If you want to know about dynamics between members on your board and how to get through the “valley of death,” aka getting from 0 to $1 million in ARR, then you should hear what David Barrett, CEO of Expensify, has to say. Expensify started as what was viewed as a horrible idea and turned into a successful company whose product is used by companies big and small. That was in no small part due to having a board that was aligned with David’s vision.
The key to running an effective board is embracing the fact that there are many different perspectives on your board and understanding what drives each person that’s on it. For example, you should understand how a VC actually makes their money – the reality may surprise you.
But despite all this talk of boards, you have to remember that while they’re important, nothing of interest actually happens during the meeting, it’s the stuff that happens outside of it that matters.
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Announcer: Good morning. Please welcome CEO of Expensify, David Barrett.
David Barrett: Wow. This is a really cool chair. I’ve never actually sat…It’s like a real fireside chat thing, but minus the fire. It’s good. It’s pretty comfortable.
Audience Member: There’s wood there.
David: What’s that?
Audience Member: There’s wood there.
David: If we can get a lighter we can definitely hook this up. All right. Here we go. Screen. Good. This session I’m talking about today…most of the sessions here at this conference are about getting to the $100 billion mark and all of that. That’s great, but I imagine most of the people in this room are early stage entrepreneurs.
That means that basically, just to take a guess…So who you are and what you’re going through. It’s probably that you’re small, you have very little revenue, you have a couple of employees maybe, you’re probably struggling, maybe your bank accounts are stretched, you’re probably incredibly stressed.
I think you’re stressed probably because every day you are saying this image to everyone else about how successful you are, and how great things are.
Everyone around you is doing the same, how great things are for them as well. Even though you know in the inside, that you feel like a complete failure. It’s because until you are an unqualified success, you have to assume that you are destined for a crash and burn failure.
That anxiety is, like I said, in the pit of your stomach because you know that someday you’re going to get found out. When you do, it’s not like, of course, the financial ruin because I imagine most of you also probably realized you wouldn’t tell others and certainly not even your wife and significant others and things like this.
You’re overextended in this thing. Maybe, your savings aren’t as good as you’d hoped for, and so forth. You don’t have much of a backup plan financially. Even worse is your entire emotional self rests upon this right now.
You know that failure–which you feel and suspect is probably inevitable—it’s lurking over the horizon. When it happens, it’s going to be a devastating, soul crushing loss. Is that about the…?
David: Here we go. It just gets worse.
David: No, I know that’s how I was when I started. It’s brutal. It’s a brutal, awful slog in the start. As much as this conference is about getting to that hundred million, the hard part is getting to that one million.
That is the valley of death, that basically, will wipe out probably most of the people in this room. That’s rough. That’s what we’re here for.
The session that I’m talking about is basically about the board dynamic and about how to survive this valley of death and bring not just yourself and your team but your extended team, including your board, across that until you cross the $1 million mark, and then the $10 million mark and keep going beyond.
I would say, it’s always good to call out just how awful it is to be a founder, to be an entrepreneur, because that is a unique perspective that you bring to the board room that no one else shares. No one else can even comprehend.
I think it’s good to acknowledge this difference, because the key to the running an effective board is actually acknowledging that everyone is different. Everyone in that room has a different motive. They have a different background, they’re bringing a different agenda to it. That’s fine.
It’s like we don’t need to pretend that everyone is the same. I think that actually a lot of the problems happen when we overlook those differences. My advice to start with running an effective board is to acknowledge your unique perspective and, in doing so, become more familiar with and open to the different perspectives of the other people there.
To quickly ramble through some of the people who are on the board. There’s you, of course, the founder. You might have some employees on the board, too. Employees, they’re in a similar boat as you, because they are betting everything on the outcome of the business. They want to have a big exit for the company.
They’re compensated primarily by that exit, because they’ve hitched their wagon to your train. They’re basically counting on supporting you to the exit points, and then basically sailing off into the sunset. Employees are naturally aligned to your vision.
Also, they don’t really have the same downside as yours. Their emotions aren’t as tied in the company as yours are. If you lose, you fail. To you, it’s a real devastating emotional turmoil. To them, it’s just a big bummer. It’s like, “Well, that was a couple of years. I got good skills, and I can go onto the next thing.” To you, it’s really hard to go onto the next thing, because you got to pick yourself up from the ashes.
