SFG 29: Michael Krakaris on enabling Prime for all E-commerce
In this episode of the Startup Field Guide podcast, Sandhya Hegde and Sarah Leary chat with Michael Krakaris, co-founder of Deliverr. Started in 2017, Deliverr is an e-commerce fulfillment company that integrates with marketplaces such as Shopify and Walmart. The company offers a two-day shipping service to small merchants selling on these online marketplaces helping them compete with Amazon Prime. The company was acquired by Shopify for US$ 2.1 bn in May 2022.
Be sure to check out more Startup Field Guide Podcast episodes on Spotify, Apple, and YouTube. Hosted by Unusual Ventures General Partner Sandhya Hegde (former EVP at Amplitude), the SFG podcast uncovers how the top unicorn founders of today really found product-market fit.
If you are interested in learning more about the topics we discuss in this episode, please check out our resources on customer discovery, developing your founding insight, and building a sales team.
Episode Transcript
Sandhya Hegde
Started in 2017, Deliverr is an E-commerce fulfillment company that integrates with marketplaces like Shopify and Walmart. The company offers a two day shipping service to small merchants selling on these online marketplaces, helping them compete with Amazon Prime, for example. Cofounded by Harish Abbott and Michael Krakaris, the company was acquired by Shopify for $2.1 billion in 2022. Today we are joined by Deliverr's cofounder Michael.
Welcome and thank you so much for joining us, Michael.
Michael Krakaris
Thanks for having me.
Origin story of Deliverr: Democratising fulfillment for E-commerce brands
Sandhya Hegde
You and Harish met when you joined Symphony Commerce, which also happened to be your very first full time job out of school. So how did you land there? And what was the origin story of starting a new company with the cofounder of a company you had just joined?
Michael Krakaris
So right out of college, I spent a year at Hopkins, then I did two years at Northwestern. Wasn't really my thing, but I got a degree for my parents so they wouldn't kill me and came out to the Bay Area. Had really no idea what I was going to do. But I knew I loved Startups. And this was at the time where Uber was taking off and Airbnb was taking off. This just seemed like such an exciting time to be in San Francisco. There was so much energy, and it was just so cool. And I landed at this E-commerce company called Symphony Commerce. At the time, they were like Series B. I'd like to say 100 people, office right underneath the freeway in SOMA.
Sarah Leary
Michael, what year is this?
Michael Krakaris
I think 2017. Yeah.
Michael Krakaris
I mean, this is where startups are everywhere. Yeah. It was questionable getting in and out of the office, but everyone was just so pumped. It's just such an exciting place. And so started Symphony, my first job. And what was really cool about it is an E-commerce company. I didn't know anything about E-commerce outside of I would order on Amazon, my school paper towels, right. And maybe a textbook, maybe, if we want to do that. But I didn't know anything about it. And so what's cool is they built the websites, they built inventory management, and then they had integrations into warehouses and shipping providers for these big brands. And they would go to these really older brands, think like Pepsi, Fiji, and stuff, and they'd say, hey, we're we're gonna build a direct to consumer online experience for you. And this is at the time when Shopify starting to grow too. Shopify was more SMB. These guys are mid market enterprise. And it was interesting for me because I got to learn about all these different layers of e commerce. I got to learn about the site checkout, inventory management, fulfillment, and I got to learn a lot about the fulfillment space.
And what was interesting is actually the year before I did an internship at Twilio. And Twilio was, I guess everyone knows it now, it's an SMS messaging API service. And it was interesting because they went to the messaging world before companies like Uber wanted to send text messages, they had to go strike these deals with AT&T and Verizon. And there's different carriers in every country go, different carriers in Canada. Then what they were really having a tough time was they would go to South America. Then you have to do South American carriers and Twilio just abstracted it all away and said through a single API, you can go and manage this. Stripe did the same with payments and those two guys were doing at the same time, and they had started infrastructure as a service. So the reason I bring that up is that was a really fun internship.
And then I'm at Symphony and I start to learn about the fulfillment space. And what we see is a lot of the same things in the telecom space before Twilio, you have to go to a warehouse and all of them had these different pricing. And the pricing contracts of these things were ridiculous. It was like you had pick-pack fees, you had order management fees, you had receiving fees that were hourly. And then you'd look at the hourly, they'd give you the hours on how long it took to receive. And sometimes I remember we had a case with Fiji Water where some guy was receiving cartons of Fiji Water and then he didn't tap out or clock out, and he went on lunch break for 3 hours. Then he came back in. But you're paying at an hourly rate to receive. So you'd get these crazy increases and influx in price that you would need a team of people to look at to be able to manage this. And then every time you go to a new warehouse, you'd have to do all these new things, paying for space and all this kind of stuff. And it was ridiculous. And so we looked at the pricing. The scaling ability was so difficult. And so I said, what if we built kind of Twilio for fulfillment? And that was the original idea. And one day we went and I mocked it out on paper.
