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Expensify CEO: 'Instagram has connected a billion people through photography, we can do it through money'

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David Barrett, Expensify CEO, joined Yahoo Finance Live to discuss the company's IPO and plans for growth.

Video Transcript

EMILY MCCORMICK: Expensify is a company offering business expense management software, and it's hitting the public markets. The company priced its initial public offering yesterday at $27 a share on the top of its expected range to give the company a valuation of more than $2 billion. For more, we're welcoming in Expensify's CEO, David Barrett, now. And David, thank you so much for joining us this morning. Tell us what going public means now for Expensify and how this factors into your plans going forward.

DAVID BARRETT: Sure, I mean, to a very large degree, I'd say it's just another day. I mean, Expensify is not built for, like, exiting through an IPO. This is just about giving liquidity to our shareholders, opening up better access to capital and debt in the future. But fundamentally, it doesn't transform the business. It's really just about growing with the existing business model for a very, very long time.

JULIE HYMAN: Hey, David, it's Julie here. You guys sort of market yourself as the better expense tracking platform. Explain to us what that means to you. Why is Expensify different from others that are on the market?

DAVID BARRETT: Sure, I mean, we would normally say we're expense reports that don't suck because we're making the world a better place one expense report at a time. I've said that a lot of times this week. But in general, I would say what makes us different fundamentally is, yes, we've got great technology. Yes, our corporate card is super awesome and all of that.

But fundamentally, we just have a completely different business model than all of our competition. And the way to think about that is, like, all of our competition has a traditional top-down sales model. And if you sum up all of their customers, it adds up to maybe 100,000 people or 100,000 companies in the world. But that's out of hundreds of millions of businesses in the world. So the way that we see it is, virtually, no one uses anything. The market is almost entirely untapped.

So the way our approach is, we use a viral payments platform. Basically, we're a single super app design where, basically, rather than just being a mobile app for expense reports for scanning receipts and so forth-- and yes, we do all of that. But the right way to think about it is, we handle every variation upon a list of expenses that you give to someone and they pay in return. So it's not just expense reports. If you give your-- this request to a company. Sure, that's an expense report. Give it to a client, it's an invoice. Receive it from a vendor, it's a bill, whatever that is.

And so as a result, our design is to create a viral platform that has word of mouth growth, and it can grow to capture the billion or so of people who are currently having these financial conversations offline. It's totally possible to connect a billion people. Like, Instagram has done it through photography. We think we can do it through money. And whoever connects a billion people through their financial conversations, that's a trillion dollar business. And so that's what we're gunning for. And you just can't get it with the traditional business model.

BRIAN SOZZI: I'll just say it here, David. Using SAP Concur, you can rip your hair out. I mean, it is incredibly frustrating to use. It's seemingly in every office I have ever worked in here. What is your pipeline in terms of enterprise customers looking like into next year? I mean, you have to be able, with your easy to use service, to steal market share from a service we hate using.

DAVID BARRETT: Sure, well, so this is the secret, if I can tell you something. Don't tell anyone. But the enterprise sucks. It is the worst, smallest, slowest to close, lowest margin part of the industry. And everyone is fighting over it. The thing about the Fortune 5,000 is, it's got 5,000 people on it, and everyone knows who they are. If you want to sell to them, you have to get in line behind everyone else onto the same groups. And so, yes, we've got a whole bunch of public companies, like, you know, the Pinterests, the Atlassian's, the Squares. They use Expensify. And so we can support the large enterprise company.

But the money, all the easy money, at least, is in the SMB. We earn over three times more revenue per employee in the SMB than you can in the enterprise because there's basically no competition. Like, most of our customers have never heard of Concur, have never heard of any of the competitors. They were never in market until an employee just decided, without asking permission, without telling anyone, just downloaded our app for free, and then using it the side of the business. And then basically they will onboard the company, even though the company was never in market, never clicking ads, never taking sales calls.

So, again, it's a completely different business model. It starts with zero marginal cost, word of mouth acquisition through the employees. And that's how we can capture this massive part of the market that has been overlooked forever. It's the largest, highest margin and by far the best part of the market. High velocity sales model-- blah, blah, blah. I can go on forever about how it's great. But the most important thing is the enterprise sucks. That is not where the action's at. That's not where the easy money is at.

EMILY MCCORMICK: And if we can take a step back here and look a bit more broadly, of course, since you do work with those SMBs, we have been seeing small business optimism deteriorating recently. What sorts of trends and concerns have your customers been bringing up to you?

