David Barrett, Founder, Expensify
The entrepreneurial life has a funny way of throwing you curveballs, some of which can completely change your life.
For example, David Barrett was working on a hi-tech career in gaming, virtual reality, and video chat, when a business idea he had no intention of building randomly became his claim to fame, and a wildly successful financial services company.
It may have seemed unlikely to him at the time, but in retrospect, the idea and eventual execution of Expensify was just so brilliantly simple that it was bound for success. The concept:
Expense reports suck. We will make expense reports not suck.
It fills such a need, in fact, that Expensify has profitably scaled their software in the past eight years with no sales team and no paid customer acquisition. It’s now the second-largest expense reporting company in the world, and the fastest growing, showing no signs of stopping thanks to its one-of-a-kind growth strategy.
“It all happens without any advertising, without any outbound calls, and without any commissioned salespeople. It’s a very disruptive model that we sort of stumbled into, and this market really needed a new option.”
The Accidental Startup
Barrett has a unique background for an expense report magnate. At just 6 years old, he started programming computer graphics and video games. In middle and high school, he worked on 3D graphics engines, and at the University of Michigan, he worked in the virtual reality lab.
After graduation, he started his official career in the video game industry in Texas. Next, he got into voice-over IP, video conferencing, screen sharing technology, and peer-to-peer content distribution. Barrett’s background has always been in hard tech, and prior to Expensify, he developed Eye Glance, a push-to-talk video conferencing application.
“It just got obliterated by Skype,” he says. Skype was made by the founders of then-popular file-sharing tool Kazaa. One day, the company installed Skype in its peer-to-peer software—for all 200 million of its users. “It’s very hard to compete with that distribution model when your competition pushes out to 200 million desktops in the same day.”
Not long after, Barrett was hired by a startup called Red Swoosh to build technology in the peer-to-peer content distribution space. The company was soon acquired by Akamai. “The day after acquisition by Akamai, I knew I just wasn’t going to last long,” Barrett says, “so I started thinking, ‘What’s something else I can do? What’s the next big thing?’”
At the time, Barrett was living in the Tenderloin neighborhood of San Francisco. On his commute, he walked past the same homeless people every day. He always wanted to help them, but was worried that giving cash might lead to people spending it on alcohol or drugs.
Eventually, he had the idea of creating a debit card he could hand out that wasn’t pre-paid, but instead would be linked to his personal account. That way, he could make sure funds weren’t being used for alcohol. “I thought this was an interesting platform for charity,” Barrett says. “So, I went to the banks with this idea, and they were like, ‘There’s no way we’re going to help you with this. It’s too complicated, and there’s so much technology involved. There are too many issues. This is too weird and too risky.’”
That’s when Expensify was born. Barrett needed to come up with an idea that would satisfy the banks and allow him to keep working on the charity debit card idea that he was still determined to work out.
“It needed to sound low risk and boring. And what is the most boring application of cards? Expense reports! That’s really how I got into it,” Barrett says. “It was like a Trojan horse to get me permission from banks and the supply chain of card manufacturers. I needed a story that sounded good that explained why I wanted to build this technology, even though I really had no intention of building it.”
Barrett pitched Expensify as a “corporate card for the masses,” taking the idea of the company credit card that’s usually reserved for managers, and making it feasible for any number of employees.
Applying the basic concept behind his charity card idea, Expensify’s card could be given to employees, locked down for certain merchants, and routed to a manager’s personal credit card. Employees could text a picture of each receipt via a mobile app.
“The story just got grander and grander. Everyone said it sounded like a great expense report platform, and I agreed…even though I didn’t really intend to build it,” Barrett says.
He launched his proof of concept for the card technology at TechCrunch50 in 2008. While people thought the card idea was interesting, they were really more interested in his expense report technology. “I was like, ‘I guess. Maybe someone’s going to build it, but I’m not,’” Barrett says. “And then the very next day, Mastercard shut us down and canceled our credit cards.”
Barrett’s original idea may have not worked out, but it led him to something huge. One more important piece fell into place when the iPhone introduced a higher-quality, auto-focus camera, which made receipt capture crystal clear. It only grew from there.
“People really seemed to like the expense reporting concept. That’s how I got into it, seeing so many people excited about this fictional concept,” Barrett says. “I didn’t care at all about that industry to start, but now I realize that it’s just such an incredible, overlooked opportunity.”
The Zero-Cost Acquisition Strategy
Over the past eight years, Barrett and his team have developed software that essentially sells itself. They’ve come up with a zero-marginal-cost user acquisition vehicle, where individual employees download the app for free, and do the job of convincing financial decision-makers to adopt it company-wide.
Barrett’s sales team actually functions more like a support team. Expensify is pulled into each company by individual employees, who first start using a limited set of expense-tracking features for individuals at no cost. The sales team provides a lot of proactive support to customers who are still trying it out. Companies are only charged once they adopt the full suite of features for their entire team, meaning the support team works with them well before they start paying.
“The employees actually do the selling by promoting us to their finance team, by surrounding them with pitchforks and torches, demanding us by name. That’s become our entire business model,” he says.
In this sense, Expensify has overturned the usual process of enterprise software sales, in which sales teams bend over backwards trying to win over each individual lead, and engineering teams must then scramble to comply with each promise that’s been made to a potential customer.
Expensify is completely different. Thousands of companies start free trials each month, and instead of trying to convert every lead, Barrett focuses on finding the companies that already like what he has to offer. “ companies that don’t need us to build a bunch of things for them, that don’t want a different product. They want the product that we’re actually currently selling,” Barrett says. “It’s a very different kind of sales model.”
