Beyond the Build: How Shippo Embraced the Power of SMBs

Welcome to Beyond the Build, a new series from Shopify, where we share stories behind the Shopify ecosystem, a platform where founders, developers, and innovators come to build for more than 1.7 million merchants worldwide. 

On the show today, we have Laura Behrens-Wu, the co-founder and CEO of Shippo. Shippo is a multi-carrier shipping API and web app that enables ecommerce businesses, marketplaces, and platforms to connect to multiple shipping carriers. Today, Shippo has grown to over 150 employees and over 110,000 customers, is valued at over $495 million, and just recently raised $45 million in funding.

In this interview, Behrens-Wu shares how they built Shippo.

Building Shippo out of an ecommerce afterthought

Fatima: It’s been a huge week for Shippo, with the special announcement just being released. Tell us more about that. 

Laura: That's right. It's very timely to be on this show this week. On Tuesday we announced a new round of financing. We raised another $45 million and we’re valued at half a billion [dollars] now. I'm finally able to talk about that.

Fatima: What’s the origin story of Shippo? Where did it all begin?

Laura: It’s a little bit of an unusual founding story. My co-founder and I didn’t just sit down together and decide to build a shipping software company. Back then, we were 23. We came to San Francisco as part of a summer internship, both for different startups. I joined a FinTech company that was right out of YC [Y Combinator]. That was really my first time in Silicon Valley. I had wanted to join a startup in San Francisco because I had heard about San Francisco and Silicon Valley through TechCrunch, but had never really been there. I had been working at various other startups in Europe beforehand, and I wanted to see the real deal.

So I came to San Francisco for that and was meant to stay for a summer, but I really, really enjoyed it and I had no desire to go back to school after that. I decided to stay full time. At that point in time, I was also brainstorming with my co-founder Simon [Kreuz] to see if there's anything that we could build together. We had always had the ambition to do something together, but couldn't quite figure out what. 

It was a difficult process getting started because we just didn't have any groundbreaking ideas. We had created a spreadsheet where we put in a bunch of different ideas, a wide variety of different ideas, but none of them were particularly compelling. We decided that instead of just waiting for the best idea to come, we'll just get started building an ecommerce business. That’s really what we ended up doing, and we used Shopify to power it.

We built a small ecommerce store and started selling products on the internet. Our first realization was that it was super easy to sell on the internet. Shopify made it very easy to look professional, even for people who've never done ecommerce before. Then we started getting a few early orders coming in, and that was the first time we were thinking about shipping. For us, shipping was an afterthought. It was really not a high priority to figure out, but suddenly the orders came in and we had to figure out how to get them to the customers. 

"For us, shipping was an afterthought. It was really not a high priority to figure out, but suddenly the orders came in and we had to figure out how to get them to the customers."

It's really the first time something happens in real life in the entire process of running an ecommerce business. You meet your customers on the internet, you accept payments on the internet and then you need to ship. Then a package needs to travel across the country to reach your audience. As a lot of people do, we walked to the USPS store just to hand over our package, and came to really not enjoy that experience. Then we started looking into the technologies. 

The APIs provided by FedEx, UPS, USPS, were not as intuitive to use, especially comparing them to best in class APIs like Twilio, Stripe. Even comparing their dashboards to the user experience provided by a Shopify dashboard. That was how this idea came about. The founder I used to work for at LendUp would always say, “Build something that's a painkiller, not a vitamin.” We realized that shipping is a major pain point for every single ecommerce business. If we can make it even slightly easier, then we're giving our customers a painkiller. So that's what we did.

“Build a painkiller, not a vitamin” is not my original quote. It's from the founder I used to work for, Sasha [Orloff]. I think what he meant by that is it’s difficult to sell something that's nice to have. You have to convince someone that they need it. If they're selling something that's solving a real pain point, that's a painkiller. Your customer is in pain and you’re giving them a solution. It’s a much easier sale. That's the case for a lot of B2B businesses. I hear a lot of these stories where people say first-time founders start consumer companies, second-time founders start B2B companies. 

Fatima: I've definitely heard that too. My startup before joining Shopify was consumer. I even say that to myself.