There’s your and there’s your employees maybe on your board. You’re very naturally aligned towards this big outcome. The next group would be your angels. Angel investors are great. The angel investors are people who invest their own money. I’d say, largely, in my mind, view them into two camps.
There’s the angel investors. These are people who have a bit of money, but the money they invest you is actually a substantial share to them. They really care. It’s actually a big deal to them, the outcome.
There’s the super angels. The super angels have so much money, they’re crazy rich, and they’re going to give you some play money. They don’t really care what happens to it.
Both are interesting, because both are actually because it’s their own money at stake, again they are naturally aligned to the outcome. Unlike the employees, they don’t work there. Therefore, they actually don’t really care about the path taken to the employee.
They’ll say this. They actually do in a way believe that, but not on a visceral level because they don’t see the effects of these changes on a daily basis. As we go through this list, you start to see that the alignments differ a bit whereas you and the employees are very aligned on not just the outcome but the path you take to get there.
The angels are only really aligned on the outcome and really financially and viscerally as well. As we take the next group here are the independents. Independents are like wild cards. I guess they’re supposed to be. That’s why they’re independents.
I have no independents on my board because I don’t like wild cards. I like to have things I understand. I’d say a challenge I would say with independent seats in the board is that in reality no one’s actually independent, mostly independents especially.
Think of the business model behind being an independent board member. You spend time with these companies you have very limited control over. In exchange you’re probably getting a surprisingly substantial cut of equity.
With the equities you care about the outcome, but you still don’t really work there. I would say I’ve talked to a lot of different companies. First, actually I should introduce you to myself. I didn’t think about that. I’m the…
David: I’m the Founder and CEO of Expensify. We’re a company here in San Francisco. We’ve got about a hundred employees. We’ve got an office in San Francisco, a new one in just Portland, Oregon, Michigan, Melbourne, London, and employees all over the world. We’ve got 25 or so thousand customers, everything from thousands of very small companies.
Everything up to Uber, Yahoo, Snapchat, and a bunch of these, the names that you know. A lot of the unicorns, a lot of the former unicorns. A lot of Silicon Valley native businesses use Expensify. What we do is we’re a service for business travelers. You take a picture of the receipts. We scan all the information off the receipt. We do everything for you.
We’ll submit it to your accounting package and get you reimbursed and all that. That’s Expensify. My background is I’ve been a programmer my whole life. I started when I was six. 3D graphics engines throughout middle school and high school. I went to the University of Michigan. Go Blue!
I went to Texas for a while doing 3D graphics engines, and then I took a hiatus. I went into technical writing for a bit. Then I got into distributed computing, peer to peer technology. My last company is a company called Red Swoosh. We do peer to peer content distribution. It’s only natural of course that I would be given to expense reports. Right? That’s a pretty natural transition I would think.
For me the way I got into it was because I wanted to build a company that I wanted to work for and wanted to keep working for in the long term. I think the challenge with a lot of the companies out there, even the successful ones, is along the way they just lose something. They lose part of their soul. There’s this entropy that starts off at all companies.
It’s like, “Oh, remember the good old days when there was a few good people, but then we had to hire. Then we had to hire more. Then we had to bring in that guy. Then that guy hired his people. Back in the good old days things were good, but nowadays we gotta grow up” sort of thing. I wanted a company that was like Neverland that just never grows up, that just gets better and better over time.
When I set out to build this company, I fell into this niche that became our market and so forth. In the process of doing so realized that starting a business is so much easier than it’s made out to be. It’s so much easier. It’s like all the complexity is invented complexity.
It’s a complexity I would say being sold to you by primarily the people who profit from that complexity, who benefit from you thinking it’s harder than it actually is. I think that a lot of my work going through as an entrepreneur has been disregarding that complexity over time and learning to challenge a lot of these assumptions and figure out the deeper motivations.
I think that’s why we’re very lucky that we had a successful company. We could actually be very selective in the investors we brought onto the board to make sure that we’re finding people that support our vision as we go. It’s a very hard thing to do.