That same model has landed them customers from mom-and-pop businesses, to Fortune 500 companies with tens of thousands of employees. That’s put Expensify in a good position in their market, but when asked about the company’s current challenges, Barrett didn’t hesitate to answer: “I’d say avoiding complacency.”
When you’re doing well as a company, it’s hard to maintain that drive to keep pushing and keep showing up early and working late, trying to expand the product into new markets.
“Basically we’re racing against ourselves at this point, and it’s hard to maintain that discipline and ambition over the long haul when there’s really no external force.”
The Reality of Profitable Growth
One of the major lessons that Barrett has learned through Expensify is that there’s a much better world out there than the picture painted by venture capitalists.
“Let’s say that I had a book and said, ‘Hey, 95 percent of the people who follow the rules of this fail utterly.’ You’d probably say that sounds like a shitty book,” Barrett says. “But that’s what the are telling you to do.”
As Barrett sees it, the typical VC playbook says, raise a ton of money, spend it really fast, then raise a bunch more. Don’t worry about profit. Don’t worry about sustainability. Just try to grow and exit as fast as you can, and if there’s nobody there to buy, ditch it and start over. This approach fails for almost everyone, and VCs know it, which is why they build large portfolios of investments.
“It’s not their money, and the returns are based upon 10 percent who succeed. But the thing is, as a founder, you don’t have a portfolio. You just have that one shot. So taking advice from someone who has completely different motivations is dangerous.”
Barrett would rather focus on sustainable growth, and growth that happens profitably. “The idea that you can’t scale profitably is fiction told by people who don’t want you to profit, because profit comes at their expense,” he says.
“This whole misnomer that profit is sacrificing growth…says who? We’re growing faster than anyone, and we don’t spend any money in customer acquisition,” Barrett says. In fact, despite the common focus on paid acquisition, so many of the most successful tech companies—Google, Facebook, WhatsApp, etc.—did not rely on it.
Barrett’s opinions come from years of his own experience putting investment to work. Of the $27 million in capital Expensify has raised, their biggest spending mistakes have been in paid customer acquisition. “Not only is it not easy at all, but it’s also not very important. All our growth has come because we built a product designed to grow on its own without paid acquisition.”
Expensify has gone through three rounds of fundraising, outside of a small strategic investment through a partnership with Barracuda. After the first couple of rounds, though, Barrett stopped taking calls about capital. He realized that many firms weren’t interested in a unique business model like Expensify’s.
“Everyone says they want a disruptive model, but most don’t. Disruptive models are risky and they require hard work and creativity. … A VC firm is really about a portfolio and making as many deals as possible on as broad a base as possible. They’re not really looking for different and unusual. They’re looking for more of the same.”
In short, applying VC logic to Expensify wasn’t worth it for Barrett. He was resolute in his business model, and after some time, didn’t need the money anyway. Thankfully, Boston-based OpenView was a firm that genuinely sought out disruptive models and valued Expensify’s approach.
The People Behind Expensify
A creative acquisition and growth strategy isn’t the only secret to the company’s success. Scaling a company takes great product and people. For Barrett, the most important thing when building a solid team is patience and a refusal to hire someone who isn’t great.
“A people hire other A people, whereas B people hire C people,” he says. “Great people want to work with other great people. Okay people want to work with shitty people, because it makes them feel good. The challenge is that great people are incredibly hard to find,” Barrett says.
When you’re starting out, it’s all about patience and recognizing that it’s going to be slow at the start. It’s possible to build a business that depends on fast hiring, but that assumes that it will be built on lower-quality hires. Building a high-quality team that really care about each other takes patience and time.
The Expensify team started out completely local. Today, the organization has offices in San Francisco, Portland, Michigan, London, and Melbourne, plus some employees working remotely. But if Barrett were to do it all over again, he’d build Expensify with a purely remote team and bring them together once a quarter.
“The challenge is, if you’re only somewhat remote, if you have a dozen people, two of which are remote, it’s really tough on those two. They’re at a huge disadvantage compared to everyone else. It’s easier being all in-person or all remote, but in the middle is quite challenging.”
Barrett does admit, however, that cultivating company culture with an all-remote team is tough. He invests in his team through a variety of trips and travel opportunities.
“It’s so important to regularly meet in person. We take the whole company overseas for one month every year. This year, we brought 120 people to Uruguay. Last year was Cambodia. Bringing everyone, with their spouses, out to some exotic place is such a great way to bond in an intense fashion.”
He recommends a month at a time, because that allows you to work together and also have some fun and generate some great shared memories. Then you go home, have that afterglow of share experiences, and relationships are much stronger going forward.
“Culture depends on in-person, but doesn’t require that you’re always in person.”
Reinvent the Wheel
If Barrett were to do it all over again, there’s another big thing he’d do differently—he’d avoid asking others for advice.
“The likelihood that you’ll get the right advice is so low. I’ve found that the vast majority I’ve received from good people turned out to be really bad,” he says. “If you’re an entrepreneur, it’s because you think you’re smarter than the next guy. But if you’re smarter than the next, why are you asking them for advice? Instead, just figure it out. Everything is way simpler than you think. In fact, I think most complexity is invented; it’s complexity that serves someone else.
“People often say they don’t want to reinvent the wheel. But wheels aren’t that hard to build, and if you can’t build that, what makes you think you can build anything better? Reinvent a few wheels! It’s fine!”
In the process, you’ll build up your own confidence and get to a point where, instead of being a slave to every new fad or popular book, you’ll feel comfortable betting on your own instincts.
“That’s where things start to get super fun.”
