How ShipHero Reached 300 Customers and $435K Raised on Word-of-Mouth Growth (Interview with Founder and CEO Aaron Rubin)

Introduction and Company Overview

Nathan Latka

00:00Hello, everyone. My guest today is Aaron Rubin. He's the Founder and CEO of ShipHero. He's previously the Founder and CEO of an online retailer of Brazilian jujitsu apparel that he founded in '99 at age 19 and ran until he started ShipHero. Alright, Aaron, you ready to take us to the top?

Aaron Rubin

00:15Yes, sir.

Nathan Latka

00:15Alright. What does the company do and how do you guys make money?

What ShipHero Does and How It Makes Money

Aaron Rubin

00:19So ShipHero is a SaaS product. We serve e commerce companies and 3PLs. 3PLs are third party logistics companies who ship for e commerce companies. We make money by charging monthly SaaS.

Nathan Latka

00:32Monthly SaaS. Is it pure SaaS or is there like a marketplace play as well?

Aaron Rubin

00:37Our revenue is almost all from SaaS. We do drive some revenue to our 3PLs and we get a little money off it, but it's not significant compared to the SaaS revenue.

Nathan Latka

00:48Yeah. Okay, very cool. And so on average, like what do companies pay you per month and then can you paint the picture of a company paying you and how they're using you?

Pricing and Average Revenue Per Customer

Aaron Rubin

00:55Yeah, so it varies pretty widely, especially because we had legacy customers. We used to start and serve smaller customers, so we still have a bunch. Average customer pays us about 1,500 a month.

Nathan Latka

00:55Okay.

Aaron Rubin

00:55But our 3PLs generally are paying us between 5,000 and 10,000 a month because they have a lot of more shipping, more shipments. They're shipping for a lot of merchants, versus if someone was shipping on their own in their own warehouse, they might be

01:22paying us $500 or $700 a month.

Nathan Latka

01:24Okay. And so someone paying you $1,500 a month versus, you know, $5,000 a month, what do you price against? Is it like number of boxes shipped or square footage or what?

Aaron Rubin

01:34Just seats. It's just

Nathan Latka

01:35How many units? One one angle. Just pure how many seats?

Aaron Rubin

01:38Yeah. Well, 3PLs we charge for seats

01:40plus

Nathan Latka

01:40What's a 3PL, by the way?

Aaron Rubin

01:42It's a third party logistics company. Let's say you make socks. You don't wanna ship out of your basement. You outsource it. So those guys those guys use our software and then they give you a log on to use our software as well, but you don't have to pay us. The 3PL pays for your subscription as well.

Nathan Latka

01:57Yeah. Yeah. That's interesting. All right. And put this on a timeline for me. When did launch the company?

Company Timeline and First Customers

Aaron Rubin

02:02So we started on it, you know, nights and weekends, me and my co founder about 2013, got first customer really like 2015. And then about 2017, we started to get some like real traction

Nathan Latka

02:16in 2015, that first customer, tell me that story. Who'd you have to bribe to get them in?

Aaron Rubin

02:21Right. Well, so our real first, so I had an e commerce company. So that was actually a friend of mine was customer one. My own company was customer two. Those were

02:31easy

Nathan Latka

02:31Yeah.

Aaron Rubin

02:33Those were the easy ones. My friend was company Wine Chateau. They're still a customer. They got a bunch of retail stores and they ship wine and spirits.

02:42We actually early days, we spoke to so many people. The one that I regret so much is, Fashion Nova. Have you ever heard of Fashion Nova?

Nathan Latka

02:49No, but I assume they're big now.

Aaron Rubin

02:51Fashion Nova's huge. They're like Cardi B is like their influencer. I think they're like top three Shopify store in the world.

Nathan Latka

03:00Why didn't they sign up?

Aaron Rubin

03:02We spoke to the CEO like several times. We were, it was like super early days. The product was so narrow. We spoke to him. I think he did trial it, but like, I don't know. I remember chatting with him about like his vision and it was like Nasty Gal back then. He's like, oh, we're going be like Nasty Gal, you know, like way bigger than Nasty Gal. I think Nasty Gal shut down or something.

03:23But yeah, whatever. They just didn't go with us and they were...

Nathan Latka

03:26Yeah. Tell a story of the one you... Of one or two that you closed. Like, how are you getting your first couple dozen customers?

