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🎧🍌 ShipHero’s Journey to $12B with Aaron Rubin, Founder and CEO

Narrowly avoiding bankruptcy, why ecommerce is so hard, how warehouses are still solving basic problems, why robotics is overhyped, and how TikTok Shop is the fastest growing US ecommerce channel ever
2

Aaron Rubin is the Founder and CEO of ShipHero, a warehouse management system for brands and 3PL providers.

We talk through Aaron’s journey building ShipHero, starting with what is now the largest Jiu Jitsu apparel brand in the US, which he almost went bankrupt running during the financial crisis.

He shares how that business led to ShipHero, takes us inside the early days, explains why warehouse robotics and 4PL’s are overhyped, and discuss the rapid rise of TikTok Shop, Temu, and Shein.

👉 Stream on Apple and Spotify


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Timestamps to jump in:

  • 02:01 The USPS shipping label scam

  • 07:10 Starting the largest Jiu-Jitsu apparel brand

  • 09:46 Narrowly avoiding bankruptcy in 2008

  • 19:03 Why ecommerce is so hard

  • 21:16 Building ShipHero to manage their warehouse

  • 28:00 Powering Shopify’s early fulfillment network

  • 30:59 How 3PL’s are still solving basic problems

  • 34:02 Why warehouse robotics is overhyped

  • 41:48 Where drones fit into logistics

  • 44:55 Aaron argues why 4PLs don’t work

  • 55:40 TikTok Shop: the fastest growing ecom channel ever

  • 58:42 How Temu and Shein leverage 321 to avoid tariffs

  • 1:02:49 Why Temu and Shein are slowing US ecom growth

  • 1:04:17 Topgrading: The most boring + most valuable hiring strategy

  • 1:11:29 Business lessons from playing poker

Referenced:

Find Aaron on Twitter and LinkedIn.


👉 Find on Apple, Spotify, and YouTube

Thanks for reading The Split! Subscribe for free to receive new posts and support my work.


Transcript

Find transcripts of all prior episodes here.

Turner Novak:

Aaron, welcome to the show.

Aaron Rubin:

What's up, Turner?

Turner Novak:

We're mutuals on Twitter, as your daughter would say. You recently tweeted about this company called NullShip.

Aaron Rubin:

Company might be an exaggeration.

Turner Novak:

Yeah, they're doing some interesting things. What exactly is going on there?

Aaron Rubin:

Yeah, actually some people have been telling me about other ones. This one, Super Savor USA seems to be doing the same thing.

I mean, basically they print USPS labels for you or they give USPS labels to ship your packages. And then they're super discounted because they don't actually go through USPS. So they just fake labels and the USPS is aware, hard to crack down.

People who create these companies are often outside the US. So, hard for them to arrest them and yet people give them money. And then eventually the packages don't get delivered and they lose a lot of money.

But in the interim, it seems like a good service. And great margins from NullShip, because they'll charge you whatever, because it's all profit.

Turner Novak:

So, with these USPS slips, when you book an order or book some kind of shipment with the postal service, they give you a sticker label that you put on a package? And so, this company is just making fake labels that look real and sending them to you?

Aaron Rubin:

Yeah, exactly. They give you a PDF. So, it has a tracking number.

You know back in the day, they wouldn't real-time a verify credit card? You would just, if you knew the secret magic formula, you can give a credit card, and it would work. Because they didn't have real-time lookups. And now, they real-time look up so you can't use a fake number. But at the time, you could commit fraud if you gave a credit card that swiped and passed the check sums and had the right structure.

So here, they have a mailer ID. But it could be an invalid mailer or expired mailer ID. So, basically, they use an expired mailer ID and they give you a tracking number. The tracking number works it will scan at the post office, which is ... The post office works, but basically post office also super old system. So, people don't actually generate labels with the post office. They generate their own labels locally. There's a bunch of companies that do this.

Turner Novak:

And these are real companies?

Aaron Rubin:

Real companies, yeah. The way that USPS sets up their system is you can generate a label. You follow the right code. You then manifest at the end of the day, the label. And then USPS charges you.

So, therefore, they have to be able to take - when you show up at the post office and hand it to them, they can check, "Hey, is this a real package yet?" Because they don't actually know until that night. And sometimes things don't get manifested later, et cetera. So, the USPS basically just says, "Does it match the formula? If so, I will ship it." And then once it's in the system, it gets delivered. While it was never paid for, it still gets delivered.

Now, they did say we talk to them about this for a long time now, months, they do say that this month, they are going to at some point stop it. So, in other words, maybe they'll allow it for that first day. But by day two or three it's not delivered yet and there's still no manifest and they realize it's a fake package and they will destroy it.

So, that's what they said they're going to do. But until now, they would just deliver it because they're like, "Oh, I guess it just didn’t get on the manifest." But really it's just a fake label.

Turner Novak:

So, what happens? Do I then have to just also pay USPS again for fulfilling it? Does the package just disappear, get thrown out? Where does it go?

Aaron Rubin:

Yeah, so the way it's been working till now, the packages are delivered and you are liable.

So, there was one guy who stole 400 grand, but then he did 12 months in prison or something for it. They’ll come after you. And again, depending on the scale and whatever, whether you have to pay a fine, pay the money back or in the extreme go to jail, because USPS is quasi government, they have their own police.

Turner Novak:

So, this was the customer, someone who bought one of the fake labels unknowingly.

Aaron Rubin:

They were both. They were using their own fake labels. They knew it was fake labels and they were using it anyways, so they were just gaming the system.

So, what the people like NullShip are doing, is they're being a step smarter. Where it's like, "Hey, I don't have anything to ship, because I'm probably in Russia or somewhere like that. So, what I’m gonna do, I'm going to sell to a US seller, and then if they get caught, well, who cares? And I'm protected because you can't get me out of Russia."

So, that's the way they're doing it. It's the current scam. But that the people like  this guy who was like, "Oh, I figured out the formula, I’ll just print the fake labels. No one will ever catch me." He got away with it for a year or so, and then he went to prison.

Turner Novak:

Wow. Yeah, to your point, it's like a federal government entity or whatever. Probably don't want to commit crimes to the federal government.

So, then the reason you know about all this stuff is because your company, ShipHero, is the main entity. What is it today? Can you just describe it real quick?

Aaron Rubin:

Yeah, so we're warehouse management software. So, about $12 billion of ecommerce goods are shipped using our software every year.

Our customers are either brands that ship for themselves, like solo brands, they make them solo stuff as an example or third party logistics companies. So, an example would be BrandFox, who ships for other brands. Those are two sets of customers, we’re the software that runs their warehouses.

Turner Novak:

Got it. And then going back to when you first started the company, I don't think you came out and said, "I'm going to start warehouse management software." You were doing a different business, a Jiu-Jitsu apparel brand.

Can you tell the story how that all got started back in the day?

Aaron Rubin:

Yeah, so I’m  44. I've been at since 1999. So, in college I had always made my money, even in high school. I was doing stuff online, super, super early days of the internet.

Turner Novak:

What was the first way you made money? Are we allowed to talk about it?

Aaron Rubin:

You could get paid for ads then - impressions. So, I took Sports Illustrated swimsuit with Cindy Crawford and posted those pictures - they all got sued - on the internet, and got tons of views and put ads on it. And I was making a couple grand a month off of that. Which was great when you were like 15.

Turner Novak:

So, this was the copies of the magazine and they probably didn't exist online yet because it was the '90s and you were the only way to look at those pictures on the computer basically.

Aaron Rubin:

I'm sure other people posted it too, but I got listed on the Yahoo directory or Alta Vista, or, whoever. This was pre-Google.

Turner Novak:

That was huge, yeah. Back in the day.

Aaron Rubin:

So, that's how it started.

Turner Novak:

Did you evolve to more, ways that you would tell your kids that you make money?

Aaron Rubin:

Yeah. Well, so in college, a friend wanted to buy a website and sold karate equipment for seven grand. He was like, "Hey, you're a programmer, who's the credit guy? What do you think?"