To learn more about David Barrett and Expensify, visit http://expensify.com or check out @Expensify on Twitter. You can also download the Expensify mobile app on the Play or App Store.
- The sales model that allowed Barrett to scale his company without paying for customer acquisition
- Why profit should not come at the sacrifice of growth and how the two can coexist
- The misguided business advice that almost everyone follows, but leads to failure
- The most important factor to building an A-player team
- Why reinventing the wheel with your business can limit your potential
Full Transcript of Podcast with David Barrett
Nathan: Hello, and welcome to another episode of the Foundr Podcast. My name is Nathan Chan and I am the CEO and host of Foundr Podcast and also the “Foundr Magazine” media company. I just wanted to say, firstly, Happy New Year. If you’ve been following along, it is now officially the new year. We’re in 2018. And I hope your new year is off to a great start, you’re doing a lot of planning, a lot of prepping.We’ve got the Foundr team retreat next week, which I’m really pumped about. We’re actually even flying someone down who’s gonna help roll us…his name is Zack. He’s gonna help us roll out a ton of courses. We’ve got a ton of awesome stuff in store. We’re, you know, all the guys in Melbourne, we’re going up to the beach, and, yeah, we’ve got a few…a pretty full-on session where you’ve got, like, a facilitator, and we’re gonna map out everything for the whole year, track it back, track the numbers.
Everyone’s gonna have their own goals, be accountable. It’s gonna be crazy. So I’m really, really excited. We’ve got a ton of amazing stuff in store for you guys. Half the interviews that Joe is lining up, the content we’re gonna be putting out. I really wanna go hardcore on YouTube as well this year. So you’re gonna see a lot more of me on video, and the team behind the scenes. We’re got some crazy stuff, guys. So, yeah. I’m really pumped for a massive year.
I wanted to share with you, as well, there’s a process that I do where, what I do is, I always write an email to my future self. You can use a tool…you can go to a website called futureme.org. It’s free. And I like to write down my goals and things that I want to achieve for the year, and just kind of… I don’t know. There’s something really kind of magical about knowing that you’re writing an email to yourself, and the excitement of getting it, and having those goals, and talking to yourself in past tense.
Like, you know, when you’re reading this email, you will have achieved X, Y, and Z. And, you know, you’re gonna be driving a Tesla Roadster, or whatever it is, you know? So, yeah, I just thought I’d share that cool one with you. But, let’s talk about today’s guest. We have started this year with a cranking episode.
It’s with David Barrett, and he’s the founder of a company called Expensify, amazing SaaS company, very, very fascinating guy. He gave me some great tips on…and I’m not gonna share them with you, you gotta listen, but he gave me some great tips on, essentially, how to maintain a great culture for a remote working team, or a hybrid remote working team, and the kind of crazy strategies that he’s putting in place to get people to do their best work.
And, you know, it’s really cool stuff. I’m gonna use them in Foundr. He also talked about how his company has no customer acquisition strategy. They don’t pay any money…a paid customer acquisition strategy. They don’t pay any money on paid acquisition. And his thoughts around product, and growth, and really, really interesting guy. He built a company as well, so all he does is build companies.
He built a company with Travis Kalanick, you know, the founder of Uber, and XEO of Uber. So, yeah, very, very smart guy David is. You’re gonna learn a lot from him. I know you’re gonna love this episode. If you are enjoying these episodes, please do take the time to leave us a review. It helps more than you can imagine. I know you must have some friends that are founders.
Please do share it with some of your other founder friends and, you know, spread the word. We really are on a mission to build a household name, entrepreneur brand, that impacts the lives of tens of millions of people on a weekly basis with our content. So, we can’t do this without you guys. All right, that’s it from me. Now, let’s jump into the show. I hope you have a fantastic start to your new year, and I hope you enjoy this episode.
So, the first question that I ask everyone that comes on is, how did you get your job?
David: How did I get my job? I mean, that’s a good question. So, do you mean this current job, or my first job, or which job?
Nathan: Yeah, just what you’re doing right now. Like, how did you find yourself doing the work you’re doing today?
David: Well, hm. That’s an interesting way of phrasing it. I guess, I mean, it’s certainly part of the path. I mean, like, the whole journey, if you will, every step along the way just has to make sense in context. And it’s all trying to take me, I guess, towards a much bigger sort of opportunity in the future. And so, I got my job in the same way that all the other previous steps along the path, is that it just was the next thing that made the most sense to help, kind of, towards that journey.
Nathan: Mm, I see. So, before co-founding Expensify, like, is this your first startup? Yeah, just, like, can you give our audience, like, how long have you been doing startups, what was your first startup, how did you find yourself, yeah, just building businesses?
David: So, I have sort of an unlikely background for being magnate, if you will. I started programming when I was six, mostly computer graphics and video games. Throughout middle school and high school, I got 3D graphics engines and then I worked in the virtual reality lab at the University of Michigan. Brought 3D graphics engines to the game industry down in Texas for a while.
And then, I got into voice over IP, videoconferencing, screen sharing technology, then peer-to-peer content distribution. So my background has always been in kind of, like, very hard technologies. And then, where my last company was acquired. So, basically, I was doing a company called iGlance, which is a push-to-talk sort of videoconferencing application that just got obliterated by Skype, because, I mean, Skype was made by the founders of Kazaa.
Kazaa, basically, had, like, 200 million desktops using their pirate tool. And then, this one day, they installed Skype in all of them. And so it’s very hard to compete with that distribution model, when your competition just, like, pushes out 200 million desktops in the same day. And so, while I was licking my wounds from that, I was approached by a guy names Travis Kalanick. He hired me in his last startup called Red Swoosh.
