When Laura Behrens Wu landed in San Francisco for the first time in 2013, it was just for the summer—or so she thought at the time. By the time her fintech startup internship ended and she was slated to return to Switzerland to complete her MBA, she couldn’t bring herself to leave.
Thrust into the fast-paced environment of a team of 20, she had become enamored with startup culture. She reveled in the power she had been given, even as an intern, to do things like pitch ideas directly to the CEO and take on meaningful tasks to help the company prepare to raise venture capital.
“It was truly a magical moment for me,” says Behrens Wu, who was accustomed to a far different work culture back in her home country. “In Germany, straight out of college, jobs are pretty hierarchical. You start at the bottom of the ladder and don’t get any real responsibilities.”
Unsure of what to do next, she met with Simon Kreuz, a fellow German grad student she knew from college. He, too, was in San Francisco. And he, too, did not want to leave. So, they thought, why not start a business together?
“Honestly, there was some personal desperation around wanting to stay in San Francisco,” she says. “We like it here so much. We didn’t want to go back to Europe. We wanted to stay and make something work.”
So the duo quit their MBA program and founded what would eventually become Shippo, a billion-dollar software platform that powers shipping for the likes of Shopify and Wix.
But before Shippo was the leading multi-carrier shipping platform for more than 100,000 brands worldwide, it was a humble online store that sold handbags. What led to this drastic change in direction? Let’s track Shippo’s journey from idea to finding product-market fit (three times and counting).
EXPLORING IDEAS
The Shippo story begins in the fall of 2013 with two business school dropouts from Germany convinced that starting a business is their golden ticket to staying in The Golden City.
“The problem was we didn't have any groundbreaking ideas,” Behrens Wu says. “At some point, Simon and I decided to just start building something, and the easiest place to start was e-commerce.” With Shopify and Stripe smoothing the path to selling online for small businesses, it seemed like an easy enough entry point into entrepreneurship.
The Original Idea: An Online Marketplace for Independent Designers
The first thing the co-founding duo built was a Shopify store that was supposed to be a marketplace showcasing independent designers. But kickstarting a brand new marketplace was challenging. To get over the initial inertia, they decided to create demand by buying a few items from designers and selling them themselves.
After nabbing a few early orders, the founders were introduced to the ultra-complex world of shipping. First, they had to get the items they bought delivered to them from emerging designers. Then, they had to ship those items outbound to their customers, not to mention figure out how to manage inventory.
“Shipping was the least fun part of that experience,” says Behrens Wu. “It involved figuring out USPS hours, standing in line at the post office and trying to get the cheapest rates. There was no good resource for getting advice and no technology interface that was up to par with the other e-commerce technologies we were using for other aspects of running the business, such as Stripe and Shopify.”
At the time, online sellers basically had two ways to compare shipping options: go to the post office or navigate the individual websites of each of the carriers.
Behrens Wu and Kreuz knew there had to be a better way. Stripe and Twilio had already figured out how to integrate seamlessly with e-commerce platforms to enable native payments processing and communications, respectively. Why hadn’t anyone figured it out for shipping?
An Unexpected Pivot: Solving Shipping for SMBs
“We started talking to a few other e-commerce store owners to learn how they were shipping and see if they had any insights to share,” says Behrens Wu.
Initially, we were just trying to ship better ourselves. But through some early conversations, we realized that other people were having similar challenges, and that's how the idea for Shippo was born.
The founders had stumbled upon a bigger problem worth solving, but neither wanted to commit too early. Kreuz, for one, wasn’t sure he wanted to work on a logistics issue for the next ten years. And neither of them came from a shipping background.
“We were learning as we were building,” Behrens Wu says. “So we agreed to just build, get some customers and if we developed a passion for shipping along the way, we'd go all in.”
PROTOTYPING AND EARLY TRACTION
When looking for inspiration for a solution to build, the first product that came to mind was Expedia. “We thought shipping an order and booking a flight should be pretty similar,” says Behrens Wu. “You want to compare different rates, and then pick one option and buy it. We wanted to create a way to buy labels from different shipping providers all on the same website without having to go to multiple platforms.”
So that was their initial prototype: a search engine for buying shipping labels.
“Then we realized that, actually, a lot of our SMB customers ship many orders a month, not just one or two. And if you ship many orders (like on a daily basis), clicking through this interface one by one was too tedious and time-consuming,” she says.
Going back to the drawing board, Behrens Wu and Kreuz looked to the payment processing platform Stripe. “The Stripe model is API first, and we thought that model could work for the shipping industry as well. So we pivoted to that approach — which we're still doing today.”
