Shippo’s Path to Product-Market Fit — The Upside of Being Industry Outsiders
Shippo’s Path to Product-Market Fit — The Upside of Being Industry Outsiders
Shippo co-founder and CEO Laura Behrens Wu sits down with First Round Partner Todd Jackson for a behind-the-scenes look at how she leveraged industry outsider and first-time founder status to build a billion-dollar shipping company.
EXPLORING IDEAS
The Shippo story begins in the fall of 2013 with two business school dropouts from Germany convinced that starting a business is their golden ticket to staying in The Golden City.
“The problem was we didn't have any groundbreaking ideas,” Behrens Wu says. “At some point, Simon and I decided to just start building something, and the easiest place to start was e-commerce.”
The Original Idea: An Online Marketplace for Independent Designers
The first thing the co-founding duo built was a Shopify store that was supposed to be a marketplace showcasing independent designers. But kickstarting a brand new marketplace was challenging. To get over the initial inertia, they decided to create demand by buying a few items from designers and selling them themselves.
“Shipping was the least fun part of that experience,” says Behrens Wu. “It involved figuring out USPS hours, standing in line at the post office and trying to get the cheapest rates.”
At the time, online sellers basically had two ways to compare shipping options: go to the post office or navigate the individual websites of each of the carriers.
Behrens Wu and Kreuz knew there had to be a better way.
An Unexpected Pivot: Solving Shipping for SMBs
“We started talking to a few other e-commerce store owners to learn how they were shipping and see if they had any insights to share,” says Behrens Wu.
Initially, we were just trying to ship better ourselves. But through some early conversations, we realized that other people were having similar challenges, and that's how the idea for Shippo was born.
PROTOTYPING AND EARLY TRACTION
When looking for inspiration for a solution to build, the first product that came to mind was Expedia. “We thought shipping an order and booking a flight should be pretty similar,” says Behrens Wu. “You want to compare different rates, and then pick one option and buy it.”
“Then we realized that, actually, a lot of our SMB customers ship many orders a month, not just one or two. And if you ship many orders (like on a daily basis), clicking through this interface one by one was too tedious and time-consuming,” she says.
Going back to the drawing board, Behrens Wu and Kreuz looked to the payment processing platform Stripe. “The Stripe model is API first, and we thought that model could work for the shipping industry as well.”
But there were a few bumps along the way. To get around the lack of usage and brand awareness, the founders decided to build a dashboard on top of the API and connect that to the Shopify App Store, which was fairly new at the time.
By riding the wave of the Shopify App Store’s rising popularity, Shippo gained its first customers.
Reflecting back on Shippo’s early traction, Behrens Wu acknowledges that market timing had a lot to do with it.
We would have found a way to make it work through another platform or another app store, but the timing of the Shopify App Store and more people selling online really contributed to our early success.
In February 2014, Shippo got into batch eight of the accelerator 500 Startups, opening the founders up to a network of mentors, bootcamps, and seed funding.
Raising Money
In September 2014, after the accelerator program, Shippo raised a seed round of $2 million from 11 investors, including 500 Startups. But despite their accelerator pedigree, on the path to nabbing their seed round, Behrens Wu and Kreuz got rejected exactly 114 times.
Here are a first-time founder’s tips for fundraising:
- Stay in touch with those who reject you. “During our seed round, I met Albert Wenger from Union Square Ventures, who wouldn't invest at that point. But I decided to stay in touch.”
- All it takes is that first anchor investor to trigger a snowball effect. “When we started getting traction with a few investors who were actually in, everyone else followed suit really fast.”
- Once you get that first investor, you can create FOMO in the others. “To get investors to commit, we told them, ‘We're fundraising now. We're starting to talk to other people, and other people are going to be interested, too.’ ”
Behrens Wu and Kreuz knew it was time to raise a Series A when their customers started using the Shippo API directly. “When we finally started getting adoption for our API product, it accelerated our growth because an API customer tends to be a larger customer than a web app customer.”
The founders geared up for a Series A and raised a $7 million Series A in September 2016.
SCALING UP AND CONTINUOUSLY FINDING PRODUCT-MARKET FIT
Astonishingly, the startup has found product-market fit three times and is on its way to a fourth.
People think you find product-market fit once and then you're good. In our experience, you find product-market fit for one customer segment or product, and then you need to continuously find product-market fit for new products that you launch or new customer segments that you're entering into.
First PMF: Shopify Web app for SMBs
“Our first product-market fit was really narrow: for an SMB audience using Shopify,” Behrens Wu says.
Second PMF: API for midmarket companies
“We were always meant to be an API-first business, so that’s what we expanded into next.”
Third PMF: Platforms and marketplaces that work with SMBs
“We're able to go to these platforms and marketplaces and say that we know the SMB audience because we already have product-market fit there.”
Fourth (upcoming) PMF in 2024: API for enterprises
“We’ve been doing a 2024 planning exercise to go further upmarket.”
THREE HORIZONS FRAMEWORK: HOW TO BALANCE YOUR CORE PRODUCT WITH NEW BETS
Once you find product-market fit the first time, a new challenge appears: How do you juggle improving your existing product with growing your business?
- Horizon One: Core product. “For us, that’s our web app for SMBs.”
- Horizon Two: Forward-looking products. “For Shippo’s Horizon Two, we're building a shipping optimization product.”
- Horizon Three: Big risks. “A Horizon Three idea might mean playing around with how you can implement Generative AI into your product.”
70-20-10 Rule
Behrens Wu uses this rule for resource allocation: “So you have, let's say, 70% doing Horizon One, 20% doing Horizon Two and then 10% playing around with Horizon Three.”
Don’t get so obsessed with the big shiny stuff in the future that you forget about what is actually generating revenue today.
Where Founders Go Wrong
“The mistake a lot of founders make is that they get so excited about Horizon Two and Three that they neglect Horizon One.”
HOW TO USE INDUSTRY OUTSIDER STATUS AS AN ADVANTAGE
Looking back, there were reasons why Shippo may not have worked, as Behrens Wu admits: they had no business trying to build a shipping company.
People are so concerned with founder-market fit, but Simon and I for sure had no founder-market fit.
But instead of seeing their inexperience as a disadvantage, the Shippo founders harnessed it as a strength.
THE PATH FORWARD
It’s been ten years since Behrens Wu first fell for SF, a city she now calls home. With total funding of $154.3 million and more than 100,000 customers, there’s plenty more mileage ahead.
In 2023, Shippo delivered two major wins: In a one-of-a-kind agreement, it became the first shipping company to secure a FedEx platform account, and it launched Shipping Elements, making it easy for e-commerce platforms like Wix to offer shipping capabilities natively.