The Bowery Capital team is continuing our blog series covering B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. This week, Matt Chasen, Founder & Former CEO of uShip, answers some of our questions. You can read all of the posts in our series by going here.
What inspired you to found uShip? Most MBA students in the early 2000’s were not really interested in these kinds of businesses - and shipping and logistics had not become the trendy, tech-enabled sectors they are today. How did you find yourself building in that space?
Like a lot of things with entrepreneurs, it started with personal experience. I had studied mechanical and aerospace engineering in college and then started my career at Boeing. When I went back to get my MBA at the University of Texas, I had reserved what was supposed to be a nine-foot U-Haul truck to move everything I owned from Seattle down to Austin. When I showed up to pick it up, all they had available was a huge 24-foot truck - and it got me thinking about all of the excess truck capacity that is out there. I was on this 2,000 mile drive with my then girlfriend (and now wife) with all of our stuff and I was just boring her to tears talking about how someone could create an eBay style services marketplace for people to move miscellaneous cargo that could fit into a truck - bigger, bulky goods or freight. At the time, I really did not know much about the traditional freight industry but I grew to learn much more about it over the years.
It was this personal experience that made the lightbulb go off in my head for uShip. I also had another experience around the same time trying to help my mom send an heirloom dresser across the country and there was no easy way to do it - the LTL companies did not want to deal with it; and there was this supply and demand mismatch of people who wanted to move things, but it was not quite a full household relocation. LTL companies did not want to handle loose, unpackaged household goods. And when you think about it, you still have a lot of underutilized trucks - three quarters of the trucks on the road today are still partially or fully empty. It is one of these crazy unused capacity things and that was kind of the foundation story of the business.
When uShip was getting started and you were trying to get initial liquidity on the platform, what were some methods you found effective for onboarding supply and onboarding demand, and how did the ways you approached those two sides differ?
Getting liquidity is the critical thing. You can build the best product but you need to launch it and with marketplaces that initial liquidity is everything. Finding a shortcut to get that liquidity is really crucial. I was partly inspired by The Perfect Store which is a book about Pierre Omidyar and the founding of eBay. What I took from this book is to leverage existing communities or audiences that already exist. So for us, as we were exploring launching a shipping marketplace, we looked at what existed out there and one of the places where people were trying to do these kinds of transactions with limited success was on Craigslist. This is because Craigslist had a moving labor category but it was really designed for deliveries within a city rather than longer distance shipment, but people were trying to use it for that anyway.
As we got started and orders were flowing in from the demand side, we would be cheering as they came in but then realized we needed to find a way to get service providers to actually bid on moving these things. In the early days, what we would do is post our listings over in the Craigslist moving labor category for a particular origin city. This was basically guerilla marketing, and we did this to find drivers to fill orders for the first six or nine months with pretty great success until one day we literally got an email from Craig Newmark, the founder of Craigslist. He basically told us to stop spamming their moving category with our order requests but by that point we had gotten to a level of liquidity where we no longer needed to use Craigslist to generate service provider interest. But Craigslist was really where our first transactions happened.
With any kind of marketplace, it is always going to be harder to attract one side than the other. There are some marketplaces - and you are pretty fortunate if that’s your situation - where your buyers and sellers are the same people. Airbnb is an example of this - people who are hosts on Airbnb also tend to use Airbnb to book their accommodations when they travel. This was also sort of the case in the early days with uShip. But we found over time that if we focused on the demand side and got shipment requests on to uShip, the service providers would just kind of show up and we did not have to do as much direct marketing towards that side of the market.
Early on, it is really important for a marketplace to figure out which side is more critical to onboard, supply or demand. If you look at OpenTable as a marketplace, the product is useless for the demand side without sufficient restaurant listings, so for them it was kind of the opposite of the situation at uShip - they had to spend years grinding to get a critical mass of restaurants onboarded, but then it made them really viable and useful for the demand side. It may sound obvious but figuring out which side to focus on is something you need to figure out early on.
Once we figured out that we needed to focus on growing the demand side, we then needed a way to acquire those users efficiently and with good unit economics. Once you figure that out, you are really off to the races. At uShip, we got super lucky because Google had just launched AdWords, and during the first year or two at uShip we were one of the first results on all of our keywords. So as people started searching for how to ship stuff, we were the first business that showed up and we were getting this ad placement at five to ten cents per click. This meant we could invest about $10 to acquire a customer, and then turn that into $20 in gross profit in around seven days. When you get those kind of unit economics, people just start throwing checks at you and it becomes a pretty easy thing for investors to get excited about backing.
On the topic of capital efficiency, what were some of the things you did early on to manage cash effectively, and what were some of the keys to getting operating leverage as you were growing?
