TMBA 575: A Blue Collar Origin Story
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Even though 2020 has been a difficult time for some entrepreneurs, it has arguably been an all-time year for many people running eCommerce businesses.
Longtime listeners know that we first cut our teeth in the eCommerce space, and we love keeping tabs on how that industry continues to evolve and innovate.
It's no surprise then that today's guest made his way onto our radar.
Aaron Rubin is a longtime veteran of eCommerce. Aaron's growing annoyance with the shipping costs related to his business drove him to create ShipHero, a remote company that offers outsourced shipping fulfillment services and warehouse management software to other eCommerce businesses.
Recently, more than 1 in every 200 eCommerce packages delivered in America were shipped through ShipHero.
Aaron joins us today to share his story. You'll hear how his first eCommerce business nearly went bankrupt, how a need to "scratch his own itch" led to the creation of ShipHero, and Aaron's take on where the eCommerce industry is headed in the future.
Listen to this week's show and learn:
Why Aaron decided to drop out of college to pursue a career in eCommerce. (6:21)
How he was able to rebuild his eCommerce business after nearly going bankrupt. (13:34)
Why Aaron decided to create software for warehouse management. (22:38)
The moment that Aaron realized that ShipHero was finally gaining traction. (32:29)
Aaron's vision for the future of ShipHero. (41:54)
Mentioned in the episode:
Before the Exit - Our New Book
TMBA Masterminds
Partner With Us
The Dynamite Circle
Dynamite Jobs
Dynamite Deals
Tropical MBA on YouTube
Post a Remote Job
ShipHero
BJJHQ.com
93 Brand
Everlast
Wine Chateau
Nicholas Daniel-Richards
Universal Music Group
Dress Barn
Solo Stove
Enjoyed this podcast? Check out these:
TMBA447: The Suburban Entrepreneur
TMBA566: Why Do SaaS Businesses Fail?
TMBA567: A Shopify Software Business Success Story
This week's sponsor:
Today's podcast is sponsored by Service Provider Pro.
So many of us want to sell services at scale and to do that successfully, you're going to need a system for signing up clients all the way through project delivery.
Service Provider Pro gives you that system in a white-labeled client portal for your agency.
With Service Provider Pro, your clients can log in, see all of their orders, download their invoices, and manage their billing all in one place.
It's also the central source of truth for your team. They can see everything that's due, collaborate on orders, send reports, and more.
Click here to see how it works, and a big thanks to Service Provider Pro for sponsoring the show.
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Thanks for listening to our show! We'll be back next Thursday morning 8AM EST.
Cheers,
Dan & Ian
FULL TRANSCRIPT
Dan: Welcome back to the podcast. We've got a few more weeks of, ideally, hyper-productivity here before a lot of us are just going to shut down and take it easy over the holidays. Of course, we'll continue to have episodes every Thursday morning throughout the year. And I gotta say Bossman, and I are very optimistic, as I know a lot of us are, about 2021. In some ways, even though it's been an incredibly tough year it's been kind of an all-time year for online businesses, remote businesses, and especially e-commerce, which we're going to talk about today.
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Regular listeners will know that Ian and myself had an e-commerce business for over a decade, selling valet podiums and other types of industrial furniture, which we sold back in 2015. Certainly, it's something we’ve both kept a keen interest in, especially in the way it's evolved with systems like AmazonFBA, and Shopify, and more automated 3PLs and things like that. And of course, it goes without saying that many work in e-commerce, for the folks that listen to this pod, have had their best year ever in part due to COVID. But of course, e-commerce doesn't just offer an opportunity for entrepreneurs to create and sell products and merchandise, but to build services and products that aid in the sales of that merchandise as well. And as we've mentioned before on this podcast, one of the best ways to do that is to scratch your own itch, which is something today's guest has done extremely successfully.
Aaron: We were selling these uniforms. And we were in New York, and New York was our number one market. But California was our second largest market and we felt the need to compete with Amazon on two-day delivery. So we would send by plane, you know, UPS second day air, lots of product to California. And I noticed that I was spending more on my UPS bill than I was taking home every year. And that infuriated me.
Dan: Today you're gonna hear about how that one pain point - shipping costs- inspired what is now a large and successful business. I really enjoyed today's conversation, especially the frank and humble way today's guest told his story both the ups and downs.
Aaron: I hired my own accountant and spoke to a few people, no one could really figure it out, basically the accountant told me like, you can hire a forensic accountant to figure out what happened to the money. But what's the point? It's gone.
Dan: That is Aaron Rubin founder and CEO of ShipHero, a remotely run company providing SaaS or software as a service management systems to mid to large-sized e-commerce companies. In addition, they also have a number of US-based fulfillment warehouses that handle stock for e-commerce businesses and dispatch it directly to customers. Typically, their clients are businesses turning over anywhere from 5 million to half a billion in annual revenue. And if that isn't enough, hang around to the end if you're interested in Aaron's, I would say somewhat Insider's take, on where e-commerce is headed, based on what he's seen from somewhat of a panopticon view of the industry. So let's get into it. Like so many of the best stories, I asked Aaron to start at the beginning.Music
Aaron: So we have about 200 employees. We started in 2013. Me and co-founder named Nicholas, you know, nights and weekends. In his backyard, he’d have a grill and we'd have a beer and I would try to write code and it would be a disaster. We mostly bootstrapped it, we raised $435,000 from friends and family but no VC.
