This is somewhat tricky to do,” he said. “You can check LinkedIn profiles of candidates, and look for companies they end up getting jobs at and try to get the rate of misses down over time. I think companies just completely overlook this.”