What fuels Flexe Co-Founder and CEO, Karl Siebrecht?

Below are excerpts from the episode of “What Fuels You” with Shauna Swerland, but you can find the full podcast here. Be sure to check out the podcast for other interviews with PNW-based entrepreneurs.

Shauna Swerland:

Karl Siebrecht, Co-founder and CEO of Flexe, is today's guest on the "What Fuels You" podcast. Before becoming a serial entrepreneur, Karl was a diving officer in the US Navy, which is a period he believes laid the foundation for his future.

Prior to co-founding Flexe in 2013, Karl was the President at Aquantive and the President and CEO of AdReady. In addition to growing the on-demand warehousing fulfillment and logistics giant, Karl is also a Chairman of EnergySavvy. Karl was recently named Entrepreneur of the Year by E&Y. He's an avid supporter of Disability Rights Washington, Global Partnerships, and Duke Engage. He's also a loving husband and father. Welcome, Karl.

Karl Siebrecht:

Thanks. Great to be here.

Shauna:

Let's get to Flexe because Flexe is a super cool company and a brilliant idea. Why don't you tell our listeners what Flexe is for those who don't know?

Karl:

So, Flexe is in the warehousing and fulfillment business. We help companies move their goods around. Warehousing is a component of logistics, and logistics is quite simply, how you move stuff from origin to destination.

Logistics includes ships, planes, trucks, and then the warehouses are the “nodes” that connect all the different transportation arcs.

Being the sort of person who maybe spent too much time on technology—everything starts to seem like technology. So, if you think of a data network as nodes and arcs, that's the same way to think about a logistics network as nodes (warehouses), which you can think of as routers. So, Flexe is in the business of providing warehousing services. We will receive your goods, we will take them off of pallets, put them into packages, and ship them out. Either to consumers’ doorsteps, or to a retail store to put it on a store shelf, or send it to the next warehouse in your supply chain.

The Flexe origin story #

Shauna:

And so what's the business model exactly? How does Flexe make money and was it your idea?

Karl:

Not my idea. It's a brilliant idea, but it came from a friend of a friend that I met at a party, actually. Out of the blue this guy, Dhruv Agarwal, came up and said, “You’re a tech guy, right? I have an idea for you.”

And he just laid it out. He’s a phenomenal entrepreneur, also based in Seattle, he had a little business doing home barware. Actually, not so little, but like martini glasses and bottle openers, and everything in that category.

He was probably 10 years into this business and he was on his third or fourth warehouse. Because he would import products from Asia, they would come to the Port of Seattle, and go to a warehouse in Kent to then be distributed across the country through other retail channels, and also through his website.

And he said, “Look, I have to lease these warehouses to handle my goods on typically a three-year term. And to understand how much space I need, I have to have some forecast, well, it's a joke to try and forecast my business.”

Shauna

Of course. How many martini glasses am I going to sell or need?

Karl:

He was growing very rapidly, like, “Am I going to win the Whole Foods account? Because if I win that, I'm going to need a lot more space.”

Shauna:

And I can't necessarily do it for three years.

Karl:

Right. And his business is seasonal. He sells a lot more product and moves a lot more product in Q4 for the holidays. And so he said, “I lease these buildings, and I'm always long or short on space—always. And all my buddies who have businesses, we're all in the same boat. Couldn't somebody build a technology business so I can handle someone else's goods when I've got capacity and vice versa?”

I came from ad tech where we built two-sided marketplaces connected by software. And so as soon as he said that, it's like getting hit in the face. It's like well, that's obvious. Of course, I thought there’d be 20 companies that had already done this, but no one had.

Then I got skeptical. Why hadn’t anyone built this? What's the intractable problem? Is it legal? Is it a liability? Insurance thing? You know, what is it? And so we did a lot of due diligence.

We talked to everybody we could find. We created a long list, and while they felt like difficult problems, they weren’t unsolvable. So, we went back to Dhruv and said, “If we built this, will you use it?”

He said, “100% yes.”

We incorporated and six weeks later, we were generating revenue because he was our first customer.

Shauna:

Tell me about the co-founders.

Karl:

Francis Duong and Edmund Yue are the other two co-founders.

Francis was the first engineer to work at EnergySavvy. He had left Microsoft and he took a contract position, but not full time because he wanted to start his own company. So I got to know Francis a little bit through EnergySavvy and then he and Ed went on to create a company as part of the Y Combinator, an incubator down in the Bay Area.