Dan: What do you use that money for?
Aaron: I mean, we could have used more - we were always at zero dollars in the bank, basically. SaaS is tough. I listened to your podcast with Jordan Gal the other day. And he was saying the same thing, which is, cash flow, in the beginning, is just god awful. You’re building this product, you do all this work to sign a customer and then you get like one month's payment, right? And the next month, you get what it's like a drip, right? And you never have any money in the bank. Up till like $5 million in revenue, then sort of started to be a little more comfortable with, you're always broke. So, just took the money so that, have a little bit of a cushion, sleep a little better on it.
Dan: This is so weird to see you like sitting in a home office talking about these big numbers with 200 employees? Does it feel surreal to be the CEO of such a company that is completely remote?
Aaron: No, it's just been one step at a time, every year we get a little bit bigger. So it doesn't feel life-changing. Like one thing I actually noticed. Two things we noticed this week, one of my guys is running some numbers and just looking at the Black Friday, Cyber Monday volume, a lot of people published their numbers so we can compare our numbers. And it looks like in the US alone, we serve some people outside the US but just in the US market. More than one out of every 200 e-commerce packages that get delivered are shipped through us. That blew my mind. Then you start thinking of every truck, like every one of those 200 boxes, that UPS truck came through us like That's insane.
Dan: That's fantastic. Let's just turn back the clock a little bit and sort of work our way up to the state of e-commerce and your business and everything. One thing that jumped out about your story is that you dropped out of university. Can you bring me back to that moment? That seems like a pretty incredible decision to make.
Aaron: I was making money online doing .. so I’m 41. So this is like in the mid to late 90s, I was making money online, like doing banner ads. And then a family friend wanted to start this online martial arts apparel company selling karate uniforms. He was a big karate guy, he knew the industry. And he was going to deal with all the business and that I was going to deal with the marketing and the technical side, I knew I was very comfortable with that. I think it was the summer of freshman year.
Dan: Where were you at University, what part of the world and everything?
Aaron: I was in New Jersey, Stevens Institute of Technology, which was known at the time to be the third most difficult engineering University program to get to graduate out of. So we started it, it went really well. I was making, you know, more than I was gonna make if I graduated and got a real job. So I was like, What am I doing this for? I just dropped out and officially went on leave, They said I could take off for a year and see if I want to come back. But then the business was doing well. And I just never went back.
Dan: What was it about karate apparel? It seems like such a niche thing?
Aaron: I can get into that. So we weren’t actually as successful as we thought we were. But we were early. And we were the number one, you know, retailer of this tiny little industry. And you know, that was enough to make a nice living off.
Dan: You mentioned recently that those were really bleak years for you? And I'm curious, it sounds awesome. You're making tonnes of money. You found a career for yourself? What was so bleak about that time?
Aaron: So there are a few things that happen. I mean, I've personal issues that were difficult. But from a business perspective, I made tonnes of mistakes, right? So my first mistake was me and my co-founder, were 50/50 partners, but he made more money than me. I let that happen. And it was a mistake. So through that, we grew up really quickly, we grew from zero to $6 million in revenue, no outside money or anything. We started with 2500 bucks. Grew great and right before the financial crisis was our best year ever, like 2007. And then the financial crisis hit, people stopped sending their kids to karate. That was really where we made our money, right? It was moms send their kids to karate, and they buy uniforms from us because it was cheaper than buying from the school. That was our business basically. So that stopped sending their kids to karate and Taekwondo, our business started to drop. And my co-founder said, ‘We have a cash flow issue’. And I'm like, ‘I don't understand. We're making all this money. How do we have a cash flow issue?’ I wanted to see the financials, he wasn’t like, really open with it. And then he came back to me, and he's like, you know, I misunderstood like, everything's fine. I was like, oh, cool, awesome. I don't have to worry about this anymore. My mom at the time was sick. Probably the worst day of my life was, my mom was in the hospital. And you know, me and my father, two my brothers. We were just like, with her 24 hours a day we were rotating and she never got out of hospital that time. She'd been in and out for years. And I was in a daze and my co-founder called me and said, ‘We got to discuss financials. Can you meet me at the accountant's office’. I had never met the accountant, he was a personal friend of my co-founder, another mistake. So he said, meet us, meet me there. I met there. And I don't remember much of the conversation. But the gist of it was like, ‘You thought you made all this money, you pay taxes on all this money, you made less than you thought, there was all this debt that wasn't on the books. So really, you owed all this money and all the profits that you thought really were, you were living off debt’.