And I was like, some has a lot of money, we probably do it for less. He's like, all right, we want to do it together, do 50 50. I figured it would be another way to make some money.

So, I started on that in summer of freshman year. We lodge do everything. You couldn't take credit cards, even taking credit cards on the internet was super hard.

Turner Novak:

So, you were just programming basically Shopify, like all the functionality.

Aaron Rubin:

It was an open source software I use called Interchange that I started working off of. And then I had to edit that. But yeah, everything was hard. There was no infrastructure. That was days, but we built it where the leading karate equipment, really small niche, but we were the leading company in that.

And then over the years, shut that down, and transitioned to Brazilian Jiu-Jitsu, and then are still think the largest Brazilian jiujitsu seller in the US. Got a few brands, including 93 brands which we own and BJJHQ, which people who do Jiu-Jitsu would know what it is.

So yeah, so that business still exists. I'm still the owner. We have a great CEO George, who runs it. That business still exists and I ran that until 2013 when I started ShipHero.

Turner Novak:

Interesting. And that was just always up into the right, right? That was just an easy journey. What's the real story behind that one?

Aaron Rubin:

Yeah, so the real story is we grew by at least one million a year in revenue until the year we dropped two million. We hit the financial crisis 2008. The year before we did $6.3 million in revenue, small business running out of any warehouse. It was good money.

And then it dropped to $4 million when the financial crisis hit. Because we sold equipment to moms who put their kids in karate or Taekwondo. And people had less money then. So people were less inclined to put their kids in those. The business just fell off a cliff.

And then when the growth stopped, it turned out that our previous year's financial had been wrong. So we had overstated our profits. So, we thought we made more money than we did. I very stupidly had zero involvement in the finance side of the business at all. And we just get P&L and balance sheet, and I was like, "All right, cool." And I just worked on the program and the marketing, all that stuff

And the financials were wrong. So, my business partner I was 50-50 with had run it. He was running the business side, financial side alongside an external accountant who was also a good friend of his.

And one day I got called, he's like, "We got to go meet the accountant in the city," live outside New York City. I don't think I ever met the guy before.

He showed up and he is like, "Yeah, you know how you thought we made, we thought we were making like $500,000 a year." He's like, "Yeah, you'd didn't."

Turner Novak:

Was it 100k? Were you losing money?

Aaron Rubin:

I don't remember. I just remember we thought we had a profitable business and it turned out it wasn't profitable and we had a lot of debt. The balance sheet didn't show debt. And then all of a sudden, "Oh, yeah, you have all this debt."

Turner Novak:

How does an accountant miss that? You need to add the debt to close the books correctly. Wow, that's crazy.

Aaron Rubin:

I never figured that what happened. My dad ended up mortgaging his house, and lending me $350k. Which, then I bought out my partner for a dollar. I took over the debt basically.

Turner Novak:

Because the business was underwater, like it wasn't going to work kind of a thing?

Aaron Rubin:

We were going to go bankrupt in a couple of months if nothing changed.

So, it was like, hey, we're going to go bankrupt. What I told him was, "You made this mess, keep the business, take the debt and I'll go away." And he was like, "No." So, I said, "Well, okay then just give me the business and I'll take the debt," which he agreed to.

So, yeah, I got the money from my dad, which was really nice of him. And lent me that money, I used that to pay off some of the debt and then I was able to pay multiple five years.

Versus, what had happened was during the financial crisis, the reason we're going to go bankrupt is we had what seems like a tiny amount of money today, but at the time seemed like a fortune to me. We had $170,000 line of credit with Citizen’s bank, which we had never missed a payment on, but we had used in fault. We owed the full $170,000. They said, "You have 60 days to pay it back."

But we said, "But we're not past due or anything." And they said, if you read the agreements, they can always pull it. And during the financial crisis, everyone was pulling debt.

So, it was like, okay, 60 days to pay back $170k. And we had been using Amex. And Amex, we had two cards. I remember, one card went from $50,000 – and we had to pay it hit every month, and we did pay it and would reuse it - it went from a $50,000 limit to a $500.

Turner Novak:

Oh, wow. Jeez.

Aaron Rubin:

So, all the cash disappeared.

Turner Novak:

Yeah. So, you basically had to pay off $220k, extra hit to the cash balance.

Aaron Rubin:

Yep, exactly. I mean we talked to the bank and we extended a little bit to get some time. So I had a little bit extra time. But when we had to pay it or go bankrupt. So I took it on. He left the business. And then I was grinding the next 3, 4, 5 years of just trying to get out that hole. I had to pay my dad’s debt back.

And the business, the way we ended up sort of transitioning to the Jiu-Jitsu business, was we didn't have money for inventory. There was no cash to buy new stock.

Turner Novak:

Because that's what you use credit for typically it's just to shock absorb the ups and downs and yeah.

Aaron Rubin:

And there was no access to credit at the time. And fortunately, my personal credit didn't take any hit because we paid every room back. So, we didn't breach anything. But still, availability credit was pretty crappy those days.

And, part of the way I had managed it is $350 grand from my dad. But also, I sold down the inventory. So I no inventory to keep selling.

So, what we did, is I had seen in a conference had sold this company called this back country store. They sold ski, camping, stuff like that and they had created a site called Steep and Cheap, which was one deal a day, but just in that industry.

And the founder was on stage and he's like, "Yeah, we launched it and within 12 months, it was 50% of our business," or something crazy like that. And I was looking for Hail Mary.

So, I'm like, I know I want to get to Jiujitsu. I don't have money for inventory. What if I do one deal a day? I just got to buy eight products because I had 500, 1,000 SKUs. I don't know what I had in the martial arts business.

Turner Novak:

You said 500,000?

Aaron Rubin:

No, 500 or 1,000 SKUs. Something like in that range of SKUs.

And I'm like, "I'm going to buy eight," so I have a week and a day worth of product. And then I'll just keep rush buying as we get new sales.

And it worked. And then we built that business and that business became way more profitable than the prior business had been and it was more successful, but it was definitely a desperation. I had no cash. I was like, "How can I build a business with no cash?" selling goods online.

Turner Novak:

From a psychological standpoint, how did you manage that? Because I'm sure there's a lot of people listening that are probably in a similar position. Where, they think there's light at the end of the tunnel, maybe things aren't going perfectly, but there's a path through.

Was there anything you told yourself every day or something that made it easier to get through?

Aaron Rubin:

Yeah, so there were two decision points basically. The hard decision was to take the money from my dad. Once I took the money from my dad, I was committed to make work. I borrowed the money. He's college professor. He couldn't absorb the hit. He literally mortgaged the house that he'd paid off his whole life. So, I couldn't fail at that point. And I had my first kid.

So, I went from go to the gym six days a week to zero. I didn't go to the gym for years, because I was like, I just took care of my daughter, worked all day. I was like, if I can outsource something for 15 bucks an hour, I do myself. I did it myself. I was just like, I need to pay this money back. And I barely saw my friends, but I was just like, "I need to pay this money back." So, that was sort of like I made my decision.

The hard decision was like do I take the money from my dad? Or do I just declare bankruptcy and get a job? Because I knew once I took money from my dad, I was committed. Whatever I was going to take, I was going to have to do it.

And I really struggled with that decision. I didn't want to take it from my dad. I had just had first kid, now 15. And what was in my mind is, if I fail, I fail. But I don't want to tell her I quit.

Turner Novak:

Your kid? You didn't want to tell your kid that you quit?

Aaron Rubin:

Yeah, exactly. I was like, I believe that I can make this work. And if I fail, I can look her in the eye and be like, "I try my hardest, I failed." But if I tell her, "Hey, it was too hard, I quit." I'm not going to do it.

So, that's why I was like, "All right, I'm not going to quit." Take the money from my dad and then after that I just busted my ass.

And ecommerce is hard, because there's a couple structure. Basically you’ve got to build inventory. So, the structural issues with inventory are – this is super deep in the woods for ecommerce people, but -

When you make a profit but that profit goes into inventory. Like yeah, I want to start with eight days worth of inventory. But at some point, I have to bring in containers from overseas. I got to buy stock more efficiently. So, I ended up building up to half a million or three quarter a million dollars of inventory.

