The following is an edited transcript from our interview for our 'In the Ring' podcast on September 22, 2020, with Josh Walter, Founder, and CEO of ShippingTree, a provider of cloud-based logistics and e-commerce fulfillment services.
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John Suder: Jesse, welcome to the show. Why don't you tell us about Shipping Tree?
Jesse Kaufman: ShippingTree is a tech-enabled third-party logistics company. In layman's terms, you could think of us as an outsourced shipping department for your eCommerce brands.
John: Why don't you give us a little background about yourself?
Jesse: I'm a Canadian entrepreneur originally from Montreal. I live in Los Angeles right now, ShippingTree is headquartered there. I've personally been here five years. I love working with startups and other entrepreneurs starting businesses, and it's probably what I'm going to do the rest of my life.
John: For those who may not be familiar with a ShippingTree, why don't you give us a quick rundown of what ShippingTree can do for eCommerce merchants?
Jesse: I think of us like an outsource shipping department and what we aim to do is take the stress and the burden, and the capital expense of shipping out your orders off your plate as much as we can make it. You could set up an entire system and process around that warehousing piece of your business, which is so crucial. You also could free up time for your team to focus on product development, marketing, brand awareness stuff that will drive sales. And you can be confident that when you drive sales, the orders will go out on time and properly.
John: How did you wind up in this business and how did ShippingTree start?
Jesse: I started a clothing distribution company back in Canada. The model of that business was that I'd find clothing brands that I thought were underrepresented in North America, secure their rights, start selling the merchandise to retailers. Every conversation quickly turned into 'Oh, that's great. Can you help me find a 3PL? And in my search to help find these brands 3PLs, I realized that I was pretty shocked by how bad most of the options were out there for such a big market. And I saw the market just getting bigger and bigger as the years went on. So I decided to try and start my own.
John: So you stumbled into it. That's usually how it goes. Is there a typical customer or does it go by dollar volume or sales volume? Who is your typical customer?
Jesse: Our typical customer would be a Shopify, BigCommerce or Magento merchant doing in the neighborhood of $5 million a year in sales. We have customers below that, and we have customers above that. We tend to focus, and our sweet spot is customers in the CPG space. So, cosmetics, supplements, wellness, stuff like that.
John: When you say CPG – Is it somebody who has a lot of SKUs and a lot of different parts?
Jesse: The opposite of that. Typically apparel companies would be super SKU-heavy, tons of variations between their styles and stuff. We're very selective about the apparel companies we work with. We work with a lot of companies that have a limited SKU set. You could think of a skincare line or a beauty company that might have 50 SKUs, maybe or 50 styles, two sizes per style. So a hundred SKUs, something like that.
John: Explain the reason for why you do the low number of SKU merchants.
Jesse: We want to provide the best service possible for our customers, and the warehouse processes and equipment we've invested in is best suited for those types of customers. With that said, it could handle pretty big apparel customers, but if we just opened the doors to any customer of any profile, it would hurt other customers.
John: When someone is selecting a 3PL, how do they go about doing that? What are the things that they have to look for and, what are the pitfalls that they should keep an eye out for during the quoting process?
Jesse: There are a few things that keep it. During the quoting process, if you start getting quotes from 3PLs that are three pages long and there are pricing line items, you can't think of what the definition is on your own. That requires industry expertise, and then it gets too complicated.
John: And they're probably trying to pull the wool over your eyes with a little service fee or something like that.
Jesse: Yeah. If there's a setup fee for technology or anything, there's an excellent chance that 3PLs are antiquated. It's going to be a really inflexible and frustrating relationship just from a technology standpoint. We have our own technology. And what that allows us to do is own our own integrations. That's the one small piece and benefit of having your own tech stack as we do. We own the integrations we build. So we have a one-time development cost of building those integrations, and we don't pass it on to customers.
Most 3PLS use off the shelf software. They have to pay that software company for every integration. So then they pass that cost onto their customer. That's a big downside. Plus, you get the inflexibility of the people you're working with not owning their tech stack. So if something goes wrong, you know, you're on the wrong end of things.
John: When you sign someone up, how do you integrate with their technology? What are the things that pass through from the merchant to the 3PL?