And I don't remember leaving, I don't remember the rest of the day but it was clear that the business was basically dead. It was pretty awful. So I hired my own accountant and spoke to a few people, no one could really figure it out, basically, the accountant told me like, ‘You can hire a forensic accountant to figure out what happened to the money. But what's the point? It's gone’. So we didn't do that, we just moved on. And then eventually, I went to my co-founder, and I said, ‘Just take the business. And I don't want the debt though. You can have all the assets, keep all the debt and let me walk away’. And he said, ‘No’. I was going to end up having to go bankrupt if I stayed, so what I told him was, ‘I'll take the business and I'll take all the debt’. And the reason I was able to do that went to my dad, which I never wanted to do because my father’s a college professor and didn’t have a lot of money, but he owns his house. He mortgaged his house. And lent me $350,000 from that mortgage. And I plowed that into paying off the debts, we were still super negative, right? We were still like, technically insolvent, we still owed a lot more than the assets, even with the 350. But I thought I could save it. So I did that. Borrowed the 350 grand from my dad, which really sucked. And put a lot of pressure on me because now I had to make it succeed. And then, you know, slowly, we'll rebuild it back, over many years, sort of digging out of that hole, working my ass off to get the business back onto a real footing.
Dan: That’s incredible. I mean, two things that jumped out at sounds like that your family didn't think you were crazy. You were so young. And, you know, you had a promising career path. And your father obviously had a promising career and you were doing something completely curveball from all that.
Aaron: I don't know, I had other issues in my family at that time. I grew up Orthodox Jewish, and I'm not. So that was sort of a big, a big break. When I was doing that I wasn't actually in contact with really my family at all. I was just living alone. So they didn't have much of a say in me going that path. And then later as my mom got sick, we sort of reconnected. But definitely different. I have a good relationship with my family now. At a time it was super difficult. It wasn't what my family wanted for me.
Dan: There seems like a lot of mystery around your first business partner and the management of cash within that company. Looking back on it. Are you able to draw some lessons about how things went down and how you were able to have such high sales figures yet be in so much debt?
Aaron: The lesson was definitely - I keep an eye on the numbers myself, like, I don't outsource that to anyone. So that was the biggest lesson I learned from that. how that happened, it's hard to know. I don't know where the money went, like was our margins just less that? I never understood it. We did rebuild the business. And it became much more profitable even than we thought it had been. So clearly the money was there to be made. I don't know what went wrong in the first iteration.
Dan: What happened with your relationship with your first business partner?
Aaron: I took it over, I paid him back for everything. And we didn't really stay in touch much after that.
Dan: Fill us in on those, like sort of intermediate years you're getting back on your feet. What was it like when you were able to pay back your father for example?
Aaron: That was fantastic. So what happened was, we rebuilt it really slowly, we had outsourced to third party, and that third party ended up going bankrupt, which sucked too which was another mistake we made we were just desperate to find a partner
Dan: When you say outsourced, what did you outsource?
Aaron: We sent all our products to them, so they were like a third party logistics company plus some other stuff. So the idea was - we'll just do the sales and marketing and website and all that stuff and let them handle the operations. They did the same thing actually with another company called ‘Everlast’ which is a large boxing company. So they did that with awesome them and then they went bankrupt mid-contract with both of us which wasn't fun but But anyways, we slowly built it back we pivoted to a martial art called Brazilian Jiu-Jitsu created a really nice website it's called BJJ HQ dot com, which is a flash sale site. One deal a day, it's really popular in the industry. We created our own brand called ‘93Brand’, which is also really popular in the industry. And yeah, it was a really good e-commerce business, we rebuilt it, it was larger than ever. the top line was like 7 million I think in our best the air get a bunch of million-dollar plus profit years. And then what happened was - when it was making $250 K a year, it was a great business in terms of being able to live but I couldn't do anything else. It wasn't enough to reinvest in something new or anything like that. Right? It was enough to live my life. Once I got a bit above that,
Dan: You live in New York, too, so you know. Yeah, a little bit more to live your life. And you have three kids?
Aaron: Yeah, I always wanted to do something bigger and my background was writing computer code and I was spending most of my time doing marketing and apparel stuff. I did it and it was great and it paid my bills, but it wasn't like what I really was good at. I always thought I could do something bigger, run a larger company. But we weren't going to get bigger in our industry because, in our industry, we were pretty big already. So there wasn't a lot of room to grow.
Dan: That’s so interesting because I think if you know someone came to you at that time you get this great apparel line for a huge growing sport. Why not just double down and you know, try to become a household brand name?
Aaron: I didn't think that was realistic to get outside of our sport, people had tried to move outside Brazilian Jiu-Jitsu and become more of a lifestyle brand. We actually as our flash sale site, we would buy, there’s this company called for ‘Form Athletics’, that sponsor this guy, John Jones, who's a UFC legend. And they went bankrupt. And we literally had trailers of their products on the entire warehouse, it was just trailer after trailer. And we bought tonnes of these guys out of bankruptcy, we didn't buy the companies, we would just take the liquidations and sell them. And we had a very low-risk business, we knew what we could make, we knew we could sell it. We didn't get stuck with stock. And to go from that to sort of like, ‘Hey, let's try to build the next huge lifestyle brand’. I didn't think our odds were good of actually succeeding.
Dan: So tell me about then the first spark of inspiration for what would become ShipHero?