Regardless of if you had the luxury of being selected to the board or if you just ended up with the board you have, whatever that is you just have to deal with that. I’d say the way you deal with that is by understanding who those people are and understanding what makes them tick and where they want to go. All right, so back to where we were.
When I talk about independents, I’d say typically the story is, “Oh, yeah. Things are great. Things are really good. Now we should bring in the real experts who’ve done it before.” It’s like, “That’s cool. It’s cute what you’ve been able to do so far, but let’s do this for real. Let’s bring in the real expert here.” That’s where a lot of the independent advisors come from.
They’re the expertise brought in, but they’re primarily brought in by the board. They’re brought in by the board, and if they’re brought in by the board, that means that they’re not really independents. They actually work for the board. Not really, it’s not quite the same, but it’s similar.
That doubt will always be in the back of your mind, because put yourself in the mindset of someone who’s an independent, who’s brought in by investors, typically, to clean up a company.
Their mandate really is, they’re brought in to fix things. By fixing things, that probably means they want to probably want to fix you, fix your team, and so forth, or maybe. You don’t really know.
A challenge, if you have an independent on your board, is that, are they really independent or not? If you don’t really know what they want, that’s even scarier, because typically the independent is the tiebreaker between any sort of challenge between you and the rest of the board. If your tiebreaker is the biggest question mark, that’s kind of a scary thing to have.
I’d say definitely talk with the independents to make sure you understand what they really want to accomplish, like, “Why did you join my company? My company was doing OK, but you were good because you have this amazing resume in the background, so why did you choose to join my company?”
There’s probably a variety of different angles, some of which are true, some of which might not be true. A possible one is because that’s their business model now. They sell their time. They sell their time by joining ever more successful companies and getting a big chunk in return.
One challenge, possibly, with an independent is that there is a situation where they might be more concerned with the perception of success than actual success, because it’s the perception of success, is what gets them their next gig.
I’d say be aware of what’s driving them forward. Have candid, hard conversations with the people early to make sure that you’re on the same page. If there is a disagreement, there’s no time like the present to deal with it. It’s going to be super hard to deal with it, but it doesn’t get easier. Make sure that you’re aware what the independent role is.
Again, I don’t know that you really want an independent. You want someone who’s going to back you. Is going to challenge you, certainly push you. Awesome, that’s great, but also is going to back you when push comes to shove.
We talked about yourself, your employees, your independents. I would say this is where the really challenging one comes, the VCs. VCs are incredibly important, obviously. Everyone in this room either probably is funded, wants to get funded, whatever that is.
Somewhere in here there’s Blake Bartlett from OpenView, VC shout out. There we go. If you say Blake over there, go talk to him. You won’t find a better VC.
They’re a very important part of the team. But at the same time, they’re also, like everyone brings a very different perspective. It took me years to figure this out, and now sometimes it seems really obvious, but maybe you don’t know this.
I don’t know if the people in this room know how VCs make money. I thought, ludicrously so, they made money by investing their money in my company, and then waiting until the end, and then getting paid out with me.
That’s actually not their business model at all. Every venture capitalist has what’s called a LP, the limited partner, those are the people who’s real money they’re investing.
That’s how they get a billion dollar fund of whatever it is. It’s not because they scraped together a billion dollars from their friends, or something like this. That’s not how it works.
They go and they get a billion dollars from a mutual fund, or something like this. They have huge sums of money, but it’s not actually their money. It’s money from someone else. It’s money that they want to invest into you, but in order to do so they need a strong enough incentive, a justification to do so.
The VC business model is they get paid when they invest. Actually, they don’t really make money on the exit. There’s the carry, they would say, at the very end.
Imagine the life of a VC, which is a hard life, by the way. Being a venture capitalist sounds brutal, in a similar way to being an entrepreneur. In that sense that you’re mostly a lone wolf. Yes, you’ve got a team of people, but you’re pretty much competing for the resources of your LP.
You don’t really partner a whole lot with the venture company. A bit, but really there’s a limited amount of LP capital that needs to be deployed.
You’re partnering, but mostly competing with the rest of your firm to justify why they should make an investment to one or the other. As a result, your firm’s only going to give you so many bites. You want to make sure that you’re spending your capital, your time effectively.