DAVID BARRETT: Great question. I mean, I think so we're very much more of a Main Street than a Wall Street business. And when people think, even like business travel, they typically think about George Clooney up in the air, like, traveling in planes and things like this. And don't get me wrong. That's there. But real world business travel is driving. It's going, like, to Toledo. It's going to Home Depot and picking up some materials and going to a job site. Like, that is the bulk of real world business travel. And that's alive and strong.

And I would say, the SMB, sure, it's taken a few licks in this pandemic, but we think it's largely behind us. I think that we've seen that basically, we're back to this sort of 119%, sort of, recurring, sort of, net seed retention and so forth. So we just grow as our customers grow. And so I think that we see that the SMB is, like, springing back pretty quickly. It's almost like everyone took a breath. It was almost like a spring was compressed during COVID. But that spring's very much releasing. And so we feel very confident in the future of the SMB.

JULIE HYMAN: David, you are not like most of the CEOs we talk to, I think it is safe to say. And one of the other ways that you are not like them is that you urged your employees, and really, everyone, to vote for Joe Biden in the last election. You came out with an email. You sent it out. You were very outspoken on that and said that was the way to defend democracy. And not only is that unusual for a CEO, it's especially, I think, unusual for a tech CEO. And we have seen sort of real tension in the Valley--

DAVID BARRETT: Sure.

JULIE HYMAN: --in terms of politics. What made you decide to do that? And are you still doing that? And are you still going to do that as now a public company CEO?

DAVID BARRETT: Sure. And I want to clarify. So the newsletter for Expensify is not, like, my personal soapbox. Everything that comes out of it, it goes through our marketing channels. It's basically part of the very intentional brand strategy. And our view is that people want to work with companies that have the values they support. I mean, Patagonia has done it. A lot of companies have done it. So we've been a very value centric company for a variety of ways. So for example, we have a non-profit, Expensify.org. Creatively named, I know.

And so one feature of our corporate card is every time we make a purchase, we make a donation to Expensify.org based upon the type of purchase you made. You take a client out to dinner, it goes to our hunger fund. If you go to book a hotel, it goes to our homeless fund. Book travel, it goes to our climate fund. And so, we manage a whole bunch of campaigns across a whole bunch of different areas, like youth, climate, anti-recidivism, things like this.

And so it's values-based business I think is how we defend our brands and how we build a bigger brand that resonates much bigger than just expense reports, if you will. And because things like democracy, everyone agrees. Even if you don't agree how to defend it, everyone agrees it needs to be defended. And so I think we've seen that basically by leading with our values, people resonate with that. And that's overwhelmingly been good for business. We think that basically, being good for the world is being good for the business as well.

BRIAN SOZZI: David, did I get this right? You only have 140 employees. Are you out there hiring? How are you doing all this business? I mean, I guess that's one reason why you're profitable. But how are you doing all this business with only 104 employees?

DAVID BARRETT: Well, I mean, the thing I always think of is that I think some of the-- WhatsApp got to a billion users with 79 employees. I think with 140, we can get to it, too. And so I mean, the main thing is, if you have a business model, it's designed to scale without headcount. Most companies, they just throw a ton of bodies at problems. We don't really do that. We like to solve every problem or automate it away. Or if we can't automate it away, then we'll outsource it. The only jobs are left inside the core building.

Our 140 people are generalists. They're the creative, sort of, central, strategic hub. And everything that basically we do is about automating away problems such that we don't need to hire. We hire-- it's like a lot of companies be hiring like basketball. And they brag, like, ah, I had 500 people last month or whatever. And it's like, when I hear that, I'm like, I am so sorry you have a problem that can only be solved with people because people are complicated and expensive.

We view hiring like golf. We want the absolute fewest necessary to get the job done. And then that's how we can generate so much profit. I mean, we have zero marginal cost user acquisition, basically. And so the customer acquisition costs others have, ours are much lower. We support our customers with AI. It's an SMB customer base, so it's overwhelmingly self-serve. You can call us and talk on the phone. The vast majority of our customers choose not to.

And so basically, all of the costs everyone else has, like, we just don't have the same level of costs. And so when you do all of that and you're earning three times more revenue per employee, it just makes an insanely profitable business that remains profitable at scale. The idea that you can't grow and profit at the same time, it's like, ask Facebook, ask Google or Microsoft or Amazon or any of the companies you admire. They are all fast growing, huge businesses, and super profitable. We've somehow forgotten to make profitable businesses in Silicon Valley. And so I think we're going to bring that back.