Conan Economics, or How to Crush Your Enemies | Expensify CEO David Barrett

All right, so I have a very small amount of content prepared, and I hope that there's going to be questions to make it much more interesting in the end. So I'm just going to ramble through what I've figured out, and then we'll go from there. So I tried to come up with the most clickbaity possible name for this session, because I'm trying to think, how do you make unit economics exciting? And I thought Conan is always exciting. And I think where I'm going from this is, I feel like so much of this conference is based around this, like, mythology of well-executed strategies. Like, it's either modeled after the Navy SEALs, like your team is highly trained, expert coordinated organization, going out there and getting customers through spearfishing or something, or like these well-organized Roman armies, whatever. I don't think the real world is anything like that. It's much more like Conan. It's basically, you just have a group of people with giant swords, and you're out there trying to get shit done. So when I think of like from an economics perspective, and when I think of sort of as Conan economics, It's much more about trying to create a business which just has the ability to execute in a sloppy style and always come out victorious. I'd say that really kind of breaks down into kind of the two major pieces here. Like when I think of so much of this conference is about basically metrics as if they're there just to help you raise money. As if the whole point of this is you start a business, you raise money, and then you do work in order to raise more money, and then if you do enough more work, then you can sell your business. But like, at no point in the conversation is actually like making money to grow the business itself. Almost like it's just, we've forgotten that actually the revenue is also cash that you can spend, and the revenue you earn is actually more powerful than the money you raise. I was talking with another attendee earlier today, and we were talking about how the idea of raising money is celebrated, even though you should really view it like an obituary. So when someone says basically, like, oh, we raised money, you should say, I'm sorry. I'm sorry that you had to. Like, it's sorry that you had to, like, eat your own flesh. You're basically, like, self-cannibalizing your business to fund its growth. And that's not something we should celebrate. That's something we should lament. And so I think that, you know, the only thing that we should, like, lament is— what's that great Conan line? It's like, I'm going to crush my enemies, hear the lamentation of their women. It's like, that should be, like, your philosophy going into this. Like, the only lamentation you should hear are your competition basically crying out from pain because you're doing things that they can't. But if you're trying to beat them by just raising more money, that is not differentiated. There's nothing about your business that's like— raising money doesn't actually make you a better business, it just puts more money into your bank account. And furthermore, that money, unless you have a good plan to spend it, is worthless. So you shouldn't think of it in terms of, I sold my hand to get $100 million, hooray. You should think, I sold my hand to get whatever the results are of that $100 million of spend, which is probably nothing. Like, the vast majority of what we do is we can send— it's amazing how fast you can spend $100 million and accomplish literally nothing of any measurable value whatsoever. And that's what you actually got for the equity that you gave up, was typically nothing. That's why I think when it comes to thinking about economics, you shouldn't think about the economics that your VCs want, whatever. That's all bullshit. They will invest if you have a strong brand, if your customers like you, and if you're growing top-line revenue. Nothing else really matters. Like all the CAC to LTV, none of that ever actually makes any sense. No business was actually built on that. Every business says it was built on that. No business was actually built on that. Every real-world business that you admire was built on a bunch of sloppy execution based on top of a business model that just had really great economics that allowed you that level of sloppiness. And so when I think of sort of the key to it, the things that are doing that, sort of two pieces. There's sort of your sword and your shield. The sword is really having a product-led growth business. Now, this is kind of a new thing, a new fad to describe it as, but the idea of a product-led business is nothing new. Like, basically all of the businesses you admire the most, like the Googles, the Facebooks, even the Microsofts, the Apples, Most of them, you didn't acquire their product because you saw an ad. Like, it's not like you're like, hmm, I'm really in the market for the best search engine today. Which one should I go through? I'm going to do like, you know, go to G2 Crowd and like figure out the best search engine. Like, no, you already know. You know, because it's already won through this incredibly profitable underlying business model, which grew not by acquiring through ads, it grew by acquiring through viral and product-led dynamics. And so if you have a product-led growth business, you have an underlying economic advantage over all of your competition. And that advantage, I think, can come out when you go to conferences and things like this. It's like, by having a highly profitable business, you can just squander money in a way. Like, we think of it in terms of what we called market consensus. So, for when I started Expensify, for like the first few