From Hackers to Expense Management: The Story of [Company Name]

The Uncommon Path of Expensify

In the realm of enterprise software, conformity is frequently prioritized. Within a market characterized by substantial contract values, often reaching millions, a standardized approach is perceived as a guarantee of dependability and instills confidence in prospective purchasers.

Therefore, it might be anticipated that a company specializing in expense report management would adopt a conventional and predictable strategy. However, a closer examination of Expensify reveals a firm that seemingly disregarded established norms from the outset.

A Culture of Innovation

From its well-known “workcations” to its organizational framework and decision-making processes, Expensify’s core principles involve rejecting conventional wisdom in favor of novel concepts. This philosophy stems from the peer-to-peer hacking background and self-reliant ethos of its founder and initial team.

Consequently, Expensify distinguishes itself from many startups, both internally and externally.

Distinctive Operational Strategies

During our initial conversation, Founder and CEO David Barrett emphasized the unique nature of his company: “Our hiring practices are markedly different. We employ a highly unconventional internal management system. The very foundation of our business model is unusual. Notably, we operate without a sales force.”

He continued, “We are an exceptionally lean organization, prioritizing our employees over management. Our technology infrastructure is entirely distinct, and our product design methodology diverges significantly from the norm.”

Success Through Differentiation

Such a description might lead some to consider Expensify unconventional, even within the startup ecosystem. However, this fundamental difference has enabled it to stand out in a market largely controlled by industry leaders like SAP Concur and Coupa.

This differentiation has proven advantageous: Expensify achieved $100 million in annual recurring revenue by 2020, accompanied by a substantial 25% EBITDA margin. Reports also surfaced during our research for this EC-1 analysis regarding potential plans for an initial public offering (IPO).

However, communication ceased in March, and the subsequent confidential filing for an IPO on May 3rd clarifies the reason.

From Humble Beginnings to Enterprise Leader

The story of Expensify is one of a resourceful team of developers who leveraged travel as a source of inspiration and persevered through challenges to ultimately create one of the most remarkably original companies in the enterprise software landscape today.

The Origins of Expensify: A P2P Legacy

Understanding Expensify requires examining the history of Red Swoosh, a now-defunct peer-to-peer (P2P) file-sharing company founded by Travis Kalanick prior to the creation of Uber. Kalanick positioned Red Swoosh as a venture born from overcoming legal challenges faced by his previous P2P startup, Scour. This early experience significantly shaped Expensify’s core values and operational approach.

Many members of Expensify’s founding team initially connected at Red Swoosh. The company was ultimately acquired by Akamai Technologies in 2007 for $18.7 million, marking a pivotal moment for those involved.

Barrett, a seasoned software engineer, joined Red Swoosh as its final engineering manager. He had previously experienced a setback with his own project, iGlance.com, a P2P push-to-talk application that struggled to compete with Skype. He recounted being contacted by Kalanick while recovering from this earlier venture.

Established in 2001 by Kalanick and Michael Todd, Red Swoosh navigated a period of both successes and difficulties. The company focused on developing a proprietary P2P content delivery network (CDN) designed to offer a more cost-effective solution for distributing large files, particularly for media organizations.

By 2005, the startup had experienced the departure of its co-founder and core technical team. However, Kalanick successfully secured funding and a contract with AOL – the current parent company of TechCrunch, Verizon Media – later that year.

He then began actively recruiting engineers through online P2P forums. Barrett recalls being contacted by Kalanick via the p2p-hackers mailing list, appreciating his directness. As noted in Brad Stone’s “The Upstarts,” Kalanick was “completely honest about the state of business,” proving to be both “persuasive, compelling and candid.”

how a band of p2p hackers planted the seeds of a unique expense management giant

Despite the controversial reputation often associated with P2P technology, and the playful use of “pirate speak” on its blog, Red Swoosh operated legitimately and presented a viable solution for businesses. A free, ad-supported tier broadened its potential user base.

However, its premium services were particularly valuable for organizations with substantial bandwidth requirements. The startup even playfully suggested to Apple, in a mock letter, that they could potentially save $15 million annually on bandwidth costs compared to using Akamai, garnering some attention.

It is believed that this letter was primarily intended for Akamai’s consideration. Paul Sagan, Akamai’s former CEO, later shared with Adam Lashinsky for his book on Uber, “Wild Ride,” that Kalanick “always assumed Akamai would buy his business.”