And so I mocked it one day in the afternoon with Harish. Harish is the CEO at Symphony at the time, and they're running into some different growth challenges. And we were meeting at that time and he said, hey, what if we try this idea on Twilio for fulfillment? And he said, this could work. And he knew a lot more about the logistics space than me. And we left and we started Deliverr. That's where it started. And literally the idea was Twilio for fulfillment with super simple pricing, hassle-free onboarding. Those were the two big benefits. So you would just do the simple pay as you go pricing, which included shipping. No one was really doing that outside of Amazon, just for the Amazon channel, so it includes shipping. So you knew for a towel or whatever it is you wanted to sell, water bottle, it's going to be $5 anywhere you ship, and you could use as much as you like. You do 1000 orders a day or zero orders a day. Anyone could plug into this thing. And so it was designed for small businesses, up to mid sized businesses.
And the last element, and this came a lot later through a crazy journey over the next six to twelve months, was the element of shipping speed, which we started to say, okay, we wanted to get faster and faster Deliverry speeds because we believe that that was fundamentally where the world was going. Consumers were starting to demand faster and faster delivery speeds. Prime at that point was just blowing through all records, and so we thought that okay, we wanted to have something kind of two day architected, but we weren't sure exactly what the benefit would be to the merchant yet, and then hassle-free pricing and easy onboarding.
The value of knowing your customer
Sarah Leary
So it sounds to me as you tell the story, the original insight comes out of a gap that you're seeing at Symphony with your customers and the problems that they were seeing. Is that fair?
Michael Krakaris
I never even thought I'd be an entrepreneur. I just wanted to solve problems honestly, and it just happened. And it was just one of those things where we saw this big issue with these brands, and these brands tend to be a little bit bigger, but then you would even talk to smaller brands and the issue was way bigger. If you're a smaller brand doing ten orders a day, good luck trying to convince some 3PL that's managing Procter and Gamble that they should run your ten orders a day Shopify business. It always came from the sense of, hey, this is this core customer problem, this is what they need. Is there something that we can build that can solve their needs, that could become a profitable business? And that's ultimately where it came from. And that's always what I look for when I'm advising startups or anything like that. The number one thing with any sort of startup or anything else it doesn't matter who I knew, nobody. I was a 19, 20 year old kid.
I didn't have any connections or anything like that. It doesn't matter who you know. It doesn't matter what investors. It doesn't matter any of this stuff. What matters is, do you know your customer? And do you know what your customer really wants? And what they say they want is not always what they want. And you have to really identify what is that customer pain? What is it they really want? And if you can understand that really well and you can build something your customers love, everything else follows. People will want to work for you. They'll be able to bring great investors, do all that stuff. You'll never have to network a day in your life. And that's what really matters more than anything else.
Deliverr’s product-market fit journey
Sandhya Hegde
Well said. The focus of this podcast, as we talked about earlier, is like the product-market fit journey, right? And it all comes down to in your very early days, can you validate the hypotheses around what a big company at scale, what the business model will be, what the shape of the business will be in the future? So I'm really curious, like, you had a very clear insight around a customer problem. What were the unknowns? What were the hypotheses that you needed to test out once you actually started Deliverr? Or maybe the surprises you had of things you had assumed wouldn't be a problem were a problem?
Michael Krakaris
So the first problem is obviously the first challenge is identify the problem, right? Identify what's the issue, what's the gap in the market? And with fulfillment, it's pretty easy. Honestly, everyone's just, I hate it, right? You talk to any brand, they're like, it sucks. I don't like having to deal with this. And we had known about that, and investors, frankly, had known about this for years. It wasn't like I came in with this great realization, everybody hates fulfillment. Everybody knew it. Everyone was like, yeah, everyone hates fulfillment, right? And the rest you had to figure out, okay, how can I build something that these brands are actually going to want to move towards? And how could we build something where the way I think about building products and the way I think about product-market fit is that people, and in this case businesses, should be willing to give up certain features with their existing provider. Whoever they're doing it with right now, to use your service needs to be so critical to whatever it is they're trying to achieve that they're going to give up that excellent customer service or that extra flexibility they have to use you. And that's how I always defined product, market fit. It's amazing how people don't think that way, where they think, oh, we can just force it. We can just force it, right? And we just give great customer experience and that's going to be our differentiation that doesn't scale. And what you find is you might hire some great people and you close some big deals, and then your growth kind of slows, and you're like, oh, crap.
