20VC Why Valley Investors Are Really Gamblers, Why The Business Model of Selling To The Biggest Sucker Is Wrong & Why The Best Potential Hires Don't Care Who Your VC is with David Barrett, Founder & CEO @ Expensify

In this episode of the 20 minutes VC, host Speaker A engages with David Barrett, founder and CEO of Expensify, a company streamlining expense reporting for over 5 million users. Barrett, a programmer since age six, shares his unconventional journey from 3D graphics to peer-to-peer technology with Travis Kalanick, and eventually to tackling the seemingly mundane world of expense reports as a means to develop prepaid cards for the homeless—a project that banks deemed too risky. Expensify's origin, disguised as a corporate expense solution, reflects Barrett's contrarian approach to Silicon Valley's startup culture. He criticizes the "pump and dump" mentality, advocating instead for sustainable, profitable growth and problem-solving at scale. Barrett emphasizes the importance of independence from investors, the pitfalls of hiring as a growth strategy, and the value of nurturing top talent internally rather than poaching. His refreshing perspective challenges the traditional metrics of success and growth in the tech industry.

• Harry Stebbings introduces David Barrett, founder and CEO of Expensify.
• David has a background in peer-to-peer technology and worked with Travis Kalanick on Red Swoosh.
• Expensify is a startup focused on streamlining expense reporting.
• David has raised approximately $30 million in funding from various investors.
• David's approach to funding is non-traditional and is a topic of discussion in the interview.

"And so I'm beyond excited to welcome David Barrett to the hot seat today. So David is the founder and CEO at Expensify, the startup relieving the world's frustrations one expense report at a time."

The quote introduces David Barrett and his company, Expensify, highlighting its aim to simplify expense reporting.

• David Barrett has been programming since age six, with a focus on computer graphics and video games.
• His work experience includes 3D graphics engines, virtual reality, and peer-to-peer software.
• David's transition to expense reporting was an unexpected turn in his career.

"I fell into it a bit unusual, and I'd say so my background. I've been a programmer since I was six, computer graphics and video games."

The quote explains David's early start in programming and his background before entering the SaaS industry.

• David's interest in helping the homeless led to the idea of a prepaid card that could be used for necessities but not for alcohol.
• Banks rejected his initial idea, prompting him to reframe it as a solution for expense reports.
• The expense reporting angle was a "Trojan horse" to develop the technology he originally envisioned for helping the homeless.

"And so I wanted the card to have no money on it. So I said it'd bill back to my personal credit card whenever I used it."

The quote details David's innovative idea to create a prepaid card that would bill back to his credit card, aiming to help the homeless responsibly.

• David Barrett expresses frustration with two prevailing business models in Silicon Valley.
• One model focuses on building viable businesses, while the other is about flipping startups to larger companies.
• David criticizes the latter model for its lack of long-term value creation and improvement to the world.

"Success in Silicon Valley more often than not, and I would say vastly more often than not, is building something that gets flipped and destroyed and then people make money in the process, but very little about the world gets sort of improved."

The quote captures David's critical view of the Silicon Valley trend where startups are often built to be sold rather than to create lasting value.

• David Barrett challenges the glorification of serial entrepreneurs in Silicon Valley.
• He questions the notion of success being associated with multiple startups that don't survive or contribute meaningfully.
• David emphasizes the importance of not just returning money to investors but also making a positive impact.

"I think that this sort of engenders kind of this idea of the serial entrepreneur that it's like, wow, yeah, I've done ten startups, ten startups. Each time I did something, I flipped it and I moved on to the next thing."

The quote illustrates David's perspective on the 'serial entrepreneur' culture, where the quantity of startups created and sold is often celebrated, regardless of their lasting impact.## Venture Capital Cycle

• The current state of startups and venture capital has been ongoing for decades, particularly since the 2000s with the rise of SaaS.
• It has become easy to create and sell startups quickly, often without substantial long-term value.
• This cycle of fast creation and sale of startups is fueled by investors who have profited from it in the past.
• There is skepticism about whether this cycle will slow down or continue as it is.

"I mean, it's been like this for decades. I mean, maybe I'd say starting in the 2000s with like SaaS when it just became so cheap to start startups and everything was so fluffy and bubbly..."

This quote explains the historical context of the current venture capital cycle, highlighting the ease of starting businesses in the SaaS era and the subsequent trend of quick sales.

• The "problem" of quick startup sales may not be entirely negative as it can lead to the funding of unconventional ideas.
• Silicon Valley investors are likened to gamblers, funding high-risk ideas that occasionally lead to remarkable successes.
• The real issue may lie with institutional investors who, on average, do not see returns that outperform the S&P 500.
• The majority of the outcomes from this cycle are not beneficial, and most contributors financially lose out.