Jesse: The integration process is straightforward. If anyone's ever integrated their Slack with their Gmail or anything with API keys or something similar, it's a copy-paste type thing. You get your API keys from the different platforms you want to integrate with us. Pass those on to our tech team or copy and paste into our app yourselves.
We run the integration for you for a few minutes, then we run some tests – it depends on what type of platform you're integrating with us. Let's say you have a Shopify integration; all your order data will come back, and it will come into our system. Your SKU data, your SKU pictures, your prices, and all of that will come into our system.
When we ship an order, we automatically send that update back to Shopify. That includes the tracking number. Once that happens, we'll decrement the inventory in Shopify. So it's a back and forth for each order. For your tech-ish listeners out there for each order like this, it's probably four or five API calls being made.
John: So Shopify would be a good scenario. What would be the lousy scenario? What if you have somebody who's got a home-baked something or other going on their backend? What do you do for that kind of customer? Does that ever happen?
Jesse: It happens. It's rare. Especially if these days, you have to be pretty stubborn to try to do things without the help of a platform like Shopify, big commerce, or even Wu commerce or anything. But in that case, we have an open API. We tell those customers, and there's a good chance if a customer took that route, they have their own tech team. So we tell those customers, 'Hey, here's our API. We'll support you in the integration. We won't build it for you ourselves, but here our API docs build the integration. We'll support you'.
John: How do you go about pricing this type of service? Does it go by the space they take in your warehouse or the amount of labor involved? How do you price something like that?
Jesse: High level – that's exactly how we price, but it's more nuanced than that. We charge for the inventory in our warehouse, and we charge 45 cents per cubic foot. We think this is the fairest way to do it. It's also the way Amazon charges for their storage as well. So to estimate storage with us, measure your product. If you're selling shoes, measure one shoebox, multiply that by how many units you have in stock to get multiplied the cubic footage of that shoebox by how many units you have in stock. Then you'll get the price. It would cost to store that with us.
John: Someone who sells high-end lipsticks does much better on that end than a guy who sells sofas.
John: You mentioned Amazon; when someone in the Amazon ecosystem uses a service like yours before the merchandise gets to Amazon, is there a benefit to that? I would think maybe speed, but can you speak on that? Is that a thing?
Jesse: Yeah. So I think it depends on the merchant. Amazon has stringent receiving guidelines. Many of our customers will have their inventory come into us from overseas or their local suppliers. We prepare the inventory they want to send to Amazon to Amazon specifications regarding labels, pallet labels, pallet sizes, and all that.
John: Right. So everything has to fit in a certain way. Or Amazon will reject the shipment.
Jesse: Yes. Or they'll charge you in our middle light to do it themselves and it'll, and it'll take time on their end.
John: So you lose either way.
Jesse: Yeah. A lot of our Amazon customers will have us do that for them. And then the more significant Amazon sellers, just for your listeners to be aware, their suppliers do it for them. So full containers are prepped to Amazon specifications, and those full containers arrive at Amazon.
John: So that would cut out the need for someone in the middle to do that kind of service. Understood.
John: Let's talk about the current situation with the pandemic. Are there any unusual circumstances happening now, or how are your customers responding to this environment? Is it business as usual or business better than usual?
Jesse: Business has been better than usual, or better than we were expecting this year. When COVID hit, everyone was worried. We didn't really know where we stood. Then it quickly became apparent that our type of business would be deemed essential.
With that said, I know some of our customers have been struggling a little bit. We've been able to sign quite a few more customers than we normally would have at this time of year. Something that really worries me is how overworked the logistics infrastructure is in the U.S. right now. And the strain of that going into Q4 and peak season, I think that's the only company that's going to be able to come out unscathed.
John: I had a feeling you were going in that direction. On our end, we do see a lot of supply chain weaknesses. Q4 is going to be very interesting.
Jesse: I know last year the percentage of retail sales for eCommerce during Q4 last year was 16%. This year, they're projecting 32 or 33%.
John: Well, the one stat that's going around is that eCommerce has accelerated by ten years in three months.
John: On our end we didn't know what was going to happen either. As you said, it became very apparent that eCommerce is going to come out on top. It's unfortunate, but the old saying goes, never let a good crisis go to waste. We've been hustling ever since.
Let's keep talking about customers. What's your customer acquisition strategy? How do you find customers, or do they find you?