Realizing this potential, Red Swoosh focused on refining its product. Barrett’s team possessed the necessary expertise and enthusiasm to rebuild and enhance the platform. “We had a lot of old technology, so we cleaned up that technology, expanded it, rewrote a lot of it, added some new customers, then we were acquired by Akamai,” Barrett explained.

This background provides insight into Expensify’s strategic decisions, such as developing its own distributed database and prioritizing internal development over external acquisitions. The company’s culture continues to reflect the innovative and resourceful spirit of the original P2P hacker community.

Embracing the Adventurous Spirit

The individuals known as the Red Swooshers, while not traditional pirates, possessed a strong sense of adventure. Prior to joining Kalanick’s venture, Barrett had already explored 22 countries during a global journey undertaken between 2002 and 2003. He simultaneously pursued technological and P2P projects during this time.

This experience proved transformative, influenced as much by the travel itself as by the numerous well-intentioned, yet often inaccurate, pieces of advice Barrett received before his departure. His central realization was that “virtually everyone is mistaken about virtually everything.”

This conclusion served as a foundational principle guiding his professional endeavors, and ultimately, the development of Expensify. Barrett discovered that independent problem-solving was often more effective than relying on advice tailored for others or their specific company.

VC Blake Bartlett, a member of Expensify’s board, frequently highlights this characteristic to other founders. He notes the tendency for startup founders to simply adhere to established best practices without critical evaluation. This contrasts with a first-principles approach to problem-solving.

Shared Traits and Early Collaboration

Barrett’s preference for minimalist and extensive travel aligned with Kalanick’s own inclinations. Tom Jacobs, a former Red Swoosher and early Expensify employee, shared with TechCrunch that both David and Travis were fundamentally adventurers.

A similar mindset was evident among the Red Swooshers who subsequently joined Expensify. They readily embraced the concept of maintaining productivity and reducing costs through “workcations” in diverse locations, including Thailand, Mexico, and India.

In retrospect, this period served as a precursor to future developments. The close-knit bonds formed within the Red Swooshers made them a natural resource for Barrett when establishing Expensify.

Their collective work also facilitated the acquisition of Red Swoosh by Akamai, creating a new, albeit significantly different, shared experience for the team.

The Foundation for Expensify

The Red Swooshers valued independent thinking and problem-solving.
They embraced a minimalist and adventurous lifestyle.
Their collaborative spirit proved crucial in the founding of Expensify.

The acquisition by Akamai further solidified the team’s cohesion, despite the change in circumstances. This early history laid the groundwork for the unique culture and approach that would define Expensify.

A Strategic Acquisition

In April 2007, Akamai completed the acquisition of Red Swoosh, primarily to incorporate their team into its own workforce. An Akamai representative initially characterized the transaction as a technology acquisition, emphasizing the gain of proficient software engineers and distinctive client-side technology to enhance their content delivery network.

However, skepticism arose regarding the true motivations behind the deal. Many observers believed Akamai was proactively eliminating a potential competitor. Gigaom commented that P2P caching presented a challenge to Akamai’s market leadership, and Akamai responded by leveraging its financial resources to acquire potential rivals.

The Intent Behind the Purchase

The possibility of Red Swoosh continuing as an independent entity was questionable from the start. According to insights shared with Lashinsky for his book, Sagan revealed that the acquisition was, in essence, a talent grab. He described it as “a way to hire a bunch of pirates to get it done,” referring to his ambition to integrate P2P technology into Akamai’s services.

Sagan further explained that he utilized the unconventional approach of Travis and the Red Swoosh team to achieve a goal that had previously eluded him for years.

Long-Term Impact and Technology

Ultimately, the acquisition proved beneficial for Akamai. The NetSession Interface, launched in 2011, which featured “peer-assisted” capabilities, was built upon P2P technology initially developed by Red Swoosh. Tyler Karaszewski, now a senior software engineer at Expensify, continued to contribute to its development.

Despite this technological advancement, the outcome differed significantly from the original vision of Kalanick and his colleagues. Jacobs conveyed to TechCrunch their disappointment that Akamai did not allow Red Swoosh to operate as a separate team, despite their initial hopes.