Aaron Rubin

03:32So, Shopify App Store was the first year, not anymore, but that was in the early days. There was, it was like a barren wasteland out there for if you needed software. I remember talking to the head of, BizDev then, BizDev or the app stores, like all combined. They were much smaller than it. And I said, Hey, we're building this product and it's got all this automation and you could use iPads in the warehouse and it's going

03:56serve your bigger customers. And we're like, you know, people that are doing a few 100 orders a day, at least he's like, yeah, we don't have those customers. You're in the wrong spot. Shopify back then only had the tiny, tiny customers, but as they were growing and they got those bigger customers, there was no one to serve them.

Nathan Latka

04:10How did you position yourself in the app store to make sure they found you? Like, was there keyword ranking or metadata stuff that you did to optimize or reviews?

Aaron Rubin

04:17Yeah. So back then it was purely based on reviews, which makes it hard to start. So ShipStation's been around forever, and they're the kind of industry default. They have way more reviews, so it was hard. We'd only get the people who got through the first few and they didn't meet their needs, then come to us. So we always... People had hard problems.

Nathan Latka

04:39Yep. That's interesting. And how many customers have you scaled to today?

Customer Count Today

Aaron Rubin

04:43So people that pay us directly, so not counting the merchants on 3PL, around 300.

Nathan Latka

04:49But you would count one 3PL as as one. Right?

Aaron Rubin

04:52Right. One 3PL would be one, even though they might have 200 sub merchants.

Nathan Latka

04:56Yeah. Yeah.

Aaron Rubin

04:56Yeah. Yeah. Would be one.

Nathan Latka

04:58So so so, Aaron, I mean, can I multiply there? Can I take 300 times $1,500 a month that puts you at like $450,000 a month in revenue?

Aaron Rubin

05:06Yeah. We're like, we don't disclose exactly, but in like the 5,000,000 ARR ballpark.

Nathan Latka

05:125,000,000. Okay. Fair enough. Okay. So right around there then?

Aaron Rubin

05:15Yeah.

Nathan Latka

05:15Yeah, yeah, fair enough. Good. And then help me understand growth. So if you're around that today, where were you back a year ago?

Revenue Growth: 2.6x in 2018

Aaron Rubin

05:20Well, twenty eighteen, we were 2.6x, 2017. This year, story is still to be told, but hopefully similar ish.

Nathan Latka

05:32Well, do you know where you finished 2018 at? So if you're at a 5,000,000 run rate today, what were you at? Like four and a half or four?

Aaron Rubin

05:39I don't remember exactly, but our business is somewhat seasonal in that Q4 is when we get most of our growth because people are ramping for getting prepared for holidays.

Nathan Latka

05:49Okay. So if you if you look at where you're at today and you go back twelve months, obviously, that takes in the holiday season of 2018.

Aaron Rubin

05:57It's around the same.

Nathan Latka

05:58You're down at point six x.

06:01You said point six x?

Aaron Rubin

06:032.6 x.

Nathan Latka

06:04Oh, 2.6. Okay. So you're more A little more than doubling.

Aaron Rubin

06:06More than doubling.

Nathan Latka

06:07Yeah. Yeah. Yeah.

Aaron Rubin

06:08That's great. Yeah.

Nathan Latka

06:09Yeah. So so maybe, like, I'm making this at, $200,000 a month, right, about a year ago. Now you're at, like, $450,000, something like that.

Aaron Rubin

06:13Something like that.

Nathan Latka

06:14Is most of the growth coming from adding new logos or getting more and deeper engagement from your current ones?

Growth from Existing Customers vs. New Logos

Aaron Rubin

06:20More from the current ones. Most of ours growth is from existing customers.

Nathan Latka

06:25Yeah. So, so that's rare. Most people drive, you know, growth from adding new customers. So talk, talk to me about your secrets of customer engagement. Once they start paying, how do you get them to double triple quadruple what they're paying you?

Aaron Rubin

06:35Well, so one interesting approach for us is to mark through these 3PLs is really tough. It's a challenge we're trying to figure out. How do we get these 3PLs to know we exist? So what's been happening so far is a merchant will be familiar with our software and they'll go to a 3PL and they'll be like, all right, well, when I outsource to you, and they'll look at 3PL software and they're like, the software sucks. Try

07:00ShipHero. It's better software.

