How Expensify Grew Bottom Up to About 45,000 Paying Companies: Profitable and Running No Ads in December 2017 (Interview with David Barrett)

Host Introduction and Guest Background

Nathan Latka

00:00Hello, everybody. My guest today is David Barrett. He started programming at the early age of six and has been aspiring to become an expense report magnate ever since. I don't know if I believe him, by way, on that. We'll check we'll check that in a second. He attended the University of Michigan where he worked in a virtual reality lab before moving to Texas to write three d graphics engines for the video game industry. Next, he moved

00:21to California to join Travis in building a peer to peer file transfer technology technology called Red Swoosh. That's obviously Travis from Uber. And that company was acquired by Akamai in 2007. In 2008, he left that company to start Expensify and has since been relieving the world's frustrations. One expense report at a time. David, are you ready to take us to the top?

David Barrett

00:40I'm ready.

Nathan Latka

00:42So you just... You popped out of the womb and you said, give me the p and l, mom. Let me see the balance sheet. Let's do expense reporting, baby.

David Barrett

00:48That's right. I just got into it for the chicks. You know? It's obviously where it's at.

What Expensify Does

Nathan Latka

00:52Tell us about the company. What do you do and how do make

David Barrett

00:55So Expensify is pretty straightforward. It's a mobile app for business travelers. You take a picture of your receipts. We read all the information off the receipt automatically, so there's no typing involved, and then we'll submit to your company for reimbursement. And so we get you paid the very next day for the Starbucks purchase you made today.

Origin Story: From Prepaid Cards to Expense Reports

Nathan Latka

01:10Okay. That makes good sense. And what... Like, tell us the origin story here. When did you launch the company and what turned you onto it?

David Barrett

01:18Well, origin stories are always complicated. And I would say to summarize mine, initially I had no interest in expense reports whatsoever. I was doing something just completely different in the prepaid debit card space. And the banks just had no interest in me. They saw me as just way too risky. And so I'm like, all right, I need some low risk and some boring. I'm like, what is the most boring thing I can think of? I'm like,

01:38expense reports. So that's how I got into it, as a Trojan horse to get permission to the banks to launch an entirely different product. And then after we launched this product, everyone's like, yeah, your prepaid debit cards are cool and all, but your expense reports are amazing. And up until that point, I actually hadn't intended to build it. It was a fake product that I was just making up as I went along. And I think I

01:57developed a story around it. It's like, this mobile app where we use your camera to scan receipts, and then we reimburse you the next day, and we import your credit cards, and export your accounting package, and all this stuff. And everyone's like, if you just if you just did that, that would be amazing. I'm like, oh, well, maybe let's just do that. So that's how I got into it.

Bottom-Up Business Model and Consumer Acquisition

Nathan Latka

02:13That's interesting. And the business model now, you know, you you mentioned last show that you're on. Guys, if you wanna listen to the last episode, David Caymano was episode eight forty four. Actually, he was on in episode six fifty five, which would have been about a year ago as well. David, you start even with the janitor on a free plan, and you said they go up to an average ARPU of about $9 a pop. Is

02:31that accurate?

David Barrett

02:32Yeah. That's right. Because I would say our entire business model, and I would say the way that we differentiate is by acquiring the individual first. And then so that's why the product has to be so good for the end users, because the end users are champion. They're the person who pulls us into the organization and then promotes us to the top of the organization.

Nathan Latka

02:50Would go so far as to say that you actually are onboarding as a consumer app?

David Barrett

02:54Absolutely. I mean, yeah, I think that we're... This very weird sort of middle ground between sort of this, basically, like, consumer grade enterprise application.

Nathan Latka

03:02Yep. This is a model that I... You're the second one in about a week I've had on. So Malwarebytes is... I mean, they'll be pushing a 100,000,000 here soon in ARR, but they do the same thing. It's bottoms up. They have a consumer approach, then they land and expand based off logos they seeing naturally coming in on their consumer product, and it works really, really well for them. You're doing the same thing,

David Barrett

03:21Yeah. That's exactly right. I mean, because if you're gonna differentiate, you can't differentiate through functionality alone. It has to be through acquisition, through business model.

Customer Count: 45,000 Paying Companies

Nathan Latka

03:29Yep. And how many... Let's not use number of companies, although I'm sure that's... I mean, obviously, that's probably well into the thousands or tens of thousands, but employees. So so how many seats are being used on Expensify today?

David Barrett

03:40You know, honestly, I don't know that number. I would say, like, so we think about 45,000 paying companies. So basically

Nathan Latka

03:40How many?