Laura: Yes, I'm not saying that B2B businesses are easy. It's for sure not been easy, but it's nice to build something that all ecommerce businesses need and they're seeking out shipping solutions for real pain points. Again, if you can give them a solution that is solving their pain points it's a much easier sell. Honestly, we don't need to go to anyone convincing them that they need to do shipping. If they're running an ecommerce business, and selling physical products, they just need to ship.

"We don't need to go to anyone convincing them that they need to do shipping. If they're running an ecommerce business, and selling physical products, they just need to ship."

Our first flywheel: Embracing the power of SMB customers

Fatima: So you pivot your merchant business into a shipping API. At what point are you like, we should integrate with Shopify?

Laura: Good question. It was not at the very beginning. It took us a few iterations to get there. Starting from the very beginning, what we first had in mind was to build something really like Stripe or Twilio, but for the shipping industry. What that meant for us was we wanted to build an API layer that connects to all different shipping providers. That is still the core of Shippo. 

What happened early on was when we released our first API connecting to a bunch of different shipping providers, we started talking to customers who could use our API. Very naturally, customers or ecommerce merchants who know how to integrate an API, are typically mid-sized or larger. It's typically the larger companies that have developers in-house who can do this for them.

When we started talking to these larger companies, shipping was already set up for them. They're already shipping through something that they've built homegrown, and they found our solution to be compelling, but they wanted to make sure that it was scalable. They would ask questions along the lines of, “How many packages are you already shipping, and how much volume is going through your API?” Just to make sure that they can rely on us. Early on, these were hard questions to answer because the answer was, there were no packages going through our API. There was no volume going through it. 

That was our experience very early on, just talking to customers who could potentially buy the API. Simon and I went back to the drawing board and we realized, “Okay, what that means is we have to talk to customers who are still very small, who don't have these considerations just yet about how many packages are going through our API.” 

That was when we started talking to SMBs [Small to Medium-sized Businesses], and that was really when the realization came that these SMBs have a giant pain point. Shipping is even more painful for them than it is for mid-size businesses, but they did not know what an API was. They were all sold on what we were trying to solve for them, but when it came to looking at our API logs, they're just very confused. We decided to build a dashboard on top of our API, and then we just met them where they were. At the beginning, that was mostly on Shopify. So we decided to build our app for the Shopify App Store.

That was in 2015, and our first customers were mostly Shopify customers. We acquired them through that integration and fairly soon after we found good word of mouth, good product market fit with our dashboard product, and our app for Shopify merchants.

Fatima: What happened after you realized that these SMBs were where you should be focusing? 

Laura: What we then realized was, for a lot of our SMB merchants, shipping is a big cost factor. They're doing this by hand, still. A lot of these merchants were still going physically to the USPS store, the FedEx location, or the UPS location and that anything we could do for them to save time or money would be very helpful. 

We started acquiring a lot of customers that were still very small, either just getting started or haven't made their switch to shipping software just yet, still doing a lot of shipping manually. In that customer segment, building something that's a painkiller, not a vitamin, really holds true because shipping is so much harder for SMBs than for a business who's already up and running and has shipping methods setup.

We were able to capture them early and started getting some good product-market fit and a lot of word of mouth from our customer base. That's where the [Shopify] App Store was quite beneficial for us because when Shopify customers would use Shippo, a lot of them were compelled to leave reviews. Those reviews then contribute to more organic traffic, word of mouth, etc. That was how the first flywheel got going. In the Shopify App Store, those reviews consistently ranked us pretty high and more customers were able to find us.

Fatima: That’s the beauty of SMBs, you’re giving them a solution that they love and that solves their problem, which enables you to partner in their growth story. It’s mutually beneficial. 

Laura: That's a really excellent point. There are two different points in there. First of all, you get to talk to the founders. When you're talking to SMBs you can talk directly to the founders and they’re able to tell you what's going well, what's not going well. They'll be able to give feedback. At the beginning, we really told the story—which is a true story—that we're a small business as well. We are just getting started, we're looking for feedback. A lot of our early customers were very vocal about giving feedback, which was phenomenal. And both my co-founder and I were talking directly to them, we're doing customer support ourselves, just being very close to our customers. 

