Today’s episode of Request for Startups features
Sean Linehan: CEO at Exec and Squad. @seanlinehan on X
Erik Torenberg: Investor, Founder of Turpentine.co. @eriktorenberg on X
In this Request for Startups throwback, Sean Linehan, CEO at Exec and Squad, then-founder of Placement, joined Erik Torenberg to share insights from working at Flexport. They discuss the future of automation, the rise of corporations, leveraging technology in traditional industries, and the importance of a zero-sum approach to business and economic growth.
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TIMESTAMPS:
(00:00) Intro
(01:01) Sean’s journey at Flexport
(04:46) Lessons from Flexport
(06:20) Software eating the physical world
(19:30) Sponsor: Brave
(20:34) Trends on managed marketplaces
(24:55) Historical insights and modern applications
(36:38) The rise of corporations
(38:23) Legal compliance and market manipulation
(41:47) Monopolies: Past and present
(47:59) Potential impact of software and sophisticated technology
(54:44) Automation and labor market dynamics
(58:25) Personal values and professional growth
(01:03:09) Significance of age in career progression
(01:06:11) Zero-Sum thinking and wealth generation
(01:08:50) Wrap
TRANSCRIPT:
[00:00:00] Erik: Request for Startups is a show with tech insiders about products and companies that should exist but haven't yet. Listen first, then build.
[00:00:41] Erik: Hey everybody, I'm Eric Torenberg, co-founder and partner of Village Global, a network-driven venture firm. And this is Venture Stories, a podcast covering topics related to tech and business with world-leading experts.
[00:01:00] Erik: Why don't we start with a bit of your background? How did you come to join Flexport in the first place?
[00:01:06] Sean: It's a great story. Part of me wants to believe that this was a genius decision, right? The company is now quite big and successful. In hindsight, I'd like to think that I was intentional when I meant to do this. The reality is a little less intentional, a little more messy. It comes down to the fact that I had this idea that software was going to eat the physical world. This was at the beginning of Uber's rise. I started thinking about how internet technology was bleeding into the physical world. I wanted to look at companies in that space. I came across Flexport at a startup school event in 2013. Ryan was pitching Paul Graham on stage. I remember thinking, "Wow, this business is kind of boring." At the time, it was just a customs brokerage. Ryan had digitized shipping documents called bills of lading from his previous business. He knew every customer in America importing products into the United States. He started this customs brokerage business as the TurboTax of customs brokerage. Initially, I thought it was an incredible company but super boring, not interested. They started posting job posts on Hacker News, and I noticed the company was growing fast. I started plotting their growth rate out of interest. Maybe nine months later, I decided I was going to get a job there. I was previously an entrepreneur, running a company that ultimately didn't work. This seemed like an obvious choice for me. I was always interested in logistics, primarily because it's tangible. Going down to the port and looking at those massive ships, seeing things that humans made is fascinating. Flexport had become a freight forwarder in the interim. It meant more hands-on movement of goods, not just grease for the bureaucratic engine. I thought that was worth doing, even if the company didn't work out. Even if it didn't become the big thing, I learned something about global logistics, which I admired from afar as a software guy. I never expected to work in the world of big things, always in microprocessors and bytes. The opportunity to work in both worlds was intriguing. I joined, thinking, "If it doesn't work, I have downside protection; I learn something."
[00:04:00] Erik: What were the biggest lessons you learned from that experience?
[00:04:06] Sean: You can do things that don't scale for longer than you think. Software companies obsess over automation and simplicity. They think if you can't automate something, you shouldn't do it. But in enterprise software or the intersection between the physical and digital worlds, this obsession with simplicity can't be a rigorous doctrine. Enterprises and the physical world might require unscalable actions as table stakes, and that's not necessarily bad. Many large businesses are run on people, not purely on software. The lesson I took away is that technology entrepreneurs aren't afraid to get their hands dirty. They're not striving to build just a software company but a company run by software principles and willing to adapt strategies tried and true over the last 200 years.
[00:06:00] Erik: Why don't you unpack the "software eats the physical world" thesis? What areas do you think it could apply?
