Building A Profitable, Steady Growth Subscription Business: Expensify CEO David Barrett (Part 2)

Sramana Mitra: You joined that company in what capacity?

David Barrett: Titles in startups are pretty meaningless, but I was the technology guy. I guess you could call me Head of Engineering or CTO. Travis wasn’t the programmer. I started off doing everything, and then I hired a team under me to help me out.

Sramana Mitra: In 2009, when Akamai acquired Red Swoosh, did you have to go to work for Akamai for several years?

David Barrett: It was 2007 when they acquired us. I stayed there for about one year after acquisition. I had already been working on the side on my new startup, which became Expensify. During the day, I was working at Akamai. I was actually fired from Akamai. I was fired in very dramatic circumstances. I was interested in the whole copyright space, and I had participated in some online discussion. I managed to get quoted in a magazine as the lead peer-to-peer engineer for Akamai. However, it came out criticizing Warner Music’s new plan.

Sramana Mitra: Warner Music is a big customer of Akamai. I know that because I’ve talked to Warner Music and Akamai.

David Barrett: First, I had no idea that Warner Music was a customer. Second, I didn’t even know that they were considering this particular plan. Rather, there was this other guy who was advocating this particular plan and I was highly critical of him. Basically, I was his lead opponent online.

The big scoop on the article was that Warner Music had just hired him to implement this plan. I was his critic and it was reported as if Akamai was criticizing Warner Music. The whole thing was a big mess. One thing led to another and I got fired. All this happened one week before my one-year cliff. I was freaking out. I was going to get fired 24 hours before I got this giant check. Thankfully, I was able to drag it hour by hour till the vesting date. Then, they fired me.

Sramana Mitra: How long did it take you to get all of this done?

David Barrett: There was no paper work involved. You just walk out.

Sramana Mitra: You said you were already working on Expensify while you were still at Akamai. What had you got done by then at Expensify?

David Barrett: I would say the first year of being an entrepreneur is really horrible. No one really talks about it. I think we’re all guilty of the narrative fallacy where we look at the successful people and we trace backwards in their life. It seems like there’re very clear paths that they took. The path probably isn’t anywhere near as clear as it seems. My first year was very complicated.

Furthermore, for every one person who succeeds, there’s a hundred people who fail using a path that was no better or worse. Things just didn’t really line up for them. When you start, you really don’t know what you’re trying to do. You have some vague ideas. The odd thing about Expensify is that, initially, I had no interest in expense reports whatsoever.

Sramana Mitra: What were you tinkering with while you were working on Expensify while you’re with Akamai?

David Barrett: At that time, we just got acquired by Akamai. Acquisitions are always bittersweet. On the one hand, we just made money and on the other hand, we worked for this other party now. I would say the frustrating thing about being acquired is that the incentives shift instantly. Whereas on Tuesday, I’m strongly incentivized to work as hard as I can to maximize the exit. Whereas on Wednesday, I am incentivized to work the least I can in order to not get fired because my compensation is fixed. I would say it’s a huge radical change of going from a pre-acquisition to post-acquisition company. Even worse, is that when you’re working at a newly acquired company, you’re still a startup. You want to go and do great things. Employees of the acquiring company don’t have that sentiment. I’d say being acquired is always frustrating. I’m an engineer and can’t help but optimize my scenario. I’m going to work hard because that’s the person I am, but I feel bad about working hard because I recognize it’s a complete waste of my time. Instead, I’m going to work reasonably hard and then after that, I’m going to do my real job. I’m going to start a new company. I worked 40 hours a week on this new company basically.

When you first start, it’s some vague idea. I concluded that I wanted to do something that solved a real problem that I personally experienced. I worked in a lot of startups where the product I built and was trying to sell was something I would never or couldn’t ever use. The product made sense for only 10 companies in the world. Only 10 people actually move as much content that they really need a product. I wasn’t one of them. I’m sick of selling a product that I don’t actually understand and I wouldn’t use.

Secondly, I wanted something that could be sold directly to individuals rather than through the enterprise sales model, which distorts priorities inside the company. Third had something to do with money. The best way to make money is to find a way to sell money. The idea I started getting excited about was basically the prepaid debit cards space. My idea was a prepaid debit card that maintains a zero balance at all times. You could give out these cards to all your friends, families, or co-workers and put constraints on it. Every purchase they would make on your card will be billed back to your actual credit card.

I researched a lot on the technology behind it. There’re some really interesting technological challenges there – extreme security requirements that required talking to the banks. I reached out to these banks and they thought it could work but it was strange and risky. 2007 was not a good year for the banking sector. I needed to sound low-risk in order to get by this compliance. I went back to the banks and said, “I’m going to do expense report reimbursements and I’m going to do this prepaid card on the side.” I used the expense reporting business as a Trojan horse to launch with these banking partners who would have never approved my primary concept. It sounds safe and boring. That’s how I stumbled upon expense reports. I thought what would be the most boring thing that would make me very safe.

This segment is part 2 in the series : Building A Profitable, Steady Growth Subscription Business: Expensify CEO David Barrett
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