Aaron: The real spark of it was - we were selling these uniforms and we were in New York, and New York was our number one market. But California was our second largest market and we felt the need to compete with Amazon on two-day delivery. So we would send by plane, you know, UPS second day air, lots of product to California. And I noticed that I was spending more on my UPS bill than I was taking home every year. And that was just infuriating. I just wanted that bill to be lower. And that was basically like - alright, how do we get it so that instead of the product shipping, just from my New York warehouse, I can like ship it from closer, like if I shipped that from Nevada to California it would have cost me like $8. But I was shipping it from New York and it was costing me $20 and I wanted to save that $12 on each package. And I've been working towards the last seven years.
Dan: Why wasn't it possible?
Aaron: I've had to open a second warehouse, and we were too small to you know, barely large enough to have one. So I need to somehow get it to work.
Dan: And at the time, were there any people offering what we now know is like these sort of agile 3PL solutions.
Aaron: Yeah, so you know, my first experience with 3PL wasn't great. My second experience was actually very typical. We worked with a 3PL that still exists, still fairly well known in Nevada. And they did a fantastic job in the beginning. And then we committed, ‘Okay, we're going to work with you guys’. And we sent them a lot of product. And then they were a disaster. They were just slow. Because the way most of these 3PLs worked, especially then, was they worked their ass off to get you in as a customer. Once they had your product, it's really hard to leave. So you became second fiddle, right? And like I really took a lot of pride in our logistics, that's something obviously as you can probably tell from the business I started I care about. And to see these guys not really giving a shit about our products and making sure they shipped on time just wasn't something I was going to live with. So I pulled my product out of their warehouse, which I think shocked them. I decided I have to do something.
Dan: Can I interrupt - can you describe some of the frustrations you experienced?
Aaron: They wouldn't receive the product on time and they wouldn't ship it on time. The biggest problem was actually receiving the product. So we’d send them you know, we got a truck from our factory in Pakistan and it's a 40-foot container, those things we see all the time, packed to the gills or 600 boxes in there. Every item has to be taken out, put away on shelves before it can be shipped. And that takes work. And they would rather do other work than do that. It wasn't a priority for them. ‘Nope, can't do it next week. Nope, can't do it the week after, they haven’t unpacked the truck’.
Dan: I feel like I have to give a little image for a lot of our listeners - I've done a lot of warehouse time myself and used to do a lot of this work. And you can imagine, with a 40-foot container coming from Pakistan, there are no pallets in that container. They are literally packing it to the gills with cardboard boxes. And you can imagine the labor intensiveness of pulling all the boxes out, opening up, dividing up the SKUs, putting them on the right shelves, this is a big project to unload simply one container.
Aaron: And it's a blue-collar business though, if you don't want to do the work of unloading trucks and packing boxes, you shouldn't be in the 3PL business, right? And a lot of people are in there because they are sales and marketing focused and they're not like blue-collar operational focus. And that's how you ended up with that sort of poor experience that I had.
Dan: And, what do you do?
Aaron: Shipped it right back across to our warehouse in New York. So we still had the warehouse in New York, it cost a fortune to do that.
Dan: The unit cost on like every single item in that truck is just going through the roof.
Aaron: It was more than one because by the time we made the decision to pull the product out, stuff is on the water, it's going like it's going to the port of LA it's not going to the port in New York. It's months from when you order a product until you actually get it. So it was disruptive. Definitely more than 100 grand in indirect costs to us to pull the product out, which is why they thought we wouldn't.
Dan: So what was then that first feature of ShipHero? Were you thinking, “Well, I'm just gonna do what they do, but I'm gonna care more’?
Aaron: The idea was we're gonna build the software, you can run it in your warehouse, and then you can have other people run it in their warehouses for you. That was sort of the approach. So we still needed to build software that will run a warehouse really well. So we used that in our warehouse in New York. And then, actually, the first warehouse was a friend of mine who owns a company called ‘Wine Chateau’, which is still a customer of ours, and they ship wine, they’re in New Jersey, they a bunch of stores and a warehouse, and they needed something to run in their warehouse to ship to their customer. So we sort of were the first to and that was just like, ‘Hey, we need to run a really good warehouse like that's where it all starts. And we thought that would be easy. Turns out to be pretty hard. But building good warehousing software has to be the basis. And then after that it's like, ‘Okay, how do we start shipping from lots of different places?’
Dan: It seems to me like, at the time, there were plenty of different pieces of software that ran warehouses. What vision did you have that was different than what was, you know, available in the market at the time?
Aaron: The most noticeable bit was we used iPads and iPod Touches so that you could be walking around versus paper-based systems. And there were also these handhelds, which were like Motorola or Windows CE devices that some large warehouses used which we had used in-house as well. They're super clunky and hard to use. And just having an iPhone. I mean, like I can do so much more on my iPhone. Why isn't everyone using iPhones in their warehouse? And it stayed that way. We still only use iOS devices. So iPads, primarily these days, no Android devices, and yeah, and there's I don't know, thousands and thousands of people right now using iPads to pick orders using our software.
Dan: So at the time, how many folks did you have in your New York warehouse?