One of the key things that helped us be capital efficient is that we really stayed true to a pure, neutral venue marketplace model. In today’s logistics startups, more recently there is a bias towards being tech-enabled brokerages where the entity basically sets prices. I would even characterize Uber as one of these types of marketplaces - they set the price on both sides. When you are setting prices, there is a real incentive to subsidize transactions at a loss in order to grow faster. There is an old adage that you can sell dollars for ninety-nine cents and build a huge business - but the catch is that at some point, you need to find a way to sell those dollars for more than a dollar, or you are never going to make it. There have been a lot of relatively large logistics tech businesses that may never be able to make that switch, especially in certain categories that have become so competitive. There's been a lot of money invested in growth, with the idea that even though a company might be subsidizing transactions today, once they hit critical mass, they will be able to raise prices. The reality is there may be kind of a rude awakening for some of these companies.
At uShip, we never set a price in the early days, but as you scale this neutral venue marketplace model, it can reach a size where it does make sense to set prices for certain types of goods and categories, especially where consolidation is important. At a certain point you can arrive at better economics if you handle consolidation yourself, especially leveraging some kind of route optimization technology. But in order to do that, you are crossing the line from a neutral venue into a logistics company. At uShip, we stayed true - maybe for even too long - to that neutral marketplace model, and while we probably grew more slowly than we would have if we were subsidizing activity, we always stayed relatively profitable - we could make a +20% percent transaction fee on every shipment, every single time - that’s a huge margin in the logistics world. Especially, when sometimes your competitors are subsidizing pricing and running negative gross margins.
We did hit a point - particularly as we started going after bigger business shippers that have much more frequent order activity - they do not want to run individual auctions for each shipment so there you have to begin setting a price for them. This means basically telling them, ‘trust us - this is the price based on the market - we will manage the carrier selection.’ But of course that is where you cross the line into a brokerage type business. Setting a price became necessary as we began integrating with e-commerce companies - they need to have a clearing price to offer shipping to their users at checkout. This was years after we launched so we had the data and history to know what clearing price would be sustainable for these use cases, while still maintaining a neutral marketplace venue for more one-off shipments.
uShip is one of the only marketplace startups that has starred in its own reality show, Shipping Wars, which aired for nine seasons on A&E. Can you talk to us about how this came about and whether it meaningfully moved the needle in terms of driving supply and demand?
In the early days of uShip, we used to share office space with a television production company here in Austin. When we were first getting going, they told us they were going to do a reality show on entrepreneurs, and they wanted to film us while we were launching uShip. We initially turned them down on the offer as we saw it as a distraction, but then further down the road they came back to us with a new concept for a show about the crazy things people were trying to ship on the platform and the colorful characters who were bidding to move them - it had all the hallmarks of a good reality show, and this is what became Shipping Wars. We were not sure at first, but we agreed to let them film a pilot and sizzle reel and it ended up getting a ton of interest - this was when Storage Wars was very popular so that’s why it came to be called Shipping Wars. When they first showed us the promo, we were really nervous but then we thought about it and decided the pros would outweigh the cons - this was a calculated risk but I am glad we did it because it was great for the business.
When it first aired, we thought it was going to blow up on the demand side but what actually happened was it blew up on the service provider side. People saw the opportunity to use their truck and trailer to go haul goods and it makes sense in hindsight because the shippers are really what the show is all about. I remember the day after the first airing of the first episode, we got around 4,000 new service providers who signed up, which is more than we had in the entire first year of uShip, so that was huge. Now it turned out that a lot of those new carriers that registered did not use the platform much, there is always a shakeout at who becomes your power users. But it was amazing earned media - at its peak Shipping Wars was getting ~3 million viewers an episode and this was free advertising that over time helped drive demand - it was really wonderful for the business.
What is your view kind of on the importance of culture in building an early-stage marketplace company?
I do not know if there's anything super special about marketplace company culture vs. just company culture in general. We got really lucky with uShip and our culture - I would attribute a lot of this to the fact our founding team had been business school friends and met in an entrepreneurship class before we launched the company. So we were friends first, and I think we always put that friendship in front of the business and that became part of the culture. We had a really friendship-oriented environment. In hindsight we also did some things right where we institutionalized a lot of the things that helped the team create this atmosphere. It worked because it was genuine and we only institutionalized it after it was already a thing.
Given your expertise in logistics, what do you make of all the funding going into the category today? We have calculated that around $7bn in venture dollars have been raised since 2013 by companies like Flexport, Convoy, Transfix, ShipBob and others. Do you think the industry will continue this shift towards large scale digitization? What is your read on the current era of logistech innovation?
