smb - exp

I started Expensify in 2008, at the bottom of the greatest depression since the great depression. And it feels a lot like today. The markets were in freefall, and the endless summer of Silicon Valley excess suddenly became a very long, very cold winter. In the bitter snow of that frozen market, Expensify was born, a small business focused on the same question every other small business was asking itself:

How do I stretch my cash to survive this market calamity?

Raising zillions of dollars and blowing it on growth at a loss wasn't an option. We had to earn each customer the hard way: by building the best product, and trusting our users to refer us to their friends. Nobody thought it would work. But 14 years later, we have more small business customers than everyone else combined. And every one of them was earned the hard way.

Nobody likes a recession. But we were born for this. We understand what you're going through. And we'll be there for you, every step of the way.

If you haven't already, check out our new Free Plan. Free expense reimbursements. Free corporate cards. Free billpay and invoicing. Everything you need to rein in your expenses and go out and make money – you guessed it, for free. Now isn't the time to spend money, it's the time to save it. Let us help you with that. Set it up by yourself, chat with Concierge, or hop on a call with our team. But you needn't go it alone.

-david

Founder and CEO of Expensify

Questions? Ask me on Twitter! @dbarrett

PS: Our Chief Strategy Officer, Daniel Vidal, got a lot of questions from investors about why we're able to thrive with SMB customers, while everyone else is cornered in the enterprise. His response is a great overview of this moment in time, so I've copied it below in its entirety:

Why Expensify is the only expense player to last in the SMB

As CSO of the world's only public expense management company, I get asked “WTF is going on in this market?” all the time. This has been especially true after Brex announced that they will no longer serve small and medium sized businesses (SMBs), bringing a lot of questions from investors and analysts asking for our take. Most are trying to understand why Expensify seems to be the only expense-related company that can sustain the SMB and also thrive in it. Luckily, the answer is the same story we’ve been telling for 13 years: you can’t take the SMB market with a traditional sales model.

Expensify has a long history of competitors trying to compete in the SMB, and every one of them has failed. Some have gone out of business. Some have been rolled up into private equity firms. Some have been acquired and some have left the SMB altogether. But none of them – not one – have stayed around to compete.

So why is that? The SMB market has the most employees, and thus the biggest opportunity for a company dealing with expenses or spend to succeed. Surely they should want to stick around in that market, but none of these businesses seem to be able to survive. Meanwhile, Expensify continues to flourish in the SMB, thanks to our unique business model.

Before getting into our business model, I’d like to quickly reflect on the different phases expense management has gone through since I started at Expensify, as there are many lessons on why some approaches other companies took didn’t seem to work in the SMB. I’ve been at Expensify and in this space for a little under a decade, and have seen many different competitors come and go. Before becoming Chief Strategy Officer, I was the Director of Corporate Development, and before that the Head of Business Development. A key piece of my job has always been to keep tabs on all our competitors, learn from them, and help Expensify adjust to the changing market conditions.

Online expense management

The godfather of modern expense management is, of course, Concur. You can't tell a proper expense management story without them. They were founded in 1993, went public in 1998, and were acquired by SAP in 2014. They took expense management to the internet and paved the path for all of us. They have had many successes, but the SMB is not one of them. They’ve tried to make it work at scale multiple times and failed. The most notable of those attempts from my recollection was in 2010, a year after Expensify entered the arena. They launched Concur Breeze in an attempt to compete in the SMB, but ended up closing it down a few short years later. Don’t get me wrong, Concur is a great company and I have the utmost respect for them. But their business model is reliant on an army of SDRs calling an endless amount of lists to generate leads that supply a sales team who close as many as they can. The economics of this model just will never work out in the SMB, as individual clients in the SMB aren’t big enough to pay for the sales team spending so much time to close them. As a result, Concur has mostly stuck to dominating the enterprise markets, which they still do. A note to the people trying to go upmarket into the true enterprise: Concur is not someone to take lightly. I have sold toe-to-toe against them and they are damn good at what they do. But fundamentally, we have a different brand, goals, and strategies such that we were able to carve out a spot for ourselves in the SMB when they could not. For now, we'll continue to take all the SMBs and mid-market companies and come to find you all later.

Receipt and expense 1.0

It was 2009 and mobile apps had just arrived on the scene. iPhone cameras had recently advanced enough to take real photos, opening up opportunities for a company like Expensify. This gave way to a plethora of receipt scanning apps, but we were the first, we were the best, and this is still what we're known for. You take a photo of a receipt and we’ll do the rest. But soon after we launched, many Expensify look-alikes came out. There was Lemon, Shoebox, and countless others, so the race was on. These were solid receipt scanning apps, but they were mostly geared for sole proprietors and sole proprietors alone. They didn't have the functionality to support an SMB as they lacked integrations, rules engines, etc., so this resulted in their best customers eventually outgrowing them, leaving them to wade in the shallows.

Expense management 2.0

There was a lot of new blood from 2010-2019. It felt like there was a new SaaS expense reporting company launching every quarter, most of whom looked pretty similar to Expensify with a slightly different spin. I used to spend a lot of time on the road traveling to conferences all over the world and can remember hearing phrases like “we’re Expensify for accountants!”, “we’re Expensify for Europe!”, “we’re like Expensify, but more automated!”. These companies spanned from sole proprietors and the SMB all the way up into the mid market and included names like Abacus, Certify, Chrome River, ExpenseCloud, ExpenseWatch, Nexonia, and Tallie. They all built solid businesses, but none of them seemed to be able to last. The issue was that most of them defaulted to the Concur model: build a tool that looks like Expensify and then use a sales force to try to sell the SMB. This proved again not to work, or at least not to get to $100 million ARR, and honestly I don’t think most of them even got to $10 million ARR. They had decent technology, but they were missing the most important piece: a business model that could sell expense reports without relying on a human selling another human. They were lacking Expensify’s viral bottom-up adoption model.