So, you're making profit but you have no cash, because it all goes into inventory. And then my wife wants to buy a new house and I'm like, I made all this profit but I have no money. You're in this weird spot.

And then you also pay tax on your profit, not your cash flow. So, I would add $200 grand of inventory in a year.

So, let's say I would have $400,000 of profit, but $200,000 of that was my inventory bill.

Turner Novak:

It's an increase in inventory.

Aaron Rubin:

So, I'm paying taxes up $400,000 which come in New York. So, I don't know what that was.

Turner Novak:

Little higher.

Aaron Rubin:

Let's say it's $150 or $120 grand, I have to pay in taxes. So, I paid $120 in taxes, I paid $200 in inventory increase. I'm left with $80.

Turner Novak:

And you have a kid, multiple kids at that point?

Aaron Rubin:

Yeah, one at that time. But I ended up do other things to make money. So, basically what I ended up doing was I lived off of other income, not my business income in those first few years. Because the business only paid enough for the taxes and the inventory.

Which again, it was killing me. I had a kid and I had to build this business to pay my dad back, and pay back the debt. Paying that debt also cuts into your profit.

Turner Novak:

Oh yeah, true. Had your other $80k right there.

Aaron Rubin:

That $80 went to pay my debt because I had $350 grand I had to pay back. And I paid it back over four or five years, or something like that. So, that all went there.

So, basically, I would work my ass off to get that business to $400, which is not a bad profit coming from zero. But while simultaneously working other jobs, side hustle things to - my wife did work, I had a kid - so I had to support the family and do everything off of other income. So, it was a tough few years.

Turner Novak:

And then ShipHero sort of evolved from that business, right?

Aaron Rubin:

Yeah. So, I got that business up to a point where the year before I started ShipHero, the year before I left running that business and started ShipHero, we made a million bucks in profit. So, I built that business up a lot.

And then at that point, my background was computer programming. I got into martial arts because of this – like, I didn’t do martial arts.

Turner Novak:

Wait, so this whole time you were not into it, but you were just running the business?

Aaron Rubin:

It's a business I had to run. My business partner was supposed to run it, but then he wasn't there, so I didn’t know anything about the business.

So, I ended up spending a lot of time designing apparel for Brazilian Jiu-Jitsu, and working with factories, and sourcing. And none of these ... See the way I'm dressed. I'm not a fashion guy.

Turner Novak:

You're wearing a ShipHero shirt and that LVK hat.

Aaron Rubin:

So, it was definitely not my sweet spot. It was not my skillset. It was just the business I was in. I needed money.

I was a programmer. I was writing code as a kid. I wrote a game. Me and my friend, we wrote a game, an online text-based game, I was 11. We had people using it. That was my passion. It's what I loved. I really wanted to get back to it, but I had to support my family so I couldn't. But then once the other business, the martial arts business was thrown off free cash, I'm like okay, I'll have the CEO run it, and then I can start ShipHero.

So, I wanted to do it. The timing worked out, and I had the cash to do it. And the market was ready. We were looking at, me and Yosef, who's a friend of mine, who worked with me at the prior business and works with me at this business at ShipHero.

So, we had built software, because we were both programmers and we built software for our warehouse, because we couldn't afford the stuff on the market. We looked at stuff and it was just like, I hate talking to people.

And it was like, you want to know the pricing? Well, let's get on a conversation. Let's talk about it. Maybe we'll meet in person. I was like, I'm not. I don't have “meet in person money” for software.

Turner Novak:

Just give me a link to sign up and start using it.

Aaron Rubin:

If it's got more than three digits on the monthly cost, I can't afford it. This was when we were rebuilding the business.

So, we built our own. And then, I had friends running other ecom businesses, who we’d be chatting, they’d come by, and they saw it in the warehouse. And they’d be like, "This is amazing, can I use it?" And it was like, no, I built it for one. It just doesn't work that way. Built it just for us.

But we knew there was demand. And actually our first customer was a friend of mine who owns a company called Wine Chateau, who's still a customer of ours. He wanted something for his warehouse in Jersey. And he's like, "Hey, I wish I had what you guys built for yourself." And we didn't use that code or anything, we started from scratch, but we knew there was a there for it. And I wanted to get back into programming.

Turner Novak:

So, what was the actual product back, this was 10-ish years ago? 12-ish years ago?

Aaron Rubin:

So, it was warehouse management software. So it's software to run your warehouses.

But idea we had was, so our warehouse was in New York. York. Jiu-Jitsu was very big in California. So, that was our sort of tied for our biggest market. And everyone was like, Prime is two days at that point, now it's like three minutes.

And so, I would second day air products from New York to California every day, just to compete with Prime, so that people would buy through us. And it was costing me a fortune. But I’m in New York.

So basically, it cost me like $6 to ship it to New York because I'm in New York. And 20 bucks to ship to California. So, my margin would be like, I'll make a ton of money on the New York orders, and like two bucks on the California orders.

So, what I wanted to do is I wanted to have a West Coast warehouse, like a Vegas warehouse or something. But my business was too small to set up a separate one. So, what I wanted to do is just partner with another company on the West Coast. A third party logistics company to do the West Coast orders, then I was going to do the East Coast orders.

So, I built the software as a network so that any person can use any other building, as long as everyone agrees with permissions. So you can use any other warehouse. That was sort the idea is we would enable anyone to use all the warehouses using our software.

And that had a lot of complexity, a lot of work to the software. But I was a total believer that that was going to be the differentiating factor. And no one cared.

Turner Novak:

Oh, wow. Why not?

Aaron Rubin:

It's still built that way and the percentage and there's some people that use it but it's tiny. We only have a few people that are doing it.

Everyone said, "Yeah, that's great in theory. Can you just give me software that works for my warehouse? Forget another warehouse, that’s great. Dude, I just want my warehouse to work."

So, the initial idea was not the idea that actually worked. It was, just built software that works.

Turner Novak:

And then it kind of evolved over time I'm assuming. What was the first thing that people actually cared about? They were like, "Okay, yeah, this actually works now."

Aaron Rubin:

So Wine Cheateau Was our first customer. Then I used my own warehouse. Actually I was the second customer, before I went live on my own warehouse.

And then it was just brands and third party logistics companies that just were looking for good software. It was really nothing groundbreaking. We thought we had a groundbreaking feature in the old network thing. It sounded very techy and modern and distributed. Because we've got thousand buildings front of our software. So, in theory, you can negotiate with warehouses everywhere you want different countries, different regions, different cities.

And there's whole businesses. Look at Flexe built around that. There's really big companies that have raised at billion-dollar valuations around a similar mode. But that didn't work for us. It just didn't resonate. So, it's just good software to run your warehouse.

Turner Novak:

And so, if I'm someone listening to this, I'm just like, "I don't know much about ecommerce." I'm just like, "It's a warehouse. You pick up a product. You just ship it."

Why is it so complicated and hard?

Aaron Rubin:

So, the typical way you do it, is you get an order. You print a piece of paper, tells you what items, so you know where those items are. So, you walk around the warehouse, you grab those items. You bring to UPS, you type in the address. And you say, "Okay, weighs two pounds, print label, slap the label on or ship it." So, that is the simplest way. I mean it works fine.

We've got customers that are shipping tens of thousands a day. Our biggest customer was I think a little short of 300,000 on a peak day of shipment. So, at that scale, you got to make some changes to reduce your mistakes and reduce your costs.

So, yeah, it's all about labor costs and shipping costs and shipping accuracy. So, just like any typical B2B thing, you can use Excel. But at scale, you got to value using something that's a bit more advanced.

Turner Novak:

And then at one point, you actually opened your own warehouses and started your own 3PL business. Why did you do that?

Aaron Rubin:

The reason was wrong. The results turned out to be good.

Turner Novak:

What was the reason?

Aaron Rubin:

I think I could tell the story at this point. It's been so long. It's probably fine.