Departure of Key Personnel

The integration of Red Swoosh into Akamai’s engineering team, as stated in the official press release, foreshadowed the eventual departure of its core members. Kalanick resigned from Akamai in August 2008, following the exit of most of the original Red Swoosh team.

Barrett’s subsequent departure proved particularly insightful, signaling the complete assimilation of Red Swoosh’s identity within Akamai.

A Culture of Agreement

David Barrett is candid regarding his dismissal from Akamai. In 2010, his professional profile highlighted that he was “potentially most recognized for a highly publicized termination from a prior company, which resulted in coverage from TechCrunch and sparked an ethical discussion at MIT concerning the lines between personal and professional communication.”

The situation stemmed from an article where Barrett voiced criticism of a proposed “music tax” intended for inclusion on all internet service bills. Unbeknownst to him at the time, Warner Music was a supporter of the initiative and also a client of Akamai. Furthermore, the article failed to clarify that his statements were personal opinions, not official company positions. While he did reach his one-year vesting period, his employment concluded in April 2008.

Barrett’s intention wasn’t job loss, but the incident demonstrates his willingness to take firm positions. Notably, Expensify garnered attention in October 2020 when it sent an email to its user base, advocating for voters to support Joe Biden in the U.S. presidential election. Barrett authored the lengthy message, stating, “A vote for anyone other than Biden equates to a vote against democracy.”

It’s less widely known that Expensify’s team engaged in extensive consultation before this action. This wasn’t simply due to the potential for controversy, but rather reflects Expensify’s standard operating procedure.

Jason Kruse, a former employee, emphasizes that decision-making at Expensify wasn’t dictated from the top down. “Consensus is central to everything,” Kruse stated, noting he’s striving to replicate this approach at Privacy.com, the startup he co-founded. He links this philosophy directly to Barrett’s background in peer-to-peer (P2P) systems: “Distributed systems fundamentally rely on consensus. Consider the bitcoin blockchain; thousands of independent nodes, largely outside of direct control, must collectively validate each transaction. This is the essence of consensus in distributed systems, and Expensify mirrors this principle in its organizational structure.”

Both Red Swoosh and Akamai provided Barrett opportunities to explore his interest in P2P technology. Following his time at Akamai, he dedicated himself to developing the concept that would ultimately become Expensify, a project he had already begun working on “during evenings and weekends.” Having accumulated savings – and remembering the discouragement he received regarding his previous travels – he chose to pursue the venture independently and discreetly. “Only my partner was aware of my plans,” he explained.

The Genesis of an Idea

Several months passed, and the initial concept began to evolve into the form that Expensify would ultimately take. Barrett originally envisioned a prepaid card for individuals experiencing homelessness in San Francisco’s Tenderloin district, whom he encountered daily. However, he adjusted his proposal to focus on a product that appeared more likely to gain approval from banking and financial institutions: a unified system combining a corporate card with expense reporting capabilities.

Seeking further validation and aiming to attract potential financial partners, Barrett submitted an application for TechCrunch50 2008. This resulted in a table within the DemoPit, a precursor to Startup Alley. Barrett stated that this event prompted him to contact his co-founder, Witold Stankiewicz, who had also been his first employee at Red Swoosh. Subsequently, additional former Red Swoosh team members – Jacobs and Curtis Chambers – joined the venture.

Kalanick also became involved as an early advisor, investor, and advocate. His blog post from September 2008 serves as a testament to the startup’s initial presentation. He wrote of empowering small-business employees, independent contractors, and sole proprietors with user-friendly tools for effortless expense reporting. He highlighted three core Expensify components: the expense card, the receipt capture and upload functionality, and the central dashboard.

Over time, the concept materialized into a more concrete offering. Following TC50, Barrett and his co-founder observed significant interest in the expense reporting aspect. Improvements in smartphone camera technology soon made the receipt capture feature feasible, and the expense card itself was reintroduced into Expensify’s services in 2019. Regarding the initial goal of assisting the homeless, Expensify revisited this commitment in 2020 with its COVID-19 relief initiative and the establishment of its charitable organization, Expensify.org.

It is noteworthy how Expensify has maintained its distinct identity despite its growth over the past 13 years. As will be explored in Part 2 of this EC-1, this is due to the company’s considerable focus and dedication to cultivating a unique work environment.