[00:06:18] Sean: Mark and Jason famously claimed that software is going to eat the world, and I think they're right. But not necessarily in the way people imagine. People fear AI or robots taking over jobs, and there's truth in that. Work done by humans in the physical world might be done by robots or software. There's this other category where software becomes the middle manager. It has a second-order impact. Think of Uber; drivers have a boss, but it's software. It's fascinating because one company can optimize a massive system in the physical world by being software managing thousands or millions of people. It's how software greases the wheels of the physical world through information and people management. Flexport is an example where humans are crucial, but software orchestrates fundamental work, applying software principles to people.
[00:10:00] Erik: What's your take on using people, especially internationally, as assets?
[00:10:26] Sean: We've built layers of abstraction on human behavior that are cold and uncomfortable. Corporations, for instance, are psychosocial entities, perceived as agents but not living beings. There's a discomfort in treating humans as assets, but it's the reality. Selling our labor, especially in chunks of time, is what we do daily. Thinking about people as underutilized assets might sound uncomfortable, but it reflects reality. If you wanted to start a company in this space, avoid framing it as increasing human utilization.
[00:12:00] Erik: How do you view the pushback against utilizing people as assets?
[00:12:32] Sean: We've created layers of abstraction on human behavior that are uncomfortable. Corporations are perceived as agents but not living beings. It's strange, treating humans as robots. We're doing this again, with a more empathetic approach, aiming to optimize people's work while also their happiness and life satisfaction.
[00:16:00] Erik: Why won't the playbooks that built consumer tech giants necessarily work, and what might the new playbooks look like?
[00:16:36] Sean: Operationally intensive businesses have a different mix of employees compared to old-school software companies. Flexport, for instance, had more non-technical employees initially. Balancing emotions and narratives within the company is challenging. Are we an operations or software company? How do we prevent creating a two-tier society? It informs how we launch new businesses; sometimes, manual processes are necessary.
[00:20:34] Sean: What's your take on the trend toward managed marketplaces?
[00:20:51] Sean: I love managed marketplaces. Flexport, for example, is one. It's a fancy way of saying you're in a particular business. It's about doing what promotional products companies do but at a massive scale, trying to create winner-take-all markets globally.
[00:22:49] Sean: Margins are funny; they depend on the managed marketplace. Some businesses are right for a managed marketplace. In national or global businesses, you'd prefer national or global vendors. Managed marketplaces aggregate supply and provide a national vending service, which is convenient for such businesses.
[00:23:10] Sean: True in some regard, right? But also for cash, right? If your margins are very slim on a trillion dollars, not that there's anybody doing that, but if your margins are really slim on a trillion dollars. As an investor, I'm indifferent, right? The thing that you do care about is the margin of error, right?
[00:23:29] Sean: Like if your business slips a little bit and your margins are small, that's quite dangerous. But there's lots of businesses that are right for a managed marketplace. There's a general trend in business to be national and even global.
[00:23:46] Sean: Now, if you're in a business that's national or global, it would be quite convenient if your vendors were also national or global, but some things are necessarily local or on the ground, right? Like if you, for example, want a delivery service, you need somebody who's physically present in every region that you want to deliver.
[00:24:06] Sean: This is where managed marketplaces come in. They aggregate supply on the sales side and provide this national vending service. They're able to go to national or global companies and say, "Don't worry about managing 10,000 vendors around the world, just work with me and I will manage all of the people on the ground." You could own those businesses outright, or you could figure out some interesting Amazon marketplace style way to manage those vendors. But you provide simplicity to the buyer by being a single point of contact. So any business where you see an increasing amount of national or global players, if you're able to create a managed marketplace around one of their key business inputs, my guess is that you'd be quite successful.
[00:24:54] Erik: Let's back up a little bit. You were talking about rising industrialization. You know, one of the things I know about you just from knowing you is that you've spent a lot of time really trying to understand the history of different industries and how they work. Why don't we talk about some of the lessons you've learned from putting in that time and why you recommend others do the same?
