How Whiplash CEO James Marks grew to $9.6M revenue and 400 customers in 2019.

just got done editing this interview you guys are gonna love it before i do that though i want you to know that i'm going to be in the comments for the next 30 minutes or so answering your questions if there's additional questions you want me to ask the ceo next time i interview them leave them below or if you're just loving the data points i get ceos to share click the thumbs up button below that's your way of telling me you're loving this stuff and i'll get you more of it additionally again i'll be in the comments answering any questions you have all right for 30 minutes enjoy the interview hello everyone my guest today is james marks he's a serial entrepreneur with multiple successful exits focused on the intersection of design music and commerce now building whiplash james ready to take us to the top i am let's go all right so the website is getwhiplash.com what's the company do whiplash is an e-commerce order fulfillment solution so people put their products in our warehouses we pack it up and ship it out when they need to when they need it ordered are those warehouses on your balance sheet they are not so originally we opened those warehouses ourselves and we owned and operated them and then we switched to a network platform after a few years when we realized companies were already doing a great job on the physical side and what they needed was good software to kind of bridge that gap okay so you own and operate so how many warehouses did you own and operate for a period of time i think we were up to three when we got out of that part of it and we pivoted to the network model and today we've got about 18. okay and how many how much square footage were those warehouses all together yeah so ours were relatively small i think we started we the first one was like 500 square feet and then they grew and then we were up to about 16 000 square feet when we crossed all three yeah the largest was 16 000 so we was about 20 000 in total and that's when we realized it wasn't our game okay and so with the network partners and now we've got you know like 800 000 square feet right well so what'd you do did you sell off those three warehouses yeah we so we sold them to a they're basically friends from one of my previous businesses and said hey why don't you guys set up a llc and you'll operate these as part of the network model uh that was maybe three years ago it's gone pretty well okay so now you have 18 partners you're not responsible for physical locations repairs property taxes etc what's the relationship like with these partners so that was the surprising thing is that the partners are in the business to sell fulfillment services and so they look at us like a customer and so we're actually just buying those services from them um we're known for having a good software and being a little bit more in tune with what the e-commerce needs so we've got you know integration already built to shopify we already know how to use the right shipping methods and so it's actually fairly positive they see us as making them relevant as the switch happens to e-commerce but what do you do do you do you buy x percent of their warehouses every month it's a fixed fee or is it variable or yeah it's variable so we kind of go into it together so we're going to bring our software and our customers and usually record an office session of the warehouse to do a trial and then we uh it's it's all you know percentage of revenue based oh interesting okay so i guess let me role play with you i'm your friend who bought those 20 000 square foot of space you say hey friend i want the back left corner it's a thousand square feet to run a test in i can't pay you anything up front but i think i'm going to put a million dollars of gmv through this part of the warehouse every single month and i'll give you one percent of it you promise that or that sounds good but then you don't do any gmv for whatever reason demand's not there what happens so those relationships where you know maybe we miss the opportunity um we would end up closing that section and you know it's like a failed failed launch basically we've had relatively few of those but you know because warehouses have the space already and it's not like we're saying okay commit this to us for a year and maybe we'll do something down the road it's you know two months and you know we get a small experiment companies are you know we find the right partners who are hungry to do that kind of thing okay and did i get it right i mean is it is it one percent of gmv typically is it a percentage gmb model it's not a percentage emv so fulfillment works on usually you've got like a fixed handling fee that's you know we have like a retail rate that we charge our customers and the wholesaler that we're going to pay to the warehouse partners so it's and it's reflective of you know standard things in the industry like how many orders are in and how many items are in an order um it doesn't get into gmv and it's it's more of a you know we set those rates based on tiers for how large the customer is so you might have you know a customer that's shipping 100 packages a month is going to pay one set of rates where a customer that's shipping you know 50 000 packages a month will pay a different set of rates yeah so let's look at your medium plan right in the united states a thousand orders per month per package is 2.25 and then if you go up to you know add seven items to that order it's only 19 cents per additional item that's what you mean by the variable pricing yeah exactly and then it's tiered per per customer category yeah interesting you know the price that you see on the site it's really great to start a conversation and it sort of anchors things you know the reality is that e-commerce companies are all a little bit different you often have you know some regional player who maybe doesn't have the tech but they're hungry and they're trying to you know put together some special pricing package so we do end up tuning those to a degree and you know we play that there's a little bit of a as a platform we can choose you know what