Jesse: So recently, we've been investing in your typical paid acquisition strategies online, very minimal. Up until now – technically, according to the IRS our fifth year in business – but in my books, it's our third because our platform launched in 2018- it's been word of mouth.
John: That's a great business to have. Now, were you doing any kind of like Google ads or anything like that?
Jesse: We do some Google ads right now.
John: Are there any good success stories where you saved the day for a client through your services?
Jesse: One that might be more well known for your audience (I'm going to plug one of my customers here, so I hope you don't mind) but, it's a disaster preparedness kit called Judy. From an influencer standpoint and stuff, their growth was crazy, and they happened to launch with us in January.
They launched, and everything was going great for disaster preparedness kids. It's like a big box with hand warmers, dry food pouches, a water rope, duct tape, like all this, you could imagine how much stuff we have to fit in there. So they ordered inventory in January of what they thought would be for nine months.
Suddenly, you get COVID, and they sell out of nine months of inventory in a little under three days.
John: Let's break out the calendar here. So this is mid-March?
Jesse: Yeah, and obviously they're freaking out because they didn't ask us to fit all their inventory. So they have all this inventory not ready to ship out, but they took orders for it all. And they're a brand new brand, and they have all these celebrities telling everyone how good this stuff is. And it is a fantastic kit of stuff.
John: I had seen this product online before, and finally, I looked it up. It really is impressive.
Jesse: They really care about their customers, and we were able to turn a disaster around. And we shipped out all the orders in like maybe two weeks, which is pretty incredible considering how much kitting was required. That means physically building out each box.
That was one story I could think of this year. Another one is one of our clients that sells those COVID keys. I'm sure you've seen the ads on Instagram.
One of our current customers came to us and I'm panicking. I think it was maybe May or June. They had sent all their inventory to a competitor of ours who were slammed, and they just couldn't handle it, but took the business anyway. They built out 12,000 preorders, and over two weeks, the competitive ours wasn't shipping any orders or inducting the inventory.
We got their inventory out of there, to our warehouse in Columbus over the weekend. We cleared out the preorders by Wednesday. We're very young. We're nimble where we're not like your traditional 3PL in that sense.
John: How many warehouses do you have?
Jesse: We have two.
John: East coast, West coast, or how does that work?
Jesse: We have LA area and Columbus, Ohio, and we actually just launched in LA, a same-day delivery program. So we have a micro warehouse near LAX. Merchants have store inventory there. Let's say I'm a merchant using our ShippingTree, same-day delivery. I have inventory at the LAX micro warehouse. You come to my website, and you go to checkout you within a 10-mile radius of that inventory. Postmates will come up as a delivery option for two-hour delivery. So we launched that in LA, just recently that's going really well. And we plan on rolling that model out to Brooklyn, New York, San Francisco, Miami, and Austin.
John: And obviously you charge a premium for that, right?
Jesse: It's not that much more, depending on your product and what you're currently paying for fulfillment. It's not much more.
John: So what type of products?
Jesse: I'll give you two examples, hot sauce and matcha.
The delivery would be free generally for a lot of these companies, and then when you get to check out, you have a $5 option to get it within two hours.
John: That's a great upsell. That is really good because these companies would build free shipping into the price and then say, 'Oh, but if you need it today...'
John: Is that a separately branded service or is that just ShippingTree Plus? How do you brand that?
Jesse: We're calling it ShippingTree Same Day.
It's in beta right now, so it's not up on the website or anything yet. I guess your listeners have a sneak preview and if they want, if they're interested, reach out.
John: How about the business? You guys are private? Are you looking for an investment, or are you just putting everything back in the business you staying lean and mean? What is your attitude towards business bootstraps to this point?
Jesse: I'm going to keep it a little private on what we plan on doing on that front, but I expect big things next.
John: What are the most significant pain points you have right now? And obviously, it's kind of a loaded question in this "current environment," but what's the biggest pain point you have?
Jesse: Lack of space. Everyone wants warehouse space, and we can't get enough.
John: What do you think about the strategy now that they repurposed malls as fulfillment centers? Is that something you guys would jump on?
Jesse: I love that we're taking a similar approach with our same-day network, where it's kind of a repurposed scene. Unused office space is like subterranean, retail, or second floor retail. So for a company like Amazon, I love that. For the mall owners. I don't like it.