Aaron: At our peak, we probably had, like, 20 people in the warehouse. One thing we had found when we implemented it was our number one employee in terms of productivity was doing twice as much as our worst employee in terms of productivity. And he was getting paid $2 an hour more. So that was another bonus that we had, we actually were able to see who was doing what and who was making the mistakes. So we actually were able to reduce the workforce a lot and still get out the same amount of orders with two things a) it's just like, more efficient software, but b) like, once you can hold people accountable and really understand who are you good employees, and who are your are your people that are, you know, basically take naps half the day, which happens. Having that ability to see who does what allowed us to really reduce the warehouse staff a lot.
Dan: How did the staff react to you putting the software into the warehouse?
Aaron: The good pickers loved it because they were more efficient. And we were able to see it so they got more kudos because we could actually see, ‘Hey, man, you're doing a great job’. The people that were, you know, not great at their job, they knew they weren't great at their job. So they didn't really appreciate it.
Dan: So at the time, are you like the CEO of this business but coding in the middle of the night, building warehouse software? How did you organize the flow?
Aaron: Yeah, it was just nights and weekends. I would work my day job, which was, you know, pretty, pretty easy at that point. Like, we'd been established for many years, we had a really good team. So like, it wasn't that hard. And then yeah, nights and weekends, would be writing code. It was easy in the beginning, when it got hard was when we had real customers. And then customers expect customer support. I was doing customer support, we didn't have any money. We don't have any people. So it's just like me doing - get a bug. fix the bug, release the bug, tell the customer it's fixed, you know, like doing everything. That was tough. Because it was more time-sensitive - you can’t do customer support at night. And then also, customers, you know, potential customers want to do a demo and they want to do a demo and they want to do a demo not, you know, Friday night at 8 pm. I had to work around their schedule. But owning my own business is a lot easier than if I had to work for someone else to try to make that scheduling work.
Dan: Do you remember the first customer you sold the software to?
Aaron: My friend at ‘Wine Chateau’. I don't even know if we would have started it if not for him because he had seen how our warehouse ran. And he was like, ‘Man, I want to use this software, just get it for me’. So he was a really, really big advocate. So he was our first one. The first customer. I didn't know his company called ‘Swim to Win’. They were a great customer, they actually introduced us to Google and some of the Google venture capitalists, I screwed that meeting up horribly never got another one.
Dan: How did you screw it up?
Aaron: I just didn't know how to ‘talk the talk’. You know what I mean? I was getting way too in the weeds of like, the technology we were building and they wanted me to pitch on like how we're gonna, you know, change the world and make a trillion dollars. So, I screwed that up.
Dan: Let's just establish a timeline here. So you put the software into your warehouse in the 2015 timeframe?
Aaron: So we started in 2013, we probably started to actually use it somewhere in 2014.
Dan: And then when did that first customer that you didn't know actually take up the software?
Aaron: Probably 2015 first customer.
Dan: And did you just pull pricing out of your ass? Like, what was the pricing philosophy at that point, just straight out of the ass?
Aaron: Yes.
Dan: And what is the pricing philosophy? Nowadays, how do you scale your pricing per user, for example?
Aaron: So now it's basically $2,000 to get started, which includes a few users, and then $150 a month for each additional user. Pretty straightforward.
Dan: Who is your co-founder, why did you take on a co-founder?
Aaron: The co-founder is a guy named Nicholas, Nicholas Daniel Richards, great guy, we were friends. He'd actually done some consulting work for us and then we'd been friendly, like, we’d go to dinner every once in a while, and like, I had an idea for ShipHero and I really wanted him to do it with me. So I pitched him on it. We launched it together, we had some issues in the beginning as well, we started 50/50 partners, and he basically left his job. And I was trying to, you know, spend as much time as I could on it. And I was providing all the money, little amount that we needed. And then after, I don't know how many months, a few months, maybe three months, we still were really far from where we need to be, you know, it came obvious, the more we did, the more we have to do. So he went and got another job. So really, he became only available, you know, a few hours a week, you know, maybe 10-20 hours a week versus I was at that point, like, really focused on it. So I was probably spending 40 plus hours a week on it, and putting all the money, which can be frustrating to me.
So what we ended up doing is - he left, gave back most of his equity, kept some of it. And then I struggled if I should stay or not because I only was gonna start it with this guy, and then he quit. And now it's like, it's gonna be harder than we thought. And like, yeah, like, even my co-founder doesn't think this is a good idea should I really keep going? But, yeah, I really believed in it. So I stuck with it. And then he ended up working at the NBA players Association as CTO. And then once we had built the company up over a few years, and we had some real revenue, and could afford to pay him a salary, less than he was making at the NBAA. But, you know, a reasonable livable salary, he came back and got some of his equity back and has been with us for the last few years.
Dan: You started with the idea that you wanted to do something bigger? And in the early days, you're nights and weekends, can't keep your business partner around, did you ever lose the kind of faith that it was actually going to be something bigger? When was the first into early returns, that you're like, maybe this is going to be something?