warehouse the product is going to go into we can choose who's a good match for where the products are coming from and going to and so we can load balance it a little bit and sometimes provide a little bit of tuning on the pricing to to win the deal for us and the partner can you throw your weight around because you have so much volume to get better economics so i guess the real question i should ask is over the past 12 months how many total items have you shipped so the total items we've shipped over the last 12 months you know it's multiple millions is we can throw our weight or we don't really throw it around we we look for things that work for everyone and say hey you know if we could do this together we'd win this deal together and it's more opt-in we're not going to bully somebody and say you know you have to do this if if you want this other thing to happen okay when you say total item shipped you're talking like you're talking like 3 million over the past 12 months or more like 10 million i'd say off the top of my head i think it's probably in the 3 million range okay that's good and across how many i guess unique brands or customers like beta brands yeah so our list right now is probably around 400 customers okay so pretty good there's there's some beta brands in there there's you know some some smaller folks and then you know some of my favorites are um the smaller folks who don't necessarily push crazy volume through but they're really great brands like the moth podcast right where we're doing their their merch and the numbers aren't going to blow anyone's doors off but it's it feels great to be a part of their story there's there's a lot of brands out there so what are they what are they sending them off podcast uh i haven't looked at their account in a minute but it's t-shirts coffee mugs tote bags the kind of you know the kind of stuff you'd expect from a radio show interesting do you see power laws in your customer base so does your like your top customer how much do they send annually through you yeah it's i don't want to break it down exactly but there's something like the 80 20 rule where the people who can drive volume really drive volume and when we've had to we've had to back off from some of the smaller customers a little bit there's an inversion where the less volume you have the harder customer you are there there's something about i don't want to get too diminutive about it but there's something where small customers are sometimes small for a reason and it's because they're maybe they're not e-commerce pros maybe they're better at something else and so they tend to have more support more more handholding through the process and just becomes literally expensive for us to support it and then you bring somebody else who's you know maybe shipping 50 000 orders a month there's a lot more ability on their side yeah they're saying james just shut up and get it live let's go yeah exactly and they've got you know developer resources on their side to actually spend stuff up um you know so through the network we're working with you know companies like figgs for example they're they're doing um tons and tons of scrubs and doing it very very well and so they've got a lot of skill on their side to pull that off is there any model that's not just per package do you have a flat kind of fee software model or no so nothing that's not doesn't come down to per package because there's always per package at the base of it somewhere okay so i guess again you just told me about your power law so this is an unfair question but for the sake of time what's your sweet spot so the average customer is going to pay you about what per year to use your technology yeah so i would say the the great customers that are driving the business you know they might be spending you know 50 to 100 000 a month um you know so we're talking like a million dollars annually and there's a lot of folks who aren't doing that and there's some folks doing much more than that but there's uh that's the spot where it's a good match where there's enough sophistication there's enough need that we can really spin up and you know provide a lot of value and you're obviously always constantly trying to work towards only those kinds of customers but you also take a chance on some smaller ones because you hope they might scale so i understand where you're going yeah if you look at though and if you look at a true average across the 400 is it really are they all spending you know on average forty thousand fifty thousand a month through you no those are the those are the charity customers yeah let's say you feel like a true true average of something like you know two or three thousand dollars yeah a month and and that's because you do have a long tail and there's a little bit we used to have much lower minimums like back in the day we were trying to get the business off the ground and we didn't understand how much support went into some of those small accounts and so all those people we grandfathered them and we didn't kick anybody off the platform even as we raised minimums and really changed our our profile there's a ton of folks who are grandfathered in and you know we consider them a part of our our success and a part of our story we don't want to you know you see other companies who are like oh we don't do that anymore and they just cut everything off and we're not quite that mercenary about it we see the value that they gave us in building the company and we wanted you know they got in under the water so josh if we i want to understand like how the full ecosystem works on this thing so let's let's focus on that two thousand dollar a month customer that's what they pay you right so it's some combination of per package pricing press additional item items plus serial number collection on some of them but 2000 through you what percent of that goes immediately out to fedex dhl yeah yeah so that's about 50 it goes straight out to the carriers okay 50 to carriers and then about what i know this probably is different depending on the warehouse but about how much goes to the warehousing another 25 okay got it so you're engineering essentially a 25 