Receipt and expense management software Expensify hit its stride after distancing itself from the VC scene. By the end of 2017 — when Latka spoke with Expensify Founder David Barrett — the company had about 45,000 paying companies.
At the time, Expensify had an ARR somewhere between $60 million and $100 million. With plans starting at $5 per month, Expensify has an ARPU of about $9 per customer.
Expensify’s goal is to simplify expense management for employees and businesses. Users take photos of their expense receipts on Expensify’s mobile application, and Expensify submits those receipts to their employers. Employees can get reimbursed the next day.
But growth wasn’t always easy, explains CEO and Founder David Barrett.
When Barrett founded the company in 2008 — at that time it was in the prepaid debit card space — the banks found his ideas too risky. “And so I’m like, All right, I need to do something low risk. I need to do something boring … What is the most boring thing I can think of? Aha, expense reports,” Barrett says.
It turned out consumers found the expense reports component the most useful. So he focused on that— a mobile app that scanned expense receipts — and ran with it.
Expensify has raised about $27 million in venture capital. The company is now profitable and Barrett has since reconsidered this capital-raising approach. “I’d say we raised because it was possible [and] because everyone thought you had to,” he says. “We took some big swings that missed.”
Source: GetLatka
One of those swings: Advertising. There’s a lot of pressure to spend a lot on ads when you get VC, but Barrett doesn’t think that’s actually what helps grow a company. “All the top names in industry were built through word of mouth. But no one talks about that,” he says. Now the company doesn’t do any advertising and opting instead for word-of-mouth, which costs nothing.
Barrett also says the company slowed down in the past because they “got distracted by the enterprise.” Expensify changed the product to make it easier for smaller businesses to operate. “The real opportunity is mid-market and below. And so we’ve been reorienting the company around mid-market companies and SMB and as we do that, we are actually seeing our revenue really accelerate, which has been great,” he says.
Barrett attributes much of Expensify’s success to retreating from the venture capital game. In fact, if Barrett could go back in time, he’d tell himself: “Stop listening to VCs.”
Get to Know Expensify CEO David Barrett
Name: David Barrett, age 42, married with one kid
Where to find him: Twitter | LinkedIn | Personal Website
Company: Expensify
Noteworthy: Barrett started out in video games, working at a virtual reality lab at the University of Michigan and then writing 3-D graphics engines for games in Texas.
Favorite business book: “The Innovator’s Dilemma”
CEO he respects: Elon Musk
Favorite online tool for building the business: Google Docs
Average # of hours of sleep/night: 8
Transcript Excerpts
Why Expensify focuses on growing its customer base instead of upselling existing customers
“We’ve always tried to keep ourselves the least expensive option in the market. And I think that we think that the path to growth is not so much by increasing 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.”
On whether Barrett regrets raising $27 million instead of bootstrapping
“It’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. And 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 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 came 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 take over the market. So it is hard to look back and say what you’d do different.”
Why the best place for businesses to succeed is in mid-market, not enterprise
“Everyone thinks about the enterprise and how great the enterprise is. Enterprise sucks, man. It’s just like, it’s super slow sales cycles, the margins are terrible, it’s super competitive, it’s whatever. The real opportunity is mid-market and below. And so we’ve been reorienting the company around mid-market companies and SMB and as we do that, we are actually seeing our revenue really accelerate, 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’s at.”
Sticking to activity-based pricing instead of paying commission
“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 got a new company on board. So we have a whole team standing 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 and the lack of commission is what distorts everything.”