years, we didn't go to any conferences. We didn't do any marketing whatsoever. We were just entirely focused on, acquiring customers directly through a viral business model. And it worked great. One day, we're like, we're growing, we have some money, and things like that. It's like, hey, you know, I got a great idea. We should go to a conference. We should go to a conference and get some leads there, because like that's what everyone does. We show up to like our first accounting conference, like forever ago, and we're like, hi, we're Expensify. We do expense reports that don't suck. And they're like, oh, you're kind of like Tally? I'm like, never heard of these guys before. They're like, no, no, no, let me look at this. There's like this other clone company that's basically copying us, and marketing themselves directly to accountants at accounting conferences. And we're like, "Well, this isn't— I don't like this fucking stand. We need to crush these people." And so we realized our early advantage was all of our competition was using a traditional business model that can only, uh, has a margin of error, basically. Yes, all the numbers are fake, but they have to be faked within a certain range. And you can only lose so much money before it actually starts raising the eyebrows of investors and so forth. And so then when they were spending on ads, spending on conferences, they had an actual ROI target. They couldn't just blow money on it. But we could. We didn't give a shit about that conference, actually. Like, the sum of all the leads we got in those conferences, we didn't even call. They were so insignificant compared to the leads that we're getting through our viral business model. So year 1, we showed up with a tiny-ass little booth, uh, and then we learned no one knew who we were. And so, uh, year 2, we showed up and we bought every single sponsorship in the conference. We got this giant spaceship booth. We got like Basically, you'd show up at this conference and it was like Intuit, Expensify, and then everyone else, even though we're like so small. And so the difference, however, was everyone else in that conference was going to it with the expectation of getting leads that were worth money, that they're going to generate revenue, and things like this. And so they just couldn't afford to go big like we could, because their business model didn't have the same margins that ours did. But we just said like, we don't really care, we're just going to salt the fields of the entire accounting industry. So we did that for a year. And then we decided, you know what, actually, let's double down. Let's start our own conference called Expensacon. And Benji was like, what would a great conference be? We're like, well, it should be invite only, to only the most important people at this conference. And furthermore, it should be all expenses paid in Maui. And so we like, Benji, all the top people in this entire conference, who went from like, never hearing us before, and thinking that we were basically a clone of this other company, to suddenly, we're flying them and their families out to Maui. To hang out on the beach and basically come to our conference, which is just about us. And so that worked great. So suddenly we're like, we're the top of the accounting industry, even though we hadn't paid any attention to it before that. And then we're like, the year after that, it's like, yeah, let's do that again, but this time in Bora Bora. And so we doubled down on this and had our Expensacon, basically bring the top 100 accounting thought leaders in the world. But this time we say, and you have to work for it, because you're part of our partner group. And so now if you want to be a part of the top 100, that means that you have to sell more Expensify. And we go to them for like months ahead of time. It's like, you're close, your ticket's in jeopardy. You should probably sell some more Expensify. And so we actually had that conference fund itself from all the partners before they could even show up. And we could do all of this because we were willing to throw shit tons of money at it because it actually just didn't matter, because we weren't trying to convince some sort of investor that we had some sort of CAC to LTV ratio No one's personal job depended upon making a number go from X to Y. We're just thinking about the big picture. When we think the opportunity is so big, there's like hundreds of millions of businesses in the world. Virtually none of them use any of this. The way we see it is the entire market's almost entirely untapped, and we need an economic model which will let us go capture the entire thing. So we think of this in terms of what we call market consensus. Marketing consensus, if you have a product-led business model, that means that your word of mouth depends upon— it's like a numbers game. You just have to have the most mouths talking about you. And you need to make sure if a friend is going to— if your user is going to refer you to a friend, you need to make that person look cool. Like, no one's going to refer like the second or third option. They're just going to like, no, I'm not going to use that. That sucks. But if you refer them to something that is widely recognized as being the best option, you give them sort of like something to talk about with their friends and make them look cool. But you have to be cool in order to make that work. And so the key to market consensus is basically making sure that by and large, the market agrees that you're the best. And once you have that, then actually you get this huge in-order advantage of all this inbound activity that you could never pay for. The price of all the leads that we get through our product-led growth