And then, he hired me, I hired everyone else. And then, we built some technology in the peer-to-peer content distribution space. We were acquired by Akamai. And the day after acquisition from Akamai, like, I knew I just wasn’t gonna last long. And so, I was trying to think, like, what’s something else I can do? What’s the next big thing, if you will? And, at the time, I actually lived in San Francisco in the Tenderloin.
And so, I walked by the same homeless people every day. And I, you know, there are lots of opinions on this, but I’m of the opinion that giving cash to the homeless isn’t really the best way to help them. Because there are lots of facilities in San Francisco, but you need to be sober to take advantage of those. And if you’re not sober, it’s because, probably, somebody gave you cash to buy booze, drugs, whatever it is.
And so, I’m like, “Well, I want to give them food.” So, I would take them into, like, McDonald’s or whatever, which is a really remarkable experience. I would encourage you to do it exactly once. It’s very, very awkward to take a homeless person to a fast food restaurant. So I’m like, “That’s not the way.” So I think, like, “Maybe I can give, like, sort of gift certificates perhaps.” But I’m like, “They’re just gonna, you know, kinda sell those or something.” I’m like, “No.”
And it’s like, well, I want to give out…you know, what if I could do sort of a debit card, but the debit card was sort of locked down to certain merchants. And so I could say, like, “This card works up to $10 a day, but only at restaurants.” I’m like, “Oh, I could kind of build that. I could imagine that could work.” But I’m like, “Well, but then, if I’m giving out these pre-paid debit cards, there’s a bunch of cash on them.”
I’m like, “Well, what if, actually, the card had no money on it, and every time the card was used the purchases routed in real-time to my personal credit card?” I’m like, “Oh, that’s kind of interesting.” So I could kinda walk around with these cards, hand out these cards. If they get lost or whatever, it doesn’t really matter, and I can make sure they’re only used at places that don’t serve alcohol.
And I’m like, “Yeah, this is kind of an interesting platform for sort of just charity, if you will.” And so I went to the banks with this idea. And they’re just like, “Whoa. There’s no way we’re gonna help you with this. It’s just, like, too complicated. There’s so much technology involved. There’s PCI, there’s all this, like, you know, compliance issues. All these sorts of issues.” So they’re like, “Look, there’s just too much work to do this platform. Like, we’re just not gonna help you with this. This is too weird, too risky.”
I’m like, “All right. I need to sound low-risk. I need to sound boring.” I’m like, “What is the most boring application of these cards I can think of.” I’m like, “Ah-ha, expense reports.” So that’s really how I got into it. It was, like, a Trojan horse to get me the permission from the…not just the banks, but Mastercard, and this whole supply chain of card manufacturers. It’s like, I just need a story that sounded good, that explained why I wanted to build this technology, even though I really had no intention of building the expense report system.
I was just, as I’m talking to these different parties, I’m just making shit up on the fly. I’m like, “Yeah, I’m gonna do this thing called Expensify. It’s the, you know, corporate card for the masses. And you give this card to your employees, and you can lock down which merchants they go to, and get real-time notifications. And also, you can have all your employee purchases made on your personal credit card, so you keep all the miles. It’s great.”
And they’re like, “Oh, well, what about receipts?” I’m like, “Oh, yeah. You just…you can text a picture of your receipts in.” This is back in the day, before, kind of, mobile apps were kind of a big thing. “And they get forwarded via email.” They’re like, “Oh, well, you know, the iPhone app store just launched. What about that?” I’m like, “Of course, we’re gonna have an iPhone app, too, and it’s gonna be amazing.”
And so, this story just got, you know, grander and grander. Everyone was like, “Wow, this sounds like it’s gonna be an amazing expense reporting platform.” I’m like, “Sure, maybe,” even though I really didn’t intend to build it. And so, then I launched this kind of proof of concept of the card technology at TechCrunch 50 in 2008. And everyone’s like, “Wow, your cards are interesting and all that, but your expense reports sound amazing.” I’m like, “I guess. Maybe someone’s gonna build that, but I’m not gonna.”
And then, the very next day, Mastercard shut us down, cancelled our credit cards. And I was like, “Fuck, now what am I gonna do?” I’m like, “Well, people seem to really like this expense reporting concept. Maybe I should just do that.” And that’s how I got into it, was just seeing so many people excited about this sort of fictional concept for an expense reporting company, even though I did no research into the industry, the market, didn’t know anything about it, no accounting background.
Didn’t care at all about that industry at the start. But now, I realize that it’s just such an incredible, overlooked opportunity for so long, and we just happened to be in the right place at the right time, because the mobile app opportunity just didn’t exist prior to that. And we were the only people out there dumb enough to be pitching sort of a mobile expense report receipt capture application, when, at a time when it made no sense.
Like, I even knew this, which, it didn’t matter, like, the cameras were so bad you literally couldn’t read the receipts. Because they had…you couldn’t…they weren’t designed to take pictures of anything close up. But it just didn’t matter. And then, one day, the next iPhone had an auto-focus camera, and then every other phone did ever since.
And so, just overnight, there was this crystal-clear receipt capture platform with an always-on internet connected in your box, and a zero marginal cost user acquisition vehicle of individual employees, into a viral epsa model where individual employees download the app for free, without asking permission, just start using this.
And then, every expense report becomes a highly targeted marketing message directly to the decision maker. And then, the employees actually do the selling to promote us to their, you know, finance team by sort of surrounding them with, like, pitchforks and torches, demanding us by name. And that’s become our entire business model.