Aaron: The times I really thought about quitting were, like when we had a few sizable customers, some of them who are jerks, or one of whom was a real jerk, I guess. And we'd be getting yelled at, not necessarily for stuff that was our fault. Some stuff that was our fault. And I felt all alone. It's like, like, it was just me, like, I got to go get yelled at by this dude, and then try to fix his problems. I remember once he's like, ‘You guys are living off me’. That was like, our lowest year, I pumped the half, like, more than half a million dollars into the company that year, which was basically all the money I'd saved. And we were charging the guy like 500 bucks a month or something. And he was tearing into me saying, ‘You take my 500 bucks a month’, and I was spending so much more than this and my own money to try to make this product work for you. And my co-founder wasn't there. So it was just, I felt like the responsibility all fell on me. And I did think about quitting at that point, it wasn’t that thought the company couldn't make it, I was just like, ‘I don't want to deal with this, I have this other business, I could make a million bucks a year, instead of having this dickheads screaming at me all day’.
Actually, we ended up firing the customer because there was one guy working for me, who had called him to try to solve something from his cell phone, and then the guy had his cell phone number, and he called my employee back, and ripped into my employee. And then I called him back, I was like, ‘You've been doing that to me, and I took it, but you can't do that to my employee, so you got to find some other software’. It was mostly fine after that. But that was a low point where I really thought like, ‘Man, I just hang it up, just close shop’.
Dan: Was there like a month or a week or a day, when you can recognize that you did something that really changed the trajectory and started getting you traction in terms of acquiring new customers. And, you know, gave you some sense of optimism for the future of ShipHero?
Aaron: So this company called Universal Music Group, they do like every big artist from the Beatles to Lady Gaga. And they had approached us and said, like, they were building this whole customized solution, and it wasn't quite ready. So they wanted to use Shopify and us as a short term bridge, they said it'd be six to 12 months. And we said, ‘Sure, that's great. It's a great name for us, right, it will give us great credibility’. So we did it. And we invest too much and like doing too much stuff for them because we figured it's a short term customer. So like, they’re just going to get the base product. And hopefully, it'll work for them, you know, good enough to get them through to where they wanted to until their other software is ready.
And then, at one point, they wanted to do another conversation and the conversation was like, ‘We've spent a million dollars on this other solution, the roadmap for where the solution is going to end up is worse than the current offering that Shopify and Shi Hero have. We want to know, would you guys commit to turning this into like a permanent thing?’ Which I should have said, ‘Yes, but give us more money?’ I should have renegotiated a deal because we had a really heavily discounted deal because we thought it was just a short term throw-in. But, at that point, that was pretty eye-opening to me of, ‘That's a legit company, doing legit scale. And they were saying they liked our product that much’. So, for me, that was probably the high point in terms of like, ‘Okay, this is gonna work’.
Dan: And what year was that?
Aaron: 2017.
Dan: Let’s then, fast forward to sort of like pre COVID/end of 2019 ballpark about how many customers or implementations we're looking at?
Aaron: You said end of 2019/pre COVID? So we're probably doing around 5 million in revenue, probably. Maybe 250-300 customers
Dan: You're cruising along. assuming you're profitable at that point, Why the move towards warehouses at that point? So just for the audience, you guys have got solidly into the warehouse game. You've bought your own warehouses that are separate from your apparel business.
Aaron: We have our own warehouses, we’re flying fulfillment for lots of people. ‘Adams’, ‘Dress Barn’, ‘Radio Shack’, a bunch of other people. Going back to the original idea, we always wanted to have this multi-warehouse approach - ship from closer to the end customer, was always where we wanted to go. But we never wanted to have warehouses, right. So we tried a million different things to try to solve the problem of getting the product into lots of warehouses, so it's shorter ship time, and without having to own our own warehouses, and every single one failed. The last one, we brought in this woman named Maggie, who's now our COO, and we hired her to run this, the approach we tried before we started our own warehouses. And she came to me after a few months, she's like, ‘I can keep taking your money and collecting a paycheck. Never gonna work’. I'm like, ‘Alright, fine. I'll finally hear the truth’. And basically, what she said was like, you know, if we do it ourselves, like maybe we could do it, we could do our own warehouse.
Dan: What was it that she identified that was not feasible about the vision to use other people's warehouses?
Aaron: One thing that became really obvious is - basically we'd go to people, and we tell them, like, if you use all these warehouses, you're gonna save a lot of money, right? You can save $2 a package if your products are all these warehouses because you're going to ship from closer to the end customer, right? The initial problem I had was shipping the uniform across the country. And everyone would say, ‘That's fantastic, great idea. I love it’. And they wouldn't do it. Because people are busy. And they have other things to do. And they've got their businesses and they're focused on sales and marketing and focused on product development, and saving $1 or two on a package, when it's going to make their life more complicated and they have to start thinking about things that they're not comfortable with. They're not logistics, people, they just don't want to do it. So what we basically said is, we'll put our money where our mouth is, we're saying there's all this money to be saved, we'll just make it super easy for the end customer. So the merchant just sends the product to one of our warehouses. We'll spread it around, we'll do all the work. We'll keep that one to two dollar package for ourselves.
Dan: And how's it working?
Aaron: It's working great. It's been insanely fast-growing, like, way faster than any of the other businesses that have ever been a part of, people love the idea.
Dan: Is it because of COVID? Is that part of it?