So, Shopify had something called Shopify Fulfillment Network. They launched it, I can't remember what year, but… it just used our software.

The version one of Shopify Fulfillment Network was 3PLs, two of which we introduced to Shopify, one was the previous relationship they had and they at our software and that connected to Shopify via the API and that was it. That was the whole Shopify Fulfillment Network.

They launched it at Unite. Their stock went up by $2 billion that day. So, they announced that that was it. It was amazing.

And then Shopify Fulfillment Network never fulfilled its promise. It never really worked. It became, they bought, Deliverr. There's a whole long story there, right? And it's now it’s a part of Flexport. It never worked. I never achieved its promise.

So, they were on stage and were like, we've achieved 99.98% order accuracy, which, that was just using our software. That's it, you didn't do anything. But anyways, they integrated with this. The accuracy was based on our software.

But I had a vision for how I thought it should run, which was something I called load balancing. Which is, I had all these warehouses. And I knew having a ton of warehouses doesn't help, using this software, because no one is going to be able to actually connect all of them.

I’ll give you a simple example. I bring a container of products from, I personally bring it from Pakistan, but let's say China because it's more common. You bring in a container from China. It shows up at the port of LA. Now, you say, let’s ship it to five different warehouses. That's great, but I got one container. How do I get that product to five different warehouses? It doesn't really work.

Turner Novak:

It's almost makes it more complicated.

Aaron Rubin:

It's more complicated. But it’s also more expensive because I’ve got to have a warehouse break it up, split it, send trucks to four other places. It just becomes uneconomical and too complex.

So, what I wanted to do is, just ship it to a one warehouse, and we will split it up and figure out where to put it. We'll move it there. And we'll give you a flat rate anywhere in the United States.

And the reason why it works for us to do it is we get containers from lots of customers every week. So, we aggregate it. So, we're sending a full truck instead of sending partial trucks. Which is way cheaper. And we'll do all the AI. We'll do all prediction, support, etc. Just leave it us. We'll be a black box so we can do it.

And I tried to get Shopify to do it. And I got a lot of “yes but”, “yes but”, “yes but”, and they didn't do it. And I was like, "All right, I convinced myself to do it." And I'm like, "If they're not going to do it, I'll just go ahead and do it myself."

So, that was why it started. It's not the reason for the business anymore, but that's how it started.

Turner Novak:

Do you still do any of that or is that...

Aaron Rubin:

We do, but that's again not the primary value of the business. So, once again, I've learned the lesson that people just want something to network.

Turner Novak:

Okay, so what is it today?

Aaron Rubin:

So, we do still do that for some people. But for the most part, our customers use us because they just want a third party logistics provider. So, LVK, we just branded as LVK today’s the announcement. But LVK, which is a fully owned subsidiary of ShipHero, but it's our warehouses.

So we've got seven warehouses, a bit over a million square feet. And brands come to us provide outsource fulfillment because they just want quality service. They just want everything shipped, on time, correctly, at a reasonable price. Whether we load balance some stuff or not is a secondary concern. They just want something that works.

And I mean, Deliverr raised a ton of money, sold to Shopify at $2.1 billion valuation, on exactly that promise. The Deliverr promise is, you send it to one warehouse. They distribute it, and they deliver on a flat price. The exact same business model we had, or that we started with, that was the idea behind the business model. And now they've sold to Flexport at a fracture of the cost.

It just hasn't lived up to my expectation for what that business should be. For the state of the industry today, people are just like, "Yeah, that's great," but can you just ship the right thing to the right customer on time, 100% of the time, and then let's worry about the more complex stuff after you get the basics right.

Turner Novak:

Is that still a big problem? We're just not getting the thing shipped that need to be shipped in the right amount of time?

Aaron Rubin:

Exactly. The blocking and tackling is still where the industry is. Its not that advanced. We're still figuring out the basics of getting things done correctly, accurately, reasonable cost.

There is complexity in the business. It's not just ecom these days. You’ve got to be able to ship to owned retail, third party retail. There's complexity in the business.

A lot of seasonality. We've got customers that go from 2,000 orders a day to 10,000 a day, during peak. That's hard to manage. So, those sort of basics and doing it as a reasonable price, is still where the industry is today. I still believe in the model of what we were trying to build. And we still do it for some customers, but it's not what we lead with.

We lead with, we'll get your shit to your customer on time correctly every day. If you call us on the phone, we'll respond. We're going to help you succeed. And we're going to handle all the complexities and the reality of a business that is not always clean when you deal with real world products.

It's not uncommon for us to have to deal with situations where the manufacturer sent the wrong thing, sent it to the wrong place. They mislabeled it. Or, we got Good Morning America, we didn't realize they gave us a spot tomorrow. We need to ship 4,000 orders instead of 400 tomorrow. Those sort of things, we deal with that, and that's the value that our customers see and use us for.

Turner Novak:

So, can't you just use automation, robots, AI and it just fixes all this stuff? There's still so much manual stuff going on. Why is it not that simple to just replace it all?

Aaron Rubin:

Yeah. Probably more than 50% of the robotics projects that I've seen have been failures, have been ripped out. The state of robotics today is not nearly where the hype of robotics is today, for warehouses.

I mean, Amazon's clearly the leader in it. But even they have a ton of manual process of manual warehouses. That's why they're the largest or second largest employer in the US. It's not because there's robots, because there's still people doing most of the work.

We use hardware, custom-made hardware. We're doing a bit on the robotic side that's owned by us. But we're not trying to do a full lights out warehouse. That's what you've heard 10 years ago people were like, "Oh, yeah, 2024 will be like, you won't have to even have lights or air positioning or heating in the building, because we're going to be all robots."

Turner Novak:

I've seen those videos, where there's 10 stories and packages will be automated going through all these pipes and layers and stuff. So, you're saying that is not-

Aaron Rubin:

That's not the reality. Those are great pitches, but no one's actually doing that shit.

Turner Novak:

Is it possible to do? Are they just expensive or is the tech just not good enough or?

Aaron Rubin:

Yeah. So for one of our customers, multibillion dollar retailer up in Canada, has a beautiful automated system as a small part of their warehouse - that works really well. And I think they have seven full-time engineers on site.

Turner Novak:

Like software robotics engineers?

Aaron Rubin:

Yea. Just managing for all the issues. It works well.

But the reason why they can afford to do it is they're a 40-year-old company that has very high demand. They own a lot of stores. And they can say we have a certain percent of our business that we know is going to be consistent, and we know where it’s going to fit in, and it's going to go through those robotics.

But still, the majority of the warehouses were run by humans. Because the robots only handle narrow use cases. And everything needs to have an alternate flow that's handled by humans.

So, no one's doing everything fully robotic. So, there's always a second version of everything that's done by people.

Turner Novak:

Is that for capacity spikes? And then troughs in capacity? Or is it a fail-safe just in case the robot dies?

Aaron Rubin:

No, its because the robots can't do everything.

So, this system only holds, I don't remember the exact size, but there's totes. The totes are only, let's say four cubic feet. If something is more than four-cubic feet, it can't go through the robot. If it's longer than 36 or 48 inches, maybe less, it doesn't fit in the robotic system.

If it's liquid, it to slosh around can move, it can go through the robotic system. If it's potentially flammable, you don't want it in the robotic system. There's been a couple of, or one high profile accident, like if you have a fire, and those are really bad. So, you need to keep those out. So, there's all these edge cases which require that you have an alternate flow. Which is fine.

So basically, if you're saying that I've got a warehouse with 300 people.,and now I'm going to automate and now I'm going to have a warehouse with 150 people, that is doable. And we’re talking $50 million investment, but you can do it with that sort of investment.

If you're going to say, "I'm going to go from a warehouse for 300 people and I'm going to take it down to 30 people," you are going to waste a lot of your company's money, at the end of which you're going to be fired, because that project will never succeed.

The state of automation is not nearly there. It's a way to move some people, remove some people from the process. Get rid of the most manual, inefficient, dirty, hard jobs. Get rid of some walking, things like that, that works. But to try to like, hey, robot's are going to pick items and put them in a box, it’s not going to happen.