So after struggling to scale as standalone players, most of them ended up being rolled up into a giant private equity-backed expense company called Emburse. They use a sales force to sell multiple products and this will likely end up pretty well for the private equity firms. But even after combining many different expense reporting companies, Emburse cited 16,000 customers (Aug 2021) which is less than one-third of the 53,000 customers (June 2021) that we reported as we went public last year. So clearly using a sales team to sell a bunch of fragmented products, with incongruous user experiences, struggles to reach the SMB at scale.

But the industry is smart and took note. People learned not to come head-on at Expensify in the SMB. They’d have to try another way.

Enter spend management

“Spend management” is a relatively new category and has brought a new spin on approaching SMB and mid-market customers. The model is pretty clever: exploit the temporary window of low interest rates (now closed), give away a free corporate card, and then try to build a platform (which includes expense management) around that. And it has worked to raise massive amounts of money and create massive valuations. Now, these businesses will likely be successful in some way as they've raised too much money to fail. But as we've seen from recent market updates, scaling in the SMB is really, really hard. The most prominent spend management companies are Divvy and Brex, both of whom have large sales forces trying to sell different parts of the market. The former was acquired in 2021 and the latter just announced that they will no longer support their SMB customers or the SMB in general going forward.

I obviously wasn’t in the room when Brex chose to no longer serve SMBs, but if I had to guess, there are two big reasons. First, any company offering credit to SMBs is staring down the barrel of much higher interest rates, which increases their cost. In the face of these rising costs, the interchange earned no longer makes them money. The economics have just become upside down. Second, their model still relies heavily on selling and onboarding each and every business. But not all businesses are the same if you rely mostly on interchange. Traditional SMBs don’t have the same spending levels as high growth startups, mid-market, and enterprise clients. So it just doesn’t make sense for them to concentrate there when they have a good thing going in other areas. Expensify makes a lot of money off interchange and this continues to grow very quickly, but we make more off of subscription revenue and this means that it makes sense for us to target every business, including SMBs.

So, different companies, a different approach, a whole lot more money, but the exact same result we've seen before. The SMB cannot be acquired with an outbound sales strategy. Smartly, these companies learned this faster than our previous crop of competition and either got acquired or shifted focus.

This is the third wave of competition where we’ve seen this play out. And each time these competitors have made the industry and Expensify better. But here’s the thing, these companies probably don't want to be around forever. Their intention isn’t to become a huge, lasting company. Their intention is likely to become a midsized business that sells for a good amount of money, which is a great plan.

Expensify has a different goal. We have a goal to be around forever. Our goal is to support every SMB in the world and we're disciplined to stay true to our model so we have a fighting chance to actually do it.

How we built Expensify to serve SMBs forever

Now back to the original question: What makes Expensify special and so resilient in the SMB? It’s all about our business model, which has three core pieces that everyone seems to miss:

1. We are bottom-up. We build software that is loved by employees, because employees are our sales force. Every past competitor might’ve had hundreds of sales reps, but we have millions of employees selling Expensify all around the world, 365 days a year. We built a consumer grade product and give it away for free so employees will bring us to their boss. We don't require an enterprise sales team – our organic business through bottom-up is still our bread and butter and always will be.

2. We are viral. Expense management is the most viral piece of the back office. While we have expanded outside of offering just expense management by supporting clients with corporate cards, invoicing, bill pay, and travel, we chose to start with expense for a reason. We can acquire one employee in a company and they will bring us hundreds more in time. It works with both employees inviting other employees directly, and also through word of mouth where employees talk about us to others. You’d be surprised to hear how often I’ve been told that we are lifesavers. But it makes sense; prior to Expensify, most employees are either stapling receipts to printed PDFs or are manually entering data into a spreadsheet. They’re ecstatic to tell others about us when they see someone still suffering the burden of old school expense reports.

3. We grow with our clients. We work incredibly hard to not allow companies to "outgrow" us. We acquire them early and they stick with us forever. This gives us true enterprise clients that we never had to enterprise-sell. They start with us on QuickBooks, move to NetSuite, and then finally Oracle, all while using Expensify the entire time. When we first started, we focused on the SMB and it just so happened that pretty much every start up in the world used us. These startups kept growing and kept requesting us to build more functionality, so we did that. We eventually got to a point where we were supporting every part of the market. This has proven to be incredibly important to us because we have built-in growth from the customers we acquired 10 years ago.

The above is no secret. David (our CEO) has touted this forever. I’m sure he has had many "I told you so" moments watching competitors fail time and time again when they go after the SMB. He has long claimed you can't last in this part of the market if you are dependent on traditional selling. But our approach takes time, it takes discipline, and it takes intention from the start to build your company this way. As a profitable company, these are all things we have. This plan allows us to remain dedicated to the SMB and mid-market, while others will have to run away. And don’t get me wrong, it is hard. But we do it because that's where the most employees are, and where the real money is at. Brex and many others got trapped in a cycle of VC-funded hiring and top-down sales that just isn’t sustainable in the SMB market. Our radically different bottom-up strategy has allowed us to build a profitable, hyper-efficient company that generates more than $1MM in ARR per employee, and will continue to do so for years - and I hope decades - to come.