David Barrett

03:40Companies adapted... Yeah. So we've got more more companies as Expensify than the next four expense reporting companies.

Nathan Latka

03:52How many did you say, David?

David Barrett

03:54About 45,000.

Nathan Latka

03:55Oh, that's amazing. Yeah. I mean, you were just on four months ago. You were at 42,000. So, yeah, you're... I mean, that's... You're growing quick.

David Barrett

04:00Yeah. And so this year, especially, has been crazy. It's been... Actually, it's just crazy keeping on top of it this year. Yeah. So it's been great.

Revenue: Still Under $100M ARR

Nathan Latka

04:06And then before we get more of the origin story and kinda where you see this space going, wanna talk about Matt and the TSheets deal as well and just fintech in general, especially some data related to this space. Can we put a general bracket on your thing? So, I mean, you guys are somewhere between the, call it, 60 and a $100,000,000 ARR range. Is that fair?

David Barrett

04:22Yeah. We're still under a 100. That's right.

Nathan Latka

04:23Yeah. Do you... I mean, are you... Or... And the reason I'm asking is just for the significance in terms of when people start thinking about IPO and other sources of capital. I mean, do you think you'll break a 100 in 2018, or do you think it's more 2019?

David Barrett

04:34Yeah. It's probably not 2018.

Team Size Correction to 110

Nathan Latka

04:36Okay. Got it. Interesting. So let's talk about the space. And, guys, by the way, I'm not gonna focus touch on David's backstory because you can get that in the other interviews. He, know, launched the thing in in 2008. They were at a 120 people about three months ago. Are you still at about that size, David?

David Barrett

04:49Yeah. Actually, that number is maybe a little bit off. It's more like maybe a 110 right now. 100 and I think that probably gave you the bad number before.

Fintech, Blockchain, and the Series A Crunch

Nathan Latka

04:55That's okay. No worries. So let's talk about the space. So a lot of people... I mean, especially when you start hearing people go, man, I should do an Expensify concept on blockchain. Right? Where's your head in terms of just fintech in general and blockchain?

David Barrett

05:09Wow, that's interesting. So I guess I would say, I think right now is a really hard time to start a company because any company that just involves the internet and mobile and things like that, it's been done. It's been done like ten years ago. And so I think we're seeing like this whole series A crunch, it's because so many of the early-stage funds in the past few year are doing terribly because again, all these kind

05:28of me too wannabes basically have come around.

Funding Raised and Regrets

Nathan Latka

05:31You haven't raised anymore, right? You're at 25,000,000 still?

David Barrett

05:34Say it one more time?

Nathan Latka

05:35You haven't raised additional capital since we last spoke, right? You're 20

David Barrett

05:35No, no, no.

05:39We're profitable. So we just, we're off that whole bandwagon.

Nathan Latka

05:42But you only raised 25 today, right?

David Barrett

05:44Like 27, I think it is.

Nathan Latka

05:45So do you regret it, raising?

David Barrett

05:48It's tough. I mean, it's easy to say yes because I regret the dilution, but on the other hand, I spent it all. So I clearly needed it. It's tough to say. One of the challenges is money got so cheap for a while. I wish that I'd raised a few years later, but then now I realize those companies that raised a few years later, maybe they got good terms, but they're all gone. They're just done because they

06:10came too late. And so yes, we came at a time when capital was more expensive, but it was also much earlier, and that's what enabled us to kind of take over the market. So it is hard to look back and say, you do different?

Nathan Latka

06:20Yeah. The whole funding thing is tough. I mean, I'm looking at you here because we're doing this on a Skype interview. I mean, you'd look like a guy that doesn't have ego. I mean, you're you're showing up your natural self. I mean, your hat, you know, they're ripping it up here. I mean, you haven't shaved in years. Your shirts, you know, you look good, but you're like Portland and you're like, I don't give a fuck and

06:36I'm just doing my thing. So it's great. So you don't seem like a guy that would raise for ego purposes.

David Barrett

06:41Oh, well, no. Think that's really kind of stupid. Like to celebrate raising money is to celebrate that you took out a loan.

Nathan Latka

06:46It's like, Wait, so like what I'm pushed you over the edge though when you did raise? You just saw a path to spending the capital to get number one in market share or what?

David Barrett

06:53Yeah, I don't know. Mean, things get more refined over time. And I'd say we raised because it was possible, because everyone thought you had to. We took some big swings and missed. And so it's, again, it's hard

Nathan Latka

06:53Tell

07:05me about one of those swings.

