Episode #250: Startup Series – Kevin Gibbon, Airhouse “We’re The Operations And Logistics Platform For Direct-To-Consumer, Digital-First Brands”
Guest: Kevin Gibbon is co-founder and CEO of Airhouse, a startup company that helps direct-to-consumer companies get orders from factory to front door by allowing them to outsource and simplify operations and logistics.
Date Recorded: 8/27/2020 | Run-Time: 1:00:07
Summary: In today’s episode, we’re talking about easing the frustration of shipping, operations and logistics for ecommerce companies.
We don’t often hear about the trials and tribulations many founders go through when starting and running businesses. Kevin shares what it was like to launch and run a business that he ultimately was forced to close. He shares the hard lessons he learned, and importantly, the insights he was able to extract and later breathe into a brand new effort with his current company, Airhouse.
We talk about the pain point direct-to-consumer brands face when it comes to operations and logistics. We walk through the technology Airhouse is bringing to the table and the deep knowledge they’re learning about warehouses based on their own network data that’s enabling superior matching for customers. Kevin shares his goal that one day, Airhouse might empower the solo entrepreneur to have a 20-30 million-dollar brand.
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Links from the Episode:
- :40 – Sponsor: CleanCult
- 1:22 – Intro
- 2:40 – Welcome to our guest, Kevin Gibbon
- 6:20 – Entrepreneurial ventures early in Kevin’s career
- 13:45 – Experimenting with pricing in early startup
- 17:52 – Sunsetting a business
- 24:20 – Pivoting to Airhouse
- 27:26 – What Airhouse does and its service offering
- 39:01 – Business model
- 41:01 – focus of the business strategy
- 43:04 – Launching the company
- 45:48 – Overview of the team and raising capital
- 48:06 – Future goals for Airhouse
- 52:40 – Most memorable moment of the startup and how they are dealing with COVID
- 59:12 – Where can people learn more: airhouse.io
Transcript of Episode 250:
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Meb: Welcome, friends. Today’s guest is someone who’s set out to solve the frustrations of the e-commerce business. He’s the CEO and co-founder of Airhouse, a start-up company just out of stealth that helps direct to consumer companies get orders from the factory to the front door by allowing them to outsource and simplify operations and logistics.
In today’s episode we’re talking about easing the frustrations of shipping, operations, and logistics for e-commerce companies. We often don’t hear about the trials and tribulations many founders go through when starting and running businesses. So often all anyone wants to talk about is how much they’re crushing it. But our guest today gives us a thoughtful and transparent look into what it was like to launch and run a rocketship, hot VC-funded business that ultimately is forced to close. He shares the hard lessons he learned and, importantly, the insights he was able to extract and later breathe into a brand-new effort with his current company, Airhouse. We talk about the pain point direct to consumer brands face when it comes to operations and logistics. We walk through the technology Airhouse is bringing to the table and the deep knowledge they’re learning about warehouses based on their own network data that’s enabling superior maturing for customers. Our guest shares his goal that Airhouse, one power, the solo entrepreneur, to have a $20 to $30 million brand. Please enjoy this episode with Airhouse’s Kevin Gibbon. Kevin, welcome to the show.
Kevin: Thank you for having me.
Meb: Well, you sound like a Canuck, but where in the world are you? Are you sheltering at home? Where?
Kevin: In San Francisco.
Meb: Are you actually originally Canadian or is it just an accent?
Kevin: Yeah. I think I’m getting rid of that. I’m from Vancouver, born and raised there. I’ve been in San Francisco about seven, eight years now.
Meb: Vancouver, world class city. I love that place, particularly because I’m a skier and jumping off point to all of the city’s…
Kevin: I’m a snowboarder, yes.
Meb: Yeah. Even the Powder Highway. We did a trip a few years ago. Long time listeners are sick and tired of listening to me talk about skiing, but we have a skiing sponsor now too. But the Powder Highway, I gotta go back, because when we hit it, it wasn’t amazing snow. It was good. It was more fun than anything, but Revelstoke and all those resorts, and then even I’ve been to a place up near the Alaskan border years ago. Anyway, all right. But you’re a Canadian engineer by trade, right? You study aerospace? Did I see that in the notes?
Kevin: Yeah. I worked for a defence company, Raytheon, initial job. And then also Boeing. I’ve always been an entrepreneur. All my life on the side, early and late teens, I was an eBay seller and then actually turned into like an eBay power seller and I was just selling like anything that I could get my hands on. But actually how I made all of my money was on engineering. Yeah.
Meb: I come from a family of…I was originally an aerospace guy but as soon as I sat through one class of statics and dynamics, I moved more towards biotech. It was too hard for me. But come from a family of Lockheed and Martin Marietta and my brother’s currently at Northrop.
Meb: I love that world. And we’ve got SpaceX right down the road from us here in Los Angeles so…
Kevin: Yeah, yeah, yeah.
Meb: We’ve had a lot of space-focused podcasts already. But by the way, eBay, I tried to sell something on eBay for the first time in, like, 5 or 10 years. It’s like the most outdated horrific user experience at this point. How has eBay not been totally disrupted yet? What’s…do you have any thoughts? Are you still a power seller?
