How Expensify Went from Happy Accident to the World’s Fastest Growing ERP Software Company

January 20, 2016

If you’re not using Expensify to process your expenses, you should be. Simply put, Expensify works to make ‘expense reports that don’t suck.’ And they’ve well outdone themselves. In fact, Expensify is such a game-changer that OpenView not only switched over all of our expense reporting to the system, we led the company’s Series C funding last summer.

At a high level, Expensify’s founder, David Barrett, will tell you that his company aims to “improve the world one expense report at a time.” Expensify does this by seamlessly parsing all of the information contained on user-submitted receipts. The software then puts the scanned information into an accounting package and reimburses the user the very next day. “The information appears in the accounting system and no one has to do anything,” says Barrett.

Genius, right?

I actually can’t imagine filing expense reports without Expensify. But, Barrett tells me that the company almost never happened. “Initially I had no interest in this whatsoever. I was actually doing something completely different. It was a prepaid debit card idea. It launched at TechCrunch 50 in 2008 and everyone’s like, ‘Wow, your cards are so cool, but the expense reporting system you made to demonstrate them is even more exciting,’” says Barrett. “The expense report we built along with the card was really just a proof of concept to show off the power of the debit cards. But, we realized the cards weren’t nearly as exciting as the expense reporting system itself. We sort of just stumbled our way into it.”

And that happy accident led to what is now the world’s fastest growing ERP software company.

“I would say there’s something really liberating about going into a space that you know absolutely nothing about. At least you know you know nothing about it. So you can approach everything with a completely open mind,” says Barrett.

But, when you have no idea about the industry, how do you start? Where do you look?

To help himself and his team understand the space and product they’d stumbled on, Barrett spent much of his time asking users for feedback.

“We would go to our users and say, ‘Look, you seem to be excited about whatever it is we’re doing. Tell me why.’ We spent a lot of time in the early days responding to user excitement. That’s been sort of our guiding star, if you will, from day one.”

From the outset, this type of informal feedback has been the backbone of Expensify’s epic growth. The company grew entirely through word of mouth and relied on (and still does rely on) the candid feedback their users provide.

“For years, we were just driven entirely by users explaining to us what their dream was. We’re like, ‘Yeah, I could totally build that.’ Once we heard the same dreams again and again from so many people, it was clear there was a real opportunity.”

But, as the company grew, Barrett and his team realized they weren’t gathering a ton of new information from their users.

“We realized that this very broad funnel wasn’t quite as helpful as it used to be. I’d say we still are very much in that user feedback-driven mode except now we’re a bit more targeted. We have more detailed conversations with people who have very specific concerns. But, at the end of the day, I would say that once again, everything we do can be traced back to user conversations.”

Relying on Internal Advocates to Lead a Push into the Enterprise

Over the years, Expensify has gained a cult-like following. Where in the early days, individuals would download and use the product on their own, they’re now flagging the software up to decision makers who can roll out the software to entire teams or organizations.

And while Barrett does say the enterprise buyer is quite different, Expensify’s approach to selling into the enterprise is just so different from anyone else out there that regardless of customer size, everyone still comes through some variation of the same installation process.

“Individual employees download the mobile app for free and start using it. Then they promote it internally to the decision maker and the decision maker reaches out to us basically already sold by their employees,” says Barrett. “And then we have order takers on our side to help them get to the buying process.”

Barrett says that this bottom-up adoption process scales with the entire marketplace and of course works very well in a very small business where there are only a few people to convince. But, he’s actually found that if there’s enough internal pushback even at larger organizations, this sort of grassroots adoption can work as well. In fact, working from the bottom up is exactly how Expensify landed one of its largest customers — Yahoo, which has more than 12,000 employees around the world.

“Working from the bottom up is exactly how we landed one of our largest customers.”

How that came to be is a happy accident in and of itself. As Yahoo kept acquiring more and more Expensify customers — think Tumblr and Flurry — Expensify would churn those customers as a result of the acquisitions.

“Each time Yahoo acquired one of our customers, it was a mixed bag. Yes, we’d churn that customer [as they would be migrated to Oracle iExpense], but the frustration of being forced to downgrade from Expensify sowed discontent,” says Barrett. After a few acquisitions, there were probably 1,000 people inside of Yahoo who had previously used Expensify. “They were our champions internally,” Barrett adds. “Our former customers made an otherwise complicated enterprise deal go very smoothly.”

Benefiting from Their First-Mover Advantage

Like most things, Expensify’s bottom-up approach has evolved over time. Barrett says that, “It would have been impossible to have known this would work before doing it because the key dynamics that enabled it to work only started after we had launched.”

Expensify launched in 2008 — the same year as the App Store and just one year after the iPhone. “The whole notion of mobile apps was happening at the same time we were building the product. At the time, everyone thought, ‘Apps are for video games,’ and there we were coming out with a mobile receipt scanning enterprise product. People were like, ‘This is crazy. There’s no such thing as enterprise mobile apps.’ To add to that, the cameras in those early phones were awful, no one could read anything.”