And at this point, Expensify is the second largest expense reporting company in the world, the fastest growing, by far, and we have more customers than anyone in the world, and it all happens without any advertising, without any outbound calling, and without any commission sales people. So it’s a very disruptive model that we sort of stumbled into, in this market that just really, really needed a new option.
Nathan: Yeah, wow. That’s really interesting. I’m curious, you said you have no sales team. You don’t pay for user acquisition.
David: Yeah, that’s right. I would say we have a sales team. It’s not a commission sales team. But, like, really, our sales model is more of a support model, because, you recall, it’s we’re pulled into the company by the employees. But the employees don’t pay for the product. It’s free for the individual user. It’s free for the employee. And so we provide a tremendous amount of support to potential customers, but we provide it ahead of…like, proactively.
And so, because it’s activity-based pricing, you only pay $9 per active user per month. The only way you get active is after you adopt. And so, as a result, you talk to our support team, you get fully set up before you start paying us. Oftentimes, way before you start paying us. And the…because the whole enterprise sales model is typically based around the idea of you pay for a lead, and as such, this lead is really valuable to you, and so you want to maximize the value of that lead.
And so, you have to pay for someone else to go and, like, beat down that person’s door. And they’re just begging for this deal and you’ll just do whatever they ask for. And that’s sort of…the enterprise sales model, because it’s so painful, it has this sort of commissioned around it, to have this really aggressive sort of outbound sales technique, which feeds into this very thick product management hierarchy.
But because all the salespeople’s commissions depend upon making good on the promises, they’re basically fighting over engineering resources in this very competitive way. And the product management team has to sort of be there to sort of referee this whole thing, protect the engineering team from a series of just ridiculous requests. And that’s what all enterprise software looks like.
And that’s why enterprise software sucks, is because it’s no one’s job to make a product that is good for the end user, and everyone’s job to make a product that can be sold to a decision maker that will probably never use the product. But our company is completely different in that we have just thousands of companies starting trials every month, for free. And so our focus is not on trying to, like, make every one of those convert.
Our focus is, like, let’s find those companies that actually already like what we have, that don’t need us to build a whole bunch of things for them, that don’t want a different product. They want the product that we’re actually currently selling. And we’re just gonna talk them through the process of onboarding. And it’s a very, very different kind of sales model.
And, yes, it sells into the enterprise, up until…everything from, you know, small mom and pop businesses up to the Fortune 500. Like, we have customers with tens of thousands of employees. And it all happens using this same sales model.
Nathan: That’s really interesting. So, I’m curious, like, what’s your biggest challenge right now?
David: Well, it’s kind of an unusual answer. Biggest challenge, I would say, it is avoiding complacency. I would say we are the clear leader of our space, and we’re growing fast and accelerating, and we’re also doing it in a profitable way, which is just unheard of. The idea that you can have at-scale rapid growth and be profitable is just…people feel like that’s just simply not possible. But it is.
But, a challenge of that is when it’s, like, we’re doing very well and so it’s hard to maintain that sort of drive to keep pushing, to keep showing up early and working late, to keep pressing into new markets, and keep expanding the product, and so forth. I mean, that’s not at all to say that everything is perfect. Far from it. But it’s to say that our problems are not the same kind of problems that you have early on.
Like, there are no existential threats to the company. And so, there’s no outside pressure to perform. It’s all just inside pressure. It’s like, basically, we’re competing…we’re just racing against ourselves at this point. And it’s hard to maintain kind of that discipline and ambition over the long haul, when there’s really no external force sort of pressuring you to.
Nathan: When you talk about that you guys are profitable and you’re growing at an extremely fast pace, I’m curious, how come you don’t sacrifice profit for growth?
David: But that implies you can. I think this is…there’s always things that… Yeah, I think one of the major lessons of Expensify is that there’s such a better world out there than what the VCs are telling us. I think the… Like, let’s say I had a book and I’m just like, “Hey, 95% of the people who follow the rules of this book fail utterly.” You’d probably say, like, “That sounds like a shitty book. I don’t want to read that book. That’s not a good book to follow.”
But yet, that’s what the VCs are telling you to. They’re basically, like, “Hey, you need to raise a ton of money. You need to spend it super-fast, and then you need to raise a ton more money. And don’t worry about profit. Don’t worry about sustainability. It’s all about topline growth. And then, you need to exit as fast as you can, and just hope that there’s someone there. And it’s okay if there isn’t, because it’s better to fail fast and then try something new than to actually take the time to build a real business that can live on its own.”
And almost everyone follows that advice. And almost everyone fails. Like, there are exceptions, of course. But of the thousands of new startups that happen every year, hundreds actually exit. And I think the…like, that’s why VCs have a portfolio, because they recognize that odds are you’re gonna fail. That’s why they’re not putting all their eggs in your basket. They’re splitting their eggs between a huge range of different baskets.
And they’re picking to pay…they’re taking a path that drives a tiny fraction of them to succeed a ton, recognizing that they’re sacrificing the other 90%. But that’s cool, because it’s not their money, and it’s also…their returns are based upon the 10% who succeed and not the 90% who fail. But the thing is, as a founder, you don’t have a portfolio. Like, you’ve just got the one shot. You’ve got all of your eggs in one basket.
And so, taking advice from someone who has a completely different set of motivations is very dangerous. And I think one of the things that I always tell you is, like, this whole misnomer that it’s like, “Oh, profit is sacrificing growth.” It’s like, says who? Like, we’re growing faster than anyone and we don’t spend any money in customer acquisition. Like, if you could spend money effectively on customer acquisition, there’s no shortage of our competition that would have done that.