And so as we started the journey, I mentioned we had these first two pillars of easy pricing and hassle-free onboarding. Now, we knew one thing, and this was the one thing that was really important. Businesses love fulfillment by Amazon. That was the one thing we knew. Now, it only really worked for Amazon. So if you were selling on Amazon, it worked. But for anywhere else you want to sell: Walmart, eBay, your own website, you could use multi-channel Fulfillment by Amazon, which they honestly didn't really care about and was not a great experience. But we knew Fulfillment by Amazon everybody loved, but they couldn't really say why they loved it. And so we were, why? They wouldn't say they love it, by the way, no one would ever say they love it. They say they have to have it. So they would say, I use Fulfillment by Amazon for Amazon, and then I have my own warehouse for everything else. That was like, the most common. 80, 90% of businesses would say that.
And so we said, okay, there's some combination what these guys are doing. And so we built our original product, which had super simple pricing and hassle-free onboarding. And then we started giving it to some brands. And what the brands were saying was, okay, this is nice. And we're like, okay, cool. It's nice, but are you going to give us, like, more than three orders a day or five orders a day? Are you going to send us anything? They're like, Maybe when I ever want to, right? So I'm like, okay, right away. And this is like, December of 2017, right when we're getting ready to launch. I'm like, okay, that's not good. I shouldn't be the one who has to create urgency for them, right? They have to feel that urgency. They have to feel like, wow, I have to use this service. And so I was like, okay, maybe I think one thing with Fulfillment by Amazon, it's very closely aligned with the Amazon channel. So let's closely align with one of these sales channels. And we had started with so we started talking to a few of these sales channels, and we launched with a program. eBay was coming out with this program called Guaranteed Delivery, this three day delivery program. It was brand new, and we figured out how to integrate into this thing. There were no APIs like, the way we did this was insane. Through Chrome plugin, actually, to create shipping templates. And then we built API integration into these shipping. It was the craziest thing you'd ever think.
But anyway, we're like, okay, let's try to do this. We have some really experienced engineers who are building this thing, and they're like, this is insane that we're even doing this. And I'm like, we're going to have this special badge on the listing. It'll be interesting. And so we're going to go after some of the big eBay sellers and see can we sell this? And so it takes us three months. We get it out. We get into March. There's this big conference that Channel Advisor launches. They do this conference for multi-channel sellers, basically anyone who sells on ebay. Yeah, Newegg, like all these other channels: Wish, Shopify. So it's a great place for us because we're focused on the non-Amazon world. So we go to this conference. We spend, I think, $20,000 on a booth, which to me, at the time is like, ludicrous. It's like, the most amount of money I could ever expect. And I'm like, oh, my God, we spent $20,000 on this thing. We host a little event with everybody, and we have this booth, and I'm there with Harish, and we're like, okay, we have the easy pricing. We have the easy onboarding, our cost calculator, where you can go and see rates, which obviously broke the day of demo. I remember some person,we had a big speaking opportunity. And he goes, your Cost calculator is broken. I don't think your company is going to make it. I don't know who he was. He just went he sat next to me, and he's like, I don't think it's going to work out for you.
And we had no customers after that whole thing. We got one customer while we were walking out, closing up. We were closing out our entire booth, and we're walking down the stairs, and one guy was like, oh, are you those Deliverr guys that are misspelled? We're like, yeah, that's us. I sell ten orders a day, 15 orders a day on ebay. I'm like, yeah, it could be good to use you guys. Try it out, see if Guaranteed Deliverry does anything. I'm like, yes, we got a customer.
Sarah Leary
What did you get out of that whole experience that kept you going?
Michael Krakaris
Yes. So then we get out of this thing. We go into our board meeting with Alex at ABC, and he's like, the chillest dude ever. But he's, okay, you did this conference. You got one customer. That's probably not a great thing, right? You guys need to figure out what's going on. And I came and I said, okay, we're not always going to have the right thing, but I need to know why it didn't work, right? What were the things that were wrong? And so I deconstructed all the things that were wrong with eBay Guaranteed Delivery, why it wasn't working, and it was because of a lot of different things with their site, like how they would prioritize it. Three day versus two days, very different in terms of how a customer perceives it. So it wasn't really generating sales lift. And I said, my thesis is that the reason why I think everyone uses FBA is because you get access to Prime. And once I said that, so I said, okay, all we need to do is figure out Prime with one of these channels, something that generates at least 30% to 40% lift in sales. And we thought if you could generate that, merchants would then move their inventory to you.
Luckily, we had been talking to all these different sales channels, and Walmart was coming out with two day delivery because Mark Lowry had just taken over from the Jet acquisition. He was like, we need to get into faster shipping. He was really pushing them hard. And I said, hey, for our marketplace, we're going to enable two day delivery. Again, the hackiest way to do it. And I said, Alex, just give me one engineer. We're going to turn this thing on. Super manual. We'll keep trying to sell eBay on the side, but we're really going to try to make this work. And we get it ready in a month, two months. We turn it on June of 2018, and we put one item on. It’s this Unite conditioner. Actually don't even know where it went. It was in the office, but I think it's gone now. And it was the worst item ever to pick because we had ten customers at the time, and we had some people sold on Walmart and ebay, but they bid barely any volume. And this item had done zero sales for the past like, 90 days. It was the worst item ever to see. I'm like, okay, we're not even going to know what happened.