[00:25:14] Sean: Yeah, well, I guess I'll start with why do this? I do it primarily because I'm curious. You look around in your real physical world and there are things that are just strange. And you have to ask yourself, how did that happen? For example, if you're driving down the highway and you're on a cruise down to Southern California and you're in the middle of nowhere, you're looking out and you're thinking, "So beautiful, so empty out here." But 95 percent of the time, it is not empty. You're literally driving on the infrastructure of society and it's beautiful. It's like, there's not a lot of urban or suburban development when you're doing this, but I asked myself, "Wow, how did we wind up networking all of this physical property?" How did that happen? Where did the railroads come from? How did we end up with telephone lines and electricity poles spanning the entire country? I get obsessed with these things because it's cool. And what I've learned always shocks me. My girlfriend makes fun of me; I sit there and laugh as I read history books. Because these people were experiencing the same struggles that we experience. They learned the same lessons that we learn. We have these modern-day philosophers on Twitter preaching all this stuff, like "do things that don't scale." Great advice, but this has been discovered a hundred or 150 years ago. The same business models that work now worked at the advent of the corporate age. And this, to me, is wonderful. It means that these things are learnable. You can figure out how the world works, how companies work, how business works, how competitive advantage is developed, and you can apply it. It's not like wizardry. It's not like luck. This is learnable.
[00:28:36] Erik: Let's get into some history. First, you were talking earlier about the rise of the corporation. You said it had been around for a while, but it really started gaining momentum in the 19th and 20th centuries. What precipitated the rise of corporations? Why did it all of a sudden start?
[00:29:00] Sean: Yeah, well, if you go back, there was the Dutch East India Trading Company and the Mississippi Valley Company. These were essentially nation-state or sovereign granted corporations. But when you fast forward to the mid-1800s, this is where you start to see corporations really on the rise. The thing that caused this was just a necessity. Railroads started to get developed, and railroads were a tremendously extensive endeavor, perhaps the most extensive endeavor that humans had embarked on, particularly in the private market. There was almost nobody rich enough to fully finance a functional railroad. Even partnerships of the richest men weren't enough money. So the corporate structure of raising money from the public and pooling risk across large portions of people became a necessity. It happened because there was this need for the corporation; it was not possible to pull together sufficient capital to build a railroad or a massive steamship business. That's why you see a liberalization in the laws surrounding corporations. That didn't happen in a vacuum; it happened because there was this need.
[00:31:10] Erik: What industries have you read a lot about and are really familiarized yourself with? Let's go into a couple. What can we learn from the rise of shipping?
[00:31:23] Sean: This one's fascinating because the character I focus on is Cornelius Vanderbilt. He started a business on Long Island building ferries back and forth from New York City to Long Island. That was his whole business. He opened up routes between the island and New York City, which built economic activity between these places. He took that idea and applied it all up and down the coast. If you look up and down the New York coast, there are all these little ports, and Vanderbilt likely had a role in opening many of those ports. He reduced travel time from the Northeast to New York City from weeks to days or even a day. The speed at which people could travel also meant that the speed at which information could travel changed the economy. It became much more dynamic. It's fascinating because when you open up fast, safe, cheap transportation between two places, you fundamentally change what life looks like in those places. You get a greater abundance of goods, a greater flow of information, market prices stabilize, you see a specialization of labor, goods move to where they're best manufactured, and everybody gets richer.
[00:36:54] Erik: Are there any learnings from the past tied to crypto in some way?
[00:37:33] Sean: I think the rise of corporations is interesting. Corporations were founded as a fundraising scheme, similar to ICOs. Founding a corporation and raising money from the public is difficult, especially across nation-state borders. So crypto and the ICO boom, as a social technology for fundraising, is very interesting. I'm not a proponent of the insane speculation, but as a technology for global capital fundraising, it's interesting. It's a social technology for global capital. Fundraising is very interesting. If you're able to raise money from all of America, you can build the railroads. If you can raise money from the entire world, what can you build? But I bet it's something cool.
[00:38:06] Sean: Now, what's going to happen when you take somebody that's doing something truly valuable at a global scale that does make sense? Using this technology, you're going to see the most insane fundraising ever. You think Masayoshi is doing interesting things. Wait till you see the ICOs of 2030. Yeah. Well, yeah, it is different.
[00:38:23] Erik: A lot of this also depends on legal compliance and how the law and these industries have wrestled with the laws of the time.
[00:38:41] Sean: It's a fun one, right? It's one of those things where it's always a give and take. In some cases, the law is useful and in other cases, it's not. Sometimes it oversteps, sometimes it doesn't do enough. So I don't think that all of these things are really based on context, right? Who are the people that are leading these companies? What things have gone wrong and what is there like a feasible way for the market to solve them?
