In the run-up to 2023 SaaStr Annual on Sep 6-8 in the SF Bay Area again, one of the presentations from 2021 resonates much more in 2023 than it did back then. Dave Barrett, CEO of Expensify, on how to leverage having a true PLG product to weaponize marketing. Instead of chasing CLTV/CAC metrics. I watched this session again and found it very prescient in terms of how to think about efficiency in 2023. It’s a fun watch. — Jason, ed.
How do you make your fledgling business seen and heard in a competitive business marketplace? Despite their primarily sloppy execution, some of the world’s largest and most admired businesses share one thing in common: they were all built using the right business economic model.
Expensify CEO David Barrett talks about what it takes for businesses to thrive, spotlighting the need to move from a traditional economic model to Conan Economics, a term inspired by Conan the Barbarian. He also shares some eye-opening insights on how Expensify scaled over the years.
Changing the way you think about business
In business, the concept of raising money is often encouraged and celebrated, even when it should be viewed as an obituary. Raising money does not make for a better business; it only puts more money into your bank account. Unless you have a strategic plan for how to spend it, that money is, in effect, worthless. It’s incredible how fast businesses can spend $100 million and accomplish very little value. If you’re trying to beat your competition by raising more money than them, that won’t get you very far.
The sword and the shield
Conan Economics is about the ability to run a business in a sloppy style and always come up victorious.
Let’s break down this model into two essential parts:
- The Sword: Having a product-led growth business
- The Shield: Owning market consensus
Try not to limit your thinking to the economics your VCs want in business economics. No one built a business solely on metrics like TAT, LTV, etc., even if they say they did.
Investors will invest in your business if:
- You have a strong brand
- Your customers like you
- Your top-line revenue is growing
Nothing else matters.
The Sword: a product-led growth business
Every successful business you admire—Google, Facebook, Microsoft, Apple, et al.—was built on a solid, profitable business model. They grew not by acquiring users through ads but by viral and product-led dynamics.
Product-led growth in action at Expensify
Expensify scaled by breaking through the clutter. It adopted an unconventional business economic model. Some of the consequences of this approach were:
- Expensify recognized its advantage early on. Unlike competitors, Expensify didn’t have to worry about minor errors and money losses.
- While competitors were too busy chasing specific number goals, Expensify could go big on budgets because their focus was always on the big picture.
- From being a company no one knew, Expensify went on to buy every sponsorship spot at marketing conferences across the country.
- Eventually, Expensify launched Expensicon, an exclusive, invite-only conference with the top 100 accounting professionals. These professionals had to earn their spot by selling Expensify subscriptions. The conference essentially funded itself via the partners before they even showed up.
Expensify realized that the opportunity size was massive. Its economic model needed to capture the entire market, which leads to the second piece of the Conan Economics puzzle.
The Shield: market consensus
If you have a product-led business model, your growth via word of mouth depends on people talking about you. If a user refers you to a friend, you will want to live up to the expectation of their referral. Nobody wants to refer a service that may not be able to deliver. However, if your product or service is recognized as the best of its kind, the credential makes it easier for users to recommend your business.
You want the market to agree that you are the best. Once you have that advantage, you will enjoy inbound activity volumes that you could never have paid for.
Once you have that, every new user is a little easier to acquire than the one before. But, if you don’t have that in place, every new customer is just as hard to get as the previous one.
Advertising is not inherently profitable. For any ad you buy, someone else is willing to pay more—even if this means a loss for them in the short term. If your business model is based on buying each customer, you cannot do that profitably at scale.
Think about the economics of your business as a powerful weapon for long-term growth. Move away from thinking about ratios and the next money target you need to achieve. Unlike traditional business models, don’t look at advertising as the solution to customer acquisition.
Instead, focus on building a business that’s viable in the long run.
- Make sure your business is built on a solid, profitable economic model
- Focus on viral product-led dynamics for growth
- Build word of mouth and own market consensus that your business is the best.
Once you start doing this, you can crush your enemies in the business world—without even blinking.