Thought Leaders in Financial Technology: Expensify CEO David Barrett (Part 5)

David Barrett: When it comes to the platforms, I’d be curious to see if a major value of one the platforms is reaching existing customers. One of the major ways of starting a new business is to reach new customers that are currently underserved.

Can you use the Salesforce platform to go after a market that is one tenth of the price point? It feels like they wouldn’t be in that environment and they couldn’t afford that platform.

Sramana Mitra: That may not be the right way to go after that opportunity, but if you are trying to AI-enable a particular niche product, that may be perfectly doable on a platform like that.

It depends on the platform and the ecosystem, but from the point of view of a company that has a $50 to $100 million ARR business that needs to develop a moat around their business and go to the next level, I would say ecosystem strategy is the only strategy.

David Barrett: I don’t think that we see any value in it and I don’t know if we want to bank our future on that. The best moat is growing everyone else. I would say that the best moat is having better economics than everyone in your industry. If you have a lower cost of customer acquisition and a higher ROI, then you can just outbid everyone else.

Sramana Mitra: Shopify had major competitors and they did a fantastic job using that moat to create a differentiated position. Look at Shopify’s market value.

Opinions vary based on your own experience. In your case, your negative experience with ecosystems is why you have a negative point of view. By the way, this is a wonderful interview with a back and forth discussion. I’m thrilled to have these discussions with you in the context of an interview because it would be great for readers to see the two points of views.

I’ve had lots of conversations and I’ve heard lots of different perspectives. Atlassian is using their ecosystem with numerous users and developers to outsource their R&D. They are acquiring, hiring, and expanding their app base. It’s a strategy that is clearly working for them. I’m an investor in Atlassian, and it’s a wonderful investment. 

David Barrett: I think that’s true. There are many strategies to win. There’s even a spectrum that the closer you are to a product that is being sold to engineers the more a platform strategy will work. For Shopify, all they do is sell their platform. It works because it’s the only thing they do and there is nothing to compare to. 

Sramana Mitra: Most of the SaaS companies out there are doing that; they only sell one thing. They do one thing well and they put a lot of money in building channels, but they cannot go from $100 million to $500 million with that one-trick pony.

They need to build a bigger business and they need to have more products to sell. They also need to increase the deal sizes. All of these are doable if you can make a platform strategy developer ecosystem work, which is very difficult to do. At this point, there are only a handful of them that are working well. 

David Barrett: I agree with you there. What advice would you give to your users and readers about whether they should build their own ecosystem or try to join the existing ecosystem? What rulebook could you apply because on one end, you can say everything works and on the other side, you could also say everything fails? 

Sramana Mitra: I have to do this all the time. It depends on which domain you are in and what the options are. If you are in an ecosystem that is compatible with the Atlassian ecosystem, then I would definitely consider that because it’s an active strategy.

We have sold some companies to Qualys knowing that they have a particular strategy where they are trying to buy companies in a higher mode that has a specific center of gravity in India. There’s a location and geography angle to it, so that’s why I refer companies with that profile to Qualys to acquire.

If you are in a domain where there is no platform ecosystem to plug in to, then the question is regarding the moat and that is the situation in a lot of domains. There is no platform ecosystem that you can go build on top of, so there’s no advantage to gain by trying to look for a platform. So, you have to look for another strategy.

The other side of the equation, which is another work we do and why I had such insight into what’s happening in the different larger companies trying to build ecosystems. The question that arises is to build an ecosystem or not. There, I would say that it’s a very topical question.

If you want a long-term moat, then you should consider doing an ecosystem. There are a lot of companies that are in that position at the moment who are trying to figure out how to go to the next level. That’s where I think the ones that are going to be able to do a strong ecosystem strategy will have a very strong chance of success.

Of course, when you look at Documentum, for instance, this company doesn’t need to do any positioning strategy because the whole business is growing so fast and COVID has accelerated that. This whole business of having to do in-person signature of physical copies has given way to digital signatures. The core business is strong and there is only one real competition which is DocuSign from Adobe.

David Barrett: That’s interesting. Applying that framework to Google, they had a core business model in search that they could have just ridden that forever. Except mobile changed that because being the default engine became the most important thing. To defend their position, they have to take over mobile and add Chrome and so forth. 

Sramana Mitra: They had to do the Android ecosystem in response to the Apple ecosystem. They had to have an AppStore, otherwise they couldn’t be as successful. 

David Barrett: Up until mobile, Google didn’t need an ecosystem and there was no value to it. 

Sramana Mitra: That’s right. There were search advertising companies that made nothing except search advertising. 

David Barrett: That’s true. There’s an ecosystem in SEO firms that don’t make money in SEO.

This segment is part 5 in the series : Thought Leaders in Financial Technology: Expensify CEO David Barrett
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