Turner Novak:

Why is it not going to happen? That seems like a pretty easy-

Aaron Rubin:

The tech’s not there. It will be there. But we're probably decades away from it at this point. There's just, all this complexity that humans are pretty good at managing, right?

Like, if something’s really big, just grab another guy and he grabs the other side, and you carry it. Try doing that with robots.

Turner Novak:

Yeah, true.

Aaron Rubin:

Or when there's glass. A human grabs a glass, knows to bubble wrap it, and puts it in a box. And then could grab some other item, that is tearable, like a plastic and okay, I can’t rip that. Humans know that right away. Robots are really bad at that. And they don't understand what things are like humans do. So, that's part of the complexity. And again, there's a lot.

Also a simple thing, like not tipping something over. If you load a cart that is too heavy on one side, a robot that picks it up, it's got to tip over. You will naturally know like, "Oh, wait, wait, no, this is not good. It's wobbly. I need to rebalance the weight." Humans do that. Robots, they're going to pick it up, it's going to tip, and then in your lights out warehouse, you've got a spill and robots are going everywhere and just you have a bad situation. So, you need to build systems to not have those products go through there and handle all the outages that occur.

Because when robots stop, they stop. But humans, they can walk around the spill. Robots like you just got to hit the red button, stops everything. Nothing happens until someone finds a mop, cleans it up and then presses the button again to say, "All right, everyone can resume." But during that period, no can walk. The robots can't do it.

Turner Novak:

So, really, the robots automation only makes sense if it is a simple task that can be done over and over again with no complexity. That if it fails, it doesn't shut the entire surface area of the factory floor down.

Aaron Rubin:

I mean, it needs to be safe and ideally decoupled. And a lot of them are more co-bots, where it's like the human working with the robots.

So, there's carts. A very common use case that works really well. So, we've been working with is, I got a cart full of products, it needs to go from A to B.

Turner Novak:

This is what Amazon does, right? With the Kiva robots?

Aaron Rubin:

Yeah, that use case works pretty well.

Turner Novak:

Because then the human doesn't have to walk. Because the human's job was walk to the thing, pick it and then bring it back. I mean, maybe the picking it is difficult. But just moving something with mechanical horsepower with the robot, that's straightforward from point A to point B.

Aaron Rubin:

Reducing the walk works really well. Moving heavy loads around the warehouse or factory floor works really well. Or something where it's like the exact same thing over and over.

So, if you're going to package a thousand a day of the exact same thing. I got a thousand soaps, and I got to wrap it, put it in plastic every day, a thousand of these every day, or a hundred thousand. You build a system that does just that. If I'm smart system that does the exact same thing every time, that works.

In the warehouse, very rarely are you shipping the exact same thing. It's like, this guy ordered a T-shirt and a water bottle and this guy bought a hat. You can't squish the hat. There was always difference.

So, that's why the warehouse is good for that initial use case of moving. A lot of moving in a warehouse, you can automate that. That's amazing. Then the next use case of picking, we're super far.

Turner Novak:

What about using drones? So, the drones fly around, pick exactly what you need, take it to exactly where you want. Because that sounds amazing if it could work. Are we close to that?

Aaron Rubin:

I mean, there's people using drones for counting, checking where things are. Those could be used like RFID. Drones could be useful for that. I mean, they're not lifting. There's never flying drones, moving anything around within the warehouse.

There are flying delivery drones. The use case of drones for delivery exists, and will continue to exist. And the reason why it actually works in some ways better outside the warehouse than in the warehouse, is you already have UPS that's going to deliver, right?

So, if I could take 20% of my packages and then deliver via a drone, then you don't have to figure out how do I solve every use case with a drone. Because the drone can't solve every use case. But if you can solve 20% of the use cases at 50% of the cost, then I just took 10% of my cost out, that's amazing. Because you still have UPS. But if you said I'm going to do only drone delivery, how are you going to deliver a 75-inch TV with a drone?

Turner Novak:

Yeah, that'd be pretty funny to watch.

Aaron Rubin:

Right? Hanging.

Turner Novak:

Yes.

Aaron Rubin:

So, drones outside of the warehouse are here. There's companies doing it, even within the US, and outside the US even more. And that's to continue to grow. As well as the sidewalk drones that drive stuff. So, that's going to happen.

But again, they're working with a person. Basically, the way it works is the person has a package, and they put it in the position for the drone to grab it. The drone delivery drops it and another human takes that into the house. So like human plus drone works pretty well.

Turner Novak:

So, you typically need a human there and it needs to be a pretty straightforward fits in weight and size requirement that makes it possible to do it pretty simply.

Aaron Rubin:

Yeah, because you have the infrastructure to handle all the edge cases. We have UPS and FedEx and all those guys.

Turner Novak:

Interesting.

So, talking about ShipHero, I'm just curious, what is the scale of it today that you're comfortable talking about? I think you mentioned certain volume revenue. I know you've mentioned in some of your videos, you hint that you're profitable. You hint at certain percentage of all ecom or Shopify orders that run through the business. What's kind of, the scale of everything you guys are working with?

Aaron Rubin:

So, on the software it's $12 billion of GMV that ships through our software. 95% or so is our software, about 5% is through our own fulfillment. So, we're much bigger on the software side than our physical fulfillment. Our physical fulfillment is about a million square feet across North America.

Turner Novak:

Which is seven warehouses?

Aaron Rubin:

Yeah, seven warehouses, Utah, Vegas, Nevada; Dallas-Forth Worth, Texas; Jacksonville, Florida; Allentown, Pennsylvania, Toronto, and Vancouver. Those are our warehouses.

We have customers all over the world, North America being our largest base. And we're a profitable company.

Turner Novak:

Speaking on more market landscape, there's companies, there's like a 4PL which is, I don't know if you want explain what that is. I don't know if we ever actually explained what a 3PL is - maybe half people know what that is, half people don't.

But what's a 3PL? What's a 4PL? And then what are your thoughts on how that landscape with all the VC funding over the last couple of years has gone?

Aaron Rubin:

So, a 3PL is - if you own a brand, you can ship out of your own warehouse - or you can outsource to a third party that will ship it for you.

Turner Novak:

And generally, you would do that because, it's just a hassle to figure it out. And if you can just have someone else do it who's good at it, you focus on the other aspects of your business?

Aaron Rubin:

Yeah. It depends on the brand, whether it makes sense or not, but usually it makes sense to outsource it.

A 4PL doesn't own any buildings, so they act as a 3PL but they ... So basically, if you're a brand, so you own Turner's Bananas. I'm a 4PL. I go, "Hey Turner, I'm going to ship this stuff for you cheaper than anyone else. Give me your business."

And then I go and I say, "Hey Aaron, you got a warehouse." I'm going to put Turner's Bananas in there. I'm going to pay you two bucks an order to ship it and I'm going to charge Turner $2.50.

VCs love that model because I don't have to only build it, I just outsource the A, mark it up.

Turner Novak:

I take a cut, asset light and I just print money - in theory.

Aaron Rubin:

And how come, of all those companies, only one has ever had a single profitable quareter? Well, I shouldn’t say of all of them, because there's some other 4PLs. But of the big ones, they don't make any money.

4PLs in theory have a great business model. VCs love them, because they don't have assets. So, that means if, in my business where I own my own buildings, if my business doubles, I need to go get new warehouse space. I need to hire new managers. I need to lease new building. I need to buy new racks. I got to buy new robots. I need to buy new hardware packing stations.

And then while I set those up, I'm paying the rent on the building, paying the employees but I don’t have the revenue coming in yet, because there's a ramp up time to build the building, set it up. And then you have to sign like seven, 10 year leases. So, you have to get one that's bigger than you really need to grow into it. There's a lot of negatives that VCs hate.

On a 4PL model, you have none of those. If I have too much business, I just call up another guy who runs a 3PL like "Hey, I'll give you some business. Why don't you give me some space?" Then you scale infinitely at zero cost. All the words that VCs love.