"Yes, nine times out of ten they're terrible, but sometimes they're awesome."

This quote reflects the acceptance of failure in the venture capital process, acknowledging that while most funded ideas fail, the rare successes can be significant.

• Success is defined by solving real problems at scale and in a sustainable way.
• Profit is considered necessary for long-term sustainability and scale, contrary to the Silicon Valley perspective where profit is seen as opposed to growth.
• The most successful companies are not just fast-growing but also profitable.
• There's a challenge in creating companies that are both high growth and high profit, as opposed to the easier route of selling companies quickly.

"I think that for me, it's all about solving a real problem at scale and doing so in a sustainable fashion."

This quote defines success from the speaker's perspective, emphasizing the importance of addressing real-world problems sustainably and profitably.

• There's an ingrained attitude that profit and growth are opposites, stemming from the venture capital hype cycle.
• The quick funding and selling of startups are seen as more financially rewarding than building a long-term sustainable business.
• This attitude is driven by the financial incentives of investors who prefer a diversified portfolio of many small bets rather than a few large ones.
• Entrepreneurs are encouraged to follow a playbook that benefits investors' portfolios, which may not align with the long-term success of their single company.

"It's just good business, it's just good money."

This quote reflects the pragmatic view of investors who prioritize financial gains from the quick turnover of startups, rather than investing in long-term business growth.

• It's challenging to distinguish between stubbornness and vision in entrepreneurship.
• Good ideas often appear terrible initially because they differ from the norm.
• The true value of an idea is only apparent in retrospect, making the entrepreneurial journey risky and uncertain.

"Man, I have no idea. It's only knowable in retrospect."

This quote acknowledges the difficulty in identifying a good idea and the retrospective nature of evaluating entrepreneurial decisions.

• The importance of profitability for startups is questioned in the context of public markets, where growth is a key valuation metric at IPOs.
• The traditional view of an IPO as the ultimate success is challenged; instead, it should be a milestone in a company's ongoing growth.
• A successful company should strive for continuous improvement and impact rather than aiming for an exit.

"I don't want to leave. I want a company that gets better over time."

This quote challenges the conventional goal of an exit strategy, advocating for building a company with enduring value and improvement over time.## Mindset Perspective

• David Barrett's approach to building a company is contrarian to most guests on the show.
• Profitability is a core element he wanted to have inherent within Expensify.
• Building a company with this mindset involves finding people who believe in the vision of long-term sustainability.

"How did you then look to build Expensify with this notion and core element of profitability being an aspect that you wanted to have inherent within the company from the start?"

This quote is Harry Stebbings asking David Barrett about incorporating profitability into the foundation of Expensify, which is central to Barrett's business philosophy.

• Barrett emphasizes the importance of being selective with investors, especially when the company is not in dire need of cash.
• The company was built with a model that did not depend on external cash flow, allowing for selective investor partnerships.
• Having the right investors who are in it for the long haul, like Blake and Bobby Lent, is crucial.

"We just made sure we just were never in a situation where we absolutely depended upon the investor."

David Barrett explains the strategic approach of ensuring Expensify never depended on investors for survival, allowing them to choose investors who align with their vision.

• Capital constraints force the team to make good decisions and stay hungry for success.
• Barrett compares the startup experience without constraints to scuba diving, where risks are consolidated and can be overlooked.
• Stressing the team, much like stressing grapes for fine wine, can lead to a more resilient and innovative startup.
• Independence and the willingness to work hard from the beginning are key to a startup's success.

"Great wine doesn't happen when you take great care of your grapes. It means you have to stress your grapes. You need to make them work hard to find the resources."

Barrett uses an analogy to describe how challenges and constraints can lead to excellence, comparing the nurturing of a startup to the process of making great wine.

• Barrett disagrees with the notion that top-tier venture capital firms enable easier hiring of top-tier talent.
• He believes that truly exceptional people are often "unpoachable" due to their satisfaction and success in their current roles.
• Expensify focuses on hiring individuals with potential from diverse backgrounds rather than poaching from Silicon Valley.

"The only way to get super awesome people is to build them yourself."

David Barrett expresses his belief in developing talent within the company rather than relying on hiring established individuals from top companies.

• Barrett challenges the idea that expanding the team and raising funds equates to accelerating growth.
• He cites WhatsApp's success with a small team as evidence that a lean team can achieve significant results.
• Expensify imposed a hiring cap to encourage creative and scalable solutions, like AI for customer success, rather than expanding headcount.

"If your revenue growth is tightly coupled to your headcount growth, then that means you can never grow faster than you can hire."

Barrett criticizes the traditional SaaS model where revenue is tied to hiring, advocating for a more scalable approach that doesn't rely on increasing headcount for growth.