That’s why they need to make sure that only invest in large deals, because they’re only getting a few chances. Then you can say there’s strong equity targets, and really dig in. There’s a lot of complexity that comes out of the economics of this.
The bigger the deal, of course, is also the bigger their paycheck, because the more money they can deploy in the LP, that’s more money they get paid right now.
If you think about the career of a VC, they start off, they’re doing very small deals. They do a small deal now, they get a small check now. Then I get the prospect of maybe getting a check in seven years, if the company succeeds, which most don’t.
Then next year comes along. You do slightly bigger checks, and then slightly bigger checks, being paid as you go.
Then maybe seven years later, when you’re actually doing some bigger deals now, you get a small check from one of your deals forever ago. You’re like, “Oh that company. That’s cool. They really exited. Way to go guys. That’s really good.”
It’s no longer top of your mind anymore. At any point in time I would think that you’re pretty much driven by the next big deal, which is fine. That’s their business model, and someone’s got to do it.
It’s a very important part of the ecosystem, but at the same time it also means that the motivations in the boardroom can’t help but be different. If it seems like the VCs, all they want to talk about is when the next round is, there’s a reason for that. It’s because that’s when they get paid again.
The major metrics for a VC, you can’t go in to talk to a venture capitalist without answering questions like, “What’s your cost to acquire a customer? What’s your lifetime value?”
Based upon those two numbers they’re like, “OK, how much money can this company raise and spend quickly?” because the more it can raise and the more it can spend, the more money they can actually make.
I’d say a challenge with the venture capitalists, I would think, is that at times there’s a tension between, “Hey, there’s this really great organic profitable business model that will make me no money whatsoever.”
That’s a challenge that they would have to rectify internally and that people should be aware of as you’re running a company. That not everyone defines success for the company in the same way.
We talked about you, your employees, the independents, the VCs. This all comes together in the board meeting.
The first thing I would say about the board is that nothing of interest or value happens in the board meeting itself. This took me forever to figure it out. I don’t know what I was thinking.
I’ve basically been to board meetings, and there’s these long rambling discussions, and it’s detailed, blah blah blah. There’s details, metrics, and no one cared.
It took me forever to figure out why, and that’s because it doesn’t matter. Realistically, there’s no topic of such importance that actually needs to be and can be resolved in two hours.
Anything of interest has to happen outside the board meeting. At best you go to the board meeting such that you can vote on things.
It’s really this antiquated formality where it was really hard to get a hold of people. Now, in my opinion, I would say the board meeting is primarily there to formalize decisions that have already happened outside of the boardroom. It took me forever to figure that out.
I’d say, first, when it comes to the board meeting, don’t pay attention to the board meeting. The board meeting, itself, is actually the least important part of running the board.
It’s the most on stage part. It’s the part that you prepare for, stress out about, and all that sort stuff. It takes a bunch of time, but it is the least important part of the board dynamic. It took me forever to learn that.
I would say a more important part of the board dynamic is understanding the difference between soft versus hard power. I’d say a soft power is what you should always aim to use. It’s basically talking with people, compromising with people, cajoling people, convincing, all these sorts of stuff. It takes a long time but trying to achieve compromise through a series of different means.
I think the majority of your time with the board will be soft power, both you towards them and them towards you, because, really, everyone wants to be friends. Everyone wants to be happy and everyone seems super happy all the time. Like, “Yeah, we disagree but I’m on board in all this.” That’s a sign of soft power at work.
Under the surface of all of that, there is hard power. Hard power is a thing that the investors especially, they’re experts at this stuff, way better than you, they know the terms of your Articles of Incorporation probably much better than you do.
That’s a danger for you because hard power exists. When soft power doesn’t get the results that it wants, that’s when the knives come out. You need to be aware that those knives exist and that you have knives, too.
I’d say, the point of having a hard power is not to prepare for conflict but to know when you are asking and when you are telling. That changes the relationship with the board as well because there are some things that are truly your authority.
Again, it’s your freaking job. They don’t want to run your company. They’re not an entrepreneur. If they wanted to ruin the company, they would start their own. The part of the board, the purpose, it’s not to actually collectively run the company but it’s to serve a check on your power.