Aaron: It's hard to know, because we were just ramping, like every month was like a huge growth rate, pre-COVID, and post COVID. But pre COVID, the numbers were pretty small, because we had just started so it's really hard to know, what would have happened without COVID? So I don't really know, basically a rocket ship from like, once we sort of got it out there till today.
Dan: So the value prop is you're calling up a client, like Dress Barn. And instead of saying, ‘hey, implement my software into your warehouse, it's gonna make you more efficient. You're saying, ‘Guys, just ship all your inventory direct to ShipHero's facility and we'll take care of it for you’ essentially, send us your picking orders.
Aaron: Exactly. We do it all ourselves. So we just use our own software to do it. So it's the exact same software, everything is the same. We just use our own software, instead of you doing your own warehouses we do it for you.
Dan: It's almost like you're allowing individual brands to operate like Amazon? Is that a fair way?
Aaron: We always say that, if you want to see what we've done, and what we're going to do, just look at everything that Amazon's done and will do in their logistics, right? So Amazon's 50%, or at this point, you know, 45% of all the e-commerce logistics in the US. And we're trying to provide those same capabilities to the other half.
Dan: It's interesting. You're seeing from front hand, this revolution of a company like ‘Dress Barn’. There are like 30 people at that company, but they're operating at these enormous revenue figures.
Aaron: What they've been able to do is really cool. Yeah, we have a lot of customers, for example, we’ve got a customer called ‘Adams’ that does like shoes and masks. ‘Dress Barn’, they were bankrupt with whatever bankruptcy so they went from zero to like, 100 million or just shy of 100 million in a year with us. So January 1st was their first order shipped from our warehouse, the first sale shipped from our warehouse. And then they Yeah, they grew that with us, you know, to that almost hundred million dollar point without ever having a warehouse, ever having to touch the product, everything went through us. And we've had other guys who've gone from not quite as dramatic, but you know, from two to 30 million, we've had a couple do over the last year, a lot of that's COVID related, some of that growth is COVID related. Dress Barn probably would have done better actually without COVID because they sell to …. apparel did better before COVID. But we had some other companies that had masks, like ‘Adam’s, and they just saw this tremendous growth and in your own warehouse, it's really tough because - are you gonna build new buildings and sign five-year leases because you had a surge of masks. That's probably gonna go away, hopefully, next year. Or do you not build that additional capacity and then how do you actually ship the orders, right? So it's sort of really tough to build out those warehouses when you have uncertain demand, so they just outsource to us and that's our problem, not theirs.
Dan: We have a tonne of, you know, e-commerce entrepreneurs that listen to this podcast. Are there trends that you're seeing, sitting in the heart of all of it, that might benefit them?
Aaron: Obviously, e-commerce overall has been booming. A little bit of a shift, so less apparel, although apparel is still huge like women's apparel is still our number one market. tonnes of supplements, supplement businesses gone through the roof. Supplements for gamers through like, we have prenatal vitamin companies like so like the whole range of anything to do with like, health-related stuff has been really big. Obviously, the masks business has been really big. Footwear has been one of the few businesses that have been down. People aren't buying fancy shoes when you're on Zoom all day.
All the electronics has been great. Makeup has been down. So there's been some shifts in what's moving on what's not, but overall, our volume that we did this year, Black Friday to Cyber Monday, I think is up 130% from what we did last year or so, and I think Shopify reported theirs was up like 75%, or something, insane growth. We have a company customer called ‘Solo Stove’, so they make outdoor heaters, like firepit stuff, I guess. They've been a customer for years, but their business has been absolutely bonkers this year, as people are stuck at home, and you want to have somewhere warm, hang out with your friends. Firepits have been huge. So like, there's been a huge shift in what people are buying. But if you're an e-commerce, it's you're in the right place right now.
Dan: What's your vision for the future of ShipHero? It seems like you've achieved your nominal goal at the outset, which is to do something bigger, that can provide you with a bigger sort of playground to play in. What do you think, for the next five years?
Aaron: I want to keep doing it. You know, like a lot of people think about like, ‘Hey, how much am I going to sell for? What's the value? Like, what's the exit?’ I love what I'm doing, I want to have a larger impact. So we want to get larger, we want to get bigger. Sort of what we're doing does require some scale with the warehouses. Warehouses are not a good lifestyle business like e-commerce is a great lifestyle business, warehouses are not because you get crushed by the big guys, right? So you need scale. So we're at a really decent scale, and we ship more than 5 billion dollars a year worth of goods. So we're not tiny by any means. But we're still small relative to the size of the industry. So we need to get bigger. I don't think you're gonna see any, like, major change in terms of what the company does, it will look roughly the same in five years from now just more of it.
Dan: What's your edge personally, like, when you look back at your journey, it seems like entrepreneurship comes relatively naturally to you, you know, you've had these successes, you've achieved the growth you were seeking. How do you interpret that looking back on it, what separates you from folks who might struggle more to build successful businesses?