We put it on two day delivery. It goes to literally the top row of search of shampoo in Walmart right away. When we turn it on, it does six sales in an hour. And I think it was on my birthday or the day after my birthday or something. I'm just watching it, and my parents are like, oh, we're having a birthday. I'm like, go back. I'm watching sales happen right now.
Finally! I've spent a year and nothing's been happening. And yes, we have it. And I knew it right then. I was like, oh my God, I need more products. Give me more products. So I am emailing the merchant. I'm saying, give me anything else you have. And they're like, whoa, it's going up. That's so cool. And it was off the bat. The first few guys who got started, 300% increase in sales, then we turned them on. What happens? They tell their other merchants and then they tell their friends, and then they tell everybody else, and then it goes so fast. The next three months are just insane. I was taking so many calls, I couldn't even have enough time to hire a sales rep. They would go and they would try to find you too. People would message me on Facebook and try to hunt me down and say, hey, how can I get an account set up? Because we had to manually set them up on Walmart to do it. It was pretty tough. And so it just became so aggressive. And then you were like, okay, they're willing to part ways with their existing fulfillment provider to use Deliverr because we could get them two day delivery on Walmart.
And then you're getting so many merchants, what happens Walmart’s, hey, you're getting a lot of merchants for this thing. Let's do a formal partnership and then we do a formal partnership as Walmart's only provider at the time. We do a webinar and so many merchants come in, we crash the entire webinar software company globally, so many people were trying to watch this thing because this is the next Amazon channel and there's over 2 million sellers on Amazon. So you have thousands and thousands of sellers trying to do this. And they also had these mastermind groups. So I started getting invited to these mastermind groups and stuff like that. And they would do these exotic trips in Costa Rica and in the mountains and places and you would then talk to them and they'd ask you about all these things. It was really cool. So very different environment when you're first trying to figure out to after. And it's funny being on both sides.
Pivoting Deliverr's business model to drive revenue
Sarah Leary
What I love about this is so often when I'm talking to early stage founders early in their journey, they want to know how do I know if I've got product market fit? It should be so obvious and smacking you in the face. This obviously sound like it was smacking you in the face. I am curious about a couple of things. One is around what do you think was it? It sounds like you were driving their business. And so then this is not just a cost savings and getting rid of a headache of shipping. It became a feature that differentiated them. Also just trying to understand there's a lot of merchants out there, who did you discover this was most relevant to?
Michael Krakaris
Yeah, so with the first question, that was exactly it. And then after that, Harish creates a slide for our investor deck. He goes, we've just changed fulfillment from a cost center to a revenue driver and we're the first service to do that since Amazon. That was it. And then we raised 20 million right after that in the Walmart partnership. That was it. That's all you really needed to do. Right? You changed the framework of how people viewed things, and you also expanded the market. Expanding the market is huge, right? Because the market outside of Amazon and other marketplaces small. And we're saying, no, it's actually getting bigger. We're making the pie bigger. And that's what really excited people. That's that story people fall in love with. And merchants would fall in love with that story, right, we were talking about. And you could draw parallels. Like, this is like the beginning of Amazon.
And I would go on these webinars and do these things with all these different sellers and channels. It's like you're on the front lines of Amazon. Like, you're just getting in early, just getting in at the beginning. The second piece is, how do we identify who is our best customer? And that evolved over time. I think early on, we started with who were these marketplace sellers? And that evolved eventually to be brands. But the reason why we liked it at the beginning, being Amazon sellers, is that they were very similar. They didn't need a lot of requirements, and there were a lot of them. Now, the problem is they didn't have anywhere to go, right? So they were this huge, untapped, and almost every other fulfillment provider would never touch them. They hated Amazon sellers. They're like, we don't want to deal with you, right? Because all you guys do is just sell on Amazon. I just have to send to FBA. And your volume outside Amazon is just little. I don't care about it, right?
But what I saw, I didn't look at their volume outside of Amazon. I looked at their volume on Amazon. I said, I think I can pull 10% of that, at least. And for some, we started pulling 40, 50, 60% and put it on other places. And that's how I started viewing it. And what I started doing is looking at what I basically looked at every single screen on the Walmart.com website at a certain point. And I started looking at what ranks well, what doesn't rank well, and what was getting the most reviews and what wasn't. I also looked at what search terms that they were bidding on, where they were putting their ad money, all this kind of stuff to figure out what was a selection that they really wanted that did well. We started getting a sales team. Go find me these types of people. So, for example, keto diet pills is one of the fastest selling things on Walmart. Not very big on Amazon.