As a result, you should be aware of what are the limits of your power. You should make plans that actually stay within the limits of those power. When you need to do something outside of that, you should engage appropriately outside of that, but you also shouldn’t go beyond and mistake one for the other.
If there’s something in your power that you think needs to be done, you should freaking do it. That’s because you are hired as an entrepreneur, or you hired yourself as an entrepreneur because you think you’re smarter than the next guy. At some point, you need to bet on that instinct.
I’d say the greatest companies don’t happen because suddenly, miraculously everyone in the boardroom always agreed in every single decision. That’s never happened. The way it happens, great decisions are always controversial. They’re hard. They’re very unclear and ambiguous.
You got to take a stand for what you believe in, even if that means actually pulling out the knives to push forward and say, “I’m going to do this and there is nothing you can do to stop me.” When you have that conviction, that will come through, and ensure that you never have to do that.
We talked about the unimportance of the board meeting itself, soft versus hard power, now, I would say the last one here, is truly attempt greatness. That sounds obvious. It’s like, “Of course I want to do something great with my life.” Everyone says that. Everyone says they want to do something great.
The challenge is very few people try because doing something great is scary. It’s super scary. The challenge is like all good ideas, they have to look like bad ideas. If it’s a good idea, everyone says that it looks good, everyone will be like, “Oh, yeah. That’s not a good idea. It’s just a thing everyone does.”
For it to be a good idea, it has to look bad on the surface because you have to be finding something that no one else has done. It’s your edge, your angle. That’s what we’re all in here in this room to do, is to find the angle that everyone else overlooked.
There’s got to be a reason someone else overlooked it. It’s probably because it looks terrible. There’s something about it that everyone has discounted. The challenge of bad ideas is that they most actually are bad ideas. Just because it’s bad, it doesn’t mean it’s good.
David: But I would say, if it is good, it has to look bad. In fact, the better the idea is, the worse it looks on the surface. That’s where it manifests itself in the board dynamic. It’s when you believe in something, when you truly believe in the best of possible ideas, you should expect the biggest pushback and rightly so.
That’s what they’re there to do. They’re there to do, like, “No, David. That sounds like an awful idea,” and then you have to work for it. You have to cajole them and to use the best of your ability to get them on board, and if you can’t, then you need to go for it anyway because it would suck to fail pursuing someone else’s idea that you thought was bad.
What did you learn? It’s like, “I thought it was a bad idea.” “It was a bad idea.” That sucks. If you’re going to fail, make sure you fail on your own terms. You go down in the blaze of glory because you know that you tried. You tried to do something amazing.
Maybe it didn’t work, but in the process of doing so, you learned why it didn’t work. You walk away from the experience with something, something to show for it. Maybe, miraculously, it will work, and everyone will look back it and say, “Wow. That was such a good idea. Why didn’t I think of that first?” It’s because probably a thousand people did think of it first and were too scared to try.
The point of the board is to be a check on your bad instincts, to challenge you, to push back on you, to question you, and that’s all good and healthy. Those questions are going to come from a variety of different perspectives and different motivations, and that’s great.
That is the whole point of this system. It’s not there to stop you. It is there to encourage and harness you towards achieving greatness so that everyone else can enjoy in the spoils.
That’s all I’ve got.
David: Thank you. We actually have a couple of microphones. If there are any questions at all, I would be happy to answer them. Over here.
Audience Member: I got to $20 million ARR and took on my first investment.
David: Damn. Nice job.
Audience Member: Thank you. Except now, I get to pick the third board member because I still have the majority of the company and I do expect to raise additional rounds. Thank you for helping me understand why that will be something a VC wanted. [laughs] I didn’t know that before.
When I pick that third board member, which I can remove if the votes go against me at some point, what kind of person should I be picking? I have a shortlist but I’m really trying to think about what really complements or would add value to a board team?
David: Let me get this straight. It’s a three person board, it’s you, the investor, and then there’s a third seat which is vacant, which is the independent seat, right?
Audience Member: It’s not an independent in that I, as majority owner, get to select that seat and can remove it, but it should be someone who has industry expertise.
David: Wait, you can actually remove this person at will?