But there were a few bumps along the way. “When we started talking to customers back then, we realized that shipping is such a mission-critical infrastructure component that if a company was big enough to know how to integrate an API, they didn’t want to integrate our API that was unproven and unused by anyone else.”
To get around the lack of usage and brand awareness, the founders decided to build a dashboard on top of the API and connect that to the Shopify App Store, which was fairly new at the time. Doing so gave their product more exposure and made it accessible to small businesses, whose owners likely didn’t know how to integrate an API.
By riding the wave of the Shopify App Store’s rising popularity, Shippo gained its first customers. Tracking signups plus shipping labels bought through Shippo, the founders were thrilled to see the coveted hockey stick growth chart. “The numbers were small in comparison to where we are right now, but seeing that chart was incredible. It showed us that we were onto something, and this was working,” she says.
Reflecting back on Shippo’s early traction, Behrens Wu acknowledges that market timing had a lot to do with it.
“We would have found a way to make it work through another platform or another app store, but the timing of the Shopify App Store and more people selling online really contributed to our early success,” she says. “Shopify was starting to take off, and there weren’t many shipping competitors on that app store. A lot of the customers we were talking to were already Shopify customers, and they wanted an easy way for them to be able to ship their orders. So we built this app and got a good amount of app store reviews, which then turned into word of mouth. That's how Shippo really started taking off.”
Then, in February 2014, Shippo got into batch eight of the accelerator 500 Startups, opening the founders up to a network of mentors, bootcamps and seed funding.
“That’s when things started feeling real,” she says.
People were starting to use the name of the company, Shippo. When it’s just the two of you talking about your startup, it sounds like it's all made up and not real. But suddenly, you have other people using the name, and it feels real.
Raising Money
In September 2014, after the accelerator program, Shippo raised a seed round of $2 million from 11 investors, including 500 Startups. But despite their accelerator pedigree, on the path to nabbing their seed round, Behrens Wu and Kreuz got rejected exactly 114 times.
Here are a first-time founder’s tips for fundraising:
- Stay in touch with those who reject you. “During our seed round, I met Albert Wenger from Union Square Ventures, who wouldn't invest at that point, but we really hit it off otherwise,” says Behrens Wu. “I decided to stay in touch with him, and every now and then, Albert responded to my emails. I kept him updated on Shippo’s progress, and he ended up doing our Series A. It was somewhat similar for our Series B: We met an investor during the A who then did the B.”
- All it takes is that first anchor investor to trigger a snowball effect. “When we started getting traction with a few investors who were actually in, everyone else followed suit really fast. But getting to the first one or two anchor investors—that was the hard part,” she says.
- Once you get that first investor, you can create FOMO in the others. “To get investors to commit, we told them, ‘We're fundraising now. We're starting to talk to other people, and other people are going to be interested, too.’ That was the forcing function for Albert to start looking more seriously at investing in Shippo. For fundraising, the founder needs to drive the demand.”
You need to create a FOMO situation where you can tell investors that other people are going to be making a decision in the next week or so to force that decision-making. Otherwise, investors keep wanting to see data points and updates over a long amount of time.
Behrens Wu and Kreuz knew it was time to raise a Series A when their customers started using the Shippo API directly. “The story we had been telling investors all along was that we had an API-first business but built a web app on top of the API, which a lot of SMBs were using. When we finally started getting adoption for our API product, it accelerated our growth because an API customer tends to be a larger customer than a web app customer.”
The founders geared up for a Series A and were almost ready to close when disaster struck.
“One of our largest customers churned,” says Behrens Wu. “We didn't know about the nuances and best practices of account management just yet because our previous customers were all SMBs. We eventually got them back, but that delayed our fundraising timeline. So yes, we learned a valuable lesson about account management, won this customer back and that customer is still a Shippo customer today.”
With the crisis averted, the founders went on to raise a $7 million Series A in September 2016 and channeled those funds toward hiring a team that could promote Shippo’s rapid growth and scale.
SCALING UP AND CONTINUOUSLY FINDING PRODUCT-MARKET FIT
There’s a reason we created an entire series on paths to product-market fit: so few companies actually achieve this crucial stepping stone to success. But for those that do reach their first PMF moment, it might come as a surprise that this milestone is really only the beginning. In order to scale up, you have to find product-market fit in new customer segments.
Nowhere is this more apparent than in the Shippo story. Astonishingly, the startup has found product-market fit three times and is on its way to a fourth.
People think you find product-market fit once and then you're good. In our experience, you find product-market fit for one customer segment or for one product, and then you need to continuously find product-market fit for new products that you launch or for new customer segments that you're entering into.