net margin oh no no sorry gross margin before your sales and before your salaries and all that yeah and even even that's actually it ends up being a little bit lower once you work it all out i mean really you know we we can get it down to about a sixteen percent uh gross margin and then we're paying salaries out of that so yeah it's it's the top line numbers turn much higher and then like oh it's a software business with really high revenue once you kind of crack the door open a little bit you're like oh okay there's actually a little bit less you know contributing revenue here well i mean there's a lot of companies so you see this in ad tech a lot where they'll say our revenue is a billion no they process a billion through their platform then they have to go actually spend the money they're only making maybe like a million on a billion to spend exactly so there's some of that so we tried the the reason that all that stuff flows through our books is because we do actually get leverage with the carriers and we thought that was important to run have those run through our accounts because someday we were going to get better discounts someday it would be a margin opportunity and so we did want it to flow through our accounts and we did consider it revenue even at times when we were subsidizing it and so there it was one of those decisions that we always had to go back to like are we being honest about this you know should we be reporting lower revenues and we said no because there is an opportunity someday to make margin on this we're going to continue to 100 times yeah i know your margin profile will get better over time as you grow volume um right so i mean tell me if this map is accurate can i do this 400 customers right times out 2 000 bucks a month means your processing caught around 800 000 a month total across your base of which you have about 16 gross margin or doing about 128 000 a month in revenue so about 1.5 million a year yeah i think that's loosely loosely right like we're we're reporting higher numbers overall when you get down into that contributing revenue i think that's in the range and so let's just focus on the 800 000 a month going through your platform 400 customers 2 000 a month what was that exactly a year ago so we can back into growth rate a year ago uh let's see last year was about 25 year-over-year on the top line okay so maybe like five hundred fifty six hundred thousand dollars a month through your platform a year ago yeah and so in the early days we were growing like 140 120 you know those those things it's easy to take a million to take it to two million yeah and then we're definitely seeing some there's a couple of things so um we hit some scale inflections where you're at a new place where instead of having six engineers you've got 12 and you're getting some some um is that where you're at by the way is that how many engineers you have right now we are yeah we're about 15 people total and not all of them engineers um so probably half of those are engineers and half of them are our technical support any quota carrying reps uh no okay so you're doing all the sales yeah we're doing all these sales internally and so but what i'm saying is that you don't give like sales you don't have sales people where you give commission to now so we don't we don't have a commission model so the the we one of the things we love about selling the product is we're here if you need us we're here if it makes sense for you and we'll explain it when you come through the door but we're we're very um afraid of becoming that used car salesman that's just like trying to cram it down down your throat to meet the quota um so all of this it's a it's a little bit of a funny thing so we were actually acquired four months ago so i'm telling my story about whiplash but the fact is uh in april we were acquired by port logistics group and so while these things are still true because we run this you know small team and this you know independent company inside that larger parent company uh i'm thinking over my answers and trying to remember like are these still true you know do we have quota caring sales people and you know what we might now even though they're not on my team i i can't really speak for for the rest of the organization yeah now will this be i mean if you're doing 800 000 a month in volume through your platform this could potentially be your first 10 kind of million gmv year do you think you'll break 10 million this year through your platform uh yeah yeah that's great that's exciting now why did you sell so we had we started the company to sell it in the very beginning it was this thing i was running a company called vg kids that's actually still doing very very well and it had it was so close to me and so much heart in the business and it was just something i built with my friends for my friends and i was getting a little bit older trying to raise a family and i was like you know i actually need a little bit more money in life and as as bad as that felt to be sort of money motivated i was like i got to start one i got to do it for the money um when did you launch the company 2007 was the very beginning so you've been at it for more than 10 years as well yeah exactly and it was part time in the beginning and we built it slowly and of course we built up you know those meaningful relationships with all of our customers employees and it felt just as bad to think about selling it all you know as it ever would have but the fact is we found a great partner who saw our vision and there was a way to get a little bit of money out but provide a really stable place for the the team and the customers to land and to make it a better version of whiplash than we had built on our own and yeah we took it so was more than 90 of the deal really you going to stock options in port logistics uh no no so it was for me it was about liquidity and so we did we downplayed that uh that role yeah that's good now would you had you bootstrapped the company before the acquisition or had you raised we had done both so we bootstrapped for about seven years and then we went through 500 startups and then we raised a small seed