Kevin: I am not but it’s the network effect that they have. They have a marketplace and they have all the buyers. So if you’re gonna sell something, you have two choices. You have Craigslist or eBay. Do you want somebody to come to your home or do you wanna ship something? That’s really your options. And also, on eBay, do you… First, it’s Craigslist. Do you wanna have to haggle on Craigslist with people coming to your door? I used to also be a big Craigslist seller as well and you have people that try to haggle with you at the door after you’ve already discussed the price of something versus eBay. It’s like the thing is sold. This is the end price. So it really depends on what you wanna do.
Meb: I’m a cheap bastard. Affectionately known as a value investor. But one time had run into…had been in a restaurant or a bar with some friends and was introduced to a new friend. He said, “Wait. Your name’s Meb?” And I said, “Yeah.” Because that’s a fairly unique name, you don’t hear that much in Los Angeles, but the guy said, “Dude, you tried to buy a surfboard off me for 100 bucks off Craigslist.” He’s like, “I sold that thing for like 1,000 bucks.” He said, “I would never forget your name.” And I said, “Oh, that’s embarrassing but nice to meet you.” Works on occasion.
Anyway, Craigslist. Both those business models, my God. Okay, so started out as an engineer. You had the entrepreneurship bug. You got involved as co-founder in a couple of companies. Give us a quick timeline whirlwind on some of those companies before we get to what you’re up to today.
Kevin: So first company was selling a ton of stuff on eBay. It wasn’t a company. It was just myself. I would just get anything in quantity that I thought that I could sell for cheaper on eBay and it worked relatively well for where I was at my…in my life. So I don’t know. Eighteen or 20 or something like that. Next company was an actual…it was a shopping app. So this was based in Vancouver. What we did is we actually sourced…this was before e-commerce was like a really big thing. So we actually sourced all the local goods from all of the different stores around you and we would try to find you the best deal. It actually worked very well but we actually couldn’t find a business model that worked because you would send people into a store and how do we make money? And so that didn’t work. We had a few employees in that. And then I got the real venture capital build something really big bug after I went to San Francisco. Being with so many different entrepreneurs that were just creating these, like, world renowned companies and it was infectious. It was something that I’ve always wanted to do something very big with my life. I never wanted to be a cog in the machine. And I just loved it. So, at the time, my girlfriend, now luckily my wife, I told her that I was just gonna be moving to San Francisco and we were living together in Vancouver. She was like, “Okay, cool.” I moved to San Francisco. I’m an engineer so I worked for a couple of start-ups. My goal was really to start my next company there. And my next company, I was a looking at a lot of the trends and I’m a very, very, very, very big customer-centric product person. So if a product doesn’t solve such a huge problem that nobody else is doing, I’m not interested in it at all. From building it myself to even…well, actually, I don’t get involved. I’m not an investor or an advisor or anything like that. I have a very slow track mind. But even anything that really interests me, I’m very much like, “Why are you different?”
And so what I saw…and this was in 2012, I saw Uber was taking off, Lyft was taking off. There was this whole control your life from your phone, your phone is your remote control kind of trend that was going on. And I just took my unique experience from just selling a shitload of stuff on eBay and I was like, “Wait. Why isn’t shipping this easy? Like it’s crazy.” You have to like…I remember myself. I was just going into…I was purging off labels. I was packing boxes myself. I was then going into the post office and waiting in these huge lines. It was like really a terrible experience. And I was like, “Why shouldn’t there be a service like that?”
So I created Shyp, and what Shyp did was very much we were trying to be like the Uber of shipping. It was you take the share of whatever you wanted to ship, you enter in where you wanna go, you sync your eBay accounts after you sold something. We just make it really, really easy for you to get all the information into your mobile phone. You didn’t need a printer. And then you would actually have somebody come to you the time period that you wanted. Actually, early days it was within 20 minutes, which was amazing. And then we pick it up unpackaged, whatever you want. You wanna ship a bike, you wanna ship a TV, whatever you want. Just tried to completely change the market. And we had a really amazing…and actually it was just a thing just yesterday and I said, “Go to the UPS store, wait in line.” And it was so comparable.
TLDR, the company did not work out, but what we did is we created something that consumers really, really loved. And it was completely different than anything that anybody else has created. And it was really an amazing experience. So as far as the business goes, we were in…we actually built everything ourselves. So we built the mobile app, we built the desktop app, we built the routing software, and we also had couriers, and we even had vans, and we had warehouses, and we built our own warehouse management systems because we really cared so much about the product and the experience, and I think that’s the reason the consumers loved it so much. And so at the height, we were in five different major markets in the U.S. We raised $63 million of venture capital money. We had one of the most known venture capital members on our board, John Doerr, who’s on the board of Google, [inaudible 00:12:00], and early investor in Amazon and everything. Like we really were supposed to be like the Uber of shipping, but what actually did happen was it wasn’t… And looking back at it and a lot of the learnings that we had, honestly, it wasn’t really a venture capital backed…it shouldn’t have been a venture capital backed business. We had so much expenses that went into launch in a new market. We had to have warehouses. We even had to have vehicles. We had to know exactly how many employees to have on at a certain time. We didn’t have the frequency of use that an Uber or a Lyft or food delivery companies had so we did change users’ behaviours. So like you’d ship two times a year and it’s like that was the almost awful experience of your life. And you would change it, so you’d ship four and six times a year because now you’re selling like your old stroller that you had before because you just take a picture of it and pick it up. And so we had a really amazing fit with consumers, but as far as the actual economics of the business worked and how much initial investment we had to have and the lack of frequency of use and also just honestly how many people who are in a single city that would ship things out, and also we didn’t focus a lot on profitability early on as most venture businesses don’t, but we were not a traditional venture business. We required way too much capital up front.