Full Transcript Interviewer: No, it’s certainly not no touch. There’s no enterprise. 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 got a new company on board. So we have a whole team standing 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 and the lack of commission is what distorts everything.onbHello 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 magnet ever since. I don’t know if I believe him, by the way, on that. We’ll check that in a second. He attended the University of Michigan, where he worked in the virtual reality lab before moving to Texas to write 3D graphics engines for the video game industry. Next, he moved to California to join Travis in building a peer to peer file transfer technology, a 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: I’m ready. Interviewer: So you just, you popped out of the womb and you just said, “Give me the P&L, mom. Let me see the balance sheet. Let’s do expense reporting, baby.” David Barrett: That’s right. I just got into it for the chicks. It’s obviously where it’s at. Interviewer: Tell us about the company. What do you do and how do you make money? David Barrett: So 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 it gets you paid the very next day for the Starbucks purchase you made today. Interviewer: Okay. That makes good sense. And tell us the origin story here. When did you launch the company and what turned you onto it? David Barrett: Well, 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 to do something low risk. I need to do something boring.” I’m like, “What is the most boring thing I can think of?” I’m like, “A ha, expense reports.” So that’s how I got into it, was as a Trojan horse to get permission from the banks to launch an entirely different product. David Barrett: 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. I was just, it was a fake product that I was just making up as I went along. And I think I developed a story around it. It’s like, “Oh, 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 did that, that would be amazing.” I’m like, “Oh, well maybe we should just do that.” So that’s how I got into it. Interviewer: That’s interesting. And the business model now, I mentioned last show that you were on, guys if you want to listen to the last episode David came on, it was episode 844 and actually he was on in episode 655, 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 nine bucks a pop. Is that accurate? David Barrett: Yeah, that’s right. Because I would say our entire business model, and I would say the way that we differentiate just by acquiring the individual first and then, so that’s why the product has to be so good for the end user is because the end user is our champion. They’re the person who pulls us into the organization and then promotes us to the top of the organization. Interviewer: Would you go so far as to say that you actually you’re onboarding as a consumer app? David Barrett: Absolutely. I mean, yeah. I think that we’re… We’re in this very weird middle ground between of this… We’re basically like consumer-grade enterprise application. Interviewer: Yep. 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 hundred million 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 see naturally coming in on their consumer products and it works really, really well for them. You’re doing the same thing, huh? David Barrett: Yeah. That’s exactly right. I mean, because if you’re going to differentiate, you can’t differentiate through the functionality alone. It has to be through acquisition, through business model. Interviewer: Yeah. 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 how many seats are being used on Expensify today? David Barrett: Honestly, I don’t know the number. I would say like, so we think about 45,000 paying companies. So basically- Interviewer: How many? David Barrett: So basically full companies that have adopted… Yeah. So we’ve got more companies as Expensify than the next four expense reporting companies. Interviewer: How many did you say David? David Barrett: About 45,000. Interviewer: Oh, that’s amazing. Yeah. I mean, you were just on four months ago, you were at 42,000, so yeah. I mean, you’re growing quick. David Barrett: Yeah. And so this year, especially, has been crazy. It’s been actually just crazy keeping on top of it this year. Yeah. So it’s been great. Interviewer: And then, before we get more of the origin story and where you see the space going, I want to 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 at 60 and a hundred million dollar ARR range. Is that fair? David Barrett: Yeah. We’re still under 100, that’s right. Interviewer: Yeah. I mean, are you, and the reason I’m asking this 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 100 in 2018 or do you think it’s more 2019? David Barrett: No, it’s probably not 2018. Interviewer: Okay. Got it. Interesting. So let’s talk about the space. And guys, by the way, I’m not going to focus a ton on David’s backstory because you can get that in the other interviews, launched the thing in 2008, they were at 120 people about three months ago. Are you still at about that size, David? David Barrett: Yeah. Actually that number is maybe a little bit off. It’s more like maybe 110 right now. Interviewer: 110. David Barrett: I think I probably gave you the bad number before. Interviewer: That’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 on blockchain? David Barrett: Wow. 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 10 years ago. And so I think we’re seeing 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 of me too wannabees basically have come around. It’s- Interviewer: You haven’t raised anymore, right? You’re at 25 million still? David Barrett: Say that one more time? Interviewer: You haven’t raised additional capital since we last spoke, right? You’re at 25. David Barrett: Oh, no, no, no. Yeah. We’re profitable. So we’re off that whole bandwagon, it’s great. Interviewer: But you only raised 25 to date, right? David Barrett: Like 27, I think it is. Interviewer: So do you regret it, raising? David Barrett: It’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. And 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 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 came 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 take over the market. So it is hard to look back and say what you’d do different. Interviewer: Yeah. 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 look like a guy that doesn’t have ego. I mean, you’re showing up your natural summing, your hat has a rip in it up here. I mean, you haven’t shaved in years, your shirt’s… You look good, but you’re like, Portland and you’re like, “I don’t give a fuck and I’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: Oh, well, no. I think that’s really kind of stupid. To celebrate raising money is to celebrate that you took out a loan. It’s like congratulations- Interviewer: So what 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: Yeah. I don’t know. I 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 that missed. And so again, it’s hard to know- Interviewer: Tell me about one of those swings? David Barrett: I would say advertising. Advertising is 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. Every business, all the top names in industry were built through word of mouth. But no one talks about that because it’s not possible to fund 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 real world out view is just very, very different as well. Interviewer: No, that makes good sense. I mean your whole model now, right? You’re not doing any paid spend anymore, right? David Barrett: No, we have no advertising going on whatsoever right now. It’s all 100% word of mouth. Interviewer: And it’s the janitor starts using it and then they, before you know it, the janitor tells Sally who works at the desk and then John who works at the desk next to Sally and before you know it, 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: That’s exactly right. And that’s our whole business model. And it sounds crazy that it could work at this scale, but it does. It works great. Interviewer: Yep. And 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: No, it’s certainly not no touch. There’s no enterprise. 