John: Traditional malls I think are dead. I've seen malls repurposed where you have the two anchor stores – one part of the anchor store might be a fulfillment thing. The other part they might make into a school, a gym, they put housing around it. They make it more of an environment. The traditional mall part goes away.
But just taking the sheer volume of these old-school department stores, which is really not going to be a thing anymore, and taking that and putting fulfillment into maybe even one part. I think it is a great strategy. It's great for the mall owners because you don't have a dead empty mall sitting there. I think it'd be good for everybody.
Jesse: I think it's good. I just don't see how they're going to get the same revenue per square foot as you would in a thriving Neiman Marcus. So I think it'll help them all owners, but it's not going to get them back to their heydays.
John: That's a good point. I saw one in Texas, and it was a mall that they had purposely built housing around and made it this kind of campus environment, but there was an Amazon warehouse behind it, and there was all this stuff, but it was very livable. It was walkable, and it was an environment.
Jesse: Yeah. I think that's a trend that's like those multi-purpose malls. Here in LA there's a mall in Culver City called Platform, and I think that's a relatively small mall. But I think that is going to become a case study on the future of physical retail.
John: You said you didn't really want to give any secrets away about what you guys are planning, but what does the future look like for ShippingTree? What's your dream of how the company would grow in the next five, ten years? What's your plan?
Jesse: I'd be thrilled if we could capture 1% of eCommerce shipments in the U.S. I would be like over the moon with that, but really expanding our footprint.
Adding one or two more big-box warehouses so that we really have complete blanket coverage of the U.S., and then loading out that same-day delivery network. This is so that in every major Metro area, we have a hyperlocalized micro space, at least one there.
John: Any advice you'd give to eCommerce merchants during this strange time?
Jesse: Don't be afraid to take risks that you would normally take, just because this is all going on. Don't become more risk-averse than you usually would. Especially for eCommerce entrepreneurs, just starting out, jump in with the same kind of vigor you would anyways, and just start getting things done. Don't let this make excuses for you.
John: Stop thinking about it and just do it.
John: Let's put the spotlight on you. Being an entrepreneur is challenging work, managing your time and energy- it's critical even more so now that most of us are working from home. Do you have any tips or experiences that you would like to share with the audience? I'm more into this self-help, the time management thing. So this is kind of right up my alley. Anything you want to share?
Jesse: Working from home, you have to be so strict with carving out time for yourself and like whatever vices you may have. I like my coffee and watching Canadian SportsCenter in the morning. I like getting a full night's sleep, so I won't schedule any calls during those times.
And some people might say that's a late start to the day, but I finish the day late sometimes, whenever I get my work done. Make sure that you're giving yourself space in your own house. And then find a hobby that gets you outside or gets you working with your hands.
I love golfing. So I get a bit of both. There used to be a big hockey player. I can't do that anymore. So now I golf and get outside.
John: What would you do if you weren't doing this?
Jesse: Probably working on another business that I started, who knows whatever that might've been.
John: It's funny. I usually get that answer. It's like, if I wasn't doing this, I would be doing this, but something else similar to it.
Jesse: I think once the entrepreneurial bug bites you, it doesn't go away. It definitely would have been something in e-commerce. Probably something to do with watches. I love Grand Seikos.
John: Final question. What's the last thing you bought online?
Jesse: I ordered a hat, a North Face hat from Japan. This is a North Face, purple label. It's a North Face line that's exclusive to Japan. And, this hat I've had for like a It has Gore-Tex, wind stopper technology. The one I ordered is like Gore-Tex waterproof.
John: Here's me, Googling North Face Japan hats.
Jesse: They’re pretty cool.
John: Time for your shameless plug.
Jesse: I'm going to plug a friend of mine's company, which I think is amazing. It's called Upscribe.io. I'm sure many of your listeners are familiar with apps that manage subscriptions on your eCommerce store, the most popular one being Recharged. Upscribe does it in a way that is super simple and easy to use. We love working with Upscribe and all their merchants.
John: And finally, how can people get a hold of you?
Jesse: You can get a hold of me at email@example.com. That's my email. I won't give out my phone number, but emails should do. And then if you want to talk to someone at my company, time is of the essence. Just go to our website, and you could chat with someone there.
John: What's the website?
John: Thank you for being on the show.
Jesse: Thanks, guys.
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