But if it were that easy, any of the dozens of companies that we’re beating would be doing that. It’s maybe possible that it’s actually not that easy. Because I think that’s a challenge when it comes to customer acquisition, paid customer acquisition, is it really doesn’t work that well at scale. It’s easy to, you know, find the low-hanging fruit and to do things that, like, work at small scales.
But actually, paid acquisition, in a positive ROI fashion, on massive scale, is very rare. Almost none of the companies you care about have done it. I remember I was talking with this, you know, VP of Marketing at Box. And he was talking about, basically, paid acquisition they would do and, like, they’re like, “Oh, yeah. We have data on everything. We test everything. We run the different campaigns, blah, blah, blah, and all sort of stuff.”
And I’m like, “Wow, this sounds like a really rigorous customer acquisition pipeline that you’ve got here. It’s really amazing.” And then, almost as, like, an aside, at the very end, I asked, it’s like, “Oh, and by the way, what fraction of your revenue can you attribute to this paid customer acquisition?” And he said, “About 30%, and that’s a soft 30.” Meaning, what? Seventy-five percent of the revenue comes from sources entirely unrelated to their paid acquisition.
So, almost all of their revenue had nothing to do with paid acquisition. But yet, for some reason, we feel like paid acquisition is, like, the hallmark of success. Except, Facebook didn’t grow because of that. Google didn’t grow because of that. Amazon didn’t grow because of that. No one that you care about built their business on paid acquisition. And so, I think the…like, the idea that you can’t scale profitably, I think, is a fiction that’s told by people that don’t want you to profit, because profit comes at their expense.
Nathan: Yeah, that’s really interesting. So, you guys are bootstrapped, or you have raised VC, or…?
David: Yeah, we’ve raised $27 million, which could sound like a lot or a little, depending upon where you are. I would say, at our scale, that’s basically nothing. So, I’d say, certainly, we’ve raised money over time, but from the very start, we set out to build a profitable business, and we’ve used cash, I would say, to build the business itself in terms of hiring, technology, and things like this.
But I would say, the places where we made the biggest mistakes is where we spent money trying to acquire customers on the assumption that it was both very important, and also very easy. But in fact, it’s turned out that not only is it not easy at all, it actually hasn’t been important. All of our growth has come because we built a product that was designed to grow on its own, without paid acquisition.
Nathan: Yeah, no. That’s amazing. So, like a Dropbox, what’s got the, like, the…or any of these companies that we talked about where the, you know, the virality is inherently inside of the product.
Nathan: Or basically, you know…
David: I think something like…WhatsApp got to a billion users with, I think, 73 employees. And I always think about that. I’m like, “So, that didn’t happen by accident.” Like, they didn’t do paid acquisition to get a billion users. It just happened. And so, people just…they’ll hear that and be like, “Yeah, but that’s WhatsApp. That can’t be your company. That can’t be my company.” And it’s like, “Well, why not?” I mean, people do this. The most successful companies do this. But we just don’t try to do it ourselves, for some reason.
Nathan: So, talk to me, then, like, you know, if you have raised, you know, $27 million, so are you up to Series A or Series B?
David: Well, it was three runs.
David: So we did a million in 2009. We had $5.7 in 2010. And there was a couple years, and then…actually, maybe it was four runs. Then we did this small, kind of strategic investment with a partnership at Barracuda. And then, maybe another couple years, or something like that, and then we raised $17 million, I think, from OpenView, a company out in…a VC firm out in Boston. But even by that time, it’s like, I was totally uninterested in raising.
I wouldn’t take calls, because our model is very unusual, and VCs are very accustomed to understanding what they’ve seen in the past. And everyone says they want a disruptive model, but most don’t. Because disruptive models are, like, they’re risky. They’re hard work. They require creativity. And that’s just not a scalable thing. And a VC firm is really about…again, it’s a portfolio.
They need to make as many deals as possible and as broad a base as possible. So, they’re not really looking for something that’s different, that’s unusual. They’re looking for more of the same. Most of them are, I would say. And, like…and, because, like, so, for example, if you ever talk to a VC, they’ll tell you, with total certainty, like, there are the two most important variables that dictate your entire business: your cost to acquire a customer and the lifetime value of that customer. And they’ll be like…it’s almost inconceivable to not know those answers.
People would ask… Yeah, they’re like, “Great, so, oh, wow. Expensify seems like it’s doing really well. What’s your cost to acquire a customer?” And I’m like, “Well, we don’t. Like, we don’t pay for customers. So, like, that question has no answer. It’s not zero. It’s just that you’re asking us, like, how much do you…like, how much do you spend on hot dogs per user, and I’m like, I don’t buy hot dogs per user. It’s like, I just don’t do it. It’s just an activity that we simply don’t do.”
And then, they’ll be like, “Okay, well, what if we call, you know, your support costs customer acquisition?” I’m like, “But they’re not. I mean, I can’t just double my support team and then suddenly have twice as many sales. It doesn’t work that way.” Like, I think the people don’t even understand the questions they’re asking, and they’ll just…but they just require some sort of number.
And they’re like, “Okay, well, let’s talk about lifetime value. Like, what’s your LTV?” Well, LTV is the…generally, estimated by sort of the inverse of churn. But the problem is, we have negative revenue churn, which means that every past group of customers we’ve ever acquired pays us more today than they ever have. And so not to say they all stick around, but rather to say, those who do stick around more than compensate for those who drop off.