Audience Member: I can.
David: That’s interesting, but then why then would he be in the board?
Audience Member: Now I want to pick someone that will help and add value to me. I took investment because I want to help build a better sales and marketing engine and I knew I wasn’t doing that to the point that we’re at.
David: Can’t you just call people? Why do they have to sit in this two hour meeting every couple of months?
Audience Member: From a board member? I guess I wanted your advice on what you think. If I’m going to have board meetings every 60 days, what kind of person would you pick if you had complete authority to pick someone who you think will really add value?
Are you looking for someone who is different from you and that will challenge your thoughts and points of view and help you come up with a better idea, a better concept? Are you looking for someone who has more contacts and connections? What are the characteristics that would be ideal if you could pick any board member that you want to pick?
David: Sure. First, I am skeptical of that arrangement. I’m sure you know, but it strikes me as weird, to have basically a third seat that you can just pick. I’d say that just seems more symbolic than anything.
I wouldn’t pick one person, I’d pick 50 people, and call them all the time. I would consolidate their knowledge and then I would present that consolidated answer to my actual board, people that have some influence over me, and so, I’d just leave it vacant.
What happens if you don’t fill it? If it’s yours to fill, fill it with one of your people or whatever it is. If you have to fill it, that it just seems like a formality than anything, I would definitely make sure that actually, you have the ability to remove that person at will. If you do, then it makes the board pointless.
Any other questions? You here in the front. One second.
Audience Member: Taking into account what you said about the uselessness of the actual meetings, given that they are generally required, what kind of frequency do you feel that are necessary to fulfill that requirement?
David: I do a quarterly, and it works well. Obviously, I talk to my investors all the time. Whenever anything comes up, we exchange it, because why would you wait until then?
A quarterly seems to fit the bill. It’s like coming together, review a bunch of stuff, and everyone’s like, “Yeah. Everything cool?” “Yeah, cool.” “Cool.” “Cool.” “Cool.” “Great. Let’s talk again in the quarter.” I think quarterly. Probably less frequent would be fine, too, but I would say that seems to work out well.
Audience Member: Would that change depending on how far along the company was? Would you expect more frequent at earlier stages, less frequent at later stages, or no change?
David: Probably depending upon the balance of power between your investors, they might insist on more frequent. Again, you shouldn’t be viewing the board meeting as a pivotal moment. You should be having a continuous conversation.
I would say the more successful you are in having a strong dialogue with your investor, the less necessary it is to have frequent board meetings. If, on the other hand, you haven’t really established that rapport, then maybe actually more frequent could be helpful.
Audience Member: Hi. You talk about your third thing about attempting greatness and making decisions that look like bad decisions that are good decisions. What are a couple of examples you feel that you did or that you know of that people really went off the grid to do that? I’m just trying to think of some stories.
David: I would say every good thing we’ve done was lauded by the experts of that time as being idiotic. For example, when I started Expensify, I had no interest in expense reports. Actually, I was doing something completely different.
I was doing a prepaid debit card company, that like in the prepaid debit card with no money on it. You give this card out to someone else and every time a purchase is made, it’d be routed back to your personal credit card. It’s this proxy card system.
I went to the banks with this idea. In 2007, they were like, “Well, this is way too weird. It could work, maybe, but 2007, not a good year for the banking sector, too weird, too risky,” I’m out.
I’m like, “I need to sound low risk. I need to sound boring.” I’m like, “What is the most boring application this card I can possibly imagine? I’m like, “Aha, expense reports.” Literally, that’s why I picked expense reports because it was the dullest thing I could think of.
I went back to this bank and said, “Now, I’m just going to do expense report reimbursement,” and they’re like, “Yeah. It sounds safe and boring, and I hate my expense reports, too.” “Great. I could do this prepaid debit card thing on the side. They’ll change their mind.” It was just a Trojan horse that I really had no intention of building.
I went up on stage on Techcrunch50 in 2008 and I was like, “I’m going to build Expensify, a corporate card for the masses. It’s going to have this mobile app where you’re scanning receipts. It’s going to do all this stuff. It’s going to reimburse all this stuff next day and blah, blah, blah.”