"It's much easier to acquire SMBs who then grow, rather than trying to acquire mid-size customers who have a sales cycle that is significantly longer."

To your other point, a lot of the SMB businesses that started with us back then in 2015, they've become pretty sizable companies. Which is the beauty of working with SMBs. You get that compounded growth. SMB customers, they do grow, and then they grow alongside you. You're able to see the results a little later, but it's much easier to acquire SMBs who then grow, rather than trying to acquire mid-size customers who have a sales cycle that is significantly longer. 

The other part here is also as part of fundraising. It's nice to see early traction. It's nice to bring in early traction when talking to seed investors. With our early traction, with those immediate sales cycles, and when I say immediate, I mean our product was—and the majority still is—very much self-served. That then gives us good media traction to show investors.

Raising capital as Silicon Valley outsiders

Fatima: Take us through that journey. When did you decide it was time to raise some outside capital? 

Laura: The first round that we raised was $2.5 million in 2015. For that point in time, it was a pretty sizable round. I know that round sizes have gotten more out of control recently, but it was not that easy to raise our first round of financing, mostly because both Simon and I were Silicon Valley outsiders. It was our first time in San Francisco, we didn't have a big network here. We also didn't really know how to pitch our business. Honestly I’m still refining the pitch. Every time I fundraise, I learn new things. 

"My main learnings back then were that what resonated really well with investors was the size of the opportunity. Ecommerce is a pie that's continuously expanding. It is still growing."

My main learnings back then were that what resonated really well with investors was the size of the opportunity. Ecommerce is a pie that's continuously expanding. It is still growing. Especially now during COVID-19, consumer behaviors have shifted quite a lot, and the transition from offline to online is just accelerating. That pie is continuously expanding. Shipping is not going to go away. Then I would say it is just the early traction that showed that our customers liked our solution. 

Then, of course, the other two points here are that the existing solutions that are out there are clunkier to use or difficult to use. Plus, there is an external pressure as well, which is Amazon and Amazon Prime. These were the main components of our pitch. They are still the main components of our pitch today. At that point in time, I had pitched at least 125 investors to raise our first round of seed financing, and was really just happy that it was done.

Fatima: Your point about expanding the market reminds me of [Shopify co-founder and CEO] Tobi and his early experience with fundraising, where people would doubt the power of the SMB market. But the whole point was to reduce the friction to entrepreneurship and actually grow the market. Commerce is about finding a customer, selling them a product, and getting that product to them. Shipping is intrinsically tied to that process. 

Laura: I couldn't agree more, but I think commerce is still in its very, very early days. Obviously at least for businesses like Shippo, it's nice that the path has been paved by companies before us, Shopify being one, Stripe being another, in terms of reducing the barrier of entry for ecommerce merchants. 

If I think about future opportunities, it's like right now, I could buy anything I want on the internet from anywhere. I have a cat, I got her a sweater. It was someone selling cat sweaters in Sweden, hand-knitting them. I can buy something from a person in Sweden. Then the question is, how does that package get here? It's very easy to click “buy” from anywhere in the world. It is harder for the package to arrive here. Some real-life occurrences need to happen. There's still a lot of friction there. I do think that there’s opportunity in starting with shopping and then shipping being a part of it. In terms of making ecommerce more frictionless, the opportunity is still giant. We're still quite early there.

"In terms of making ecommerce more frictionless, the opportunity is still giant. We're still quite early there."

Fatima: I totally agree. Then when you look at the last year and what’s happened with COVID, it’s been accelerated even further. 

Laura: Agreed. And I would also say, I was actually quite positively surprised. We were bracing ourselves when COVID started, we didn't know what to expect, obviously. We were not sure how it would impact our SMB businesses. Our first step was to make our product free for all SMBs, for the entire year. 

We've since extended that because we wanted to make sure that we're supporting our independent businesses. That's also been very motivational for the team. Looking at the numbers now, I'm just really happy that our SMB businesses are actually doing better than before. It seems like everyone's buying on the internet and SMBs are getting a fair share of that as well.

All of our existing customers are expanding. New customer cohorts are expanding faster than before. All businesses that are getting started, are getting started as online businesses. There's just no way around that. It seems like there's also a new kind of consumer awareness that's been developed where consumers want to buy from independent businesses and want to support independent stores.