07:03What the 3PL will do is they're like, All right, I'll try ShipHero just for you. We only get one merchant to start. So they sign up and they're like, We'll just do it for this one merchant. Because it's a lot of friction to change existing people. Then what'll happen is if we're doing a good job as they get new customers who don't care what software they're on, they don't know any software in advance, they'll put them

07:25on our software. So we start growing from the minimum you could pay as a 3PL is a thousand dollars a month. So you'll start at a thousand dollars a month and then you might get to 5,000 or 8,000 or 10,000 over the next couple of years. Just by adding more users. So we just gotta get our foot in that door.

Nathan Latka

07:40Interesting. All right. And talk to me about how you've built this in terms of funding. So have you bootstrapped or raised?

Funding: Personal Investment, SAFE Notes, and Lighter Capital

Aaron Rubin

07:46So I put in the first cash, from my previous company once we hit, which was, 1,200,000 that I put in my own money. Once we hit, around a 100 K MRR, I got some friends and family on safe notes for like 435,000 from them. And then two months ago, we borrowed some money from a company called Lighter Capital. We borrowed $800,000 from them.

Nathan Latka

08:12Was that on a term loan or revenue based financing?

Aaron Rubin

08:15Yeah. So they say they do revenue based financing, and I had spoken to them and I said, I don't want to do revenue based financing. I want a term loan. And then they gave me a term loan.

Nathan Latka

08:25Why didn't you go to an SVB or a SaaS Capital, which typically can give you cheaper term loans than Lighter?

Aaron Rubin

08:32Yeah. So I spoke to SaaS Capital, and Lighter. SaaS Capital, I spoke to them and they didn't get back to me. They did have a lower cost of capital, but they wanted warrants. Lighter Capital, it was like three weeks from when I said I want money on a term loan until I had money in my bank.

Nathan Latka

08:32Yep.

Aaron Rubin

08:32It was like almost no time to talk to someone else. They just, they, they did a great job of

08:54keeping the momentum. The price was reasonable. It was probably 2 or 3 points more than, SaaS capital would have been. But I didn't know SaaS capital had given me the money in the end. Sorry. Saw it on the

09:08total vehicle was 800K from Lighter.

Nathan Latka

09:09Yeah. And, and what was it typical, like four or five, 6% of gross monthly receipts?

09:14Oh, no, no. You did term loans.

09:16Sorry. What

Aaron Rubin

09:17was Yeah.

09:18Yeah. Sorry.

Nathan Latka

09:19What So interest rate did they...

09:19Just a range. Did

Aaron Rubin

09:20Yeah. They I don't know if they're allowed to say because, you know, they don't typically do that. I did sign something when I did it. It was I'll say between 10% and 20%.

Nathan Latka

09:30Yeah. Don't wanna get you in trouble, but they have talked about this publicly somewhere where they they shared, like, ranges of what they would do on a term loan. The reason So it was

Aaron Rubin

09:39Go ahead. At the very... It was like a it was a quarter point above what they said the bottom end of the range was when they spoke to me. Don't know what they published.

Nathan Latka

09:48Yeah. Yeah. So that's fair. Somewhere between 10% and 20% is fine. The the, and that is the true cost of capital, right? Is there, are there any, there's no warrant coverage, no PG, no personal guarantee, no covenants?

Aaron Rubin

10:01No, the, at the end of three years, like, never want to talk to them again. That's fine. It's three year term. So it's like fantastic. I'm like, anything else where you kind of stuck with them? Because you got warrants or you got a board seat, no board seat, no warrants. Only weird bit was I had to get life insurance for myself. But

Nathan Latka

10:01What?

Aaron Rubin

10:01Yeah. I was like, wait. What? But, yeah, apparently because, like, key man life

10:21insurance, that pays them.

Nathan Latka

10:21That's interesting.

Aaron Rubin

10:21100 k if I die.

10:24So

Nathan Latka

10:24That's so funny.

10:25Okay. Good. So all in, equity wise, not including your own money and not including Lighter, you raised $435,000 from friends and family.

Aaron Rubin

10:34Oh, I lost you there for second.

Nathan Latka

10:35Aaron, is that right? Just $435,000 from friends and family. That's it?

Aaron Rubin

10:38Yep.

Nathan Latka

10:39Yeah. The rest is your money or Lighter.

Aaron Rubin

10:40That's great.

Nathan Latka

10:41Do you think venture debt makes sense for a lot of people today?

Aaron Rubin

10:45That's always cheaper than equity. If you think you're gonna be successful, that is always cheaper.