None of that existed. I had no intention of building any of it because it didn’t even work. At that time, 2008, iPhones and every phone out there had the shittiest cameras you could imagine. The App Store had just launched and the cameras are so bad you couldn’t read your receipts with it. The Internet was shitty. Everything was terrible about this idea.
David: Everyone’s like…and rightly so. They’re like, “David…”
The App Store at that time, they’re like enterprise mobile apps. “It’s stupid, they’re for games. Everyone knows that.” “The cameras are awful.” “You’re selling your expense reports to employees? That’ll never work.” Like, “Let me tell you a thousand reasons why you’re going to fail.” I was just dumb enough to go along with it, anyway.
The very next day, actually, Mastercard canceled all of our cards. I’m like, “Fuck. What are we going to do next?” I was like, “Well, people seem to really like this expense reporting concept.”
David: I’m like, “Well, I can just do that, I guess. I can just build it. The problem is the cameras are terrible.” Right after that, the next iPhone got an auto focus camera. For the first time ever, people were able to take high quality, crystal clear receipts from their pocket, and then every phone matched that.
We sort of stumbled into this model. Every problem, and they were real problems, like the enterprise software has never been sold in this fashion, through the employee, it doesn’t happen, all that sort of stuff.
Then we sort of stumbled into the model, where we have a zero marginal cost, a user acquisition vehicle of individual employees in companies, who download the user app for free, and then every time they submit an expense report, it becomes a viral lead generator directly to the decision maker.
It’s not just actually a salesperson calling the CFO, it’s your employees rallying around the finance team with pitchforks and torches demanding Expensify by name. No one has done anything like this. Even now no one does anything like this. It works amazing. We’re a hundred percent inbound.
We don’t do any advertising. We do no outbound calling whatsoever. It’s all just organic from the bottom up, and it works amazing. Everything about the model, from the technology to the business model, Expensify: expense reports that don’t suck. Everyone’s like, “Well, that’s just the stupidest thing ever. No one’s gonna buy a company that has ‘suck’ in the title.”
A year later GE did a campaign. It was like, “Furnaces that don’t suck” or something like this. It was weird.
David: If freakin’ GE can do, I think we can get away with it. Again and again every good thing we’ve done, we were instructed that it just couldn’t possibly work. Even earlier today I was talking about we take our whole company overseas for a month every year. We just got back from Uruguay. We brought 130 people to Uruguay.
It was just like, “That just couldn’t work.” I’m like, “Well, it just did.” I’m telling you guys. You can take 130 people to Uruguay, and it works great. It’s amazing. You should take your companies overseas. It’s the most awesome thing ever. No one here will do it because everyone thinks it’s impossible.
I am telling you all the best things. All the most amazing parts of being an entrepreneur are about having an idea and saying, “You know what? I think that can work.” Everyone else is going to be like, “Bullshit. That’s not gonna work.” You’re like, “Well, fuck you. I’m gonna do it anyway.”
David: Doing it and seeing it work and then doing that a few times I think is such an epiphany when you realize, actually it is possible for everyone around me to be wrong about everything. Now he’s going to challenge every single decision. I don’t care what anyone says. If I think we can do it or if my guys think we can do it, we’re going to freakin’ do it.
I think that developing that habit of betting on your own instincts and doing things, not because people disagree but despite their disagreement, is a very healthy habit to try.
Any questions? I think there’s one over here. Oh, over there.
Audience Member: Real quick, it’s funny you mentioned prepaid debit cards. I started Skylight, which was the first prepaid debit card company…
Audience Member: …in ’97.
David: I love the space. I still love the space.
Audience Member: Anyways, talking about board members and giving them equity even though they may or may not be an investor. Do you tranche out a certain portion of that if they’re not an investor and say, “You know what? They should be two percent, five percent, 30 percent?” What’s your thoughts on that?
David: I just don’t think the best advice gets bought. I think that if you’re not an investor you don’t get shares. I’m old school this way. I said something of having independent board members. We haven’t given out equity just to advisors. Oh, actually there is…No, no. He invested. Never mind. I think that the best advice I’ve received has always been for free.