Turner Novak:

Yeah. So, why is it bad? It sounds great, so far.

Aaron Rubin:

It sounds amazing.

The funny thing is, what you need to do, is you need to find customers and you need to find warehouses. You got to get the warehouses to use their software.

At ShipHero, we have maybe the largest number of warehouses shipping ecommerce orders in North America. So, we were super well positioned to be at 4PL. And - the company started as warehouse management software - but before we became a 3PL, we very briefly were at 4PL.

Turner Novak:

Oh, interesting.

Aaron Rubin:

Yeah. I hired Maggie who’s now the CEO of LVK, which is our fulfillment division. SHe had a previous startup that she had sold. So, she sold IT, she joined us to run this 4PL.

She'd been with us for a few months. and she's like, "Aaron, I know I might get fired. But this business will never work." And she was right.

Turner Novak:

How far into the job was that? Was that pretty quick?

Aaron Rubin:

A few months. Just a few months.

She's like, "I don't want to just take your paycheck and say, 'Oh yeah, we're going to do it.'"

This business model does not work and will not work. it doesn't work for customers, it doesn't work for the merchant. It works for the VCs, it works for the investors. It works for every single person in the ecosystem other than the customer.

Turner Novak:

The ones who actually pay the money.

Aaron Rubin:

Right. because the customer wants to work directly with the building that's shipping the order. And they get no advantage for having me as a middleman between them.

It’s like, I'm going to find the building for you to operate it. I'm going to be a bottleneck in the communication between you and them. I'm going to mark up their costs. Why not just work directly wth them? Where's the value I’m adding? And there is no value.

Now the value that was - and I use Deliverr as an example, because I don't want to throw too much shade - but they've been sold and I know Harish the founder and he's a good dude, he's exited, so I feel like I can speak fairly freely - they lost a ton of money. So, they're subsidizing.

So, the value to the merchant at that point is that they're getting a subsidy from Coatue, or whoever their investors was. I don’t remember. And okay, that's great. But that only works for so long. And then that subsidy stops. And then once that subsidy stops, what is the value being delivered to the merchant by having the middle layer between the building themselves?

Now people say, "Well, Uber does that," and Uber's a great business. Sure, the value there is I don't want to have to have a network of a thousand different drivers I call every day be like, "Hey, are you available right now?" It's convenience.

But on a 3PL, our customers have been with us for years. So, the work of vetting a 3PL is like a once every few year process. That's not enough value to have an ongoing tick rate of marking the service up 20% forever.

And by the way, brands typically spend more on their fulfillment than they take home as a profit. So, if you're a brand owner, the check you write to your 3PL will be more than the check that you take home as your profit every month. Why should you have a 10% or 20% markup on that? You shouldn't. You want that to be as low as possible. And I don't see how the 4PL model helps that.

So, there'll be pushback. There'll be people, obviously there are businesses that are doing it. But in my understanding, if you look at all the big ones, Deliverr lost money every year, every quarter. The other big one that, I won’t throw names out, but my understanding is the only profitable quarter since they existed, which is seven years or so, was Q4 of '21 or '22.

We're not doing another COVID, I mean hopefully, we're not having another lockdown where you get those sort of, you can do whatever you want price-wise. At that point, we lose all capacity in the market. So, you had pricing power. But they’re a huge, at scale company. And they don't have our scale in terms of the number of GMV. They're smaller than that. But they have much more scale than us on the fulfillment side. Their revenue's higher than ours. And they're not making a profit while we are.

So, I don't see the 4PL having ... I don't see the reason they should exist. I'm happy to hear pushback and I’ve explained it to people there. I have respect for a lot of the people there. But I don't understand how it serves the merchant better over the long-term to work with a 4PL versus a 3PL, unless there's a subsidy.

Turner Novak:

Yeah, that's true. I'm just trying to think of, it seems like the reason you would pick a logistics provider is it because if they give you a lower cost or improve the customer experience in some way. So maybe… there's a trick in there that no one's picked up on yet?

Aaron Rubin:

I mean, that would be the overall pitch.

So, we've got 3PLs that are using our software that are doing $100 million a year in revenue, are profitable, and they’re 3PL’s. They're not 4PL’s. They're not asset-lite. So, yeah, they took a million bucks. They built a building, they filled it. Then they built the next building, and filled it. And they incredible, they threw off millions of dollars of free cash. They have scale. They're not venture scale. But they're great profitable businesses. And those are better than the 4PL’s. They're succeeding, and they're winning. And their customers are happy.

And if I'm a merchant, I would much rather - I'm in the shade throwing business today - but I'd much rather work with a company that is going to be around tomorrow and not go under at some random time that's inconvenient for me. Versus one that maybe is a little bit cheaper or whatever their pitch is, but does not have a sustainable business model.

Again, the 4PLs work really well for the VCs. They have the pitch of we can get to venture scale, which most 3PLs cannot, although we can talk about that in a second.

But for the merchant, it's a safer choice. Work directly with the person that's providing the service. They're dependable. They're general profitable, bootstrap businesses. And you can call the founder. If you want to talk to the founder of almost one of the 3PLs that we work with and you're a customer, they will get on a phone with you that day. Do you have a problem? They will get on the phone with you. Good luck, get the founder of one of the big 4PLs on the phone with you that day. This is just a different business model. How does that help you?

Turner Novak:

Yeah. Makes sense. I think maybe we should stop piling on the 4PLs too hard right now. We've said a lot.

Aaron Rubin:

I'll say one more thing on the 3PLs being not venture scale. Which is, DHL and GXO each produce a billion dollars a year in profit as a 3PL. So, a billion dollars a year profit is more than the revenue of any of the venture backed players. And they're just a traditional 3PL. They just have buildings. They run them well. They do it for decades. And get a billion dollars a year of profit every year, consistently. No losing. They don't lose money any quarters.

Turner Novak:

Yeah. Also, you own your real estate, too. That's good shock absorber.

Aaron Rubin:

Most don't.

Turner Novak:

Oh, they don't?

Aaron Rubin:

Most of us lease.

Turner Novak:

Oh, wow. So the landlords are really the ones who are winning in all of this. They're the ones at the end of the day.

Aaron Rubin:

I know I was talking to Maggie the other day. She was like, because we bought a bunch of, four or so 3PLs, when we raised some money. She's like, "You should have just bought the buildings and lease them to someone else." Because the amount that those things went up since 2020 through the COVID bump, that real estate, that was the play. We should have bought the real estate.

Turner Novak:

I mean, that's who always wins throughout history of the economy. Whether it's digital real estate, it's Facebook or whatever, just charging people more for the ad space. Or whether it's you own real estate in Singapore or New York, that’s who always wins at the end of the day.

Aaron Rubin:

We always overthink it. Like a fancy business idea. It's like, "Dude, just buy some land."

Turner Novak:

So, I'm curious then. How you've kind of seen the market changing over the past couple years. I know I feel like you've maybe hit on this before. TikTok Shop, Temu, Shein, they’ve gotten market share.

What are you just seeing just broadly, just in terms of how these different channels are switching? Where people are buying and shopping from where the volume's moving?

Aaron Rubin:

TikTok Shops has been blown up. The fastest growing channel ever. Yeah. Faster than Amazon. Faster than Shopify. Fastest growing ecommerce channel in the United States ever is TikTok Shop. Now, I don't know if it's going – it’s supposed to be banned soon, so I don't know what that's going to be, but-

Turner Novak:

It's like a race, can they get big enough to get unbannable. I don't know.

Aaron Rubin:

To me they did the smartest thing, which is they are making it so that they are an important part of the US economy. So unlike Shein, which are part of the Chinese, TikTok Shop's actually part of the US economy, because most of the sellers on TikTok Shop are American.

And I think that's very intentional because when it comes time for debate and lobbying over whether it should be banned or not, the US business community is actually in general or ecommerce wise, at least in favor of TikTok Shop and anti-Temu and Shein versus people don't like TikTok Shop potentially it's spying and those sort of concerns.

But from an economic perspective, TikTok Shop has made TikTok a very valuable part of the US economy.

