What did you and your buddies do in college? You probably don’t want to say, do you?
I spoke with two recent graduates who created an ecommerce warehousing and fulfillment business called OTW Shipping between classes.
High school friends Nick Malinowski and Parker Barnes packed boxes for logistics warehouses during high school and college. They realized hundreds of new ecommerce brands appeared every day – and many lacked the order numbers to get quality warehousing. Parker and Nick knew if they could only get a little bit of warehouse space, they could win hundreds of small-scale ecommerce clients in the Western United States and make massive profits.
Throughout 2021, the friends balanced working full-time jobs and studying for finals with starting a logistics business from scratch. They built a website and talked to brands about their service in every online forum that would let them. Once they found customers, they banged on the doors of every warehouse in town until one gave them a small corner from which to ship.
Just months later, Parker and Nick now lease that entire warehouse plus one more to 40 different clients and made $920,000 ARR in their first year. They expect to triple that number in 2022. Parker even got his forklift certification.
A Chicken or Egg Scenario
Towards the end of their time in college, longtime friends Parker and Nick were itching to make some money. Having worked small jobs in ecommerce and logistics warehouses, they thought running their own seemed like a profitable venture.
“We’ve always been entrepreneurial types,” says Nick. “I worked in a fulfillment center in high school and Parker was doing pick-and-pack for a friend who owns this ecommerce towel company.”
Parker noticed that being a picker-packer (a warehouse worker that puts shelved goods into boxes) was fairly simple and didn’t require much upfront investment. He convinced Nick they could start their own business out of a garage.
For the next few months, Parker and Nick researched fulfillment centers and their local competitors to see where they could fit their business. While the market seemed saturated, Nick thought he saw a gap.
“Many smaller companies were only doing 100 orders per month, which is below the order minimum allowed at most fulfillment centers,” he says. “We thought, ‘Let’s pick up the crumbs that these other 3PLs (businesses that own multiple logistics assets like warehouses and trucks and manage them for clients) push aside with their order minimums.’”
That May, they started reaching out to potential clients while still in college. “We were doing some guerilla marketing,” says Nick. “We got a crappy site together on WIX and started cold messaging ecommerce companies on Kickstarter, Facebook, Instagram, and Reddit.”
Nick believes forum marketing was one of the most effective strategies for generating long-term leads. “Reddit has worked very well. We still get leads from posts made eight to twelve months ago. You just need to be careful that anything you bring on those platforms has value – otherwise, your posts get taken down. Businesses might read the post and not do anything immediately. However, when they are ready for a 3PL they will come back and contact us. ”
While social media provides most of their clients today, at the time Nick and Parker realized they were in a chicken or the egg scenario. “We needed a warehouse to attract customers but we were two broke college students. Most warehouses wouldn’t let us sign on unless we took full responsibility for a five-to-six-figure, year-long lease.”
Fortunately, Nick and Parker scored a handful of clients despite not having a warehouse. Their first was a German map-making business in November of 2021. They then took that client and secured a little warehouse space in Salt Lake City through KSL (Utah’s equivalent of Craigslist).
“We landed 1,500 square feet of warehouse space with racks installed already, and it even came with a forklift,” says Nick. “The people who owned it were super friendly and one of their cousins is our warehouse manager now.”
But Nick and Parker weren’t in the clear yet. Before they could get things moving, the two broke college kids had a $10,000 bill they had to pay.
“One selling point we’d used for OTW Shipping was that we would front postage fees for clients and send an invoice to their account for it later,” says Nick. “We also had to pay licensing fees for the different logistics software we used. All in all, we needed $10,000. Our families helped us with a short-term loan and we paid it all back in five days.”
After paying off their loan, OTW Shipping was profitable from January onwards. “It made a big difference not paying for racking and forklifts. Parker got forklift certified and he ran the warehouse while doing remote classes during the pandemic,” says Nick.
Creating an Efficient Warehouse
According to Nick, the biggest challenge of building a logistics warehouse was hiring trustworthy staff and building an efficient work process.
“One of the main things we had to work on when we started was how we processed orders,” says Nick. “Order accuracy and efficiency keep clients happy and costs down and now we are 100 times better at doing that. We’ve reached a point where we don’t have to talk to our warehouse manager every day. He can just run things.”
While Nick and Parker have a team they can rely on today, they learned early on that they needed a process to hire full-time employees.
“Once Spring hit in 2021, Parker went back to school,” says Nick. “We hired a warehouse manager who later got arrested and went to jail so Parker had to be manager during finals. That was our first lesson in learning to take care of the hiring process. Our current warehouse manager, Jeff, is a young guy as well. We have an open relationship where we can tell each other when one thing works and another doesn’t.”
Today, OTW Shipping has five full-time employees. Nick runs sales and operations, Parker oversees the warehouse, Nick’s brother works as their virtual assistant, their friend Jeff works as warehouse manager, and they have recently hired one full-time picker-packer.
Besides full-time staff, Nick and Parker have been using a contractor app similar to former Bootstrappers company, Upshift, called Bacon. To deal with the seasonality of ecommerce, they’ve tried to use contractors and pay-as-you-go services as much as possible.