Meb: What a simple answer. You just ask for more capital. But a question, so…
Meb: This is a former customer, by the way, but I was exactly like what you talked about, is I used it like twice, loved it. And there was a pretty low price point, right? Like it was…I mean, it was like 5 or 10 bucks, right?
Meb: The question in my mind was always like…and you guys may have tested this or I have no idea, but I mean, there had to be a price point at some point where you just kept jacking it up to where it made it a good business, viable business, but also I’m sure you would have lost customers. Did you guys experiment with pricing at all? Because I probably would’ve paid even more to have somebody come pick up and ship stuff to avoid the post office, like you mentioned. How did that kinda play in or was that not even the problem? Was it just everything else involved in it as far as all the other capital expenditures and everything else?
Kevin: This [inaudible 00:14:42] actually wasn’t. So up front we actually charged…it was like a $5 pick up fee and then we charge you for the actual shipping cost of whatever you ship. The actual business model was, is that in logistics, and this kinda goes into what we’re working on now, my next company, it was all about the consolidation that you have. So you have…if you think of a UPS truck, you have a fixed cost. You have the truck, you have the driver. That’s fixed cost. And the more packages that you actually can push into that truck, the lower your per unit cost go. And so there really is these economies of scale that work. So the $5 that we charged for pickup was a nominal fee. We actually made all the…well, we lost a lot of money, but eventually we did actually make money on the actual shipping piece that we were able to consolidate instead of picking up from you, UPS driver, FedEx driver picking up one or two packages or whatever, we would basically consolidate all that. We would be much more efficient on the routing piece. And we’d be able to actually reduce our cost and make our margins there. That actually did hold true but the problem really lied in that the volume that we had to have for a specific city was just higher to create profitability than we actually thought it would be. We thought there would be more people actually shipping. And so that’s what we really found.
Later on, we downsized. We actually reduced to a single market in San Francisco. We focused on profitability. We went to hire long shippers. We actually did prove profitability for that one market, but at that time, it just…it’s not a venture backable business. It’s like also we pumped $63 million in this business. It’s just like, “Are you guys gonna actually make it work this time? Yeah, I see you made it work on this one city.” But like a lot of like start-ups, it’s a lot…I would say majority of it is momentum continuing that. And so we just lost a lot of that. I do think that…well, I wish the service still existed. I think that if you approached it in a different way that it could be a…I still don’t think of a venture backable business honestly just because they have so much up-front investment in every single market, and also you have to consider the marketing aspect of it as well. How do you acquire customers? We had great, like, word of mouth from consumers, but SMBs or larger, like, customers, we would make way more money on. They’re very, very hard to acquire. So I think it should be a business and I wish it still would be, but I don’t think it’s a venture backable business.
Meb: And so as this was kinda going through your head, at what point…I think it would’ve been 2018 if my timeline is right, maybe? 2017? Somewhere in there. 2016, I don’t know. At what point were you starting to say, “Okay. This is it. It’s time to sunset.” Because, you know, Kevin, I’ll give you a big compliment in that from someone who’s invested in a couple of hundred at this point, private companies, have seen a fair amount of companies decide to shudder their doors and there’s two types of founders and CEOs. There’s the ones that disappear into the ether. You just stop hearing from them and the company just somehow just goes away. And then there was your approach, which was, I think, very honest and the right approach, I think, if you’re a founder listening to this, which was just to be transparent and say, “Look. This is what happened, this is what’s happening, and this is where this is going.” Maybe walk us through kinda the decision to shudder the doors and kinda the final runway of Shyp before we jump over to Airhouse.
Kevin: We went through two major layoffs. Well, the very first one was we decided to…we raised way too much money and that was a huge mistake on my part. And we were just…we were thinking we’re the next Uber. I’m not gonna lie to you. And so the very first layoff, I think, we laid off 15% or 20% of the staff or something like that. I think we cut one of the markets off. I don’t know. They got all [inaudible 00:19:24] work. And then the next stage was like, “No, this is still not working. Like we’re burning way too much cash. This is not gonna work.” And so that’s when we did, like, a major layoff and we were like, “Okay. The only possible way that we can make this work, and this is a big risk, is that we need to prove profitability in a market and we need to try to get more investment from that.”