I think it is justified to have a lot of investment going into transportation and logistics - it is such a huge sector and full truckload is a +$300bn market while LTL is roughly +$35bn. These are absolutely huge sectors and there's a lot of niches that you can really attack like we did at uShip and create viable, profitable businesses. I think in any cycle where there are a ton of venture dollars chasing a sector, there are companies that end up with a mandate to grow at all costs, and freight / logistics is a sector where a lot of businesses are brokers and are able to set prices, and they often try to stoke growth by subsidizing pricing and having negative gross margins. The recent loose money environment had been going on for a very long time, so there are companies that have built large, revenue-based companies but they have not proven that they can ever become profitable. And in some of these segments you have players like Amazon coming into the truckload logistics space, and that should terrify the existing players. I think the smart startups look for a segment or a niche within the industry to focus on, where they can really carve out a sustainable long-term business.
After building uShip, you went in a new direction for your next venture and launched LIFT Aircraft. Can you tell us a little bit about that business for readers who may not be familiar with the company?
Even while I was still running uShip, I had been watching from the sidelines as the electric vertical takeoff and landing industry (EVTOL) began to develop. I have always had a passion around aviation and I actually began my career out of college at Boeing. While at Boeing, I got my private pilot's license and I have always been a geek for personal flight. I had begun to tinker with consumer drones when they first started selling kits and I began thinking about how vertical takeoff/landing could impact personal flight. Before leaving uShip, I was advising a company based in Europe that had already built and flown a manned electric multirotor, but they had some issues with an investor and had to shut down the company. Even though that business did not work out, they had a really strong team and when I was transitioning out of uShip, I joined up with them and we founded LIFT Aircraft.
I had seen from advising their prior company where some of the technical limitations were. And from my time at Boeing and as a pilot, I also knew generally how difficult FAA certification is for commercial passenger air service. But it occurred to me that if we could develop a multirotor EVTOL aircraft that fit into the FAA category of ‘ultralight’, we could get to market much faster because they have different certification rules and these aircraft do not require a pilot’s license. Now, the current use cases of EVTOL ultralight aircraft like the ones LIFT uses are limited and you cannot fly them in heavily congested areas, but our thinking with LIFT was to adopt a very specific strategy of how can we successfully get something to market that will be interesting, accessible, and profitable. LIFT targets a niche that has fewer regulatory barriers than traditional aircraft and we will be the first commercial EVTOL operator to launch anywhere in the world.
Over the next few years, we will be opening locations where you can train in VR for 30-60 minutes to learn the aircraft, and then we can program the flight boundaries and the flight path to the point where you do not need a traditional pilot’s training to use the aircraft. It is going to be an amazing thing to let everyday average people fly a personal aircraft and I think - at a minimum - LIFT should be one of the biggest experiential entertainment businesses of all time because flying is aspirational. Everybody wants to experience flying. There are also a variety of use cases down the road for applying LIFT’s technology to emergency response situations, short-distance shuttle flights, and other urban air mobility applications.
When do you expect LIFT’s offering to be available to the public?
Internally, we have been flying LIFT’s HEXA aircraft for over four years. I flew the first manned LIFT flight about a year after we launched the business - in one year we went from a blank sheet of paper to flying a manned aircraft. Recently, we have had the chance to expand our flight test program by collaborating with the US Air Force, which was a wonderful opportunity I could not pass up. This delayed our commercial launch but is well worth it because it is really going to prove out the safety at a higher level. Our next step is to do some more beta testing where we will launch with a select group of enthusiasts - we have over 15,000 people on our waiting list to try the aircraft and we are going to invite them in and really refine the training program and test the user experience to make sure flying the HEXA is one of the most exciting things our customers have ever done.
At a high-level, what advice would you have for aspiring entrepreneurs that are out there starting marketplaces or other companies in the transportation ecosystem?
This is sort of cliche now, but it is so important and so true - only start companies doing things you are super passionate about. I was passionate about uShip, but it was not because I had dreamed of running a freight marketplace when I was a child. With uShip, what possessed me was my urge to make things more efficient - that’s the engineer in me coming out. And once I saw the inefficiency in the freight and trucking industry, I just knew it was a huge problem that needed to be solved. It was very motivational and it drove me for many years.
Every business is going to be challenging, so you need to be all in and passionate about what you are doing to put in the necessary hours and the energy. Honestly, sometimes it is the energy more than anything else - a lot of startups are only as successful as the will and energy of the founder. Sometimes, you just will these things into existence. Building a business takes a lot of work and dedication - if you're questioning whether or not to do a particular startup, do not do it. That’s my golden rule. The people who are successful, they can’t not do it - they get an idea that just takes over. If you're not all in, you are just not going to be able to navigate through those tough times.
If you liked “From The Front Lines: Matt Chasen (uShip)” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Look out for more content on B2B Marketplaces from us in the coming weeks.