model is incalculable. There's no way we could have ever afforded it at any point in time. And so I think the key to growing a business, and the key to growing basically all the businesses you admire, has almost nothing to do with the metrics involved. The metrics are totally bullshit. They are there to fool yourselves into giving a sense of control, and to fool others into thinking that you have a sense of control. But in reality, you don't. In reality, we're just out there swinging swords on the battlefield. Every day we wake up, it's like, what is the best thing I can do today? And it might be different than what you did tomorrow, and it might bear no relationship to what you do the next day. But that's fine. So I think the key weapon that you have that you can use is have a business model which grows, that the most important feature you will ever build is the one that signs up the next user. Because if you have that feature, then every user is just a little easier than the one before. If you don't have any viral lift to your product at all, every customer is just as hard as the one before. And that sucks. That world's awful. Build a business that actually gets easier at scale. Not just stays the same. And also, I guess if you're talking about customer acquisition, whatever initial ads that you buy, you optimize ROI, it's never going to scale because advertising is well priced. Basically, whatever ads you want to buy, someone else is willing to spend at a loss on that same ad. So you basically, in any industry that's actually worth going after, there is some VC-backed company that's willing to basically lose money forever on every single ad. So if your business model is based upon buying each customer, you cannot do that profitably at scale. You might find a little angle here or there, like you're the first to advertise on TikTok or something like that. Like maybe, but you can't just like TikTok your way to a billion dollar revenue stream. At some point you need something that's inherently profitable and advertising is not inherently profitable because everyone you're advertising against is basically losing money on that same ad. So I guess the last thing before I kind of jump to questions and just kind of yell it out, it's really think about the economics of your business as the most powerful weapon for long-term growth. It's not there to hit some ratio to raise the next round of money. It's there to build a business that's actually viable. And once you have that, you can crush your enemies in a way without even blinking because they care about the ROI of their spend at some point. And you don't. All right. That's all I got prepared. Does anyone have any, any questions at all? Over here. You're going to have to yell real loud though. I can hear you great. Sure. So to repeat the question for the feed, so basically when people think product-led growth, they typically think consumer functionality, like Dropbox is the most classic example of this sort of thing. But like, how can you get product-led growth to work in a business environment where the individual employee is not the buyer. It's kind of like what you're going to do. Yeah, and I think that's the challenge. When we first started Expensify, no one thought this would work. Like, I remember, like, basically every good idea we ever had, I was assured, assured by every single expert, was impossible and could never possibly work. But then we sort of just stumbled into finding ways to make it work. And I think that you can do this in every industry, and probably it's going to require creativity. For ours, we realized early on that every time you submit an expense report, you put us in touch with someone closer to the buyer than you. Basically, to your boss, to your finance department, and so forth. So we turn every single expense report into a highly targeted marketing message directly to the decision maker. That works for our industry, maybe not for yours, but there's probably some parallel. Now, the challenge, however, is everyone says, "Okay, that's great, but how are you going to get a bunch of employees to adopt an expense reporting application that the company doesn't endorse?" Like, you're going to get people fired. That's what I was told early on. And I'm like, I don't think so, because I think that the vast majority of the world is just chaos. It's like our competition is primarily Excel, email, and actual manila envelope full of receipts. And like, it's not fighting back primarily. And so I think the key is just— that's why we created a mobile app with a consumer design that could be adopted for free by individuals that solves a pain point that they have as an employee. And actually, the employees hate expense reports way more than the admins do. And so trying to sell actually to a decision maker, expense management, that's very hard, because they're kind of like, "Shit about it." They're like, "Oh yeah, it's hard for my employees to get reimbursed? Yeah, that's good for me." And so we go to the people who are actually experiencing the pain point, give them a free app that they can download without permission, enable them to sign up before the decision maker, and then turn their activity into a marketing message to that decision maker such that the first time the decision maker hears about Expensify, it's not from us, it's from a whole chain of their high-paid employees basically advocating on behalf of it. We create basically an insurrection inside of the company to demand Expensify by name. And so that's taken us 13 years to work out, but I would say the earliest parts of that were worked out in like the first couple of years. And it all came by just refusing to give in to this idea that employees