And looking back at that now, that was, for me personally, that was probably the wrong decision but I had a fiduciary duty to my investors and they trusted so much in me and I just couldn’t…so I was trying to do whatever I possibly could. It would’ve been easy to walk away. Not easy, but that would’ve been a better personal decision for me. When you sign up for being a CEO and taking on venture capital, I think, like, you take on a lot of responsibility and I personally think that you need to really do everything you possibly can. So that’s what I did. And so even though we could…our success was very low because even getting profitable in a single market, then trying to raise more money, the profitability’s very low because investors, especially VC investors, they invest in momentum. And at that point, the momentum was completely gone. I felt just a moral obligation to everybody that…my board and all the investors to try to do whatever we had. So I think we had five million bucks in the bank or something like that at a time. We’re gonna get San Francisco profitable and then we’re gonna try to raise more money. We actually did that. And it was like an awesome feeling. We created a new product, go upmarket to these larger shippers, and we were just focused on profitability, and it was amazing. And it was honestly down to the very final hour. I think we had one investor, one new investor that was, like, ready to write a term sheet to give us another five million, and that for me personally would’ve been a very, very bad decision for me to make but I look at myself as taking all of the investor capital and also all of the employees and everything that we’ve done, I mean, and that is, like, we gotta try to go for that.
So it was actually to the day that we ran out of money and also we weren’t like some of the other companies… I also could not ever…when [inaudible 00:22:17] go out of business, especially ones that have a lot of, like, bills to other suppliers and everything, like, you see…and I won’t name names but there have been some that they just kinda be like, “Oh, we’re done. We’re done.” I wouldn’t do that. So I wanted to make sure that we gave everybody and all employees severance, we paid all of our suppliers and everything. But it really came down to, like, the last day of I’m on the road hitting up, trying to raise more money, and we’re operationally profitable. Like we’re growing. I think we had, like, 40 big brands in our pipeline that we were getting on board at the time, which I’m actually surprised we even convinced them at that because we… It’s like didn’t thought we were going out of business but I just had…I don’t know. Internally, I just couldn’t do that. So at the end of the day, we had to shut it down, but luckily, we were able…be able to pay all of our suppliers, give our employees good severance, get out of our leases, all of those things. But it was really tough and I tried to do it to the very end of the road and did everything I possibly could. And also the team that was with me did the same thing.
Meb: And that’s the thing is that, particularly these VCs, they’re adults, they know what they’re doing. And the reality is, the majority of the companies that they put money into, they realize there’s gonna be a fair amount, for whatever reason, sometimes it’s no fault of the founder, sometimes just idea doesn’t work, sometimes it is poor management, whatever it is, they’re not gonna make it. So on the investor side, people, I feel like, have a much less of a problem with the company or idea not working out than the way that people go about it and having some class and decency and honesty, particularly in America and this world, you get a second chance. And so…and third and fourth and fifth depending on what’s going on. But there was a kernel of positive upside from this whole experience, which was, after you guys wound it down, that became sort of the dirt or the oyster for your new idea. What was the time resin? Because it wasn’t super long after that you started thinking about Airhouse, right?
Kevin: Day after. As soon as I was totally out of Shyp, I started…myself and my co-founder, Sara, who’s amazing, we started…who was also at Shyp as well, we started Airhouse because we saw all of the 40 brands that we had in our pipeline and all the problems that we had. But realized that the model that we were building on and that was, like, having warehouses and having all of these things, that was just the wrong model as far as building a very, like…and what I wanna build is a generational company. Like I really feel that’s an opportunity in the logistics and operations space. And that’s what I thought that I was building in Shyp. I was thinking I was gonna go to consumer enterprise. For any entrepreneurs that are listening, don’t ever fucking do that. Start with a product that you’re going to scale. Focus on that and scale that. What we saw is that there were just so many of these brands that were popping up because of the democratization of e-commerce. If you think about retail, like, where it went from if you had physical stores, if you had your own brand, you’d have to sell into one of these buyers. They’d have to pick you personally. That’d be hard. And then everything went online. And then you then still need to get in these market places, eBay and even Amazon, but still, like, how do you get noticed? All these sorts of things. And I think what has completely democratized for brands and selling things online have been things like Shopify and BigCommerce, and then more importantly, the distribution channels through Instagram and sharing with your friends, even through messaging, and all those things, how often, even yourself, do you hear about a brand that somebody sent you on a messenger, and think about how you would’ve heard about that before. Someone who’s gonna call you up and be like, “Hey, I heard about this brand, whatever.”
It’s like now the friction is completely reduced. And so we saw all of these brands that were really struggling after they produced something, after they created a storefront, which is easy on Shopify, BigCommerce, [inaudible 00:27:14] commerce, name whatever e-commerce platform you wanna have, how do you then get it to your end customers? And so that’s kind of where Airhouse was born is to solve that pain point.
Meb: Walk us through. You took a full one-day sabbatical before your new idea. Describe what you guys do. What’s the difference?
Kevin: So what Airhouse is, is that we’re basically the operation logistics platform for direct to consumer or digital first brands. So after you sold something online, after you have your goods…and today we only work in the U.S., we basically handle everything for you. So instead of you having to ship everything out of your office yourself, instead of you having to have your own warehouse, instead of you having to deal with a very old-school industry, which is called the 3PL industry, third party logistic industry, which are basically warehouses that will store your product and then ship them out for you, we’re basically that software layer on top of everything that makes everything just work very well. So I like to compare it to Stripe. So Stripe, before Stripe, could you sell online? Yes. It would take you to go into a bank. You’d have to spend four or five weeks. You’d have to have certain sales, blah, blah, blah, all these things. And then you have to actually integrate with their banking software, all of that.