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 got a new company on board. So we have a whole team standing 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 and the lack of commission is what distorts everything. Interviewer: And so can you give a sense also of growth? So last year at this time, what were you at, if you’re comfortable sharing? And then obviously we can back into growth rate? David Barrett: Sure. So last year we were under 100%, but I would say what’s been really interesting is, we’re going through this kind of 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 slow off into the distance sort of thing. And so- Interviewer: Slowly die. David Barrett: Yeah, slowly die at scale, I guess, or something like that. But one thing we’re finding that’s very unusual about our business model, and so in the past couple of years, we 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, the margins are terrible, it’s super competitive, it’s whatever. The real opportunity is mid-market and below. And so we’ve been reorienting the company around mid-market companies and SMB and as we do that, we are actually seeing our revenue really accelerate, 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’s at. Interviewer: So can we say you kind of grew 90 to 100% year or 80 to 100% year over year between this time and last time the same time? David Barrett: I’m not going to get into those numbers in detail, but yeah, I would say like the nice thing is I think that accelerating at this scale, turning the ship around at this scale is real hard to do. Interviewer: Well, 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, where you have to sell for $3 billion before your first employee sees a dime. David Barrett: Oh yeah, that’s exactly right. And I would say the only reason we slowed down at all was because we got distracted by the enterprise. We started off going to lower mid-market SMB and the enterprise was just there, it seemed good, they’re big names and so forth, and so we just got distracted by them for a couple of years. And so now we’re getting back to the basics, I would say. Interviewer: Okay. Can we say it was over 50% year over year? I want to give you credit here. David Barrett: Yeah. Over 50%, yeah. Of course. Interviewer: Okay. Got it. So guys listen, follow his story, check out Expensify, it’s possible to grow at this scale. I mean, again, it’s easy to go from $1 to $2 and say 100% year over year growth. When you’re going from 50 million, trying to get to 100 million, it’s way obviously tougher. So David’s doing it and he’s doing it in an unconventional way. David, what’s next? You mentioned you’re trying to make it easier for smaller companies, which is great because then you’re increasing the number of people using you. Are you ever going to go into the space where you’re going to try and increase wallet share on your current customers via upselling new stuff? David Barrett: That’s interesting. I don’t know. We’ve always tried to keep ourselves the least expensive option in the market. And I think that we think that the path to growth is not so much by increasing 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. Interviewer: Yeah. That’s interesting. Let’s talk, and the reason I’m bringing that up is because our friend, Matt, right? Matt was on the show with TSheets, he just sold ti Infusions… Or sorry, to Intuit for 340 million bucks on a great multiple. And he was, I mean, I would put him in the payroll space, but it’s not just like a timer, it’s more intricate payroll. I mean, you could very easily, there’s a clear path for you from a product, from my perspective, to jump into these kinds of spaces. David Barrett: Well, 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. TSheets certainly has focus on making the best time role, time tracking sort of software. And it’s not just about the numbers behind it, but it’ll take a picture of you when you clock in, there’s 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, it’d be very hard for us to do time tracking nearly as good as they do. Interviewer: Before 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: Sure. Yeah. This is my office here. And so- Interviewer: Oh wow. David Barrett: It’s actually my daughter’s birthday. We rented this bus called a tumble bus, which it’s a whole gym that comes out and it’s just the whole thing that’s going and playing out there. So… Interviewer: Oh my gosh. Wait, go back to your bookshelf. How do you organize? What are these books? Are these fiction? Nonfiction typically? David Barrett: Actually [crosstalk 00:13:07] are my wife’s books. She’s an opera singer and 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. Interviewer: I love that. All right, David, let’s wrap up here with the famous five. Number one. If you have one, what’s your favorite business book? David Barrett: I guess I would have to say The Innovator’s Dilemma. Interviewer: Number two. Is there a CEO you’re following or studying right now? David Barrett: It would have to be Elon Musk. Who wouldn’t? Interviewer: I know. Yep. That’s right. Number three. Besides your own, is there a favorite online tool you have? David Barrett: It’s basic. I’m just going to go Google Docs. Interviewer: Okay. I was about to say, you don’t have to go basic, you can if you want, but Google Docs. Number four. How many hours of sleep do you get every night? David Barrett: Eight. Interviewer: Okay. 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: No, just the one. But I do have a dog and she’s certainly precocious. Interviewer: And how old are you David? David Barrett: I’m 42, I think. Interviewer: Okay. Last question. Take us back 22 years. What do you wish your 20 year-old self knew? David Barrett: I would say stop listening to VCs. Interviewer: There you guys have it from David, stop listening to VCs. Look, he launched this company many, many years ago, jumped into the VC trap, raised 25 million, took some swings, missed, learned it the hard way, but really now it’s beautiful what he’s doing. Acquisition, basically they’re a consumer app, bottom up, focusing his R&D team on making the tool easier for small business owners and for the consumer themselves, because when the consumer uses it more, they tell more people, word of mouth grows, they move to a paid plan at about eight bucks a month. They’re doing between, call it 60 and a hundred million currently, growing year over year between last year and today, December, 2017, between 50 and 90 or 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: It’s been a real pleasure. Thank you.