That was their first startup. Years later, they sold that company. We'd sold Ad Ready, and it just so happened that when I was ready to think about something new, Francis and Ed were ready for their next endeavor, too. That was in 2013.

Flexe in 2019 #

Shauna:

And so where are you now? That was 2013... How many employees do you have now? And how much have you raised? And what's that experience been like?

Karl:

Yeah, so we're now 130 people. We completed our Series B in May, raised $43 million from Tiger Global, Activate Capital, and Madrona. Redpoint, down in Silicon Valley, led our Series A. So we have a fantastic group of investors.

Shauna:

Was that easy? Because you were like okay, this is kind of a no-brainer business?

Karl:

Well, it's never easy, right?

Shauna:

But it sounds like you've got a lot of really impressive names.

Karl:

It's never easy, it's exhausting, but we feel very fortunate that the process was very efficient and good in both of our rounds. Including our seed round too, by the way, which was led by Fritz Lamin and Hank Veal, originally based in Seattle. So we've had a good experience with fundraising.

Shauna:

It takes a lot of time, and you're like I want to be building...

Karl:

You know, look, I couldn't be any more passionate or excited about what we're building at Flexe.

I just feel this is the best job in the world. I feel like in our first few months, it became super clear to me that this is absolutely inevitable that this business is going to exist, and it's going to be huge.

The question is whether Flexe would execute well enough to be the leader or not. So I’ve remained incredibly passionate about where the business is going and what our mission is because it’s a no-brainer that the world will absolutely work this way.

Shauna:

So how many warehouses are there today?

Karl:

Yep. So our business model... So we're in this kind of really basic unsexy business of "warehousing." (laughing)

Shauna:

It's pretty sexy, because it's brilliant.

Karl:

Well, it is now because logistics—so trucks, trains, ships, warehouses—like history to date, have been built to serve a retail model. A commerce model that hasn't changed for millennia. It was, bring the goods to a place, like, the old market in the cradle of civilization. Bring the goods to a place, the people go to that place, and commerce happens. Right?

So, that evolved to the corner drugstore, the strip mall, shopping mall, the big box store, right? That continued to evolve, but fundamentally it's: bring the goods to a place, people go to the place, you buy, everybody's happy.

Over the last many, many, many decades, companies like the big retailers, and the big-box guys, in particular, got really, really good at this. And they spend a ton of money doing it. So, one of the things when we started looking at this idea for Flexe was, how big is the market? $1.5 trillion is spent every year in the US.

Shauna:

Trillion with a T?

Karl:

Trillion. It's over 8% of GDP.

Shauna:

Yeah, you're like, "I'll just take 1% of that."

Karl:

Yeah. So it's massive, but it was all designed to put product on store shelves. All of it. And optimized over decades. Like, Procter & Gamble is super, super good at building their products, moving them to the Walmarts and Costcos. Walmart and Costco are really, really efficient at that because they're spending, collectively, $1.5 trillion.

Efficiency matters, but it’s kind of been the world's largest cost center. Like, don't lose stuff, don't break stuff, be efficient. Those are the tenants, you know? That's what you optimized for in logistics. And then eCommerce comes along and people want their stuff delivered to the house.

Shauna:

Yesterday.

Karl:

Yeah. And one company starts with a clean sheet of paper, builds the logistics infrastructure optimized for that, which turns out is different than what you need to put product on store shelves. And they raise capital, convince investors, you know, rightly so, that they should be patient and go through the investment cycles to build scale to build the company, ultimately, that could be you know, that could be built, which they have. And they've trained all of us as consumers to expect stuff to come, like, today or tomorrow and for free. That's just the way it should work. But they have spent 10s and 10s of billions of dollars building that infrastructure and nobody else, nobody else can afford to come close to that. Particularly in terms of warehouses.

One of the key things for eCommerce is, you have to put the product close to the people. You want it there fast and cheap? Don't ship it from Seattle to Tampa. Right? This is basic physics.

So what that means is, you’ve got to have lots of warehouses to put product close to where all the people live. Well, guess what? Warehouses are based on leases. My friend, Dhruv, is like, “Man, I gotta write a three- to five-year lease based on some forecast of volume. And it's expensive.” That's committed capital when you sign that lease. It's one thing if you need one warehouse, it's an entirely different thing if you need 16 warehouses to get to next-day delivery.

Shauna:

So that you can compete?