And so that’s basically what we’re doing for the 3PL, so the warehousing industry. So instead of you having to have to have an engineering team to go to build into any of these warehouse systems, which are all independent, they all have proprietary software, or having to also hire an operations manager and running an ERP process that’s through 20 or 30 different 3PLs to know that, like, “Oh, you sell this type of product. Oh, here’s this [inaudible 00:29:24] company. Oh, you require marketing material? Oh, you require refrigeration?”
What we basically do is that we partner on the other side with all of these different warehouses and we go very deep into their software so you don’t need to, and we turn a four to even six-month process that you’d have to run into a one-day process. So sign up with us, like, integrate with whatever storefront you’re working with, and we’ll tell you where to save your inventory based on what types of products you have and your sales and everything. We’ll use standardized pricing. You only talk to us, and also, we have a great software for you that integrates with whatever you work with.
Meb: So one comment and then a question. First, it’s surprising to me that there’s no one doing this or no incumbents that are already…maybe there are, have this problem solved, and it’s funny. Kinda it goes back to the biggest category was we’ve been using Stripe. I don’t even know how long, like seven years, is it fits under this category of what I call like frustration arbitrage. There’s something that’s just either kinda garbage, or once you have the solution, you look back and realize it was total garbage and just didn’t work and it just makes your life infinitely easier. So I’m a little surprised this doesn’t exist already. And then two, I think it may be helpful for listeners if you were to just kinda walk through a very basic almost like a case study. It can be a hypothetical or real of how a company may work with you guys and kinda where this all fits in.
Kevin: I think that there is a few major things that we offer that actually in a brand you never could have offered yourself. So if you think of like Casper, [inaudible 00:31:19] Parker, also their founders are investors in the company because they saw so much of these problems. What they had to create is what we’re basically creating for everybody. But also what we can provide that not any single brand can do is first all the matching process. So there’s actually over 10,000 of these different 3PL warehouses in the U.S. alone. Eventually we’ll be going global as well. So how do you know that you’re going to be getting the right person for your actual product? And that is a ton of different things. So quality is actually the number one, and all of these warehouses will say that they have 99%, blah, blah, blah, but that’s all bullshit. There are a lot that actually do that but you don’t know that up front. And also because you’re taking four to six months to actually onboard because your switching costs are super, super high. So that’s very important. Also, like, how do you know which ones, like, in the sales process that can actually handle the type of product that you have? And there’s so many different types of products and all these different things that you want. Packing slip requirements. Are you selling into online marketplace like a Stitch Fix that actually requires very custom things on the outside of the box, the inside of the box? Do you need the price tags removed? Do you need all these different things? Are you in a [inaudible 00:32:52] company that has 2,000, 3,000 skews that some of these warehouses just can’t handle?
So I would say that on the matching process is such a huge thing initially that no brand can actually know unless you have all the brands like we have. That’s kind of, like, the network effect that we do have. I hate using that term, network effect, because it’s overused but there actually is a network effect here, which is great for us. And then on the other side, if anything goes wrong, so as we’re building the network, if you are with one of these warehouses that is not providing your needs, especially as we’re building that network, we’ll switch to develop right away. You only deal with our software. Like, it doesn’t matter. We’ll switch you the next day. We’ll freight all your stuff somewhere else. That’s super easy. And also, I’d say actually a third point is on the customization. There is so many different types of brands that require so much customization from return flow, from the packaging, slip flow, from the packaging, custom packaging pieces. That’s what we really provide through our software that we built. Those are the things that we really provide that, even as the most sophisticated brand, we’re still early days but I would guarantee you that we could do it better than any, call it, $20 to $50 million brand today. So where we kinda fit in in the marketplace is somebody that…and we aim for growth brands. Somebody that’s looking prelaunch, probably taking some venture capital, looking to really scale it up. We’ve actually seen a really good fit in, like, the midmarket piece, in , like, the $20 to $50 million brands as far as customization, matching process, and then if things go wrong, switching it of them.
As far as the other question that you had, walking through just an example of a brand. So we had actually one of the brands that I use a lot is CBD gummies because now we all have anxiety, it helps. And so they actually had issues with temperature control. And so their initial 3PLs they were working with, they really didn’t have a lot of flexibility in that. And what we were able to do is move them to one of our other 3PLs that had just room temperature control. There is a number of different temperature-controlled warehouses that are out there. So you go from the ones that can provide frozen steaks to you over night and all of this, and that’s very expensive. And this company obviously didn’t wanna pay that. So we had one of our partners that had a temperature-controlled room that we were able to not have to pack any dry ice with or anything like that, and they were able to, as far as onboarding goes, they had a Shopify account, sync their Shopify account. They did most of their sales through Shopify. We told them exactly where to send their products based on the needs of their product and they were able to not have their stuff melt in other warehouses.
And then also we know just from the data of all of our customers which warehouses have the best quality. So quality is a number of different things. It’s getting stuff on time which every single warehouse will promise. They will do whatever, but that’s the sales process. And because switching cost was so high, a lot of them don’t actually hold up to that. So we know that for sure. They also have like following packaging requirements. So this brand, specifically, they had things that they wanted, inserts they wanted to have in… For specific customers, they have custom packaging. They’re not trying to be a commoditised product. You buy it on Amazon, right? They’re trying to create a real brand, and so those are the things that we can provide just based on our network of the warehouses we work with.