[00:39:06] Sean: So, for example, like the thing that I look back at is you look at the early rise of stock markets and you had people like Jay Gould who was by every standard, the most zero sum thinker, awful person, right? He literally invented most of the market manipulation technologies. He invented the pump and dump and fraud and all these other awful things. I'm not an expert on Jay Gould, but when you look at these, you go, well, at the time it wasn't illegal, but from my perspective, it was still pretty unethical, right? And there was no foreseeable way to solve these problems in the market because they were so profitable. And there was this massive information asymmetry and discovering that somebody was doing this was very difficult. The law came in and solved that. And that was probably a good thing, right? Like getting rid of insider trading is probably a good thing. You can make arguments that it should exist. More power to you. I generally think that it's good that we've gotten rid of that pump and dumps and fraud and all these other things. But, you know, somebody had to go exploit that first. And I think that that in general is a good method, right? You sort of let things go and see what happens and solve the problems as they arise. I think there is a tendency in the modern world to try to solve problems before they. Which is valiant and I get that, right? Like we want to avoid loss of life. We want to avoid massive loss of property. These are things that are just like tautologically good things. Nobody thinks there should be more death. The question is for me is if we try to regulate things too soon in their life cycle, are we going to cause the, the, we're basically going to stunt innovation because we're trying to solve problems that we don't necessarily even know exist yet. Right? Like generally I think about this much the same way that I think about your bureaucracy and company building, right? If you're somebody that is building a startup and it's growing really fast, you might think, Oh man, I should go implement Google's process. Because it's so good. Look at how good Google is. I'm good too. It's likely a mistake. You want to implement process to solve problems you have, not the problem that somebody else had in a totally different context and regulation feels much the same to me. I'm not a policy expert, but, you know, it's often the case that you think, well, this happened in this other industry. Let's just get ahead of it. Who's to say it's going to happen in this industry, right? Like there's some level of foresight that you can have, but we don't want to try to get too clobbered. Right. Like, let's see what things got.
[00:41:47] Erik: How do you sort of study enormous businesses that are businesses that became enormous in the 19th century?
[00:42:00] Sean: I think it's interesting that in the past, the monopolies that were built in the early 20th century utilized coercion. They really did. Right. They went out and they forced their competition to join with them or they bludgeoned them. I don't believe that monopoly at all costs is good. Also don't think that all monopolies are bad. I think that they're, they're, I think that monopolism is a bad thing is overblown, but also, you know, it depends on how you wind up there and how dynamic the market is. Right. And so today's businesses, I mean, we, it was super consensual. Right. It's like I opted to use Facebook, opted to use Google. I opted to use Windows back in the day. And I think that's fine. It's like these businesses are massive. They're massive because they provide extraordinary amounts of, it's all consensual. It's not coercive. And they've managed to get big and continue to win through network effects, just the same way that these other businesses did. Now, what's interesting is that the network effects are sort of on different sides this time, right? It's demand-side network effects that built these massive businesses, the modern-day massive businesses. Whereas in industrialism, it was what I sometimes call supply-side network effects, which is just economies of scale, right? Or your physical footprint. And the scale of your operations is what allowed you to continue to win and reinforce your dominant position. I don't often hear people describe these two things as the same thing, but economies of scale and demand-side network effects are, are effectively equal. Right. It's just, is this inside or outside of business? Yep. But does it change? Is there a sort of thing of this time separate in terms of how we should regulate it? Because demand side seems much more difficult to disrupt. I think it's actually much easier to disrupt, right? If the quintessential example is power, right? Is that we had to regulate the power companies because they have a natural monopoly, right? Is it just not feasible to have five competing power companies? Now, what I do think is really interesting here, actually, is that it turns out that it is. It's possible to compete with the power companies, right? We're doing it with distributed solar, right? We're doing it with wind. We're doing it with renewables. And this is interesting. It took a hundred years, mind you, to get from, you know, the development of the first couple of substations to now we actually have a competitive market. So the regulation of nature is probably a useful thing, but on the demand side, I actually think these, these network effects are very fragile, right? The innovation goes so fast. So, so fast that yeah, regulating Facebook for, for what, right? It's like Facebook already got disrupted by Instagram and they got lucky that they bought that business. Wonderful. Wonderful horse. I on Mark Zuckerberg's that part, I Instagram for a billion dollars, but, you know, Facebook died.