Nathan Latka

10:50Yeah. Your team size today? How many folks?

Aaron Rubin

10:5041 people.

Nathan Latka

10:5041. That's amazing. And then churn's obviously critical in this space. Now I'm really curious to understand this because it sounds like this number is gonna be very large for you. When you look at where your expansion revenue is on the cohort that signed up a year ago, what is the, just the expansion typically?

Churn and Net Revenue Retention

Aaron Rubin

11:09I don't have that number. So we have negative net churn.

Nathan Latka

11:13How negative?

Aaron Rubin

11:15Want to say it's like 2% a month, but I don't think that's really me guessing. Haven't looked at a while.

Nathan Latka

11:19No, that's okay. That's okay. Do you know what gross churn is before you add back expansion? Like, are you losing like 10% a year or something?

Aaron Rubin

11:27It's actually really small on anyone who's gone live. So for us, the challenge is always get a customer to go live. Once we get customers to go live, it's less than 1% a month that churn out. And then, yeah, the expansion more than much more than makes up for that.

Nathan Latka

11:27Yep.

Aaron Rubin

11:27I don't know the wrong number.

Nathan Latka

11:46Yeah. Yeah. So call call that, you know, worst case 12%.

11:49Right? Revenue churn annually. Right? One, one, a percentage point a month.

Aaron Rubin

11:54Probably closer to six.

Nathan Latka

11:55Oh, great. Okay, fair enough. So 6%. And then it sounds like again, if you're pushing, know, negative, you know, 2% a month, or that would be negative 24%. That's the same as saying 124% net revenue retention, which means your expansion revenue there has gotta be what about 30 points. That's good.

Aaron Rubin

12:14Sounds reasonable, but yeah.

Nathan Latka

12:16No, it's good. Talk to me about how you incentivize your sales team. Do you have CS reps that are quota carrying to drive more usage?

Sales Organization and Word-of-Mouth Growth

Aaron Rubin

12:21No. So we were trying to figure this out. So both sales, we hired our first salesperson in September. So whatever that was, like eight months ago.

12:34And, but it's not, we have no SDRs. And we didn't, we don't actually have a marketing team. My co founder was running customer support, customer success. So he moved into starting marketing, last month. So we've been just really product focused and reliant on word-of-mouth, which is not the long term strategy. We wanna have a sales and a growth strategy. It was just been able to get away without it.

Nathan Latka

13:00Yeah. Are you profitable today? Are you burning?

Profitability and Burn Rate

Aaron Rubin

13:03No, we're pro... Well, we... So now that we took the money from Lighter, we'll dip into the negative this month, but for the entire last year, we were profitable.

Nathan Latka

13:13How aggressive will you be in pursuing that growth? So, like, are you cool burning, like, $20,000 a month or $100,000 a month? Like, like, obviously, you're fully in growth, but how aggressive will you be?

Aaron Rubin

13:23And we're gonna burn all the money that we got from Lighter. And then, well, once we get down to a few months of runway, we'll decide what we want to do, but, you know, we're lucky enough that we're growing fast enough that, like to put on the brakes, if we're starting to run out of capital, like we don't have to fire people. Just have to like stop hiring new people.

Nathan Latka

13:23Yep.

Aaron Rubin

13:23So yeah, we're gonna play it by ear.

13:46We're not.

Nathan Latka

13:47But like how cool are you in terms of like, how, how cool are you cool with burning fifty K a month since you just brought an 800K from Lighter? Like, I'm just trying to get your risk threshold.

Aaron Rubin

13:55Yeah, yeah. Beginning like our first, our max burn will probably be around 90 or 100 ks as we kind of mapped out what we've been spending on money.

Nathan Latka

14:04Yeah, that's fine. Perfect. I mean, makes perfect sense with, you you just got eight months of runway essentially, right? After you actually get to that burn level. Very good. And then what do you think that capital help you get to? Once you deploy the 800 ks, you grow, you let the systems take shape, you think you can double the company, triple it?

Aaron Rubin

14:19We think we could a little bit more than double without it.

14:25We're using that money to focus on some longer term improvements. So yeah, it's not really focused on growth. We're not hiring salespeople or stuff like that. It's some more product stuff that we like kind of long term stuff we wanted to do. We just didn't have the, you know, we're dealing with short term stuff is takes all your resources.

Nathan Latka

14:45Last question here on aggressiveness. So to bring in one of these new $1,500 a month customers, I mean, are you happy to pay one year of ACV to acquire them or what payback period do you like to optimize for?