But I’d also say there are other…and to your other question, are there other people doing this, there are other people doing this, but I say that the approach that we take is that you will only work with us. We will take full responsibility. We have the technology. If anything goes wrong, if there is something that you didn’t get to a customer, we will refund…like we’ll refund it. If there’s anything goes wrong with the warehouse, we’ll switch you over night. There are technology-only solutions that will be, like, we’ll connect you to this 3PL’s technology. But they won’t take all of those things on, and also the account management piece also is a really big thing. But in the background, and I know your listeners are [inaudible 00:38:04.235], we’re looking in my experience building Shyp, building a complete warehouse management system, know exactly… I know how to manage people, I know how to build the software to actually do all of these things. We solve all of those problems. I never wanna do the management people [inaudible 00:38:23] as far as warehouse piece, but we know how to solve all of these different problems that will occur, and our goal is to automate everything in the background. And so today, there’s a ton of things that even in the background, even…well, not myself anymore because we have a larger team, but we’d be emailing Excel spreadsheets and all of these things. All that stuff that we got automated and that’s really what our goal is, to scale up and really, like, dominate this industry.
Meb: I mean, and I imagine as far as industries go, warehouses, one would think they’re probably stuck in old school paper and pen and a bit calcified. What is the business model for you guys? Do you charge a per shipment fee? Is there a storage fee? Is it a percent commission? How does it all come together?
Kevin: It’s really the same sort of structure that you would pay these warehouses yourself. We’re not looking to be the lowest cost provider because the value that we provide. What we’re doing is, instead of an entrepreneur having to hire an operations manager, you don’t need to. And also if you are a $10, $20, $50 million brand, like, we just get your employees more leverage. And so while we could be…as the business model actually does work, we could be the lowest cost provider if we wanted to be. So we could compete on price. We’re not trying to be. So standard storage piece, obviously, how many pallets are you storing, whatever is the monthly charge, and then it’ll be a pick pack fee that you’re paying. So how many items do you have per package? We’ll charge you that. So that’s basically the labour that it actually costs for whoever’s packaging it. It’s still today people but eventually it will be more automated. And also that’s part of our…we’re not picking winners or anything like that. We’re looking to work with the best warehouses. So I saw an article. [inaudible 00:40:40] was moving, like, 1,000, 100,000 units per day, and they had 4 employees. Like we’ll eventually work with those warehouses. We’re not looking to pick winners for anything.
The third price is on just the shipping cost. So where are you sending it? How big is the item? All of the standard stuff that you would pay. We’re not looking to be anymore expensive nor are we looking to compete on the price today.
Meb: Are there any segments of e-commerce that you think are particularly great for you guys other than CBD gum is? Is it fashion? Is it electronics or is it really everything?
Kevin: It’s really anything outside of anything customizable. So I’d say that if you are making your own product in your own warehouse… So I’ll give you an example. And I don’t know if you know this brand. Do you know what a Onewheel is? Have you seen those running around?
Meb: Is it the unicycle?
Kevin: No, it’s not. It’s not the unicycle.
Meb: I was gonna say because I saw a bunch of those in Vancouver last time I was there.
Kevin: So the Onewheel is, think of it as, like, an electric skateboard but it has one wheel in the middle.
Meb: Yeah, yeah, I know. That’s what I’m talking about. I saw a bunch of those in Vancouver. They call them like a hoverboard but it’s not. It’s just like two pegs and a wheel, right?
Kevin: Yeah. So I’m a huge snowboarder. That to me, it feels like snowboarding around the city. That’s actually probably my best purchase I’ve ever made. So for them, they manufacture their stuff in Santa Cruz. They have their own warehouse. It would not make sense for somebody that’s manufacturing their stuff domestically to actually use us if they already are having it warehoused just because the why not just box it up… Like, you’re already manufacturing stuff, why not just box it up and actually put a label on it? But that’s actually the smallest part of e-commerce. The majority of it is manufactured overseas, importing it to the U.S., and then distribute it from there. That’s why the 3PL industry, I think, is over a trillion-dollar industry today. So I’d say anything customizable is really not that great a fit for us.
Meb: So you guys officially launched, I believe, to the public, was it this year?
Meb: Tell me a little bit about the launch and what the on-ramp has been so far.
Kevin: Yeah. We launched in… Wait, what month is it right now? August? God damn it.
Meb: Sorry, Kevin. Back to work.
Kevin: Yeah. I know. We launched in July of 2020, and we’ve been working on this kinda stealth for the previous year and a half before because we do have a two-sided marketplace and we really wanted to make sure that we had the right partners and the right product and everything. It is much more difficult thing to launch than just, like, if you’re a SaaS play kind of thing. But then when we felt more comfortable that we were in a place we wanna go public, bring more customers on, more partners on, everything, the launch went amazing. We have more customers right now than we can onboard just because of the…I say this in a good way and I hope that your audience would also agree with this. On the supplier side because we’re so product and customer-focused, onboarding a lot of customers to a lot of these different warehouses is difficult. And so we actually…we’ve had too much demand basically as far as customers go. And so right now we’re looking to onboard very large warehouses that are having hundreds of locations around the U.S. We’re really constrained right now on that side of the two-sided marketplace, which, for any investor, that is actually the better thing to have versus not having enough customers that you want. So it’s been amazing. The launch has been great. The feedback we’ve got from the largest warehouses in the world have been, “Oh, my God. This is such a needy thing in the industry because we don’t know how to even talk to these new brands. We don’t know how to source them. Also, we know our technology is [inaudible 00:45:20] like the ’80s.”