I could not tell you today what a keto diet pill is, but I could tell you that it flies on Walmart.com at 50 to 100 orders a day per skew. And so I was like, I need every single keto diet pill seller that we can get on Walmart. Ebay, Amazon. And put them all on the platform, and what you would find is then entire category pages, you would see every single person would be a Deliverrseller, because and then what happens? What's really cool about the marketplace seller, let's say you have four of the top items for keto diet pills, right? They all have two day delivery. The other sellers don't have two day delivery. They have standard shipping through their own warehouse. It is now an existential threat for them to continue. So they all have to move, right?
Sarah Leary
So now they're calling you.
Michael Krakaris
So you would tilt, you would pull these whole categories, right, and you'd flip them. You can't do that with all these brands. In the decentralized shopify ecosystem, where everybody's acquiring people differently, a lot has to do with your brand and that type of story right here, you could flip categories really fast, you could grow really fast. So it was great early on, I think it built this really logarithmic growth and this really exciting growth that started to move as we evolved over time. You obviously saturate channels, and at a certain point, one in three of every seller on Walmart used Deliverr. At a certain point, you can't get beyond a certain piece, and you're stuck within the ecosystem. And with channels like Walmart, they have a very big pool of stuff they own and also grocery and stuff that doesn't even touch marketplace sellers that you can't really expand into.
And so we're like, okay, we need to expand to other channels. And that's where we started looking at the Shopify ecosystem and what we found, and we looked at it a little bit differently, and we saw, okay, it's a lot of independent brands. What we did see though were and we're like, okay, how could we build a badge here? Now, everybody had a different site. We saw that was very consistent, right. However, almost everyone advertised the same way, and they advertised on the same channel. That channel was instagram. And so we said, okay, what if we put badges on the Instagram ads? And we can't obviously do an official badge with Instagram, but let's just put in it in the text and then link it to a PDP page that has a badge that we built.
So we basically took all the things that we liked about fast shipping badges between eBay, Walmart, Amazon, and we built one that we would insert via some JavaScript code on a Shopify PDP. And so we built our own badge. And by building that process, we could bring down merchant CPAs. We could improve their sales by around 30, 40%, which is right at that threshold where a merchant would say, you know what, I'm going to go and move and use you. So it wasn't quite the 200, 300% growth that you would see with Walmart, but it was enough to get these Shopify brands moving, and they had really big businesses. These guys had 500 orders a day, 1000 orders a day, 2000 orders a day even. And they could move some of that stuff over. And so that's where we started seeing growth there.
But you definitely needed a sales team. Like in the marketplace model, it was MK, go do a webinar and then sellers just come running in right here. It's more you have to have a sales team that's working through some other things. A lot more volume going on. There's a lot of other things they're looking at, but you're building bigger accounts.
Scaling up a sales team with different sales models
Sarah Leary
How did you think about that repeatable go to market process. When you're trying to scale up a team, it's no longer you doing the calls and how big did that team get, but how did you first get that to a place where it could be repeatable and scalable?
Michael Krakaris
Yeah. And it depends what you're doing inbound or outbound, right. In the marketplace seller model is almost entirely inbound. And so I said, okay, I need the best SMB inbound team that exists in sales. Right. And I don't need the smartest people. I don't need someone who's going to give a great pitch. I need people really freaking organized, who are just super organized. They can take in a ton of merchants and they can just light them up. So I said, okay, who's really good SMB sales? Yelp. Yelp seems pretty good. So we go and we message some director of sales at Yelp. And our first message, the guy's like, yeah, I actually just quit yesterday, so I'll go take it.
So we actually hired a director of SMB sales at Yelp, Michael Sene, and he went, hired a bunch of SMB reps from Yelp. And they were great cost. They were well trained. They weren't like right out of college. These were three, four years, really well trained. We set up an office in Chicago, so lower costs. It was also right where our logistics team was. So it was nice there. And we were able to just it was just like a machine. They could come in, they had very clear script on what to ask. They knew exactly how to move people through. I had automated and built an entire automated inbound system through HubSpot because I still refuse to use Salesforce to this day. But I built this really cool thing using their APIs and stuff like that, where you could see where everybody was at. And then we ran metabase reports on top of that, and that's how we ran the inbound flow.