• Barrett believes that traditional SaaS organizations' reliance on hiring to drive revenue growth is flawed.
• This model limits growth and leads to talent dilution and a cap on revenue growth.
• Barrett aspires for Expensify to exceed the typical 30% year-on-year revenue growth seen in successful SaaS companies.

"Yeah, and that's why they suck. I mean that's why entrepreneurs always leave those companies and go somewhere else."

David Barrett provides a blunt critique of traditional SaaS companies' growth strategies, suggesting that their limitations are why entrepreneurs often seek opportunities elsewhere.## Disrupting Through Talent Density and Innovation

• Emphasizes the importance of not replicating best practices of competitors or previous companies.
• Stresses the need to be different and innovative to get ahead.
• Highlights the significance of maintaining high talent density, especially during growth phases.

"you can't just copy all of the so-called best practices of the companies that you're leaving and the competitors that you're disrupting." "you have to do something different." "ensure high talent density at scale and to make sure that you can maintain that density even as your growth accelerates."

The quotes underline the argument against imitation as a strategy for success and the need for originality and a strong team to sustain growth.

• David Barrett's favorite books include "Ender's Game," "Guns, Germs, and Steel," and "Carnage and Culture."
• "Carnage and Culture" is favored for its exploration of the West's rise.
• "Guns, Germs, and Steel" is appreciated for its discussion on the origins of civilization over the last 30,000 years.
• Barrett enjoys these books for their interesting insights, even if their direct application is uncertain.

"I would say maybe Ender's game has a great book, or maybe a guns, germs and steel. Perhaps another one's called carnage and culture, which is really good." "carnage and culture is interesting because it shows the rise of defining what the west is." "guns, germs, and steel talks about sort of like the origin of civilization of the past 30,000 years."

These quotes provide insight into David Barrett's literary preferences and the reasons why he finds these particular books compelling.

• David Barrett wishes he had known that loud voices and seeming experts often distract rather than help.
• He regrets not trusting his instincts more and getting sidetracked by those who claimed expertise.
• Barrett advises that true expertise lies in understanding the past, not predicting the future.

"I wish I knew that people don't know anything." "the people who speak the loudest and seem the most expert just are generally the biggest distractions." "copying the past is not the way to sort of disrupt the future."

The quotes reflect Barrett's realization that self-trust and skepticism of so-called experts are crucial in the entrepreneurial journey.

• Describes Travis as a great guy with a strong moral compass and a desire to improve the world.
• Suggests that business is often overcomplicated by people and jargon.
• Advocates for simplifying business down to its core of convincing people and solving problems with available tools.

"Travis is a great guy, I think." "business is not nearly as hard as people make it out to be." "it's like these roles don't really mean anything in an absolute sense."

These quotes express Barrett's perception of Travis and his belief that business complexity is often artificially constructed.

• Suggests working in secret to keep failures private and avoid unhelpful public scrutiny.
• Recommends not seeking validation from peers but rather focusing on the work itself.
• Highlights the importance of trusting one's own instincts and capabilities.

"don't tell anyone and don't talk to anybody. Just do it." "work hard in secret because it keeps your failures private."

The advice given emphasizes the value of discretion and self-reliance when starting a new company.

• Barrett expresses few personal worries due to his proactive problem-solving approach.
• He is concerned about broader societal issues such as the macroeconomy, Donald Trump's presidency, and a Supreme Court gerrymandering case.
• He views these issues as more significant than the typical concerns in technology.

"I don't worry about a whole lot, I guess." "I worry about Donald Trump." "I worry about this gerrymandering case in front of the Supreme Court."

These quotes reveal the types of issues that Barrett considers worth worrying about, which extend beyond his immediate entrepreneurial sphere.

• Plans to continue Expensify's growth through its unique business model of user-driven adoption.
• Barrett is confident in the model's scalability and its disruptive impact on the enterprise market.
• Expensify's strategy involves no advertising, no outbound calling, and relies on inbound interest.

"I would say more of the same." "we are disrupting the enterprise." "we have more customers than concur, and we're the fastest growing in our space."

The quotes highlight Expensify's successful business model and Barrett's optimism for its continued growth and influence.

• Harry Stebbings expresses high regard for the interview with David Barrett, valuing the contrarian perspectives shared.
• Harry provides personal endorsements for products that have improved his travel and sleep experiences.
• Recommends Raiden luggage for its tech features and Simba hybrid mattresses for comfort.

"Well, I'm going to go out on a limb and say that was one of my favorite ever founders Fridays." "It's genuinely changed the game for me." "It's the most advanced mattress in the world."

Harry's quotes show appreciation for the interview's unique content and his personal satisfaction with certain products, which he recommends to listeners.