And so, like, “Okay, so I guess that means if our CAC is sort of zero and our LTV is infinity, sort of the ROI on our nonexistent ad spend is, like, infinity over zero.” Like, “Maybe, I guess, if you want to do the math wrong, and just keep asking the wrong questions. Or, this is just a different business model where those numbers don’t mean anything.” And I think the idea that CAC and LTV actually aren’t that important in this business model just blows minds.
And so, that’s why I just stopped talking to VCs. I’m like, “It’s just too hard to convince you of this. I’m just not gonna bother. And I don’t actually need your money anyway, at this point,” so it’s like, “So, whatever.” And it was only when OpenView approached us, and they really…they’re a firm that wants disruptive business models.
They understand the concept of negative revenue churn and zero margin of cost customer acquisition. And I think that they were a firm that sought us out because they valued what we were, as opposed to being disappointed that we just weren’t the next enterprise company.
Nathan: I see. So, when you’ve raised capital, you’ve essentially taken money off the table or diversified risk?
David: No, we spent all the money we raised. And then, so I would say, because we only really got profitable this year, I would say. And so, up until that point, we ran a very lean organization. And we took some big swings that didn’t work out. Like, we would spend on certain advertising that wouldn’t work. One nice thing about our model is, because we’re just inundated with leads, from the, like, direct acquisition of customers, like, we would go to these accounting companies and our competition would be there.
And they really needed those conferences for, like, leads. They cared about the ROI of that conference. It mattered to them. Whereas, we show up and it’s just like, “I don’t know. This entire conference actually doesn’t matter at all to us, so we’re just gonna outspend everyone here. We’re just gonna buy every single booth just because we want to make it clear that…”
It’s like, we just want to salt the fields. It’s like, “I want to make sure that none of our competition can succeed in this conference, even if it’s not helping us that much.” And so we spent a lot of money, basically, just thwarting the competition in various ways.
Nathan: Did that work?
David: Oh, yeah. It worked amazing. Now, as a result, I’d say, in our industry, Concur is the number one. They’re, by far, the biggest. Concur got acquired by SAP recently, the largest SaaS acquisition in history, actually. And so, there’s Concur. Then, there’s Expensify. And then, there’s, basically, four more companies, all of which have recently merged and are still a distant third. And so, those are the companies that we basically used these techniques against to try to just obliterate.
Nathan: Hm, I see. So, talk to me about, you know, you said that you spent money on development and team. One thing that I’m learning, while I’m building Foundr, is just, like, to scale a company, it really is people. I found, like, product and people, you’ve got to have it all. Of course, you’ve got to have a great product that you’re constantly innovating on, or, you know, great service offering, but it’s, like, people make or break.
You gotta get the right people on the bus, especially in the early days. What tactic, strategies, advice would you recommend people who are getting the right people on the bus in the early days?
David: Man, it’s so hard. And I would say, the most important thing is just patience. Patience and a refusal to hire someone who’s not great, which sounds real obvious. It’s like, everyone says, like, “Oh, yeah. We know. We only want to hire the best people.” Because, A people hire other A people, whereas, B people hire C people. And so, it’s like, you don’t want to start hiring the B people, because then you can no longer hire A people, and then your people just want to hire C people.
Because, like, great people want to work with other great people. Okay people want to work with shitty people, because it makes the okay people feel good. And so, it’s like…but, the challenge is, great people are incredibly hard to find, and they’re highly sought after. Especially, in the early days, like, your company sucks. There’s, like, really no objective reason why someone would join it.
It doesn’t matter how good your idea is or whatever. It’s like, it’s so small, it’s so risky. Like, it’s so hard to convince people to even give you the time of day. So, when you’re starting, it’s just all about patience and just building a business that is built on the recognition. Hiring is gonna be super slow at the start. And if you have a business that depends upon fast hiring, man, you’re screwed. Or, rather, that’s not true.
I would say, you can do a business that’s dependent upon fast hiring, but it must also be built on shitty people. And that’s cool. You can hire, you know, a whole bunch of people and do kind of a churn, burn sort of sales model. You make them really competitive and all this stuff. It’s gonna be like a boiler room, awful job, and everyone’s gonna be unhappy, but you can make money that way, certainly.
But if you want to have a company that’s built around the idea of a really high-quality team of people who care about each other, and isn’t just constantly stabbing each other in the face, it’s like, you need to be patient and just accept that your business model can’t depend upon fast hiring of great people. Because that’s just simply not possible.
Nathan: All remote or all local?
David: That’s tough. I would say…so we started off all local. Now, we have offices in San Francisco, Portland, Oregon, Michigan, London, Melbourne, and there’s a bunch of floaters as well. And so, I think, if I were going to do it all over again, I probably would do it purely remote. I would bring everyone together once a quarter. I would, like, pick somewhere in the world and fly everyone in to meet up once a quarter.
But the challenge is, if you’re, like, only somewhat remote, if you have, like, you know, a dozen people, like, two of which are remote, it’s real tough on those people. It’s such a huge disadvantage compared to everyone else. And so, it’s easier being all in person or all remote, but in the middle is actually quite challenging.
Nathan: Mm, with the all remote, how do you maintain a great culture, though?
David: I guess, I would say, I don’t know that you can build a culture purely remote. That’s why I think it’s so important to regularly meet up in person. And I would say, like, so one thing that we do, for example, is we take the whole company overseas for a month every year. And so, last year, we brought, I think, like, a hundred and…or, this year, sorry. We brought, like, 120 people to Uruguay.
Last year, it was, like, Cambodia. And so, bringing everyone with their spouses, basically, out to some exotic place in the world is such a great way to kind of bond in a very intense fashion. A month is a good period of time, because it’s nice and long, so you can all work together, but also just have good times together and, like, generate really good shared memories. Then, when you go back home, then it’s like, those…you still have kind of the afterglow of all the strength of the relationships that were built in person.