And what’s happening is these brands are having to create these schemes to do all these things on spreadsheets and all this stuff. And so what we represent is that we’re trying to just really automate all of these processes. So it’s been great from both the demand and supply side since we’ve launched.
Meb: I imagine the warehouses eventually themselves could be a good referral source for you guys too.
Kevin: Oh, yeah.
Meb: Tell me a little bit about where the team, where you are. I imagine given everything we’ve talked about, I know the answer to this already, but what’s been your approach to raising capital, bootstrapping this business? Give us a summary.
Kevin: To date we’ve raised $5.5 million. I guess I call that a seed. We did it in a few different tranches. A lot of ex-Shyp investors as well even writing blank checks just based on what we’ve done and our experience and everything like that. Well, I guess a little less than half the team’s ex-Shyp people that I brought on and also Sara, my co-founder, she’s amazing. I’d say that where I’m really good at some fundraising, product engineering side, operation side, and she’s just an amazing B2B marketer. And so we have had no shortage of customers at all. And the team’s still pretty small. We’re only 10 people. Engineering team, also very small. And this is kinda the opposite approach than I took at Shyp as far as raising as much capital as I possibly could and scaling out. I think, at one point, we had a 30-person engineering team, which is just like huge for where we were at as far as revenue and everything goes. And so we’re taking the opposite approach to be capital efficient, but knowing when we hit the things that we need to hit to be very aggressive. I wanna own this market. I see the network effects that actually do happen from both through the cost damage on the consolidation side, but also just building the network as well. So we’re close to really starting to ramp it up. So we’re not raising additional capital right now but we will be shortly. And as I mentioned, when we first started, I wanna build something generational. I think that there should be a Stripe for logistics, shelf-life for logistics, an AWS for logistics, all of those different things. And I think that with our previous experience, my previous experience, that we are in a very, very good place to really build that.
Meb: There was a great Robert Downey, Jr. quote. Back in his partying days, he has a quote where he says, “Remember the stitches.” And I think he’s referring to…and I don’t remember if it’s true or not, like, an ex-girlfriend stabbing him or slashing him with a knife. But the point being is that the scars, you learn so much from and help define you and guide the future. As you look out to the horizon, what are some of the, like, kinda main goals? You hinted at a potential global expansion at some point in the future. What are some of the other ideas or things you’re thinking about? I know just the blocking and tackling and onboarding more than you can handle. But after that, what’s the plans?
Kevin: Just wanna make it easier for people to launch these brands. One of my goals is to, like, empower a single entrepreneur to have, like, a $20 or a $30 million brand that they can just make money while they sleep. And there’s a lot of different products that help you do that, but I think that there’s not one right now on the operation and logistics side that actually does that. So that’s kind of the piece of the pie that I think that we fit really, really well into. Also, I would say as second…so I guess I’m a third time entrepreneur. The last company failed in a spectacular fashion, and me personally, I have a lot that I’ve improved. I’d say that I think that’s why…this is another reason why I think very smart investors wanted to invest as well. You think of Travis from Uber. Think of his, like, early failure at Scout. What was the name of that company? Whatever that was, that he lost and he got sued by all the record companies and everything, and he had a chip on his shoulder. I don’t think I have as big a chip on my shoulder that Travis does. I think that the wanting to prove to be successful is, like, really what drives me and also just providing a lot of solutions for customers. So other things that are on the horizon. I think integrating a lot of these things that are very…you think of you’re going to launch a brand. Okay, what do you do? Today, you probably go to a Shopify consultant and they would…or a brand or something, they build your brand, they build it in Shopify, and then you’d have to add, like, 10 different apps to make it all work and, like, all these weird things. I think for us, we wanna try to eliminate as many of those possible things.
So, like, returns, for example, is a great example. Like, why do you have to contact a customer support agent to return something and they send you this label? That’s taking up time and somebody’s having to hire that person. Like that should be all automated. And with us controlling the full stack from the warehouse and everything, that’s super easy to do. That’s just one example of a lot of different things that we wanna do. But we wanna approach it in, like, a technology way. As much as I love Flexport and Ryan and…not sure if you are familiar much of their company at all. I’ll say this just because Ryan actually put this in a blog post. They took the approach that they didn’t automate enough things early on and they scaled out their people, their operations team. And that’s how they solved it. So if you are looking to use their product and get things to move around the world, they have a team of people that are calling people and faxing stuff and doing all those things. That’s kind of the opposite approach that I wanna do and kinda why we’ve been a little…we’re now two years in. Why we haven’t super exploded, because we wanted to get the model right initially, and that’s why we’ve held off our launch and everything like that. And so we’re looking to really create the foundation to really explode because the logistics and also the brand history is so big. There’s no constraint for demand. That’s not gonna be a problem. It’s really gonna be about the product and about the scalability and quality. And so that’s what we’re really focused on. And then just knocking off things for customers so they don’t have to do them themselves.