It’s been someone’s like, “Look. I just believe in you. I want you to succeed.” I think that just comes so unbiased, and it’s so helpful. I’ve had people who were like, “I’ve got some great ideas for you. It’s gonna cost you.” I’m like, “I don’t know, man. That sounds like snake oil.”
David: I don’t know. I would say set aside zero.
Moderator: We have time for one more.
Audience Member: I really love the vision of keeping the heart and soul of a company alive as you scale. I’m wondering if you can share some specifics of ways that you’ve battled against the encroachment of growing up and HR coming in and saying, “Hey, we need to be more professional or have trash cans that look all the same” or whatever it is?
David: Our trash cans do not look all the same. This is cliché, but it’s still true. It just comes down to hiring because really, we hire for three things. We hire for raw natural talent, strong internal passion, and third and the hardest of all is a deep, deep humility. Getting all three of those is incredibly hard.
Here’s the people who have talent. Here’s the people with talent and ambition. The people with talent and ambition and humility is virtually zero. We hire very slow. I’d say maintaining and increasing the hiring standard over time, it’s the sort of thing everyone says they want to do but almost no one does because everyone feels like, “Oh, I can’t afford it. We got these problems.
“We need more people.” We have successfully resisted that temptation even though we could have hired so many more people and put them to work and they have produced value, we decided, “No. We are maintaining and increasing this bar over time.” I’d say first it starts with just an incredibly high and increasing hiring bar.
Second is a strong willingness to fire people who aren’t working out. “Not working out” doesn’t mean that they’re not good people and you don’t enjoy them and so forth. Really if you have a high hiring bar in the first place, everyone you hire can get a job anywhere else. Any of my people can walk across the street. In the same building they could probably get a dozen other jobs.
I would say getting real with people if it’s not working out like, “Look. Everyone’s going this direction. You keep wanting to go this direction.” It was like, “It’s cool, man. It’s not you. It’s me or maybe it is you. I don’t really know, but it doesn’t matter because it’s just not working out.”
Dealing with that because if you have a strong willingness to fire the people who aren’t working out that’s what enables you to consistently hire the people who do work out. The third thing is putting no ceiling over top of them. I’d say this is one of the biggest challenges, especially when you start working with investors because everyone’s into speed.
“Are things going fast enough? We need to hire faster. We need to raise faster. We need to spend faster” and all this stuff. The way that you can really justify spending a lot of money quick is by hiring a really seasoned executive team, especially a seasoned executive team who knows how to raise and spend quick.
I would say…but when you do that, the second that you hire in that pro who comes in above everyone else, you’ve just told everyone else in your company, “Fuck you. There’s no way you can ever grow in this company because we have just hired someone above you whose qualifications you will never be able to match because all of your experience came from this company.”
Once that happens, you broadcast to your best people, “You need to leave because there’s no room for you here.” Then furthermore when that person comes in from the outside, then they bring in all their other people and their other people. Basically, now you’ve got this company that’s no longer really from the bottom up growth that you’ve developed.
It’s suddenly been taken over by this parasite. It’s taken over this company. I would say the challenge of that is it’s impossible to unwind. People say, “A people hire other A people whereas B people hire C people.” Once you start letting the B people in, then the Cs will follow. You can never hire an A person again.
I’d say the way that you maintain and grow that culture is you want amazing people, but the best people really just can’t be bought. Why would the best people be in the market? If they’re so awesome, why would they join your shitty startup?
David: Likely there’s got to be some other part of the story there. The reality is that probably if you look at their resume, it’s 20 different VP of this, Director of this, VP of this, blah, blah, blah, each time for one or two years. I bet they’re actually expert at joining right at the end, either sticking around for the success or leaving right before the failure.
Dig into each of those into the timelines. I’d say there’s a whole class of people out there preying upon startups that will come in with amazing credentials, a willingness to obliterate whatever’s in their way, and because it’s not their company in the first place. Avoid that trap. Build a company from the inside full of people that you care about and that care about you.
Keep investing in them. Things like take your company overseas for a month. It’s expensive. It’s super expensive, but it’s amazing the relationships you get out of it. Those relationships are the best thing you can invest in, so just keep investing your team. Then it will pay off tremendously. I think that is our last question, so thank you all. It’s been fun.
Transcription by CastingWords