Aaron: Two related things - when things fail, which I've had plenty of other things that have failed, even within ShipHero just still like maintaining an optimism, right? You try something and it fails, you got to jump to the next thing with just as much optimism right? And if that one fails, you’ve got to keep jumping to the next one. Because you got to understand that if your odds of success are 10% and you fail, you can't be like, ‘Oh man, I failed’. It's like no, you have a one in 10 percent chance of winning, so it's cool. Just keep going and don’t get down on yourself. You’ve got to be an optimist to be an entrepreneur because you've got to get back up. The other one is just not quitting like there were days that I wanted to quit and if I did we wouldn't be here today. It would have been easy, I could have quit and I could have kept running my other business and made a nice living. Everything would have been fine and there would have been no story to tell. So I think just keep going just keeping going when I had reasons to quit was the reason why we got here.
Dan: It's interesting talking to you, you know, like just this remarkable sitting on a video call and the kind of infrastructure that you've built out over the years and the team that you run. You know, a lot of folks that run businesses of this scale, they're much more braggadocious, or blustery, or talking vision. And it's remarkable to see your relatively humble approach to that to all of it.
Aaron: I think it's hurt us in terms of like, we had tried to raise money in the past, I told you about that call with Google. And I've done some other ones also where I have more of a blue-collar conversation. And it’s not what people want to hear, they want to hear how you're gonna change the world. And what the grand vision is, and I think we're trying to do all those same things, it's just, we're also super cognizant of - we got to ship all the boxes today, right? If we don't do that, nothing else matters. But I think it definitely comes off wrong to like some VCs and some other people who expect that sort of, I don't sound or look like, both in terms of my tone, and also in terms of what I say, what some of my peers do, but that's who we are.
Dan: You mentioned blue-collar many times in this interview, is that something that's important to you?
Aaron: It's just the reality of the business. We have a sort of philosophy around here - we have no project managers as an example, we do a lot of things a little bit different than other people. But we only hire people that do stuff, right. We don't hire any, you know, glue people. So like, if you're not willing to write code, or pick up a customer's phone call, or if there's an Excel file that has to be analyzed, if you're analyzing it, cool, if you sent it to someone else who's giving you a summary, you're not the right fit for our company.
I'll do the spreadsheets myself, I fix tickets myself, I write code myself. And it's just a philosophy, not that I'm good at it relative to the employees that we have, the employees are better at fixing the bugs than I am. But either you have a philosophy of like, if no one else is available, I'm going to do it. And if I need to understand something, the way I'm going to understand that is by doing it. I've shipped tonnes of boxes and unloaded tonnes of trucks, right. And that's just our approach. And it's a slower approach, man because it is slow to, you know, if you're going to ship thousands of orders to understand how shipping orders works, that means you're not doing something else. You're not out there, raising money, you're not out there giving talks, you're not out there, you know, making yourself visible, right, it's a trade-off. But we have that blue-collar mentality of how we're trying to build a business.
Dan: That's cool. So final question. I appreciate your time. This is really fun for me, I love the business. This is a tough one. But there's a lot of people listening to this are on our walk or whatever, they're riding their bike around, and they're thinking, ‘Man, I'd like to take a step towards doing something a little bit bigger myself’, what's like a quality next step, something that could keep their optimism up? And what would you advise entrepreneurs that are trying to become an entrepreneur, trying to do a little bit more with their business?
Aaron: I think you have to be realistic in terms of what you can do in the time, so you got to pick the right size business. If you have another job part time, you can't run an enterprise sales company, because they're gonna expect you to be available during regular business hours. You gotta be realistic. I see some people who have a great vision, but it doesn't match the reality, you're never gonna actually implement it. But there are a million great ideas out there. I have a business so people pitch me on their businesses and usually, people have really good ideas. It's usually not the ideas where people fail. It's one of two things - either they miss-size their idea, right. You know, it's too big or too small for what they can actually pull off. But mostly they just don't do it. At the end of the day, most of it is just sitting down, doing the work, not expecting results in a month, it's going to take longer, and just grinding it out.
And in the beginning is just a grind. But almost everyone I know who's done that and done the work has figured it out. And really, the quality of the idea barely matters. Because usually what I've seen happen is you start with an idea, and then you slowly understand it better from doing the work. And then you realize, ‘Hey, this is actually what I should be doing’. I know, you guys have moved around in terms of what you've done also, it hasn’t always been the same business. But the more you do it, the more you learn. So you just got to start and put one foot in front of the other. You might not end up where you expected, but you'll end up with a real business.
Dan: Aaron. Thanks for dropping by the show. We appreciate your time.
Aaron: All right, thanks. It was really fun for me.Music
Dan: Shout out to Aaron Rubin, incredibly humble relative to the amount of success he's created and achieved. What an incredibly hard-working guy and I hope you enjoyed this as much as I did. Check them out over at ShipHero dot com. And we would love to hear from any of you out there who are e-commerce sellers. What are your pain points? Do you have any ideas for services in the space or thoughts about where e-commerce is headed in the next few years? Drop us an email or voicemail. My email is Dan at TropicalMBA dot com certainly the e-commerce space has been utterly fascinating. There are extraordinary opportunities there in the coming years. Aaron just being one example of someone who's taken advantage of that. So well done, Aaron. That's it for this week. Just want to give one quick shout-out to this week's sponsor Service Provider Pro dot co. We appreciate their support. That's it for now. We'll be back next Thursday as always, see you then.
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