Meb: I already have a few brands that would probably benefit from what you guys are doing. I’ll send you later. As you look back, this has been pretty short for Airhouse, we like to ask the founders what’s been the most memorable moment of this experience given what you’ve been up to with your two, three, four, five different businesses? Feel free to include any of those as well. But anything come to mind? Could be good, bad, and between.
Kevin: COVID. COVID has completely…
Meb: Oh, we didn’t even talk about COVID.
Kevin: COVID hit. It turned…
Meb: What’s this year been like?
Kevin: …our business upside down, in good and bad ways. So in a good way we’ve seen even our existing customers just explode, 100% month for month growth. Just crazy. And so that’s the good piece. But on the other side, when we had a two-sided marketplace, on the supply side, warehouses can’t handle that. The delays they were having, two to three days to get things shipped out, which normally have been at the same day. That means our customers, the brands not being happy, and then their customer’s not gonna be happy. And then we also had the shipping carriers that they also had the delays because they just were overwhelmed. And then the reason is because it’s based on people today. It’s based on knowing what your volume is gonna be, which, like, normally, it is pretty predictable. That’s why you can get something from FedEx, and they’ll say it’s gonna be four or five days, and it’s gonna be four or five days because they know how much volume [inaudible 00:54:19]. But when it just explodes, everything just crumbles. And the amount of issues that we’ve had with both our partners and the carriers have been crazy, which is no fault of our own, but also, we need to own that as well.
And so that’s been extremely difficult to deal with. I’ve even heard of…I think it was DHL, one of the carriers. They were not even taking any new accounts from other people because that’s how overwhelmed they were with all of the volume. It has gone down, but trying to explain that to your customers where they’re like, “My business is exploding. You’re handling everything.” And it’s just…that has been, I would say, in any entrepreneur’s, like, journey, despite, like, with a successful company, there is gonna be luck. And I’d say that for us, that is going to be our…it is a short-term pain that we’re having right now because we’re having a lot of our suppliers that are dealing with a lot of issues, and that’s totally understandable. But e-commerce is going to be completely changed forever. There was a Morgan Stanley report that said that it was…I think it’s gonna…after all this is over, whenever the hell that is, e-commerce is gonna be, I think, like, 30%, 35% of retail. It was like at 15% before. And that would’ve maybe taken, like, 10 years. The acceleration of just the market for good even after COVID is over, because people now are like, “Did you know that we’re going and buying stuff?” They’re like, “Well, it’s so easy to buy online, and everything is online.” All that stuff. I think that is going to be, like, the luck that we are going to have, but the pain initially…it still is difficult.
Meb: You know, it’s funny. We’ve had a handful of guests on the show over the past six months that have been in various stages, mostly that have benefited from what you’re talking about. Grove was a good example. Curtsey was a more recent one. Where are we in sort of the process with you guys? Is that mostly resolved? Are you seeing light at the end of the tunnel? Are those challenges persisting?
Kevin: I think we’re almost at the end of it, but we’re still seeing, like, even in some of our warehouses, like, we’re seeing… I think this was a few weeks ago but it’s still relevant. Like people that are having COVID and then they’re doing their best to socially distance, but everybody that’s in their…like, their pod that they work and they’re having to, like, quarantine them for a period of time, and it’s just kind of crazy. So I’d say that we’re almost…I don’t know what this virus is gonna do so I can’t really predict, but it seems to be getting better. The good thing with logistics is that it’s mostly people today and it’s about predictable volume. And so when you’ve seen massive spikes in volume, you’re gonna see…especially, like, a big peak, you’re gonna see, like, really big plays. And so that’s why you’ll see [inaudible 00:57:52] have this exact issue. You’ll see [inaudible 00:57:56] this issue. But the thing is that they will deal with that. Oh, especially with the unemployment rate where it is, they’ll bring people on to then even out things. So we are seeing those delays actually be reduced as they know what the new normal is. And also, I think that there was a huge spike in…what was it? May? Like a huge spike and then it kinda came down. Both the warehouses and the carriers have been able to hire more people and do all those things. Until there is a second wave, I think that we’re good. If there is a second wave, I don’t know how to predict that. But I think we’re getting into a better place now.
Meb: I hope so. Maybe we’ll all be taking the Russian vaccine soon. We’ll see.
Kevin: Oh, God, yeah.
Meb: This has been such an accurate, fun, sweaty palms story of being an entrepreneur. We often say on the podcast the biggest compliment you can give a company or a person or, in my world, investing, is simply survival. So it’s fun to watch this rebirth of this new company and success that you guys are starting to have. It’ll be fun to watch in the coming years. If people wanna find out more, if they’re a booming brand that wants to chat with you guys, where should they go?
Kevin: airhouse.io is our website.
Meb: Great. Simple. Well, we’ll send you a few too.
Kevin: Spell it as it sounds.
Meb: Listeners, Kevin said he’d give you free fees for a whole year if you tell him…you mention the “Meb Faber Show.” I’m just kidding.
Kevin: Yes, exactly.
Meb: Kevin, thanks for joining us today. It was a lot of fun.
Kevin: Thanks so much, Meb.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcasts. If you love the show, if you hate it, shoot us feedback@the mebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. My current favourite is Breaker. Thanks for listening, friends, and good investing.