[00:45:08] Sean: It's not totally dead. Obviously it has a billion users. So don't get me wrong, but Instagram is very clearly about to take the throttle. Right. Who's the thing that's not going to happen, right? We're talking about consumers making active choices. If as a consumer, I don't like this thing, I can change, right?
[00:45:27] Sean: Like I've seen the rise of telegram, right? You've probably seen it too. These things just happen so swiftly. I think Google is in a more dominant position. But, you know, look, like they wound up having to go and massively pivot into mobile just as fast as everybody else did, right? And they got, again, amazing strategic move on their part to actually succeed in doing that.
[00:45:50] Sean: But, you know, the fact that they are a leader in web and they were a leader in mobile was not guaranteed. It's more or less just good strategy, right? And there will be more shifts. These companies are not immortal. What about Amazon? Amazon is interesting. I don't think that they should be regulated. Like they are a small percentage of commerce and people can flee quickly. Their monopoly position is vastly overblown. And I'll tell you why. You see all of their, what is claimed as their competitive advantages rapidly getting democratized. The logistics backend, well Flexport is helping with this. If you want to get really good at moving things around the world as swiftly, efficiently, cheaply as possible, you use Flexport. Amazon doesn't have an advantage relative to Flexport in international logistics. So that advantage is struck down. You see fulfillment centers. Amazon has a huge head start in fulfillment centers, but that network effect is not infinite. The more you have, there is, in fact, a saturation point. So if you build 50 fulfillment centers around the world, you are approximately good enough to compete with Amazon with respect to fulfillment centers. And you're seeing third parties come out and try to do this. Things like ShipBob and others that are coming up and saying, "Hey, we're going to build the Amazon-style fulfillment center backend." So you can compete on delivery speeds. So what Amazon did very intelligently was they identified what the key success factors are going to be in e-commerce and they went and built it first. And as a result, they've won, you know, half of the online market, 10 percent of overall retail or something absurd. But that's not a long term durable moat that can't be wrestled with. I think it's, for every dollar that goes on the internet, Amazon takes 50%. You know, that means 50 percent goes to some of the other people too, right? Like they might not be, In some regard, like they're going to be massive, huge, they're not going to go away. But I don't think that, that we as consumers don't have choices there. I don't think there's any harm in what they've done. If you were starting a venture firm today, what would your thesis be? Or if you could pick any sectors in which you're investing in and great entrepreneurs are building businesses in.
[00:48:05] Erik: What sectors might you most be, be most excited about? Would it be software or e-sophistical world? What would your thesis sector interest be?
[00:48:16] Sean: It would be software and e-sophistical world, just because I think it's interesting. I think I, as a human, could be helpful to people that are building these types of businesses. And I think that it's going to be a massive growth opportunity for the rest of the world. So what would your example sector? Well, I think manufacturing is really interesting and one thing that is lost in the broad political narrative is the fact that the United States is the world's second largest manufacturing power, massive 12 million people employed in US manufacturing. And what blows my mind is that, you know, we sort of have this obsession over finished goods manufacturing. The United States actually manufactures so many incredibly valuable things. So take, for example, the number of people employed in manufacturing in the United States versus the number of people employed in manufacturing in Indonesia. They're about the same number of people. The market value of the products we produce in the United States is 10 times the value of the market value produced in Indonesia. It's really fascinating. Per human working in manufacturing here, we have 10x leverage over the rest of the world. That's because we're just manufacturing very extensive things. We're manufacturing pharmaceuticals. We're manufacturing oil. We're manufacturing, it's similar to computer chips, right? We've taken all of the profit pools and kept it here. But what that means is that there's all these industries, 2 trillion worth of business happening in manufacturing that is not necessarily being addressed by the technology sector. And I think that these are places where you might see some vertical startups or some managed marketplaces going into the manufacturing sector and trying to figure out how do you best do distribution, right? Like how do you take software and internet technologies and go and build better distribution models in these older businesses? And on the other side, on the supply side, say, how do you take the new advances in sensor technology and the fact that every person can have a phone in their hand and make the operations far more efficient on the ground. Yeah. So these are things that I just think are interesting, right? It's like, it's clear that there's massive profit pools there. Could software be useful there? Yeah. The answer, of course, is yes, because their software is already useful on all these places. Everybody uses email, right? Everybody uses project management tools. There's ERPs and stuff that people use on the backend as well, but can we take more share, right? Can the technology sector take more share of the value? Yep.
