SaaS Interviews with CEOs, Startups, Founders
Why Whiplash Exited With $1.3m Raised, 16% Margin Profile in Order Fullfillment SPace
03 Jul 2020
Chapter 1: What is the main topic discussed in this episode?
we can get it down to about a 16% gross margin, and then we're paying salaries out of that. So it's the top line numbers turn much higher and then they go, 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.
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Now look, I never want money to be the reason you can't listen to episodes. On the checkout page, you'll see an option to request free access. I grant 100% of those requests, no questions asked. 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 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 much square footage were those warehouses all together? Yeah, so ours were relatively small. I think we started, the first one was like 500 square feet, and then they grew, and then we were up to about 16,000 square feet. Across all three? Yeah.
The largest was 16,000, so we raised about 20,000 in total. And that's when we realized it wasn't our game. And so we're the network partners, and now we've got 800,000 square feet. So what did you do? Did you sell off those three warehouses? Yeah, we sold them to a...
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Chapter 2: What is Whiplash and what services does it provide?
Yeah, so let's look at your medium plan, right? In the United States, 1,000 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 customer category. Yeah, interesting.
And then, you know, the pricing 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 is 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, you
tuning on the pricing 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, it's multiple millions. We can throw our weight around
We don't really throw it around. 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 you want this other thing to happen.
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Chapter 3: How did Whiplash transition from owning warehouses to a network model?
OK, when you say total item shift, you're talking like you're talking like three 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 three million range. OK, 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, that's pretty good.
There's some beta brands in there. There's, you know, some smaller folks. And then, you know, some of my favorites are 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 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 on our platform. What are they sending the moth 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, 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 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'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 maybe they're not e-commerce pros. Maybe they're better at something else. And so they tend to have more support, more hand-holding through the process, and it just becomes literally expensive for us to support it.
And then you bring somebody else who's 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 developer resources on their side to actually spend this stuff up. So through the network, we're working with companies like Figs, for example.
They're doing 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 great customers that are driving the business, they might be spending $50,000 to $100,000 a month.
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... 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 provide a lot of value.
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Chapter 4: What is the relationship between Whiplash and its warehouse partners?
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 of spend. Exactly. So there's some of that. So we tried, the reason that all that stuff flows through our books is because we do actually get leverage with the carriers. And we felt it was important to have those runways. 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 it was one of those decisions where we always had to go back to it. 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 prepare it as part of our time. Yeah, I know. Your margin profile will get better over time as you grow volume. Right. So, I mean, tell me if this math is accurate. Can I do this? 400 customers, right?
Times out 2000 bucks a month means you're 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, we're reporting higher numbers overall, but when you get down into that, like 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, 2000 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, it was about 25% year over year on the top line. Okay. So maybe like $500,000, $600,000 a month through your platform a year ago? Yeah. And so in the early days, we were growing like 140%, 120%. You know, those things. It's easy to take a million and take it to 2 million. Yeah. And then we were definitely seeing some... It was a couple of things. So 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, you know, we're about 15 people total and not all of them engineers. Um, so it's probably half of those are engineers and half of them are, are technical support.
Any quota carrying reps? Uh, no. Okay. So you're doing all the sales. Yeah, we're doing all the sales internally. And so, but what I'm saying is that you don't give like sale, 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.
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Chapter 5: How does Whiplash determine pricing for its fulfillment services?
So we went through a phase where we were like, OK, we're going to prove that this thing, you know, can deliver EBITDA. And that's obviously that's that's very different than the way, you know, people think about startups. So it wasn't cutting.
It was just a matter of stopping the kind of aggressive growth that we'd been on and then letting the growth catch up and deliver so that we could hit those new layers. And there's a little bit of tuning on the platform. We've been subsidizing things like packaging materials for years and didn't want to slow growth down. And so you fix those things.
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 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? I don't want to go into the numbers on the deal, but I will say that it was very positive for us.
And how did you measure positive? Like, for example, if you figure out a way to do a side deal with port logistics, it could be great for you. But if you didn't get out from under the liquidation preference on the one point three raised, it could be bad for angels. Right. Or. Yeah, we made it. We made it work for all the investors.
It wasn't, you know, like a portfolio winning deal where like, OK, that took care of the entire realm. 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. So they say it's hard to motivate a man after you make him wealthy. 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 put golden handcuffs on these deals 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 to the waterfall hit them or no? Yeah, we made sure it splashed on everyone a little bit. I don't know if it was, you know, 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? I'm going to go with Power of Habit. That's good. Power of Habit's good. Number two, is there a CEO you're following or studying? No one specific right now. Number three, what's your favorite online tool for building the company? GitHub. Number four, how many hours of sleep do you get every night?
Eight to nine. That's pretty good. Okay, and what's your situation? Married, single kids? Married with children. How many kiddos? I've got 26 and 16. My oldest is the product manager for Whiplash. Oh, wow. Okay, so two folks. That's good. You're a busy man. All right, how old are you? I turned 41 this week. 40. Congratulations. That's exciting. All right. Last question.
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