Karl:

So, you can't [compete] is basically the answer. No one else can replicate [Amazon's] scale. Well, that's where technology in a marketplace business comes in.

Shauna:

It's so brilliant.

Karl:

So we have 1,200 warehouses, and we haven't signed a single lease, because all these warehouses have extra capacity. Why? Because they signed five-year leases, and they haven't been able to fill up their warehouses.

Who are Flexe's customers? #

Shauna:

So who are your clients?

Karl:

Our customers. So we provide this service to big enterprises from Walmart, Procter & Gamble, Walgreens, and others, to high-growth startups, like Casper mattress, and hims.

There are a lot of metaphors for our business, but the one that I think works best to represent the value to our customers, the retailers and merchants, is AWS. It's what AWS invented when the world at the time only offered data centers.

A data center is a fixed capital commitment. You're either going to build it yourself, or you're going to outsource it to a third party, who will lease space by machines and hire people. There's a lot of fixed capital. You sign a multi-year contract for a chunk of capacity, is how data centers generally work and then, if you're going to scale, you're like, "Hey, we need an east coast data center." And that's another big chunk of capacity. And then AWS comes along, they're like, “Hey, here's an idea. Plug in once to our capacity, and then pay as you go.” So they converted.

Shauna:

Pull out anytime you want.

Karl:

Yeah. So they converted all this fixed cost to pure variable cost. And so now, what does that turn into? If you're a startup, you don't do a data center. Is it Google Cloud? Is it Azure? Is it AWS? AWS invented the category, but now that category is a quarter of the entire IT infrastructure market; three-quarters fixed, one-quarter flexible. That's exactly where logistics is going.

Flexe has created the AWS equivalent for warehousing and fulfillment. So that you can have all these nodes without having any fixed-capital commitment. You plug your shopping cart into Flexe's API once, or if you're a big company, you have an ERP system. And so you plug your order stream via EDI into Flexe once and you can have a warehouse anywhere, and you pay as you go. And that means not just that you can have 2, 8, 10, 20 nodes, but that your nodes can change. Because you know what? Depending on the company, you may have different needs in the winter than in the summer.

You may want to put generators and flashlights in the southeast if you're Ace Hardware for hurricane season. And you may want to put snow shovels and salt in the northeast for the winter season. Right? And may want to add lots of extra capacity if you're a big retailer, like Walmart for Q4. And if you're, again, in a world where the infrastructure is fixed, that is economically a bad match.

Creating the right culture #

Shauna:

Yeah. So, you started to say, well, it's not sexy. I think it's actually really sexy, and we have no problem getting candidates excited to come work there. But as you grow, and as the culture kind of shifts and changes, how have you been intentional about setting culture and setting your values?

Karl:

That's a great question, actually glad you asked it. So here's the thing: if you ever get a chance, and you have to start a business, you get to start with this clean sheet of paper and decide if you're intentional.

What do I want to do here? What are my objectives in building this company? And as I mentioned, I'd worked at Aquantive for about 10 years. And it was an amazing experience in a million ways. But one of the marquee aspects of that was a phenomenal culture.

And so when we started Flexe, one of the things I wrote down was, I want to build a company where people will say it's the best company they ever worked for.

That's the aspiration. So we were very intentional about that. And then we're like, okay, "So how are we going to do that?" And so early on, we said, look, we should start to define our culture. We get to shape it, you know, like culture is going to happen, the only differences are, are we going to be intentional and try and shape it?

So, we initially created these hiring attributes, which were effective. Because you may sit around early in the company, and even in a mature company, you're like, “Well, what do we want to interview for?” Well, they need to be good at their job. Are they a good developer? But then we want a good fit. You're like, okay, well, what does that mean? Let's define what good fit means to us. And it goes back to those tenets. If we can define what we mean by that, and then share that out so everybody's on the same page, then you can operationalize it.

So we would literally say, “Okay, who's going to ask questions?” If there is a cultural attribute of passion, that's a hard one, right? What does passion mean? What do we mean by that? Well, we define that and then, in every interview loop, someone would have their attribute versus, you know, the teamwork attribute. And you could be thoughtful about questions that you would ask.

Shauna:

Yeah. And were you thinking about that the equivalent of like a V2 hire? You know, like, “Hey, maybe this person is great for now, we just need a plug and play. But this person will not be able to lead a team?”