“We’ve tried to avoid using enterprise-level apps as much as we can,” says Nick. “We use the free versions to keep money in the bank. This first quarter we were pulling out a lot of money to pay taxes.”
Too Small to Get Warehousing
Nick and Parker believe OTW Shipping filled a gap in the third-party logistics (3PL) industry: emerging ecommerce businesses with fewer shipments that want to scale.
“There are millions of 3PLs out there today,” says Nick. “Half are mom-and-pop shops specializing in customer service but can’t scale because they don’t own assets. The other half are private equity-backed companies that do a good job on the operation and scaling side but have massive churn on the customer support side.”
OTW Shipping is a warehousing and fulfillment service that combines the capabilities of mom-and-pop outfits and large-scale 3PLs. “We have the mom-and-pop level of support but we can scale. We feel like your own personal warehouse team because we have people in the warehouse that you can talk to.”
Today, Nick says OTW Shipping’s clients range from 100 orders to 10,000 orders per month. Their prices vary based on volume. Higher volumes cost less, but lower volumes cost more since they complicate inventory management.
Nick thinks the best part of finding their niche is that they receive lots of help from other 3PL warehouses. “We’ve chatted with twenty to thirty other warehouses and everyone is open to helping each other out. Most have their own niche and there are more than enough ecommerce clients out there for everyone.”
The Future of OTW Shipping and the Logistics Industry
Parker and Nick have big plans for the future of OTW shipping. They want to promise cost-effective and speedy shipping anywhere in the United States.
“We want two-day shipping just about anywhere in the US,” says Parker. “To start to do that, we’re probably going to open a second location in Spring of 2023 on the East Coast,”
“With two locations you can get anywhere from 90 to 95 percent coverage in two days,” says Nick. “That will open us up to large brands that need multiple locations and to more clients who want a 3PL closer to them. We’ve had brands reach out in New York that would like us a little closer.”
Logistics has changed a lot during the pandemic. Nick and Parker think these fast changes and sudden surges in demand have exposed gaping flaws in how things run.
Labor costs are the main pain point for a 3PL.
“Labor costs are the main pain point for a 3PL,” says Nick. “There are a lot of startups out there attacking these problems. Robotics is becoming very common in warehouses, but until now picking an item is too complex for robots to handle. Some are fragile and some are squishy. There are companies out there working on this now, but I can see the way warehouses look and work changing dramatically in the future.”
Logistics is an old industry and Nick believes it suffers many of the inefficiencies that other legacy industries (like banks) do – namely huge amounts of red tape at its highest levels.
“Right now, for industrial warehousing in any market there is a two to three percent vacancy rate in every warehouse,” he says. “It’s tough to find space, which is forcing companies to decide between a large bill to retrofit their current space or pay top dollar for space that hasn’t even been built yet.”
As more boutique 3PLs like OTW Shipping appear, Nick and Parker both think major carriers will try to acquire them for better coverage.
“All these businesses are getting rolled up,” says Nick. “For example, Shopify just bought a 4PL provider, Deliverr, the other day. Deliverr has a two-day promise so Shopify is competing with Amazon. However, it serves different clients than Shopify. Shopify customers often have complex needs like high SKU (an SKU is a specific run of a product such as a shoe in a specific size and color) fulfillment, custom packaging, and more, while Deliverr tends to focus on basic, direct-to-consumer clients.”
Finally, Nick sees fourth-party logistics businesses (businesses that piece together supply chains) becoming more standardized and increasingly common as the number of 3PL providers increases. We previously wrote about a fourth-party logistics company, CBIP.
It’s Less 9 to 5 and More 7 to 7
Nick and Parker believe having a cofounder can be a great balancing force for founders.
“I’m the guy behind the desk and Parker does the day-to-day tasks at the warehouse,” says Nick. “I tend to be controlling and Parker can be more trusting. Sometimes I get very worked up over a client and Parker has to bring me down to earth. It works out well.”
Parker’s advice to founders is to not get into startups if they want to work less.
“It’s not the glamorous lifestyle many expect,” he says. “Many people expect to escape the nine to five, but it turns into a seven to seven. However, the more you put in upfront, the less you have to do down the road. You also need to prepare for all types of clients. Some are easy to work with and some want refunds for anything and everything. Roll with the punches and be courteous.”
Nick says it’s important to keep a positive attitude and ensure your internal processes are efficient. People remember failure much more than success.
It’s often better to refund a bad shipment that wasn’t your fault over losing the client.
“You don’t hear about the planes that land, you hear about the planes that crash,” he says. “You need to make sure you have a consistent experience across clients. You’ve got to think big picture with clients too. Retaining them is very much a long game. You don’t want to be submissive but it’s better to refund a bad shipment that wasn’t your fault over losing the client. There is a high switching cost. People are willing to stick it out if you give them good service. A lot of these fulfillment companies are started by people in tech, and they don’t understand that stuff.”
Nick and Parker could have tried to get into logistics the old-fashioned way: Get a degree in the field and work their way up through a large company as supply chain managers. However, by striking out on their own, they learned as much as someone with decades of experience – and in a shorter period. Who knows? They may even become one of the major players in US logistics in a few years.
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