don't have power. Employees outnumber decision makers 100 to 1. If you can find a way to tap into them, you have a tremendous amount of power over that organization. And furthermore, none of your B2B competition is advertising to employees. No one's trying that model entirely. So that's why we're going after our market in a completely different way than everyone else in our industry. So everyone else in industry, like, just loses money hand over fist their entire miserable existence, and ours is great. Next question. Over here. Great question. So— [SPEAKING CHINESE] Yeah, that makes sense. So the question for the feed is, I'm not a shrinking violet CEO. Thank you, I think. But basically, how do you maintain a diversity of voices as a company, but still take strong social stances? Loosely. Yeah, and I think that diversity is a tricky thing. Recruiting, attracting, retaining, and inspiring a diverse range of voices is super important if you want to have long-term sustained creativity. You can't have just like a groupthink in order to achieve sort of like one vision and go into it. Like, you have to have a huge range of voices in every single discussion. And I think— so many of you might know, so Expensify took a pretty strong stance in the last election, basically saying We mailed out 10 million users saying anything less than a vote for Biden is a vote against democracy. And so that was, as you might imagine, a little controversial. But we also believed it. And I think the way it kind of went down— and so I'd say, and a lot of people were like, holy shit, can you even— can you even do that? Like, it just— there must be some law or something that prevents you from doing that. More like, well, we did it and we're still here, so I guess it's fine. But I would say it's not like that was the first time we actually ever took a stand, or more importantly, the first time we discussed complex topics internally. And so I think Expensify is a very diverse employee base all over the world, all political spectrums represented. And so I think the key, as we kind of worked up to this, if that was like your first time, you like your first rodeo of like taking a stand, it would be chaos. But I would say early on, we had already basically talked about internal issues around diversity. We were active during like the BLM protests. Portland was— I live in Portland. Portland's our largest office. So we're engaging with protesters there, had a lot of discussions there as well. By the time it came to the elections, we'd already worked out a process internally that basically how to manage a complicated discussion to get everyone to participate. And so it worked like this. Basically, everyone in the company, if anyone wants to do anything big, me, anyone else, you basically go to a Slack room called What's Next, and you say, I think that this is a problem, and this is loosely the solution. Let's talk about it. And my problem was, it's like, hey, I think that democracy is crumbling before our very eyes, and that creates an adverse business climate, because not many expense reports get submitted during a civil war. And the solution is, like, we need to unelect the person who is driving all of this. And I threw that in the company. Obviously, there was a lot of discussion about that. Oh, and I also had like, here's a draft of a newsletter that I think we should send. Give that to the company. Whole company like tears into it. Basically everyone goes into it, looks through every single like line in this newsletter. Everyone's editing it in sort of Google Docs and things like this. And then we created a separate room called the fact-check room. The fact-check room is if you have a— if we're gonna— if you would— if the company needs to make a stand on something which is controversial and you disagree, go into the fact-check room. And then it's basically the rules of the fact-check room is you state something that was like, David said this and I don't think it's true. Or David says this, is this true or false? And then everyone can go into a Slack thread and make one post without referencing anyone else in the company. There's no rebuttals, rejoinders like this. It's like, make your strongest argument. Is this true or is this false? And share your evidence. And then people jumped in. This is like, you know, whatever it is, like the various statements involved. And then we have basically a group of our employees, which we call our top tier. Several different ways to get there, but you've been there for a long time, you're a generalist, things like this. And then we had a vote, basically like, is this the official company position, yes or no? And then so we actually voted as a company as to what do we think the company's stance is on these particular things, and then we're going to act on that. And at the very end, then we had another vote. It's like, okay, we've all crowdsourced this newsletter. Should we do it, yes or no? We need like a super majority. Of this group to actually vote yes. And we had a very slight supermajority. We're like, great, we're going to do it. And I think that the key for all of this is to recognize that this is a company stance. This is not— and my one regret for this whole thing is I signed it as myself, which implies that this is just my personal view, when it's not. It went through a process to make it the company's view. And everyone recognizes that the company is different than ourselves. And so it's possible to disagree with the company, and still like the company. And so I think that we— so we sent this newsletter, and we haven't lost anyone over it. We had no internal churn. It's been very clearly good for business. And so it's actually been a great thing overall.