Turner Novak:

And so, this is because if I'm on Temu or Shein, it's just like a random cool headphones. It's a Chinese seller. And then on TikTok it's like Aaron's headphones or it's like-

Aaron Rubin:

Yeah, it's my Jiu-Jitsu brand.

We've got a bunch of customers. We've got a few of the top 10 TikTok Shop customers. We've got Blue Waters. We've got a bunch of them and they're selling women's clothing. They're selling beauty products. They're selling the Stanley Cup sort of things, coolers or mugs. All sorts of regular products that you buy on Shopify or Amazon, they just go on TikTok Shop.

They used to sell through Meta. So, it's just a new sales channel for them that's working really well. It's like a new, non-saturated sales channel.

We've got a bunch of customers doing over a million dollars, where a month through TikTok. It's a real business.

Temu and Shein traditionally had zero US-based sellers. Now they've been pushing. We're talking to them, they’re talking to everyone. They're really pushing hard to get US sellers on the platform and US fulfillment on platform, because they want to be part of the US economy to prevent them from getting blocked and banned.

But as of today, they contribute almost nothing to US economy other than the delivery side. But they have nothing on the fulfillment or the ecommerce side. And they're a huge part of the market these days. There's a billion packages a day, billion packages a year.

Turner Novak:

I was going to say, a day, that is everyone's making four purchases a day.

Aaron Rubin:

Three million a day, one billion a year, are shipped directly into the US through what's called 321 program. Of that, about 600 million are just Temu and Shein.

Turner Novak:

Wow. So, 60%

Aaron Rubin:

This 321 program is available to the entire world.

Turner Novak:

Can you explain that also too?

Aaron Rubin:

Yeah. So, 321 is if you've get a product directly from Temu and Shein, which is probably everyone who’s listening to this has, or their kids have, it shows up just like any package from any ecommerce seller, Amazon or anywhere else.

If you were in another country and you were buying a product, say from the US, it doesn't come in that easy. Someone has to pay taxes on it or tariffs on it. So, if I ship to Canada, it's $40 that can come in free. It's value of the products over $40. I have to pay Canadian customs. And to the US, it's $800. So, almost no ecommerce orders are over $800. So, therefore the products come in for free.

So, to give you a very simple example, I just paid $16,000 to the US Customs for importing some Jiu-Jitsu apparel into the US. Because, I brought it in bulk shipment to my warehouse. However, if I shipped each of those products directly to the customers, and it did not go through my US warehouse. I would pay zero in customs. And the customers would pay zero. So the US government would make $16,000 less if I went straight from China. Which is what a lot of people are doing now. They're just shipping directly from China to avoid having to pay the US customs.

And to get a little more in the weeds on it, I actually do it as well. I don't ship directly from China. I actually ship lot of my products through Canada. So, my manufacturer, let's say in Vietnam. Vietnam has a free trade to Canada. They import to Canada. I pay no taxes to Canada.

Then, those are items with a high tariff. So, it'd be like $12 an item if I brought straight into the US. But instead, I bring it to Canada, pay zero customs. It goes to the ShipHero warehouse in Toronto.

Then from Toronto I ship it into the US, because each shipment is under $800 - even though the aggregate shipments are hundreds of thousand of dollars – but since each individual shipment is under $800, it goes to US consumer with zero tariffs. So, it saves you like $12 a unit by shipping it in Canada.

Who that helps? No one. I mean, it helps me. It saves taxes - but it doesn't help the US government. It doesn't help anyone, other than avoiding taxes. But it's a legal way to avoid tariffs, so I do it.

Temu and Shein do that on steroids. They do to tune up 600 million packages a year.

Turner Novak:

So, should they probably be taxed? Do you think that's going to happen? It just seems like they're kind of, they're pushing it to the limit right now.

Aaron Rubin:

Yeah, I mean, should they and will they are two separate questions.

I think they should. I always think of it as, the always argument against is, well, if you add tariffs, costs go up to the US consumer. And there's a lot of lobbying being done to keep this program in place. So, that's what the lobbyists always say.

What I would say is if I buy that product through Walmart. If I go to my local Walmart, I go through my local Dollar Tree, that Walmart and Dollar Tree hate tariffs. And that tariffs included the cost. But if I buy that same item from Temu and Shein, there's no tariffs.

How come we're giving Temu and Shein the ability to sell stuff with no tariffs, and Walmart and Dollar Tree have to pay tariffs? They both serve the same customer. There’s no difference in the customer. So, don't be like, "Oh, it's to serve the customer." If you want to serve the customer, give it to Walmart and Dollar Tree tax-free. So, I don't see why we should. Will we? There's a lot of lobbying.

Turner Novak:

So, it's just who can position their proposal in the best way to Congress.

Aaron Rubin:

The US government works the way it works. So, the right answer is not always the answer that happens.

Turner Novak:

Yeah, interesting.

Well, so then I've heard you say that, well, I think generally, if you look at the data, you say Shein and Temu, they're growing, gaining tons of market share. They’re kind of offsetting other weakness in the broader ecom market. But you've actually said you think they're causing the weakness. I didn't really get that.

Why do you think, they're growing so much, how are they holding the rest of the growth back?

Aaron Rubin:

My daughter will buy on Shein and Temu instead of buying on Amazon, where she used to buy. So, when you see Amazon's weak ecommerce numbers, it's not that there's not buyers in the US, it's just that the sellers are not showing up in the US GDP because it's all straight from China. I mean, Amazon even I think mentioned in the last earnings that it's hurting them.

Turner Novak:

And then that would make sense. Shein and Temu, they're trying to transition their seller base to the US so that then, of course, they're more ingrained in the economy. We should keep the businesses going. Probably plays into the lobbying angle as well.

Aaron Rubin:

Yeah, exactly. Get at least enough of the business there so that their lobbyists have more of a leg to stand on. Like, look at all these businesses in the US. It's just like Amazon. Amazon also has 60% Chinese sellers, I mean 62% Chinese sellers.

So, they're going to be like, yeah, they're 60%, we're 80%. What's the difference? You know what I mean? Right now, they're 100%, hundred looks bad. Actually not 100, they've actually had a few US, but they're still 98% Chinese sellers.

Turner Novak:

Well, so actually interesting topic. Speaking about percentages, 80%, I think this is kind of related. You mentioned you use this hiring method called topgrading. I'm not really familiar with it, but I know it's a way of ranking candidates or something when you're hiring or promoting. Can you just talk about that? It sounds really interesting.

Aaron Rubin:

Yeah, I use it just for hiring. So, it's the only way hire, I'll summarize it. There's a book. You just read the book.

Turner Novak:

Oh, nice. What's the book? We'll throw it in the show notes for people.

Aaron Rubin:

Just called Top Grading. It is the… the ratio of boring to value, it's the maximum. It's the most boring book with the best idea.

Turner Novak:

Really? Okay. Those are the best.

Aaron Rubin:

It’s the only business book I've ever read that I got any value of, I would say.

So, the approach is very simple. So, let's say you were applying for the CTO role. So, we would do an initial quick phone call, 20 minutes. Just make sure you're not holding bananas and throwing at the screen. Just like a little sanity check.

Turner Novak:

I'm a real person. Yeah.

Aaron Rubin:

Yeah. This is something real, something worth having a conversation.

Then I send you a career history form. It's basically a structured resume, where you fill out where did you go to college, where do you work in high school up until today. Every single job, what you started, what you got to, who you managed.

You'd be shocked at how many people, typo, write unclearly. It's a great filter, because your resume, your girlfriend might do it for you. But this form, it's like, it's just for one company. So, you see how people really write.

Anyways, you fill out that form. You send it. If we like what we see on that form, we schedule a two-hour interview with the hiring manager or one other person. So, also there's no HR hiring process. HR is not involved. So, if you're going to report to me, you're going to interview with me and my COO. If you're going to report to the VP engineering, you're going to interview with the VP engineering and maybe another engineering director or something like that. The people that you're going to work for do all interview and all the hiring.