David Barrett

07:07I would say like advertising. Like advertising's tough. Everyone will tell you, it's like, oh yeah, everyone knows how this works. You raise a bunch of money, you spend it on ads, and then you get this high performance sales team, and then that's how you build your business. With the exception that no business you cared about was ever built that way. Like every business, all the top names in the industry are built through word-of-mouth. But no one

07:27talks about that because it's not possible to be funded with capital. And so therefore VCs don't care about word-of-mouth because it's not their business model. And I think that's a big challenge being an entrepreneur is recognizing that your job is very different than your investor's job. And your world out view is this very, very different as well.

Zero Paid Advertising and Word-of-Mouth Only

Nathan Latka

07:43No. That makes good sense. I mean, your whole model now. Right? You're not doing any paid spend anymore. Right?

David Barrett

07:48No. We have no advertising going on whatsoever right now. It's all a 100% word-of-mouth.

Nathan Latka

07:51And it's the janitor starts using it, and then they... Before you know, the janitor tells Sally who works at the desk and then John who works at the desk next Sally. And before you know what, 20 people at a company, and then it moves from a personal credit card payment to the company buying a seat package with you guys. Right?

David Barrett

08:06That's exactly right. And that's that's our whole business model. And it sounds crazy that it could work at this scale, but, like, it does. It works great.

No Commission Sales and Activity-Based Pricing

Nathan Latka

08:11Yep. And it's all... Is it no touch or is there a portion of your 110 folks dedicated to picking out the logos they see signing up and expanding?

David Barrett

08:19No. It's certainly not no touch. There's no enterprise... I'm sorry. There's no commission sales component at Expensify. So no one's paid a commission at all. But we certainly have a support team that stands by, because it's activity based pricing. That means we only get paid when you get active. But the only way that you get active is that you've gone through your whole setup process and gotten your company on board. So we have a whole team

08:40standing by that will help you get on board. And we've got different types of teams for different parts of the organization, different accounting packages and so forth. But I would say that... So it's not no touch, but there's no commission sales. The lack of commission is what distorts everything.

Growth Rate and the Second S-Curve

Nathan Latka

08:54And is the company... So can you give us sense also of growth? So like last year at this time, what were you at if you're comfortable sharing? Then obviously we can back into growth rate.

David Barrett

09:02Sure. So last year we were under 100%, but I would say what's nice about what's been really interesting is we're going through this kind of like the second S curve. So when I say S curve, everyone thinks it's like, you start slow, you grow fast, and then you kind of like slow off into the distance sort of thing.

Nathan Latka

09:17Slowly die.

David Barrett

09:19Yes, slowly die at scale, I guess, or something like that. But one thing we're finding is very unusual about our business model. So in the past couple of years, spent a lot of time making the product easier for smaller business. Everyone thinks about the enterprise and how great the enterprise is. Enterprise sucks, man. It's just like, it's super slow sales cycles, and the margins are terrible, and super competitive, it's whatever. The real opportunity is mid market

09:40and below. And so we've been reorienting the company around sort of mid market companies in SMB. And as we do that, we are actually seeing our revenue reaccelerate, which has been great. And so I think that we have this very broad range of the market, everything from individual to Fortune 500, but really the lower half is where the opportunity is at.

Nathan Latka

09:58So it's... Can we say you you kinda grew 90 to a 100% year over... Or 80 to a 100% year over year between this time and last time the same time?

David Barrett

10:06Not gonna get into those numbers in detail, but, yeah, I would say, like, the nice thing is I think that accelerating at this scale is like turning the ship around at this scale is real hard to do.

Nathan Latka

10:15Well, that's honestly, David. That's why I'm pushing you here on this because I want people to understand you can still get healthy growth numbers without dumping hundreds of millions of dollars into paid ads, diluting the hell out of your company, right, Where you have to sell for $3,000,000,000 before your first employee sees a dime.

David Barrett

10:31Oh yeah, that's exactly right. And I would say the only reason we slowed down at all was because we get distracted by the enterprise. Like we started off kind of like lower mid market SMB and the enterprise was just there. It seemed good, like big names and so forth. And so we just kind of got distracted by them by a couple of years. And so now we're getting back to the basics, I would

Nathan Latka

10:31Okay.

10:52Can we say it was over 50% year over year? I wanna give you credit here. Course. It. Between 50... So guys, listen. It's... Let's... Follow his story. Check out Expensify. It's possible to grow at this scale. I mean, again, it's it's easy to go from a dollar to $2, right, and say a 100% year over year growth. When you're going from 50,000,000, trying to get to a 100,000,000, it's way obviously tougher. So David's doing it. He's

TSheets Sale and Product Expansion

Nathan Latka

11:11doing it in an unconventional way. David, what's next? Do you... You you you mentioned you're trying to make it easier for smaller companies, which is great because then you're kind of increasing the number of people using you. Are you ever going to go into the space where you're to try and increase wallet share on your current customers via upselling new stuff?

