Thought Leaders in Financial Technology: Expensify CEO David Barrett (Part 4)

Sramana Mitra: I work with formation-stage companies all the time. Two guys or one person and an outsourced team of developers build these formation stage companies where they would want to spend their resources. The best place to spend your resources is what is differentiated.

Going in and competing against AWS is not a differentiated strategy if you are trying to build a B2B SaaS company in a mixed domain of, let’s say, supply chain logistics. It’s better to have to strike out the other layers and focus your attention on building the logic that is going to give you the differentiated advantage on that layer. 

David Barrett: I completely agree. The argument is hardware is cheap and you can’t go wrong. It’s free. If the technology of your platform is free then yes, AWS is free just like everything else. My point is comparing AWS to the alternatives. 

Sramana Mitra: My point is much more holistic. It’s about how to build a company. Building a SaaS company is expensive. We haven’t even started to talk about the sales channel and cost as well. 

David Barrett: Again, I will maintain that it is not expensive. We just agreed that the hardware is free regardless of how you do it either you buy it or rent it. 

Sramana Mitra: People are not free. Somebody has to put in the expertise to build all those pieces. The people and the expertise are not free. 

David Barrett: I’m with you on that. If we rule out technology costs as effectively being zero, your main cost is people. If you are a brand new company with a couple of engineers in a garage, starting a company is free. It’s just you and the food that you eat. That’s your cost.

If you choose an expensive acquisition model, then you have made a choice that makes your company very expensive. If you choose the viral acquisition model, customers are also free. These are all choices.

To say that it’s expensive to run a business is misleading to people because that suggests that the only way to succeed is to make expensive decisions. Some of the best companies out there don’t make expensive decisions and it’s very cheap to run.

Sramana Mitra: My point is that the reason these companies like Veeva and Vlocity did what they did and succeeded was they got access to Salesforce’s customer base and that’s what allowed them to build their company effectively and cost efficiently. 

David Barrett: We were the top app in the Salesforce App Exchange in expense management. It didn’t matter at all. Maybe it would have been good if we didn’t have anything else, but because we didn’t bet on those channels, we developed a viral acquisition model that dwarfed the sum of every single store that we participated in.

If you commit yourself to a single channel, then that just looks good. It’s kind of the golden hammer fallacy. If from day one, you say that your goal in life is to build on Salesforce and talk to their customers and eventually get acquired by them, then you don’t know any alternative.

We can point to specific success cases, but that would be to ignore the thousands and tens of thousands of failures that took that exact same strategy.

Sramana Mitra: I think what you are reflecting on is something that has not worked for you. It sounds like the ecosystem strategy hasn’t worked for you. The viral strategy, however, has worked for you. I can give you millions of examples where the viral strategy has failed. 

David Barrett: I think that’s where the challenge is. It’s hard to give advice to entrepreneurs because nothing works reliably. What worked yesterday might not work today. Maybe it worked for the first person in the industry, but it won’t work for the second. 

Sramana Mitra: What we do is test. We test the strategies and we try to find one where there is a natural affinity. The one that is working for a lot of people right now, because of where we are in the evolution of the industry, is the ecosystem platform.

Think about it if you are a market company with 10,000 other market companies. You have to find a way to break through and find what leverage you can get from the market. Otherwise, you are just going to sit there and compete with hundred companies. 

David Barrett: We talked about the industry as if there’s always more opportunities and an infinite amount of new ideas. I question that. We got into this rhythm where every ten years, there’s this major platform that changes everything.

We come out with mainframes, then PCs, then the internet, then mobile, and now it’s more mobile. We are done. Pretty much every app on your phone that you use was made in the past 10 years. 

Sramana Mitra: You wouldn’t start an Apple app today because that’s really saturated. 

David Barrett: I would say that everything that is done with bits is being done by bits 10,000 times over. There is no first mover advantage. We’re now in the 10,000 mover advantage. We are not coming out with new use cases.

Everything that can be done on the phone has been done on the phone 100 times over and it’s already saturated. It’s really hard to be an entrepreneur. This may be a demoralizing thing for me to say, but I don’t know how you would start a company today. 

Sramana Mitra: There are companies that are starting today. I will give you the vectors in which there are companies starting. One is location. There are lots of ecosystems that are underserved.

You are sitting in Silicon Valley thinking about it from the high-end ecosystem. There are companies that operate on a very different price point. Something that costs $10 a month is unaffordable for a certain ecosystem where you have to deliver that at 50 cents per month. That’s an opportunity.

It’s a very different kind of opportunity, but it’s an opportunity. That’s one vector. There’s another vector which is all these different workflows in the B2B. There are various niches and AI configurations in that world.

For example, something that used to be a normal cloud app becomes an AI-enabled cloud app. That’s a variation and there are all kind of combinations of that. All of that are possibilities. There are also culture changes happening right now.

In the post COVID world, there are cultural changes happening. I just started a series. I talked about ideas that are hinged on cultural change and behavior changes – behavior changes at a level that we have never seen before.

David Barrett: COVID certainly upended a lot of things. In a way, it’s brought 20 or 30 levels of sophistication to the 2020 marketplace. Everyone is suddenly figuring out how to work from home. 

Sramana Mitra: It’s 12 years of change in 12 weeks. 

This segment is part 4 in the series : Thought Leaders in Financial Technology: Expensify CEO David Barrett
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