First PMF: Shopify Web app for SMBs
“Our first product-market fit was really narrow: for an SMB audience using Shopify,” Behrens Wu says. “And that gave us an awesome hockey stick chart. To this day, our SMB product through different app stores is still a solid revenue-generating engine for Shippo.”
Second PMF: API for midmarket companies
“We were always meant to be an API-first business, so that’s what we expanded into next. We had to ask ourselves, ‘How do we make this API work?’ The first objection we got from customers about using the API was that no one else was using it. But we started getting volume coming through the dashboard that was built on top of the API and were able to show that, actually, this API was already powering shipping for this amount of labels. From there, we started getting some API customers. The API customers that we’re serving now are mid-market customers, and we’re continuously pushing upmarket.”
Third PMF: Platforms and marketplaces that work with SMBs
“We're able to go to these platforms and marketplaces — such as Etsy, Depop and Mercari — and say that we know the SMB audience because we already have product-market fit there. And now we're going to help them build shipping for that audience that we know so well. A lot of SMB platforms and marketplaces use us for shipping in the background. We got to product-market fit there because they have the same customer segment that we already have product-market fit in: small and midsize businesses,” Behrens Wu says.
Fourth (upcoming) PMF in 2024: API for enterprises
“We’ve been doing a 2024 planning exercise to go further upmarket, where we're seeking product-market fit in that segment for the first time. We’re interviewing mid-market customers, learning from them and seeing what features we need to add to be more compelling in that customer segment.”
THREE HORIZONS FRAMEWORK: HOW TO BALANCE YOUR CORE PRODUCT WITH NEW BETS
Once you find product-market fit the first time, a new challenge appears: How do you juggle improving your existing product with growing your business? You could maximize your core product, pouring resources into tinkering and perfecting it — yet, by doing so, you miss out on seizing new opportunities while competitors creep in. Or you could pursue innovative ideas at the risk of devaluing your revenue engine.
That’s why Behrens Wu uses the Three Horizons Framework to work on both aspects concurrently while maximizing growth.
- Horizon One: Core product. “A Horizon One product is one that’s working really well and is the core part of your business, probably the majority of your revenue,” explains Behrens Wu. “For us, that’s our web app for SMBs. In the Horizons Framework, it's all about optimizing Horizon One and making it work better and building this revenue engine. But you don't want to take too much risk here because it’s a more mature product.”
- Horizon Two: Forward-looking products. “Horizon Two and Horizon Three products are forward-looking. You don't have product-market fit in those products just yet. Horizon Two is where you have a good hunch that there's something there, and it'll work. For Shippo’s Horizon Two, we're building a shipping optimization product and a billing and reconciliation product. Those are more of the forward-looking things we’re exploring.”
- Horizon Three: Big risks. “Horizon Three products are insane ideas, and you're just dabbling. You have no idea whether they could be some business line in the future. A Horizon Three idea might mean playing around with how you can implement Generative AI into your product,” says Behrens Wu.
70-20-10 Rule
But how is that reflected in resource allocation? The Horizons Framework suggests that the majority of your team members should be working on the Horizon One product, says Behrens Wu. “So you have, let's say, 70% doing Horizon One, 20% doing Horizon Two and then 10% playing around with Horizon Three.”
Don’t get so obsessed with the big shiny stuff in the future that you forget about what is actually generating revenue today.
Where Founders Go Wrong
“The mistake a lot of founders make is that they get so excited about Horizon Two and Three because those are the innovative, forward-looking things, that they neglect Horizon One,” says Behrens Wu. “Then the organization gets distracted and lets its foot off the gas on Horizon One, and you start getting deflated there. But to be able to enter Horizon Two and Three, you need to have Horizon One work well and drive a whole lot of revenue.”
From the founder’s seat, Behrens Wu focuses most of her time on Horizons Two and Three, but she’s careful not to let the rest of the organization follow her lead. “It's important for me to work on and be in the weeds on those forward-thinking projects because we're seeking product-market fit in those areas right now. I’m sending outbound emails myself and pitching customers for feedback.”
But for the rest of her team, she ensures they understand that their work on Horizon One is crucial for keeping the company running. “When we talk at all hands, we give shout-outs in the company, and we don’t just call out the big shiny things that are forward-looking. We make sure we’re talking about our revenue engine and praising that part of the business.”
When to Start Thinking About Horizons Two and Three (and When It’s Too Late)
In the earliest days of building a startup, Horizons Two and Three are just teeny-tiny specs in the atmosphere — you’re laser-focused on just getting Horizon One to work. But when is it the right time to start bringing Two and Three further into focus?
