Thought Leaders in Financial Technology: Expensify CEO David Barrett (Part 2)

Sramana Mitra: What has changed in the market in the last six years? What are the big trends that are affecting your business?

David Barrett: I would say the collapse of the conference industry. For a while, there were accounting conferences where everyone would show up and pitch, but all that fell apart.

There’re a number of reasons for this. Earlier, there was a diverse third-party market for accounting conferences, but then Intuit stepped in and created their own and took all the oxygen out of the room. The conference channel dried up but, at the same time, it was never that good in the first place.

The market has changed. Now there is more widespread adoption of the cloud, which sounds obvious. But for a long time, a big question was how secure the cloud was. People had questions regarding where data is stored and how secure it is.

It’s one of those questions that signify the discomfort with the idea of cloud-hosted applications. But that’s all gone away now. Even Intuit has moved away from QuickBooks desktop; they have deprecated the entire tool. Everyone has finally gotten on board.

The industry has shifted towards self-service. We had a lot of demands in the classic sales environment the last time we talked, but it’s interesting because even as we have grown our ability to satisfy our customers who want a classic sales experience, fewer and fewer of our customers ask for it.

As our self-service has gotten better, as the industry has matured, and with people getting used to the cloud, people have just gotten comfortable with self service. Those are the big changes. 

Sramana Mitra: You had talked about a slightly different financing strategy when we last spoke. How have you built the company since then?

David Barrett: We are profitable, so we just put money in the bank every month. We don’t raise money. We haven’t raised money since we last talked. We raised some money early on, but ever since, we have just grown through profit. Silicon Valley has forgotten what it means to be a profitable company and to be a real business.

A real business has access to capital in different ways. We can take on debt because banks look at our recurring revenue and say, “Wow! This is an incredibly low-risk lending.” What we have been doing is taking our profit and leveraging it with debt and even using that to leverage the buyout of investors.

The company has not been selling shares, but it’s been buying back shares consistently over the past several years. We used the shares of the company that we repurchased to put them in the options pool and then we distributed those to employees. The company has been consistently buying out former investors and redistributing the shares to our options program to employees.

You can only imagine something like that if you are steadily profitable. That’s why having a reliable recurring profitable revenue enables a whole new world versus an inconsistent profit. Some companies say that they are profitable for a month and then they do something and lose a ton of money. If you are confident that you are going to be consistently profitable, then you can make decisions based upon that. 

Sramana Mitra: You raised about $5 million if I recall at the time. You haven’t raised money since?

David Barrett: We did one round in 2014 or 2015. We did do a round for another $5 million or so. 

Sramana Mitra: That’s pretty moderate. 

David Barrett: Yes for a company of our scale, it’s basically zero. I never quite understood the idea of raising money as a sign of strength. Raising money is like chopping off your leg to sell it. It’s the worst thing to do. It’s the thing you do out of desperation. I think that we raised a little bit because there were times in the early days that we were desperate, but we haven’t been desperate for a long time. 

Sramana Mitra: What guidance can you provide us about your revenue range right now?

David Barrett: We don’t share any of those numbers, but I would say that we have more customers than the sum of the rest of the industry combined. That’s a little misleading because Concur has their focus on much bigger customers, so Concur is certainly bigger than us but we’re far bigger than everyone else. 

Sramana Mitra: One of the trends that you haven’t talked about that I’m noticing is the platform as a service trend. Salesforce did a very nice job of growing their platform and not just their CRM app. They grew their platform and started that early on.

Lots of companies and apps got developed and their App Exchange helped those companies to connect with their customers. They have to build a tremendous developer ecosystem and have acquired some of that ecosystem. Then big companies like Veeva came out of that.

To your point of building a capital-efficient SaaS company, that has been a great strategy. Now other major SaaS companies are following that strategy. For example, Atlassian, Twilio, and Shopify. These are companies that are building a nice developer ecosystem and following exactly that playbook.

The SaaS market is becoming more crowded. Just in MarTech, there are 10,000 companies and there are also 200 companies with a $100 million-plus ARR, and another 500 companies in the $50 million ARR.

My hypothesis given how crowded the SaaS market is that the ones that are going to the next level are going to be the ones that do a good job of developing a developer ecosystem. What is your thought on that?

David Barrett: I disagree with that. Salesforce, for example, is known for its platform, but I would be curious about the breakdown of their revenue. How much of their revenue comes from services they built internally and are selling like the CRM versus the ecosystem? I would guess that most of it comes from building products and selling them.

The ecosystem is probably good from a marketing perspective and awareness perspective; it cements themselves into companies. If Salesforce didn’t have that, are we certain it wouldn’t still be a giant powerhouse? Twilio is different because it’s only a developer tool. It doesn’t have a mix of developer tools and user products.

Atlassian has a developer ecosystem, but it sells tools to developers. I don’t think there are tons of developers contributing to their open source projects. Jira is open source, but I would wager that most open source projects are 99% made by the company.

In our industry, Intuit has seen this. We’ve seen people trying to make this platform more into an ecosystem expecting that companies will contribute to the ecosystem. I just have never seen it work. Intuit did a variety of things. We were the first launch partner for the Intuit App Exchange.

For a while, we were built into QuickBooks itself and it just didn’t matter and it didn’t generate leads for both of our companies. We were the top partner for basically everyone in the accounting industry and they don’t matter to us and vice versa.

Everyone talks about the importance of these rich ecosystems, but we’ve never seen any benefit from any of them and we are the biggest player in every one of those ecosystems in our industry. Maybe accounting is different. The way you make money is, if you make a product and sell it to customers and they pay you for it. It’s as simple as that. 

This segment is part 2 in the series : Thought Leaders in Financial Technology: Expensify CEO David Barrett
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