Flexport CEO: The corporation is a relic of a bygone military era

One of the things we’ll be doing at on Initialized Capital’s blog is checking in with portfolio founders and sharing tactical advice on how to run and scale companies.

Ryan Petersen founded Flexport, a shipping logistics company that manages and tracks inventory as it crosses the globe by ship, plane, truck and warehouse. They recently closed a $65 million round after taking seed investment with Initialized back in early 2014.

The genesis of the company is rooted in Petersen’s teenage years, when he was buying and selling products from mainland China by arbitraging costs between marketplaces like Alibaba and other U.S. sites. His second company, ImportGenius, played off the first one, when he and his brother realized that all manifests for ocean freight shipments entering the U.S. were a matter of public record. He started digitizing these documents — around 300 million so far, made them searchable and began selling subscriptions to that data.

But when Petersen started Flexport, he didn’t want to just re-think shipping. He wanted to take a wholly different approach to structuring a company.

Companies as Biological Organisms

While in business school, Petersen wrote an essay, called “Out of Control By Design.”

His idea was that corporations, as we know them today, are a relic of a bygone military era. They have teams that are siloed and split by function, which centralizes decision-making power and makes companies less nimble and responsive to customer needs.

But as the nature of warfare and security threats changed, the military adapted. They’ve created special forces and squads that flexibly operate where traditional top-down control structures once dominated. Companies haven’t.

Petersen argues that the militaristic approach of the past has to be replaced by a more accurate metaphor. Businesses, made of people, behave much more like biological systems.

“We want our company to behave like an immune system, where people see a problem and kill it rather than waiting for permission,” he told me.

Making Customer Service Central, Rather Than Peripheral

And so, rather than having siloed teams in sales, customer service and operations, Petersen and his onetime business school classmate, COO Sanne Manders, structured an organization where small teams or “squads” of account executives, account managers, operations associates and customs compliance specialists work together to address client needs on the fly. It’s totally different from how customer service is usually a more peripheral function inside tech companies.

“Companies often treat customer service as something that can be like a coin-op. They don’t empower reps to solve problems,” Petersen said. “But employees would rather be much more than a cog in the machine. You want bottom up decision-making, not top-down control.”

Every Flexport customer has a lifetime relationship with just one team or squad. And every customer service rep has autonomy within the squad to make on-the-spot decisions to make customers happy without needing to go up a hierarchical chain of approval or following a rigid protocol.

“When I reflect on bad customer experiences I’ve had with companies, it’s always because the person I was talking was not empowered to do the right thing to help solve my problem,” Petersen said.

In Flexport’s case, a customer can have an extraordinarily valuable lifecycle. Earlier on in his career, Petersen learned that the yoga brand Lululemon has used the same freight forwarder from when they were doing only $1.5 million in revenue. Today, Lululemon does more than $2 billion in revenue.

While Lululemon isn’t a Flexport customer, this realization ended up informing Petersen’s strategy. The goal is to lock in valuable companies as customers when they’re young and to grow up with them. Petersen estimates that Flexport’s clients could spend up to 5 percent of their revenue on freight.

Tracking Your Net Promoter Score

To make sure his customers are happy, Petersen measures Flexport’s net promoter score or NPS daily on Delighted. The net promoter score measures how many customers would refer a friend, colleague or client to the business. Flexport’s current score is 79, which would put the company among brands such as Starbucks and Apple.

“In the old world, the executive committee or a CEO was in charge. In our world, the customer tells people what to do,” Petersen said.