It’s probably earlier than you think, says Behrens Wu. As soon as you find product-market fit with your first product, start thinking about how to scale up. And while you scale up, think about other things you can build that are more forward-looking.
“It doesn’t need to be an entire pivot or an entire new customer segment or entirely new product,” says Behrens Wu. “It can be other features that you're adding to your existing product for future growth. Ideally, you start investing in Horizon Two and Three when Horizon One is still growing very well. When Horizon One is starting to flatten, I think it's a little too late. You should still do it, but it's a little too late to be optimal.”
HOW TO USE INDUSTRY OUTSIDER STATUS AS AN ADVANTAGE
Looking back, there were a lot of reasons why Shippo may not have worked. Chiefly, conventional startup wisdom might have said that while they had a great idea, the founders didn’t have the industry expertise to pull it off. As Behrens Wu admits, they had no business trying to build a shipping company.
People are so concerned with founder-market fit, but Simon and I for sure had no founder-market fit. This was our first time doing e-commerce and shipping — we were coming at it from a complete outsider's perspective.
But instead of seeing their inexperience as a disadvantage, the Shippo founders harnessed it as a strength. It meant that they, a small business, would be able to approach their target audience (e-commerce SMBs) from a shared perspective. They didn’t try to create any optical illusions that made the tiny startup seem bigger than it was — they completely pulled back the curtain.
“When the two of us would take phone calls or respond to customer requests, we’d be very upfront about being an SMB ourselves,” she says. “We weren't pretending to be a big company full of customer support people or product people. That made a difference in those conversations because people were willing to give us their time. And then the same people we built that relationship with were then also willing to leave reviews on the Shopify App Store.”
Behrens Wu and Kreuz leveraged their unconventional way of problem-solving when they encountered one of their first barriers to entry as an SMB merchant.
“When you want to ship as an SMB, you have to sign up for a FedEx account or USPS account. But in order to qualify for any kind of volume-based discount, you need to first build up volume, and that just takes time. Our thought was that anyone, as soon as they sign up for Shippo, should be able to start shipping right away. It's such a bummer if you need to go sign up for a USPS account and then come back to Shippo’s platform. It’s a subpar experience,” Behrens Wu says.
But getting these shipping providers to buy into the Shippo vision was difficult.
“We had to hack it a little. We first worked with a third-party aggregator that had a special kind of contract that allowed us to do this. Then, as we got enough volume, we started approaching the shipping providers directly and got our own favorable contracts for our customers.”
When you come at it from an industry outsider's perspective, you're able to think outside of the box. You're able to think about how it should be, not how it's always been.
Today, Shippo partners with 40+ carriers, including USPS, FedEx and UPS. “It's been a huge business development effort. Just this year, we got FedEx to agree to a new kind of account structure. So it’s taken us eight to nine years with certain shipping providers to get them comfortable with that and to bring that SMB- or merchant-friendly mindset to shipping providers.”
THE PATH FORWARD
It’s been ten years since Behrens Wu first fell for SF, a city she now calls home. But it’s no longer a desperation to stay in the Bay that drives her forward. Today, as a Series E startup last valued at $1 billion, Shippo is undeniably a success. With total funding of $154.3 million and more than 100,000 customers, there’s plenty more mileage ahead.
In 2023, Shippo delivered two major wins: In a one-of-a-kind agreement, it became the first shipping company to get a FedEx platform account, and it launched Shipping Elements, making it easy for e-commerce platforms like Wix to offer shipping capabilities natively. The latter is driving the company's continued move upmarket as it powers the shipping backends of major platforms and marketplaces.
Tracking the path of Behrens Wu from grad school dropout to unicorn startup founder, one thing is clear: She is a master at spotting the difference between chasing a dead end and simply being rerouted. In the course of getting her MBA, she changed directions to pursue starting a business instead of finishing a degree. On the way to building an online store, she and her co-founder discovered a much bigger problem to solve and pursued simplifying shipping instead of selling handbags. She struck the right balance between being doggedly committed to a vision and being open to an alternate way of achieving it. And the only way to stumble into those insights is to start moving in a direction — any direction.
“My advice to founders is to start building. Get something in front of the customer, and keep an open mind for how your initial product might evolve over time,” she says. “If customer feedback takes you in a different direction, going with it now carries way less risk than it would later. It becomes more costly when you have an organization and employees relying on you. But if it's just you and the co-founder right now, exploring a few different things is the right thing to do.”