[00:50:44] Erik: What's another sector? What are other sectors?
[00:50:45] Sean: One that I've seen a lot of people doing quite well in is staffing. Staffing firms I think are, and this to me is an interesting trend because it basically, there's this thing called, uh, like Coase's theorem, which is basically the theory that businesses wind up having internal due to excessive transaction costs if a service were to be offered in the marketplace, right? Like you have a design team inside your company because if you were to try to outsource design, then it might be difficult, right? Or you have, obviously, design needs to be outsourced, sort of come inside. Partly because we now need to care about our users so much that the corporation, a lot of firms are outsourcing increasing layer, increasing pieces of their internal operations to external firms. And I think that this is happening because the transaction costs due to software and the internet have just gone dramatically down. The other thing that I think is causing it is that there's a bunch of new, fast-growing companies that are starting that don't have an internal department that needs to be disrupted.
[00:52:00] Sean: You see companies like Zenefits, Gusto, Flexport, ShipBob, all becoming like departmental level providers for everyone. Specifically, in staffing, there's a company called Jive providing staffing to grocers.
[00:52:21] Sean: Another company, Rig Up, based in Austin, specializes in talent for the oil and gas industry. It's interesting because it ties back to underutilized human capital. These specialists aren't needed full-time, but when they are, it's crucial. In the past, companies kept them on staff, undervalued and underutilized. Now staffing companies provide them only when needed, boosting overall economic activity and valuing their skills.
[00:53:31] Sean: Building staffing firms around vertical departments increases labor market efficiency, wages, and job satisfaction. For example, an HR representative at a mega company may be undervalued, but at an HR staffing company, their skills matter more, attracting top talent.
[00:54:44] Erik: Looking at the past, how does it inform your views on the future, like labor treatment, UBI, and automation?
[00:55:00] Sean: I'm in the camp that automation creates opportunities. Take containerization, for instance. It's a relatively recent tech that drastically changed port cities' employment landscape. Unions slowed its [00:55:19] spread, which, while impeding innovation, gave the economy time to adapt.
[00:56:00] Sean: This balance is tricky. Unions during containerization demanded work like unloading containers, keeping jobs but slowing job loss. Today, it's different; we have labor shortages in many industries, including those ripe for automation like trucking. We need to adapt differently now.
[00:57:52] Sean: Automated trucks won't steal jobs; they'll fill vacancies. There's a shortage of truckers, raising prices for everything. Automation can help meet demand, eventually disrupting other roles, but currently, it's about filling gaps.
[00:58:28] Erik: You've discussed personal values like innovation. Can you elaborate?
[00:58:38] Sean: Innovation, for me, means synthesizing ideas. Combining disparate concepts often leads to breakthroughs, even in seemingly unrelated fields. Being divergent in thinking yields novel ideas, though it's a hit-or-miss process.
[01:00:00] Sean: By seeking leverage, I aim to maximize my impact per unit of effort, constantly amplifying my influence. It's not for everyone, but it's my approach to leaving a significant mark.
[01:01:00] Sean: I've been working since I was 13, so while I'm relatively young, I've amassed significant experience. I love responsibility and leadership, which isn't everyone's cup of tea.
[01:02:00] Sean: At a fast-growing company, your role evolves rapidly. You need to reinvent your work repeatedly, which means constantly seeking new knowledge and perspectives.
[01:03:08] Sean: Zero-sum thinking often fuels unnecessary conflict. In the economy, growth isn't zero-sum. Recognizing opportunities to create value rather than seize it can reduce contention and foster collaboration.
[01:08:55] Erik: Sean, thanks for being on the podcast.
[01:09:00] Sean: Thanks for having me.
Requests For Startups: Software Meets Physical World with Sean Linehan