round from tim draper and you know there was there's a few folks involved in that point and it felt like we had we owed them a return and sort of our you know we put 10 years into the company and we're ready to do something else and how much total had you raised when you add all that up i think it's like 1.3 million okay good so small small by bay area standards but it's all relative you know when we got our wire 400 for a million dollars it was the most money i'd ever seen in my life at that time you know you're looking at your bank account you're like we can do anything and then three months later you're like wow that is not a lot of money so it's all relative yep and then when you were discussing and going through the negotiations port logistics what did you try and anchor to in terms of valuations you trying to anchor to towards a gmv multiple or a contributed revenue multiple or something else yeah so it was a constant push and pull right because plg is private equity backed and so they look at things very very strictly through an ebitda multiple whereas you know we're from silicon valley where everything is like a you know mrr multiple and so we're sort of at odds there and we found a way to well you weren't you probably weren't profitable right you probably had no ebitda well so we had to we had to do something about that so we went through a phase where we were like okay we're going to prove that this thing you know can deliver ebitda and that's obviously that's that's very different uh than the way you know what did you think about so it wasn't cutting it was just a matter of stopping the you know kind of aggressive growth that we've been on and then letting the growth catch up and deliver so that we could you know hit those new those new layers and there's a little bit of tuning on the platform you know we've been subsidizing things like packaging materials for years and you didn't want it to slow growth down and so you you fix those things um we had always made sure we were sort of within arm's distance of profitability and so it was just a matter of buckling down and and tuning the company a little bit so got profitable before the acquisition and then did the thing pan out i mean was it more or less than a 5 million deal uh i don't want to go into the numbers on the deal but i will say that it was very positive for us and um how did you measure positive though like for example if you figure out a way to do a side deal with poor logistics it could be great for you but if you didn't get out from under the liquidation preference on the 1.3 raised it could be bad for angels right or yeah we made it we made it work for all of investors it wasn't um you know like a portfolio you know winning deal where like okay that took care of the entire realm but we wanted to make sure that people would work with us again and my personal reputation is important to me and so no one no one got hurt in the deal yep so they say it's hard to motivate a man after you make them wealthy uh so why are you still there because you can make a man a little bit more wealthy there's there's that is there an earn out there's a little bit of an earn out and then you know so obviously they put they play golden handcuffs on these deals um pretty much always right and then there's i have a big feel like a responsibility to my team and i sold them a vision that we're going to get integrated and you know these are my friends and these are these are people did they get anything from the acquisition did the waterfall hit them or no yeah we made sure to splash on everyone a little bit i don't know if it was you know the full the full gushing force that they may have hoped for but we made sure it splashed around a splash is good i like that analogy all right let's wrap up here with the famous five james number one favorite business book uh i'm going to go with power of habit numbers that's good power hop it's good number two is there a ceo you're following or studying uh no one's specific right now number three what's your favorite online tool for building the company uh github number four how many hours of sleep getting every night eight to nine that's pretty good okay and what's your situation married single kids uh married with children how many kiddos i've got uh 26 and 16 that my oldest is the product manager for whiplash oh wow okay so two folks that's good yeah busy man all right how old are you i turned 41 this week 40 congratulations that's exciting all right last question take us back to your 20 year old self what do you wish you knew uh so number one that is going to be okay i was so scared i didn't realize it at the time but i was so scared and so i lacked confidence in just and i think and i look back and i think it must have been like you know hanging out with me in every transaction and like you know every time i submitted pricing or thought about an idea or considered whether to even you know try to get investors and man confidence is everything and i think that's one of the biggest fundamental things is that i'm just i can ask for things now in a way that that i had a hard time with before guys whiplash order for film up for e-commerce now working with over 400 brands that put on average two thousand dollars of product through them so call it eight hundred thousand dollars per month through the platform total they have a 16 kind of margin profile on that money because about call it 25 goes to the warehouse expenses and 50 go to the carriers that actually deliver the product but they are a software layer in between there they make it more efficient launched in 2007 raised 1.3 million bucks got profitable before they exited to a pe-backed company caught four or five months ago uh now the team about 15 people that are continuing to build the company seven engineers as they look to continue to grow inside of port logistics james thanks for taking us to the top thank you these ceos rarely give these kinds of interviews i hit them hard i get the data and i want to do it more so if you want to get more of this stuff make sure you subscribe up here and then additionally go check out one of my other ceo interviews right now