When we got into outbound, things are a little different. You have to go and find people used to mid market. That's where we did hire a few more kind of Salesforce reps, some of these Google Cloud reps, people who really know how to take down a few strategic accounts, like 10, 20 accounts, and how to message it. And that was a little bit different, early on. What we would do is we would just have we train these inbound reps to go outbound and then I would come in or Sene would come in to close. But we did start as you get to a certain scale, when you start getting to 500 people, you become a billion dollar company. There's a lot of other stuff you have to work on. You can't be in every single sales call anymore. And so that's where we started looking at, okay, let's hire some people who know what they're doing who've done this before. And then ultimately what I ended up doing at a certain scale, once you get to a few hundred sales reps, is I went and actually hired my former boss at Twilio, Soumya, who hadn't seen me since I was an intern. I said, hey, will you come and run revenue for us and run the sales org? Because then sales ops gets really big when you get over that. And sales commission was something that I had always said, who cares? It's just an easy formula. It's not an easy formula. It's really tough when you have a lot of reps. You need to make sure it's that optimal point where you're not overpaying, but everyone's getting the right amount of commission. And so we brought her in and she was excellent at that and she also could help on the outbound side too.
Deliverr's breakthrough with Walmart
Sandhya Hegde
I would actually love to take us back to your breakthrough with Walmart because I was very surprised to hear that you didn't actually have a formal partnership with Walmart when you first started. And I would have assumed that you couldn't even do this without some sort of formal partnership. So I think it feels important enough if you could tease that out a little bit more for us. I'm very curious.
Michael Krakaris
Why would they ever partner with us? We were just like five dudes in an office above a bar in SF. They had no idea who we were. They were ready to partner with huge 3PLs that they were looking at. We were on different planets. And I think what you have to do and this happens a lot, by the way, little startups are like, oh, we're going to close this huge enterprise partnership. I'm just like, just get the minimum amount so you can play in their ecosystem and just win it. And so all I said was, hey, we don't need a partnership right now. Just give me access to that badge. And they're like, we don't have APIs. I'm like that's fine. Just tell me how to turn it on. And they're like, you can turn it on through a merchant. Give me a merchant ID. And then you'll go into their account and then you'll turn on 50 things and then somehow the badge will show up the next day. It was like this map, this treasure map, to turn it on. I'm like, that's good enough for me. I'll do that. I'll make sure the inventory is in the right places so we get there in two days and we'll make that work. Right. Because I knew that it didn't matter if we had this great a formal partnership and the two day badge could not generate the lift, it could matter less.
Going back to my point that it really matters, you understand the customer, nothing else matters. No matter how much someone pushes you, how much someone tries to promote you, or the reverse, how much they try to not promote you, it literally doesn't matter. What matters is, can you generate the results for the merchant or for your customer? If the results are there, everything follows.
Sandhya Hegde
Was there any risk that Walmart would have said, no, you can't do this because we don't want a random startup like spoiling the Walmart marketplace experience? Was that a risk at that point?
Michael Krakaris
Absolutely. They are always going to put their customers first, right? And if you start turning on the badge and you can't deliver in two days, you're going to have a problem, as you should. And I said, Listen, if we're not delivering in two days, you should be the first to get rid of us. But I told our team, I'm like, listen, I don't care if we're escalating everything on two day air right now, and if we're burning cost, make it get to the customer in two days, keep that badge on and just keep that for the next three to six months and we'll burn. And our unit economics won't look great, but eventually what happened is, once you go into formal partnership, once you have all these sellers going in, you get very granular API access. We got access, obviously. We start getting access to everything before and actually we helped them build a lot of these systems on really granular zip five targeting around delivery speeds and then all that follows, right? And then you get really strong unit economics and all that good stuff. But early on, don't get caught up in the unit economics near term, I think, is another big thing. So many people are like, oh, be losing money early, it doesn't matter early. Long term, make sure there's conviction, right? But even the early numbers that we thought that we were going to land at in terms of unit economics, we actually ended up at those numbers four or five years down the road with all the efficiencies. So we had good long term projections, but early on it was nowhere near that. What matters is the lift was there, so the growth was there and then everything follows.
Deliverr's expansion journey: From Walmart partnership to multichannel Integration
Sandhya Hegde
Sounds like you had the first formal partnership with Walmart, what, like summer 2018 or something? And then how long did it take for you to now be like, multi marketplace? You're working with the three, four biggest marketplaces that matter.
