Expense-Reporting Startup Finds Big Growth by Focusing on Small Companies
Not every startup has to have a David vs. Goliath confrontation. Expensify, a San Francisco company that markets cloud-based expense management software, has prospered by pursuing self-employed individuals and companies with a few hundred to a few thousand employees. That strategy allows it to feed in the same ecosystem as its larger rival, Concur Technologies, which goes after Fortune 500 clients. In September, Germany’s SAP said it was buying Concur for $7.4 billion. Emerging tech companies such as Airbnb and Uber have linked up with Concur to sell to big corporate travel accounts. But when it comes to internal expense reporting, the two companies turn to Expensify. “The interface is clean and very easy to use,” says Omer Artun, the founder and chief executive officer of AgilOne, a data analytics company that adopted Expensify for its 150 employees.
Expensify’s client roster has doubled, to 8,000 individuals and companies, in the past six months. Founder David Barrett says his 55-employee company is already profitable, and revenue has been doubling each year since it started in 2008. He’s raised about $10 million in financing so far from investors that include Travis Kalanick, a co-founder of Uber. Barrett once worked at another Kalanick startup, the peer-to-peer file-sharing service Red Swoosh.
Barrett, who says he learned to code at age 6, had originally set out to build a business around prepaid credit cards. But that plan imploded in 2008 when, as the recession unfolded, MasterCard pulled out of their partnership. Barrett says there was a disagreement about how Expensify handled MasterCard’s trademark. By the time the issue was solved, he says, he’d decided to drop prepaid cards and focus all his energies on the expense management service he’d started as a complementary business. “I simply refused to fail,” he says.
Barrett’s mission was to make expense reporting less tedious. He spied his chance when a new generation of camera-enabled mobile phones started coming to market. In February 2008, Expensify demonstrated a feature that let users scan receipts by photographing them. “People loved the idea, even though phones’ cameras weren’t good enough at the time,” he says. Expensify’s programmers kept finessing the tool to arrive at a way to have information from a receipt—date, amount, type of service—automatically sorted into appropriate fields in a report.
Business has picked up, thanks largely to recommendations. Barrett boasts that Expensify doesn’t even have a sales force or a marketing budget. Gordon Mangione, co-founder and CEO of e-mail management startup Tipbit, says his 16 employees used to do expense reporting on a spreadsheet until the vice president for marketing started using Expensify to handle the huge mess of receipts he hauled back from his customer visits. “Then I started using it, and we forced our CFO to adopt it,” says Mangione, who adds he now has his expense report ready before he returns from a business trip. “IT used to be sold to CIOs. Now an employee adopts a piece of software and pushes his company to do the same,” says Tomasz Tunguz, a partner at Redpoint, a venture capital firm in Menlo Park, Calif., that invested $4.5 million in Expensify in 2010.
Expensify’s software, which is available for both Apple and Android mobile devices, is free for individual users. Corporate clients pay a monthly subscription starting at $9 per user, smaller companies and nonprofits pay $5. Concur’s prices vary depending on the number of monthly expense reports generated by its large corporate clients.
Some believe SAP’s Concur purchase will further focus that company on large enterprises, thereby yielding territory to its smaller rival. SAP spokesman Andy Kendzie countered, saying, “SAP intends to serve customers of all sizes.” Concur has two apps—ExpenseIt and Concur Mobile—that work similarly to Expensify.
Samad Samana, an analyst at Friedman Billings Ramsey in Arlington, Va., says the Concur deal could work in Expensify’s favor for a different reason, at least in the short term: “Acquisitions have the tendency to create natural disruption that benefits the competition.”
Jules Maltz, a partner at San Francisco-based Institutional Venture Partners, says: “They are very smart not to have salespeople. But the question is, can you build a big company just relying on word of mouth?”
Barrett doesn’t rule out spending on marketing and advertising. In the meantime, he’s trying to figure out ways to exploit the data gleaned from the billions of dollars in corporate expenses he processes. One innovation: syncing users’ flight arrival times with Uber’s app so that the receipt for the ride waiting at the airport will go directly to Expensify.