Boosting shipping speed and convenience to keep SMBs competitive

Fatima: What do you think the next few years will look like, for both Shippo and the industry overall? 

Laura: Yeah. I'll start with the future of the industry and then I'll get to Shippo and narrow it down. In the shipping industry, the overall trend—at least from a merchant perspective—is that consumers are expecting things to arrive faster and faster. It's only going in one direction, and it's mostly driven by Amazon and Amazon Prime. Two-day free shipping, one-day free shipping, same-day free shipping. It's a question of how to make that happen from an SMB perspective, and how to make sure that SMBs are not always catching up from behind, but developing a new bar, a new standard for SMB shipping. We're really excited to try doing that.

The carriers are actually an interesting industry as well, because we've got a lot of the traditional carriers that are now adapting to SMB businesses. UPS has made a strong statement that they want to make a focus on SMBs and that that's their highest priority for the year. However, we've also seen a lot of regional carriers that are up and coming, and our customers are starting to tap into that network. We're seeing increased fragmentation in the market. 

There are also a lot of same-day delivery companies and same-city delivery companies that are meeting new kinds of demands, like same-day and on-demand shipping demands. I am quite excited to see what's going to happen in terms of international shipping, because there's such a big discrepancy between how easy it is to buy internationally and how hard it is to get your package from a foreign country to yours.

I'm curious to see what's going to happen there and also excited to drive that. From our perspective, we're going to grow the company. We're 150 people right now, so looking to add another 150 people this year. We are going to be more remote friendly for that. In terms of focus, platforms have really developed to become our bread and butter. They're developed to be like a super strong customer acquisition channel. One of our pillars this year is to focus on building more functionalities for platforms, to be stronger partners to them. 

That also leads us to international expansion because a lot of our platforms are already international. It makes sense for us to be international as well. Then lastly, platforms are giving us access to the customer segment that we're best at, which is SMBs. We're doubling down on the SMB segment while also making sure that as our SMB customers grow, we can grow with them. So we’re starting to build a few functionalities for larger customers.

Internationalization and localization go hand-in-hand

Fatima: Touching on the international shipping component, you mentioned you’re already in Germany and France. What have you learned from your experiences in these different markets? 

Laura: Yeah. We are in the US, Canada, Germany, France, UK, and Australia. When I say expanding internationally, what that means for us, is that we need to add local carriers in those international countries. Those countries that I just mentioned, we already have a local carrier network there, we’re looking to strengthen it, and add more carriers in Western Europe. From the US, we can ship anywhere right now. Then there's a question of, how do we enable shipping within, let's say Spain or from Spain to anywhere in the world, Spain as one random example.

We are also seeing that through these platforms we're able to acquire customers locally, significantly easier than if we were to try to set up our own customer acquisition engine in those countries. We have a lot of customers finding us through different app stores who are already in one of these geographies and our app store listing just says where we're active. Then customers can self select to sign up.

Fatima: Any insights on customer demographics in different regions?

Laura: Yeah. I am German myself so I'm allowed to say this, but the German market is a very tough one. Germans have a lot of skepticism around new products they've not heard of. When we launched Shippo we actually wanted to launch it in Germany first, but it wasn't easy. 

When we expanded, when we added the US as our second country, traction started coming in through our US customers much faster. I've loved serving the US market first and really proving our demand. I think US SMBs are very open to trying new products, especially if it can make their lives easier.

Fatima: Which countries are you planning to expand to next? 

Laura: We want to double down on the UK. We have a few carriers there, but we want to make the UK super strong. That would be our first next market to move into. The goal is to cover a good part of Western Europe by the end of this year and to be the largest network of shipping providers worldwide. The power of Shippo is when you connect to the Shippo API, you should be able to get a shipping label from any shipping provider around the world with the exact same API call. That's the vision we're going after.

"When you connect to the Shippo API, you should be able to get a shipping label from any shipping provider around the world with the exact same API call. That's the vision we're going after."

The secret sauce of success in SaaS

Fatima: What advice do you have for any new players trying to break into the commerce ecosystem? 