Michael Krakaris
Let me think. So summer 2018 is right where we find product market fit. I think we do a bigger partnership with them later that year. Then we start that next year. It's just Walmart, Walmart, just everyone's just doing crazy stuff, and we're bringing on so many different sellers. Then we start getting approached by I think we do our Series B fundraise. We start getting approached by, at that point, think any sales channel that exists. Wish, Google Shopping, even things that you don't even know exist. We were trying with some of these really big tech companies. Ebay, obviously, we always were trying to make something work.. We started talking to a lot of these different companies trying to build these programs because they're like, wow, you built a model that works. Something that we haven't really seen since Amazon, and it's really big. And we actually even tried to integrate into Amazon Seller Fulfilled Prime, because that was even an option. They turned it off because sellers couldn't meet their delivery promises, unfortunately. But we even turned that on. So we were like, any channel, we want to turn on fast shipping. And so we started really pushing multichannel. I think that was around six months to a year after that. So it was quite a bit of time of scaling within that channel because there's a lot of things that have to happen, right? You have to improve the tech, improve the onboarding to go from having 20 sellers to having 2000 in a matter of months. That's a lot of scaling. And we're talking about physical stuff here. This isn't software. You're moving physical stuff into warehouses. You had all sorts of scaling challenges that happen with going into so many different warehouses, opening up warehouses, things like that. Nothing compared to what happened when COVID started. Definitely quite a bit of scale. So it takes time to catch up, and then we start looking at the different channels and building different stuff.
Managing E-commerce during a pandemic
Sandhya Hegde
What was it like, Feb 2020? When did the pandemic penny drop for you at Deliverr?
Michael Krakaris
So obviously the lockdown start and the lockdowns start in Europe, right? I don't know if you remember. So I knew the guy who ran eBay Italy, and so I call him when it happens. And this is at the time, we were getting big enough. We're like, okay, what's the White House telling us? Do we have anything from the government? And like, I'm asking some of our investors, honestly, all I know is on TV at this point, like, it's just chaos, right? So I call the guy from ebay Italy. I'm like, what's going on right now? Just tell me what's happening. He goes, everything is off except E-commerce. And I'm like, you're kidding. No. And he's expect the same. And so I knew the next day I'm like, the next day I'm going to wake up and my life's going to be so different. It's going to be the amount the weight on your shoulders is going to be a level that I would have never thought as a 27 whatever I was years old.
So then that happens, right? We had masks in our network early on. We didn't have a lot. Like they wouldn't sell a lot. We had N95s. They're all gone right away, right? Gloves, gone. Art supplies, school supplies, because the schools shut down. Everything starts going right. And you start seeing Black Friday volumes every single day. And what you start seeing is you do not have enough people to pack the orders that are coming in, right? It wasn't so much stuff coming in yet, but you couldn't even get enough stuff out. And we're like, okay, how can we fix the labor piece to make sure we can get enough orders out? Because we had vitamin C in our network. People thought Vitamin C was a big thing. We had zinc. We had the number one zinc item in the country was in our network. We didn't even know, right? And so you're trying to figure out your labor situation. You're trying to figure out what everyone else is figuring out.
And then Amazon shuts down, right? FBA just says one month delivery times. Deal with it. So then at that point, I'm like we were unique because we didn't own any of the warehouses. So we could add a lot new warehouses. So I'm like, we're the last ones standing. It just felt like we're the last one standing, like we're still alive. But it was so much volume where you're like if you couldn't do all the orders in a day, so you had to do them the next day. But there was an inflection point where even if you did them the next day, you would never catch up. Which we had identified as our death point. And we got at one point with the zinc that week, within 5% of the never catch up date point where you have so much you'll never catch up.
And the way we got through it was a few things. Number one, you had warehouses shutting down because people started getting sick. But what was fortunate about it is that it was always regional and we had a lot of nodes. We had maybe somewhere between 20 to 30 nodes. And so, originally New Jersey falls. We had five massive facilities, all sitting in Pennsylvania, rural Pennsylvania, all next to each other. Probably not the best idea in hindsight, but we weren't really thinking about a pandemic. All within two days, gone. And when an employee gets sick, shut down, right?
So what we would do is we said, okay, where are the cases not bad? Okay, southeast, they're not bad. We would have two people who weren't sick, who were full time employees that Deliverr. They would drive because they couldn't fly, they would drive to the warehouse at midnight, they'd open up the warehouse, they'd go in and we'd load a truck. And we'd run the truck to the southeast where we thought there wasn't of the stuff that was moving really fast, right, that we knew, like the school supplies, the masks, like whatever we had that we knew there was a lot of inventory that was tied up in that single location. And so we'd run these trucks to where we thought the cases weren't. So then we'd go to the southeast, right? And we went to Georgia. Then what happens? Georgia gets really bad. Then we do the same thing and we ran it to Chicago that time. Then Chicago got really bad. We ran it back to the northeast, right? So we were doing these midnight rebalances that are going on between midnight and 05:00 AM, to try and keep this inventory online as much as we could, to keep the inventory where the labor was still able to do it, right?
