A Product Market Fit Show | Startup Podcast for Founders
00:08:13 · Pablo Srugo, Sean McCarthy
[00:08:13] S2: And then going back to the beginning, I mean, how do you end up AI for supply chain kind of automating, you know, back office operations. Not the most sexy space, not like you said, a space that many people know about. [00:08:24] S0: Yeah, so most prior to this, I was at Amazon. I started in Amazon as a global sales leader in Amazon's marketplace. So, you know, when you go purchase something off of Amazon, that's the marketplace. We were taking U.S. sellers and pushing them internationally and then from there, I went to Amazon Shipping. And for those of you that don't know, Amazon Shipping was created to head to head a lot of the FedEx, UPS, DHLs of the world for consumer, kind of small parcel. And was early there as a number two BD manager. We actually had an in the field designation. So we had to spend four days a week in customer warehouses, which was a really good opportunity for me to kind of develop this thesis and see these things firsthand. And then, also pen test and ask the customers about these problems, and what I was noticing. But that's how I got in. I think non-sexy is probably a good way to sum it up. But if you go to the grocery store, you see food on the shelf, often we don't think about how they got there. We just think that's normal, and maybe it just appeared. And so it's pretty fascinating behind the scenes, but every day is a new journey, to say the least.
00:09:25 · Pablo Srugo, Sean McCarthy
[00:09:25] S2: Can you go deeper on finding the original pain point? It leads to a lot. I mean, obviously you can pivot and all these sort of things later. But at some point you're in pivot hell and, you're just kind of searching and grasping at straws. Maybe you get lucky. If you figure out an initial pain point that is right, it solves a lot of the other things and you're still going to have to iterate, and figure out things. But at least you're starting from somewhere solid. Can you maybe go deeper on those initial, you're spending time, you're in these warehouses, you're seeing things, at some point you start asking questions. How do you structure that? How does that happen? What are you asking? Just tell us more there. [00:09:59] S0: Yeah, I'd be happy to. So as I started to develop this thesis, I would talk to the owners of these businesses and ask them what their number one problem was. And what I was hoping that they were going to tell me was some sort of workflow that they all had in common. That there was this big problem and it actually is not. The biggest problem that they had was churn, is what they would tell me and it derailed my fact-finding for a little bit until I was able to deep dive into why that churn is happening. You're going to have churn on the folks that are doing the physical labor, and there's nothing for us that we're going to touch necessarily on that side. But if you look internally in the admin side, and the customer I'm thinking of in my head. They were churning this person once every six months or so from an administrative perspective.
00:09:59 · Sean McCarthy, Pablo Srugo
[00:09:59] S0: Yeah, I'd be happy to. So as I started to develop this thesis, I would talk to the owners of these businesses and ask them what their number one problem was. And what I was hoping that they were going to tell me was some sort of workflow that they all had in common. That there was this big problem and it actually is not. The biggest problem that they had was churn, is what they would tell me and it derailed my fact-finding for a little bit until I was able to deep dive into why that churn is happening. You're going to have churn on the folks that are doing the physical labor, and there's nothing for us that we're going to touch necessarily on that side. But if you look internally in the admin side, and the customer I'm thinking of in my head. They were churning this person once every six months or so from an administrative perspective. [00:10:43] S2: You're talking about retention on their employees, not customers?
00:10:46 · Sean McCarthy
[00:10:46] S0: Correct, yeah. Retention on their employees, yeah. That's the biggest problem that they're facing is, they would teach them, it would take them months to get up to speed, and then they would leave. And if you watched, and that's what I had the ability to do, is watch what these folks did on a daily basis, and eighty to eighty-five percent is the exact same thing every single day. You know, it's reshipping the package, it's filing the claim with the carrier, it's talking to multiple shipping vendors, or doing coordination, or saying, where's my stuff, and doing a quick tracking lookup, and giving it back. And so, in talking to these folks, that's the biggest part they actually didn't like about their day. And they'll tell you they enjoyed the complex, like maybe it's something that's new, or it's more of like a complex edge use case that's not happening. But the day to day of reshipping and going through these, monotonous kind of tasks over and over. That's where the biggest opportunity was and so what I started to do was say, well, hey, if, you know, when that came in, if you didn't have to go reship the package and file the claim with Amazon, and just did it automatically. Would that be something you're interested in? And they were like, yeah, absolutely. Amazon's doing that? And I say, no, I'm just curious, you know, if that would be of value to you, right? And I was able to talk to probably eighty-five different warehouse owners and admin folks in this time. And at that point, it felt like I had enough.
00:12:00 · Pablo Srugo, Sean McCarthy
[00:12:00] S2: Of the eighty-five, was it, yeah, all eighty-five of this problem? Or was it, there's twenty that have the problem, but they really have the problem? Do you know what I mean? It's just an intensity thing or it's just a breadth thing? [00:12:11] S0: It’s a breadth thing. I mean, if you look at it, you can kind of assume it's a scale problem. If you ship one hundred packages, you can assume approximately eight percent might have. Five percent to eight percent will have some sort of issue. Again, lost, stolen, damaged, not the right thing, delay and that perpetuates with scale, right? So then if you ship one thousand packages, right? Or ten thousand, and that number just continues. And so what you have to look at is, what is the non-controllable for all of these customers? And it's the carriers. They're all using UPS, FedEx, DHL, OnTrac, and, you know, these things are built to not necessarily to save packages, right? They're built for speed, right? You're trying to put something into a box that is going to be the closest length, width, depth that could fit that package, not a bunch of padding and so it's kind of built against the system to begin with. But it's really reliant on the carriers, which all of them are using the same carriers, and they don't have much of an option there. [00:13:05] S2: But so of the eighty-five, most of them you found had this retention problem with labor.
00:13:05 · Pablo Srugo, Sean McCarthy
[00:13:05] S2: But so of the eighty-five, most of them you found had this retention problem with labor. [00:13:10] S0: Correct, almost all of them. There was certainly a handful of folks that have had people there for many, many years with no employee churn and even then, we would sell an efficiency play to them and basically say, hey, the majority of these that are coming in, you don't have to do anymore and they were still excited about that. So it didn't necessarily have to be correlated to churn, but it was more efficiency driven than anything across both of the realms. [00:13:34] S2: When did you decide to leave Amazon and go all in on this? [00:13:38] S0: So, July 2024, is when I quit Amazon and had probably started this fact finding journey maybe in February or March. So, it was three or four months of making sure and looking at what's happening in the market. You know, when I looked, there was a lot on the freight side, but there wasn't a lot on the warehousing side. I thought it was an underserved market, and I also thought that having some domain expertise was helpful. And we'll talk about this, but we still use that today. Again, just making sure that when we're going and talking, I'm using specific examples to cite, like, are you having this exact problem and is it causing this exact pain point for you so that they could relate? And so after July 2024, left, raised venture within weeks. Actually, of quitting and then we were kind of off to the races. [00:14:27] S2: This is your first startup? [00:14:28] S0: It is, yeah.