Laura: I would say, first of all, that ecommerce is still in its early days. It's not saturated just yet. I would start looking at anything that ecommerce merchants or SMBs are doing by hand. It’s nice to build for SMBs because a lot of the mid-market products are out of reach for SMBs, both in terms of price, but also in terms of complexity. Starting with SMBs, you can start just putting out MVPs, immediately solving their pain points. The product does not need to be extremely polished as long as it's helping them save time or money. So SMBs are a good place to start and then look at whatever SMB customers are doing by hand.

As part of that, I would be very in tune with what the customers are saying. It was a big plus for me and Simon to be doing customer support ourselves early on. We actually took those phone calls and we responded to emails ourselves. Talking to customers, looking at how they were using our product, informed our strategy moving forward. We for sure made a few changes because of those interactions. We started as an API-only company and then added a dashboard based on customer feedback, and then added app store connections also based on customer feedback. A lot of the success just came from listening to our customers early on.

"A lot of the success just came from listening to our customers early on."

Fatima: Customer support is such an underrated part to the secret sauce of success in SaaS. A lot of top players tend to overlook it. 

Laura: Yeah, for sure. In terms of customer support, especially working with SMBs, you're working directly with the founders. They're the main decision makers, they're the ones writing you a customer support ticket, but they're also the ones deciding whether or not to switch or stay on your product. It's nice to be talking to the main decision makers.

Scaling logistics tech from organic traffic into investor funding

Fatima: So we’ve taken a look at the early days, the journey you’ve gone through to get here. Coming back full circle, you mentioned earlier that you just had a very successful round of funding. How did that experience compare to your previous experiences? 

Laura: I want to ask Tobi if it was ever easy for him to raise money. Let's see, I think there were a few distinct phases in the life cycle of Shippo, and I think they're probably similar to different companies. It started out with me, my co-founder, and a few other people working on everything together to see what sticks. Then we started getting good word of mouth, organic traffic. I would call it product market fit for a certain customer segment as well, which then contributed to more word of mouth. At some point in time we realized that organic traffic is great, but it's not really controllable. We don't know how to scale it up. We need to find ways to find more predictable and scalable customer acquisition channels.

That was something I wish we would've done sooner. We were really excited about all of that organic traffic for a long time and thought that we were doing so well. We were focused on other things. Then we started building a marketing team, an onboarding team, a business development team to help figure out scalable customer acquisition channels. In all of those phases I would say, before you get product market fit, before you get scalable acquisition channels, at least for us, it was about making sure that we're not running out of money.

"Before you get product market fit, before you get scalable acquisition channels, make sure that you're not running out of money."

Because unless we've proven a few of these things, it's just hard to keep raising money. We then found our scalable customer acquisition channels. For us what really worked was driving inbound, and converting inbound traffic into paying customers and business development of course, with platforms and marketplaces. When we found those, we raised a new round of financing based on that. That was at the end of 2019, early 2020, and then COVID started. 

When COVID started, we were all hands on deck, making sure that we're able to keep up with all the new sign-ups, answering questions. Most of these people have never done ecommerce before, or were trying to do this in a hurry, so it was about supporting our new customers as best we could. Now we just raised another round of financing because of the growth rate coming out of last year. I would say it was easier than our first few rounds of financing, but I still wouldn't call it easy.

I think lots of investors don't have an awareness of how important a product like this is, because they're not shipping themselves, they're not running ecommerce businesses. With consumer startups that are able to buy into that hype or have investors use their products, at least investors are seeing the power of it and are users themselves. For our product, sometimes Jeremy Levine, our investor, is using it to ship packages, but still he doesn't run a store. None of our investors do.

I’d say it was about teaching people how important or how hard shipping is for SMBs. At this point, there's just a good amount of traction. Logistics tech is becoming more and more front and center for people to think about. I also do think that SMBs are hard for investors to understand, they’re more excited about flashy brands and those flashy brands are typically big brands.

Fatima: Yeah. I totally agree. I think it's so interesting because if you really look at the merchant journey, SMB or large retailer itself, every sort of moment in the journey is an entire industry of its own. And within that, there's like billion dollar markets that are just totally untapped.