Aaron Rubin

14:58So we don't like, cause we don't have that marketing organization. We haven't done any of those numbers. Like the lifetime value is probably really good with a negative net churn, and it's a decent customer size, but we haven't done the math. We also have to get those customers live. So like we bring a customer in and they sign on the dotted line, but they don't actually go live, then they're not gonna generate any revenue.

Nathan Latka

15:22Well, you just don't count as a customer.

Aaron Rubin

15:24Right. Okay. Yeah. So we don't have those numbers. We're not really don't.

Nathan Latka

15:28So that's so interesting that you truly... I mean, some people bullshit me. They're like, no, we really have no sales, no marketing. It's just We just magically grow. We're not really sure how it happened, but we have a great product and it's word-of-mouth. That's basically what you're telling me.

Approach to Venture Capital

Aaron Rubin

15:43Well, it's not ideal because you can't can't push push the the

15:48exactly. No, so we're trying to figure out. We haven't taken VC, but we get inbound interest sometimes. Usually we don't talk to them, but sometimes there's someone who has a connection to us. So we're like, all right, we'll talk.

Nathan Latka

15:59Why were you cool coming on my show, by the way, of curiosity?

Aaron Rubin

16:03One more time.

Nathan Latka

16:04Why were you cool coming on?

Aaron Rubin

16:06I don't know. Asked, you asked again, just what I asked. I was like, fuck it.

Nathan Latka

16:09Persistence, baby.

Aaron Rubin

16:11Yeah. That's basically all it was. Yeah. Because I usually don't do a lot.

Nathan Latka

16:11This is great, dude.

16:16You should tell your story more.

Aaron Rubin

16:18Thanks. So on the, when we talk to VCs, that always, that's the thing that I always tell them, which is like, yeah, you guys are saying we'll give you a bunch of money. I don't know what I can turn that money into because I don't have a formula for growth where X dollars equals Y customers. I need to figure that out before I take any more serious money.

Nathan Latka

16:36Yeah. Fair enough.

Famous Five: Books, Tools, and Advice

Nathan Latka

16:37All right, man. Let's wrap up with the Famous Five. Number one, what's your favorite business book?

Aaron Rubin

16:43Meditations by Marcus Aurelius.

Nathan Latka

16:45Number two, is there a CEO you're following or studying?

Aaron Rubin

16:49Tobi Lütke from Shopify.

Nathan Latka

16:53Number three, what's your favorite online tool for building your company besides Shopify?

Aaron Rubin

16:58I I like this tool called Twist, which is kinda like a non interrupting version of Slack. I like to have focused work, so I like Twist.

Nathan Latka

17:07Number four, how many hours of sleep you get every night?

Aaron Rubin

17:09I got a lot. I have a newborn, so not so much right now. I have a four week old, but, yeah, I'm good at getting

Nathan Latka

17:16Like eight hours usually?

Aaron Rubin

17:17Yeah.

17:18Yeah.

Nathan Latka

17:19Alright. So... And it sounds like married and one kiddo or do have more?

Aaron Rubin

17:21Three. I'm just on my third.

Nathan Latka

17:23Oh, three kids.

Aaron Rubin

17:23It's like the trilogy.

Nathan Latka

17:24Holy mackerel. How old are you?

Aaron Rubin

17:2639.

Nathan Latka

17:27All right. Last question. What do wish your 20 year old self knew?

Aaron Rubin

17:30My 20 year old self spent way too much time playing online video games. So probably do a bit less of that. I think the other thing would be you have a lot of energy then, and I probably did a lot of work that was utterly useless. I had very low returns because I had like, I'll just work and work and work, but I probably should have just spent a little more time, like, thinking when I didn't

17:51have anything really important

17:52to

Nathan Latka

17:52Guys, there you have it. ShipHero has gotten to a $5,000,000 run rate on just $435,000 raised. Aaron, the Founder, has put in 1,200,000 himself, and they just took another 800K from Lighter Capital, which is nice. Again, growing rapidly here about, call it 2.5 x year over year across 300 customers paying $1,500 a month founded in 2013. It might raise capital in the future, but only after Aaron figures out how to actually build a scalable

18:15sales organization. A lot of the growth today has been word-of-mouth, is again a nice place to be. Aaron, thanks so much for taking us to the top.

Aaron Rubin

18:21Thank you.