And then one day, it all clicked. “Apple came out with an autofocus camera, so suddenly you could take crystal clear photos of receipts on the road. Only then was it even possible to imagine a world where average people could just take pictures of receipts with their phones. Before that it sounded great. Everyone loved that idea, but it just wasn’t possible. And, at the same time this was happening, the consumerization of IT trend emerged.”

For Expensify, there were so many factors that happened to line up perfectly. “Apple really tore open the gates,” says Barrett. “The idea of bring-your-own-device was happening right as we were getting going. There were just so many things critical to our model from the BYOD movement to the existence of internet-connected mobile auto-focus cameras to an easily accessible App Store and so much more. All of this happened in real time as the product was developing. There’s no way we could have done enough research to develop our business plan ahead of time.”

Moreover, had Barrett and his team waited for a time when the stars were aligned and everyone was ready for the product, it would have been far too late. Some other company would have emerged and the opportunity would have been lost.

“If our model depends upon growing through word of mouth and word of mouth is a numbers game, that means we have to have the largest army,” says Barrett. “No one can out word of mouth us in our market because we have the most voices and we always will because we were there before anyone else was. There’s a door that opened up and we just happened to be the first in line to recognize it and then we jumped through. Now no one else can follow.”

Outsmarting the Competition, Acquiring Thousands of Customers and Maintaining their Competitive Edge Along the Way

While the stars aligned for Expensify and they’ve since gone on to acquire thousands of loyal customers through an incredible product and word-of-mouth marketing machine, they’ve still had to slay giants — like Concur — along the way. Expensify’s ability to acquire customers without having to spend much up front really set them up for success.

“I would say that our competitive advantage against something like Concur is how we acquire customers,” says Barrett. “Concur, like most enterprise SaaS products sells through a highly enterprise-driven sales force. For Concur, the ultimate purchaser has to be a decision maker. That means you’re paying a ton to get a very, very distracted and highly sought after buyer. You have to pay a ton to even have someone knock on their door. Then you have this highly skilled person just begging them for a deal.”

The buyer knows it’s a buyer’s market…

“The enterprise buyer will just make crazy requests. They’ll pick anything under the sun. They’ll be like, ‘I want a helicopter pad,’ and the sales person, because they’re commission-oriented, says ‘Done, helicopter pads on the way.’ That salesperson thinks they’ll get a huge commission out of one huge deal so they’ll promise more than they can deliver even if what they’re promising makes no sense.”

“Ultimately,” Barrett says, “You get to a point where you have so many competing requirements, many of which have already been sold that the engineering team is facing a multi-year product roadmap that’s always backed up.”

“By the time it actually gets down to someone who can build the feature requests promised,” Barrett adds, “They’re like, ‘Helicopter pad? This makes no fucking sense. They’ve got no helicopter.’”

Barrett says this type of stuff happens all the time in traditional enterprise sales organizations.

“It doesn’t matter if no one actually needs the functionality because at the end of the day that promise was necessary to get the deal done.”

“Most enterprise companies can’t help but be organized around this type of mentality because everyone’s profit motives are aligned for this kind of behavior. Enterprise companies build products designed to be sold to a decision maker who will never ever use it,” and that’s just not what Expensify is after.

Learning to Ignore Advice from Others and Trust Your Instincts

It’s clear that Barrett has blazed his own path. He’s not content to follow the models of other, even successful, enterprise software companies. And much of his anti-establishment mindset comes not only from what he’s seen work at Expensify, but what’s he’s learned along the way.

“Stop getting distracted by the bad advice from others. I think that’s been the biggest challenge in being an entrepreneur, that most advice you get is awful, it’s just so bad,” says Barrett. “But, if you hear so much of it, it takes incredible conviction to ignore it, especially because the advice comes from people who everyone else respects.

“I kind of attribute this to the culture of Silicon Valley,” he adds. “I think there are basically two major business models — building a viable business where you care about customer acquisition and product development and margins and such, or selling to a bigger sucker. We’re stuck in a culture where all you care about is raising money as fast as possible, spending it as aggressively as possible and taking as many chips off the table as you go while hoping no one notices. And then, you just try to get out before the music stops.”

But then what happens?

“It’s become such a given that you’ll sell your successful company to a bigger player that no one really tries to build a bigger product these days,” says Barrett. “Instead, they just try to build something good enough where if they funnel enough investor dollars through it and build a good enough narrative that an acquirer will come along, pay an exorbitant sum for it and then sell it for peanuts or just shut it down a year later.”

But, Expensify has dreams of building something bigger. “It’s very hard to say, ‘No, actually, I don’t want to be acquired. I just want to build a business that’s really great.’ We have the ability to build something not only incredibly profitable, but something that can last forever and change the world,” Barrett says. “That’s the hardest thing.”

Stop paying attention to everyone else and do it the way you think is right…even if you’re wrong.

“In the end, if you do it how you want to, it’s easier and faster to fail a few times and figure it out than to talk to an infinite number of people and try to sift through their ideas.”