Karl:

That's a great question too. It's hard. And the answer is dependent on the role. We, very early on, hired a handful of people explicitly because we felt like they would be able to scale. In some cases, it was pretty obvious, because they had had a more senior role in starting a smaller company. It would be less scope in some ways. And in some cases, it was more of a bet. Like, we think this person could come in and crush the current job and there's a bet that this is the person that could lead and continue to grow as the business grows.

Shauna:

Yeah. And how did you ensure that there was not a kind of subconscious cultural bias happening? Which people talk a lot about with the word fit, and there's a lot of criticism around it right now?

Karl:

Well, I think, again, it starts with defining what we mean by fit. Like you are the cultural attributes, and then try and operationalize it, which we did pretty well. But right now, today, like this quarter, one of our big projects is revisiting and refining our company values.

What keeps Karl up at night? #

Shauna:

So what, today, is kind of keeping you up at night? Like, what are you losing sleep over as the CEO?

Karl:

You know, hiring is always challenging. We've hit a point in our life right now where we've had good momentum on a lot of dimensions. We raised a round of capital, which is always helpful, the business has been performing really well—there's a kind of buzz going on.

So momentum helps a lot with hiring. I also appreciate that you don't get to keep momentum forever, you know. And then the other thing that has been very helpful is we've added a couple of super qualified execs to our team. And they are talent magnets as well. So it kind of amplified our reach. So hiring, it still keeps me up at night.

Why Karl never stops learning #

Shauna:

You talked a lot about how you like to continue to learn and continue to grow. Are you always seeking out people you can learn from or books you can learn from?

Karl:

Yeah, I'm always reading. I'm always reading a business book of some kind. And then my other source of learning is the people I work with. You know, we've been fortunate enough to hire some amazing people. And they bring not only different talents, but different experiences and different perspectives. I think having those different perspectives, the diversity, is just critical.

Shauna:

Well, it's nice that you're the kind of person who is A) open to it. And that you seem like you're the type of leader who is really good at leading, but also okay following and being a little vulnerable about what you might not know, and being like, it doesn't matter. We just seem to get to the end.

Shauna:

So, I read these two books that you recommended. One is The Checklist Manifesto and the other is The Hard Thing About Hard Things. Why those two?

Karl:

The Checklist Manifesto. So this guy, who's this unbelievably accomplished doctor, teacher, you know? There's this health company that he was trying—I don't know what the status is—but Bezos and Buffet and Jamie Diamond, we're creating this health entity and the person they picked to put in charge of that was this guy. And he's just amazing. He's a father. And he's written a bunch of books. And, just absolutely brilliant in probably any way you could define it. And he writes this book about the importance of having a checklist.

In a world where people have such deep skills and experience, you know, say I'm a surgeon, and I've done thousands of surgeries, or I'm a pilot with tens of thousands of hours of experience, checklists are still important to have. That's why pilots actually open up the book. And they go down the list, and they're like, "Did I flip on this switch and turn on this light? And did I check the blower?" It's sort of this check on hubris a little bit.

The Hard Thing About Hard Things is just a great book by Ben Horowitz. It's about starting a company. It's probably one that more people have read.

Shauna:

Many, many people have read that one. What are you reading right now?

Karl:

I just finished, it's called The Undoing Project by Michael Lewis. It's the story of, it's like a biography of Amos Tversky and Daniel Kahneman, who are the guys who invented behavioral economics.

What fuels Karl? #

Shauna:

How are you as a parent, as opposed to how are you as a leader of a company? Or is it the same guy?

Karl:

In many ways, it's the same guy.

Shauna:

Like, what would your kids say? What word would your kids use to describe you?

Karl:

That's a tough one.

Shauna:

Distracted?

Karl:

Yeah, they would say mom makes all the tough decisions and says no, and Dad is sort of more tolerant. Which isn't necessarily the same way as at work. It might just be that when I'm done with work, I'm kind of ready to not be the decider. I think it's part of it.

Shauna:

So the ultimate what fuels you is Flexe. And in your life, legacy-wise, what fuels you?

Karl:

You know, legacy-wise, I would love to be able to build a company where people at some point down the road would say, "That's the best company I ever worked for." This business is sort of inevitable. And it's ours to build. I hope that we can look back on it and say, “Yep, that was us that created this better way to do something.”

And then the other thing is, I hope the legacy is my family. So, I hope my kids are good people. I hope my kids contribute in meaningful ways. And that's the other part of the legacy that matters to me.