All the physical stores were down, and we started going to facilities that would only do wholesale shipments and stuff like that. We said, hey, we'll turn you on Deliverr within two weeks. And the fastest we had ever turned on a warehouse before was like two months. But the thing is, when you have this weight, when you have this feeling, and so many people depend on you, including your family, including your community, engineers were putting in 12-15 hours. People weren't sleeping. And we were turning on these warehouses who had never done a direct to consumer fulfillment order ever. And we were turning them on in ten days. And we started turning on these facilities anywhere. Like anyone who would take stuff, we'd turn them on, right? We had warehouses we had offboarded before, and we're like, hey, we still have an API connection. Can you turn on and just take ten SKUs.
They said, fine, we'll take it, right? And so we started doing all this kind of creative stuff, bringing in new, different carriers. There were things like FedEx would only pick up a certain amount and they wouldn't pick up the rest. So we would have people drive around and drop off packages in FedEx offices so that they had to take them, because if you drop it off in a retail office, they have to take it. They can't say no to it. So we would literally have people drive around LA oor Pennsylvania and just drop off packages in all these different places so we would get them out the door. And so that was always the mentality. Like the mentality was we don't break, we don't go down. We asset light, so we're unique, we can expand very fast and we get through this. And that's how we did it. And some of the biggest clients came through that period and they're still with Deliverr today. And so it was a wild time. I think it's one of those times where you'll never forget that for the rest of your life.
Sarah Leary
And how do you think about that extreme experience and what did it bring back to the company that has stuck long term? It's one thing you're in like a crisis, but what was it that you think that the team really took out of that? Was it we can light up anywhere and we have the playbook? Was it efficiency? What was the next set of unlocks that you got from going through that extreme experience?
Michael Krakaris
Yeah. First, you have a very close connection with everybody. You feel like true character is revealed when in these times. And that's where you see who someone is and what they're able to do and how you're able to perform. And the fact that people were able to do this and were able to operate at this level make some amazing decisions. And some of the smartest people I've ever seen made some decisions where you're looking at the numbers, you're like, I don't even know how this is physically possible. How are we going to get these packages in time? They found ways to do it
It's also where some of the greatest innovations happen, right, some of the greatest innovations. And the things you think about happen in times of crisis. Look, think about the RNA vaccine. That was impossible. Then this happens. An RNA vaccine is out in less than a year. Right? And when you have this extreme ability where you're like, hey, we have to survive, and you're fighting to survive and you're fighting for such a huge impact that impacts your lives, you're going to come out with solutions to things that were fascinating. So the ability to launch a warehouse extremely quickly, the ability to how we were releasing the orders to the warehouse to optimize for labor times was really important. It got into the technical weeds and what we ended up doing, but that was really important to us and how we ended up scaling and rebalancing between the network. We weren't used to doing a lot of that. And all of a sudden we were doing it every day because new warehouses were shutting down, turning on all the time. And you felt a lot of conviction in the model. You felt like, hey, we can take this level of scale and be okay. The first two months you were a little bit terrified, but as we got in the next three, four months, you're like, you know what? This model works at scale. l. And so we started thinking about, okay, what are all the different software and operational layers that we need to make sure that we can meet delivery times? And by going through an event like this, you're able to go and execute on all that stuff. And you're saying, hey, look, this is operating at big amounts of scale. Number one zinc item is in Deliverr right now, and we're handling it, and people are getting it on time through this asset light network. So you're gaining a lot of conviction in what's going on here.
E-commerce tech post-pandemic: The next steps and challenges
Sandhya Hegde
So you obviously had a great acquisition with Shopify towards the end of the pandemic, though, hopefully end is a word I can actually use in this context. I'm curious, how do you think about what's next for e commerce tech right now? Is there going to be a big recession in retail? A lot of, I think E-commerce tech companies that were doing extremely well in 21, 22 are not sure how to deal with the new market conditions. What are you looking at? What are the opportunities on the horizon?
Michael Krakaris
I think the most important thing is the consumer is still really strong. That's really important. We used to report like, numbers to CNBC on Black Friday and stuff like that, and ultimately the numbers were almost always a function of how strong the consumer is. If unemployment is high, E-commerce is going to take a hit. Physical retail is going to take a hit, right? If unemployment is lower, it's going to be good. And right now, the consumer, even with higher interest rates, is still quite strong. So that being said, the E-commerce levels that you were seeing in COVID were not going to hold, and I never thought that they were going to hold.
I think that there are still some fundamental things that E-commerce doesn't quite address in relating to new purchases, customer experience and things like that that need to be addressed. And you have to solve those fundamental problems for the consumer. Until E-commerce sales can overtake physical retail sales. Now, it's still growing. It's going to continue to grow at its pace, but there's a lot of big challenges and big things that need to be overcome. So I think there's a lot of opportunity to grow in E-commerce. It's still only like 20% of total retail sales overall. It's still a massive opportunity. But there need to be these step function changes to get back to some of those COVID levels, but ultimately I think people are going to be okay on both the physical and the online side is just consumer strong and that's the number one thing it always comes back to.
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