In that two hour interview, we take that resume. We start with why do you go to college there? Why did you choose that major, up until today. We just ask fact-based questions. What did you do at the role? What were you hired for? Did you get promoted? What you got promoted to? Who was your manager? etc. We just take notes.

We don’t let people get off track. That quote that’s like, an interview is like two dogs sniffing each other or there's a lot of ... Interviews, they're not reality. No one is who they are in an interview.

So, we're not trying to find out if you're a good interviewer. We just want to know what you did. What have you done? Best predictor of how successful you'll be at my company is how successful you were at your prior companies. So, I want to know what you did. I take notes.

Then we do reference checks. And we'll make this clear to people in advanced. I hired a CRO. I spoke to 15 people personally as reference for this person. Then our COO, spoke to some others as well.

We go through that history. Say you worked for this person, this person reported to you, great. Get them on the phone with me.

And we only do this for two candidates for every one we hire. So 50% of the people we go to references with, we hire. It's a lot of work. It's a lot of work to do the references and we do like a 10-15 minute phone call with each of the references and we really try to dig it. Then we also do back door references.

We really dig into everything about the person. We really want to understand everything about that person. We won't hire someone if we don't know where their weaknesses are.

So, for me, if it's like this person seems amazing and I have no reason to think, "Well, what about this?" Then I know I didn't go deep enough. I didn't learn everything. Everyone has weaknesses. I need find those weaknesses and then say, is that weakness a blocker on hiring them, or is this something that can deal with?

So we do those references, and then we hire 50% of the people we do the references with. And that's it. There's no other calls. There's no seven phone calls. There's no get a committee.

It's an initial 20-minute call. Fill out the form. Do the two-hour interview. Two-hour interview takes two hours, it’s brutal. It's two hours of nonstop questions. Two people, and then everyone's exhausted at the end. And then we do references. Then we hire. And that's it. That's the entire process.

It's quick and you get way more from one two-hour interview than seven 30-minute interviews.

Turner Novak:

Why do you think people do the seven 30-minute interviews?

Aaron Rubin:

I don't know. People are afraid to make a decision. So, it's like, "Oh, everyone else said they’re fine, so I guess, they're fine."

We also have a very simple philosophy as well. Which is, don't ask me if you should hire someone. In other words, if you're below me and you want to make a hire, if you believe that's the right person, then that's your decision. Own the decision. If you don't think they're the right person, then don't hire them.

But you make that decision because that's the person going to report to you. I don't want to hear later, oh well you said they were good and you're never going to get you to say no. It's your decision, it's your team. You've got to manage that person.

You choose the best person, and have the confidence in your own decision. Which is hard for some people. But to me that's the only way to run a company. You have one person responsible for one decision. So, seven people have to be this person and the person sucks. Or I go back to them, be like, "Wow, we need to talk about how you made that higher decision." "No one, I can talk."

But one person said, "I hired this person. I had a high conviction, I made a mistake." We discuss it. What was the mistake? Why and would we look right? You make progress that way.

Turner Novak:

So, you really try to make it as objective as you can. And fact-based, and quick, and efficient.

Aaron Rubin:

I don't know that it's as much fact-based. So, people have a script. Everyone interviewed for a role has talking points at a script and it takes an hour to an hour to half, depending how good that person is at BS’ing, to break through that script.

Turner Novak:

So, the goal is to get through the script, or break through the barrier.

Aaron Rubin:

That's why its also fact based. It's not really fact based because I care so much about the past. It's that people have the stories they want to tell. And because I have a structure, and they start going off on five minutes on this month topic, I say, "Let's come back to that. Let's get to the next role. Let's discuss why you joined. Let's discuss -"

And you keep pulling back to their actual career, and they can't just skip the parts that are bad, and just focus on the parts that are good. Because you go through every single step in career. And you could see how people's faces - sometimes - where they hate. They're like, "You're killing me. I got a script. I got to stick it."

And you see other people that are just like, this is a conversation, not an interview. Now, I'm talking about, yeah, we did this. This was fun. This was that. Versus a rehearsed thing. Some people love it, some people hate it. And people hate it are usually not well we want to hire. So, it works pretty well

And some people quit mid-interview. I've had people say, "This is not for me." And I say, "Perfect. You saved us both an hour. Let's just end it right there."

Turner Novak:

I could definitely see, if you're trying to hide something and you're forced to talk about every single role you've done, I could definitely see how that could get uncomfortable. Especially if you didn't accomplish very much in those roles.

Sso last question, this is from, I know you mentioned him earlier, Yosef on your team. You've worked with him for a while, in a couple of different businesses. He said you used to play poker. He asked, what are some of the lessons you learned from playing poker? Or maybe you still play?

Aaron Rubin:

No, I don't still play.

Yeah, Yosef and I, we're friends since we're 11. And we worked together when he graduated college, he got married super early. His wife did not let him work. I tried to hire him. His wife did not let him work for me. He did another job. She's like, "Yeah, you got to look at a real company." And then after a year, he got laid off and then he worked for me. Then we've worked together ever since. So, he said one year without working with me.

Yeah, no, I played poker in New York City and in Atlantic City. When I talked about that period where I was just rebuilding the business, but I couldn't take any money out of business, that was a big part of how I supported myself.

So, to me it was just a job that it was just a job. I knew pretty quickly that it's not a compounding job. It's closer to working at McDonald's than building a business. In that, I want to make the money I make today, but I'm not building anything. So, I just got to make as much money as I can now, but it's not what I want to spend my life doing.

And also, you end up, I didn't spend my time socializing there, but inevitably you do some, and it was not the people I wanted to hang out with. But it's a way that if you're young, smart, you’re willing to stay up late, and you're willing to take risk, you're comfortable with risk, which I’m very comfortable with risk - it's way to make money. So, I just did it exclusively as a job.

Turner Novak:

So, it is like an objective data. You can look at a situation or you can go into a certain -

Aaron Rubin:

I was not that good at it. I could not play online. I would lose money. My only way I was good was in person, and I would be a bully. And I was very cocky, intentionally. I’m actually by nature, a very introverted person. But not at the poker table. I would always make myself the center of attention, and get people to hate me, and then eventually they’d give me all their money.

Turner Novak:

So, they would make bad decisions?

Aaron Rubin:

Yeah, they want to trap you. They would be very motivated to beat you. And when people are very motivated to beat you in inevitably they make poor decisions.

So, I in general would lose $1,000 in the first 15 minutes of every time I sat down at a poker table, just to show I care. I would just be like, I have a two seven, I'm all-in. And people hate you for that. Especially when you're young.

Turner Novak:

Yeah, 2-7, isn't it, isn’t that one of the worst hands?

Aaron Rubin:

Yeah, yeah. People hated me.

Turner Novak:

Because they just think you were some idiot just coming in. Why is he going all in with this bad hand?

Aaron Rubin:

No, they think this guy's an asshole and I can't wait to take all his money. He's stupid and he's an asshole. I'm going to take all his money. And then people make suboptimal, nonrational decisions when they think they're going to beat you.

And especially if you beat them. If you beat them with a shit hand, they're just waiting for that revenge all day. And they make poor decision that way.

So, that's the way I played. I’m really good at math. I was a national merit scholarship finalist and all that, so I've got the raw math skills on that. But that was not the way I played. I was not bad from that perspective, but that was not my edge. My edge was just being a jerk.

Turner Novak:

Amazing. Does it translate at all to running ShipHero or?

Aaron Rubin:

I don't know how it does. I don't really think so.

I guess the one lesson is if you can control the narrative. It's a way to control the narrative, I guess. So, if you make everything about you, sometimes you can then reposition that. So, maybe sometimes I use that. Play the bad guy by I trash talking the 4PLs and stuff.

Then people look at you, and then you could sort of move that conversation to what you want to talk about, which is, Hey, this is a great alternative, and just use the 3PL that’s using our software or something like that.

Turner Novak:

Yeah, that's fair lesson. Awesome. This was a fun conversation. Thanks for taking the time to do it.

Aaron Rubin:

Thanks. I appreciate it. I enjoyed this.


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