David Barrett

11:27That's interesting. I don't know. We've always tried to keep ourselves the least expensive option in the market.

11:35Think that we And think that the path to growth is not so much by increasing sort of how much you extract from each customer, but just getting more customers. And so I'm much more focused on just massive scale than I am on trying to squeeze harder.

Nathan Latka

11:48Yeah, that's interesting. Let's talk... And the reason I bring that up is because our friend Matt. Right? Matt was on the show with TSheets. He just sold to infusions or start to to Intuit for $340,000,000 on a great multiple. And, you know, he was... I mean, I I would put him in the payroll space, but it's not just like a timer. It's kind of more intricate payroll. I mean, you could very easily... There's a clear path

12:08for you from a product perspective to jump into these kinds of spaces.

David Barrett

12:12Well, I would say that's... I mean, yes, you could say that in that sense that all accounting ultimately deals with numbers that have a dollar sign in front of them. And so they're all very similar, but there are differences there. Like TSheets certainly has focused on making the best time role, sort of time tracking sort of software. And it's not just about the numbers behind it, but like it'll take a picture when you clock in, there's

12:32like GPS tracking, there's a whole bunch of nuance around the space. And so yes, it would be very easy for us to do shitty time tracking. Be very hard for us to do time tracking nearly as good as they do.

Nathan Latka

12:42Before we wrap up, you look like you're in a very cool spot. Can you move your camera around and show us around where you are?

David Barrett

12:47Sure. Yeah. This is this is my office here. And so

Nathan Latka

12:47Oh, wow.

David Barrett

12:47This is... It's actually my my daughter's birthday. We rented this bus called the Tumble Bus, which is a... It's a whole gym that comes out, and it's just the whole thing that's going playing out there. So

Nathan Latka

12:47Oh my gosh.

13:00Wait. Go back to your bookshelf. How do you organize... What are these books? Are these fiction,

David Barrett

13:00My non wife's fiction

13:06are my wife's books. She's an opera singer. So everything down here is classical music. Everything up there is more history. And so I'm more of a digital person. I'm not much of a book person.

Famous Five Rapid-Fire Questions

Nathan Latka

13:15I love that. Alright, David. Let's wrap up here with the famous five. Number one, what... If you have one, what's your favorite business book?

David Barrett

13:22I guess I would have to say

13:25the Innovator's Dilemma.

Nathan Latka

13:27Number two, is there a CEO you're following or studying right now?

David Barrett

13:30It has to be Elon Musk. Who wouldn't?

Nathan Latka

13:32I know. It's it's... Yep. That's that's right. Number three, there... Besides your own, is there a favorite online tool you have?

David Barrett

13:37I I was basic. I was gonna go Google Docs.

Nathan Latka

13:40Okay. Number... I was gonna say, you don't have to go basic. You can if you want, but Google Docs. Number four, how many hours of sleep do get every night?

David Barrett

13:40Eight.

Nathan Latka

13:40Okay. And what's your situation? Married or single? Or obviously, you mentioned your wife and one kid. Do you have any more kids?

David Barrett

13:53No, just the one. But I do have a dog, and she's certainly precocious.

Nathan Latka

13:56And how old are you, David?

David Barrett

13:58I'm 42, I think.

Nathan Latka

13:59Okay. Last question. Take us back twenty two years. What do wish your 20 year old self knew?

David Barrett

14:04I would say stop listening to VCs.

Nathan Latka

14:08There you guys have it from David. Stop listening to VCs. Look. He he launched his company many, many years ago, kinda jumped into the VC trap, raised 25,000,000, took some swings, missed, learned it the hard way, but really now it's beautiful what he's doing. Acquisition, basically, through a consumer app, bottom up, focusing his r and d team on making it the tool easier for small business owners and for the consumer themselves. Because when the consumer uses

14:33it more, they tell more people, word-of-mouth grows, they move to a paid plan at about $8 a month. They're doing between, you know, call it 60 and 100,000,000 currently, growing year over year between last year and today, December 2017, between fifty and ninety or a 100 ish percent, Again, without spending loads of money on capital and without raising a bunch of extra capital as well. David, thank you for taking us to the top.

David Barrett

14:55It's been a real pleasure. Thank you.