And those relationships are kinda what carry you through while you’re remote. And so long as you just keep doing this regularly… We take our company overseas for a month every year, but we also, every quarter, we probably bring everyone together into one place, like, to whatever offices and so forth. And so I think culture really depends upon in person, but doesn’t require that you’re always in person.
Nathan: Mm, yeah. I think that’s really smart that you guys do that. Expensive, though, man.
David: Not really. I mean, I would say… Like, when we started, the approach was… Okay, so it’s a question of what the company covers. And so, when we started, it was actually everyone paid their own way for everything.
Nathan: Oh, really?
David: Which sounds expensive, except you realize, everywhere all of our employees live is so much more expensive than Cambodia. And so anyone who can afford to live at their home can absolutely afford to live in Cambodia, or Thailand, or Vietnam, or a huge range of places. There are super awesome places. In fact, now, with Airbnb, we would see that people would just Airbnb out their apartment in their very high-cost living place, and then that would more than cover the cost of them being remote for that month.
Nathan: Ah, that’s smart.
David: And now, I would say, the company…our current process there is the company will cover flights, because flights are the one thing that’s actually kind of expensive, but no one has strong preferences around, and it’s basically all the same price, more or less. Whereas, you’re on your own for hotels and food, because hotels and food have really diverse types and very wide ranges of prices.
But it’s all relatively cheap, too, because we would stay in hostels and things like this. And so, in the end, it’s actually not that expensive. Not nearly as expensive as people would assume it is, because we go to places that are just cheap, and cheaper than living at home.
Nathan: Mm, that’s really smart. Yeah. Question, though. Wouldn’t…and, look, please don’t take this the wrong way, David, but me, personally, I would feel a little guilty if we…even if we just paid for flights.
David: Okay. I mean, I get that. I would say, if…so, if your guilt is preventing you from doing something amazing for your employees… Okay, sorry.
Nathan: You know, that makes sense. All good. So, look, we have to switch gears and start to work towards wrapping up, because I’m super mindful of your time. But, just if you were starting again, you said that you would probably go all remote. I’m just curious, any other lessons, wisdom, you know, from building a couple of companies now, that you wish you knew before you started?
David: I would say the most important thing is to not ask people for advice, because it’s… The likelihood that you’re gonna get the right advice is so low. Instead, I found the vast majority of the advice I’ve received, from really, really qualified and well-intentioned people, turn out to be really bad advice. And I think the…if you’re an entrepreneur, it’s because you think you’re smarter than the next guy.
But if you’re smarter than the next guy, why are you asking them for advice? Instead, just figure it out. Like, everything’s way simpler than, actually, I believed previously. In fact, I think most of the complexity is really sort of invented complexity. I think it’s complexity that serves someone else. Whether it’s you talked to a marketing person, they’re like, “Oh, you know, I do demand generation for blah, blah, blah, and I use this A/B testing sort of bullshit platforms,” and all this sort of stuff.
And it’s just like, “Man, there’s so many…so much lingo there, so much jargon. Like, all these tools and techniques that sound really advanced. Your job must be super hard.” And then you kind of boil it down, and it’s like, no, actually, this is just real basic stuff. Like, you talk to people, you make a theory, you test it if you can, but otherwise you just give it a shot and figure out what happens. It’s like, sales, marketing, product management, project management, COO, HR, all of these titles are presented as if they’re super complicated fields and that require, like, a lifetime of knowledge before you can even start.
It’s just not true. All this stuff is pretty straightforward if you just refuse to buy in to the complexity that is being foisted upon you by people who generally benefit from the complexity, people who want their role to sound more complicated than it actually is, people who are trying to see you their advice or their books, people who are trying to sell you their money because they’re investors.
Whatever it is, just don’t pay attention. Like, don’t ask for advice. Just try. Just figure it out yourself because… And I think, people often say, it’s like, “Oh, you know, but then, I don’t want to reinvent the wheel.” It’s like, “Dude, wheels aren’t that hard to build. If you can’t build a wheel, what makes you think you can build anything better than that?” It’s like, reinvent a few wheels. It’s fine.
Then, in the process of doing so, you’ll build up your own confidence. And then, you’ll have, basically, finally be ready so when there is something new, or there isn’t good advice around, you’re not gonna be constrained because you can’t find someone to tell you to go. Like, you’ll just stop listening and just say, it’s like, “I’m just gonna give it a shot. I don’t really care what anyone thinks.”
And I think that’s…once you get to that place where you really are willing to bet on your instincts, I think that’s where things start to get super fun. Otherwise, you’re just constantly a slave to the next, you know, fad, or book, or whoever is trying to take advantage of you.
Nathan: Mm, yeah. I love that. That was really cool, man. Awesome, dude. Well, look, last question is, where’s the best place people can find out more about Expensify, yourself, and your work?
David: It’s very easy. Search Expensify on the iPhone or Android app stores. You can go to expensify.com, Expensify on Twitter, or just search Expensify in any browser and it’ll come up on top.
Nathan: Awesome. Well, look, thank you so much for your time, David. I really appreciate the conversation. And, yeah, congratulations on all your success.
David: Great. Thank you so much. And if any of your listeners are looking for a job, please give us a call, because we’d love to talk to you.
Key Resources From Our Interview With David Barrett
- Learn more about Expensify
- Connect with David Barrett on Linkedin
- Follow Expensify on Twitter
- Like Expensify on Facebook
- Download the Expensify mobile app on the Play or App Store