20VC: Brex CEO Pedro Franceschi on What Brex Needs to do to be a Public Company | Brex vs Ramp: Who Wins and How Does it Play Out | Battling Founder Mental Health and The Importance of Secondaries for Founders

24:52And it's less about cutting. It's more about shifting. That insight for us has been really remarkable because when you see the degree to which you build a product around this idea of how to make sure that dollars are going to the place where they have the highest impact and highest ROI versus just thinking about cutting, that's just a very different design decision that would build the whole company around and the whole product around. Why does it resonate so well with them? I think it's an easy pitch. Who doesn't like savings? But I think reality is more complicated than that. When you go down on the ground with customers and you ask them and you go to a CFO and you say, no one says notice savings.

25:26But when you say, hey, let me just tell you what we think actually matters. Let's talk to a few customers here. Call them and ask them how they run their business differently. Based on the kinds of things that you can do. When you bring all your global spend in one place, and it started to see the difference of having this level of control in the software that allows you to push the dollars to the places that it matters the most and do this globally. And I think the answer is just become different in savings. And, and, and, and, I'm getting wrong, I think there is a place for that offering free software and offering a product that helps to save money.

25:55I think I can see why that works and I would be really surprised if you didn't see competitors in a 30 -billion dollar market to be quite honest. But I just, I didn't see a different reality speaking to customers. Can I start to show thinking on marketing and ask you a question that I ask myself every day? What would Mr. Beast do if he were running Brakes? I love that question. I think the thing that I believe about Brains is we talk a lot about this idea of like left side of the brain and right side of the brain. And I think, you know, a lot of the times like I was talking to the team and I actually wrote an essay about the city where, you know, we had this campaign and, you know, we ran the metrics and we were like, hey, what is a valid a breast generation for a customer?

26:33And we learned a few things that were really interesting. So we learned that over $50 billion went through Brexit and that was automatically unbudgeted in policy, which is 99 .9 % of the spent. We also learned 11 million hours were saved by our customers using Brexit. So when you look into the data and you understand what would you do before or what you were doing after? Well, so what? Like what does that mean? Right? Well, that's my point is that you know what the Brexit campaign should be then. It should be a mother picking out her child at 4 p .m. Why? Because she has that time because Brexit they've tough the time.

27:08I don't about no if I'm being so blunt here, but maybe it's my pain killers. But I didn't care about those big numbers you gave me. How do you tell a story? The story is like obviously we're peeling ultimately to the financing and you know with this campaign which is like finance got me they off. You got to they off because Brexit automated a lot of the work that you were doing manually before. On the other one that we were learning about through this work is it took seven million hours to go to the Empire State Building. Brex State is 11 million hours. Like what are we going to do with that time?

27:38And what our customers go to do is they're going to build something great. We're going to use that time to back consider emissions and to serve in their customers better. And I think there's something profound about you telling the story. You know, it is relatable. And people are like, wow, like it's not just about the story, right? You have to also deliver it. And I think a lot of what we've done wrong in the past is, you know, we did a very inspirational campaign two or three years ago. The problem was when you use the product, it was very hard to connect that to that broader story. And I think the power comes when the whole thing is one.

28:08When you're using the product, you're seeing the way the product gets designed, the way you use the features. And when you see those things together, I think that's how the brand gets built. Do you know what I think you focus on two things. I think you focus on impact and I think you focus on investing for tomorrow. And what does that mean? I would have a competition every year where people have to submit the most impactful purchase they meet with their Brack's card. I love that. And then wait for it if they get over a certain percentage of the company, submit something on a social platform, you will pay the college tuition fees for 10 employees for their whole children.

28:46It'll probably cost you two and a half million dollars a year and it ties into impact and investing in the future of tomorrow, which is this college tuition. I love that. Are you looking for a job in marketing? I actually love marketing so much. But that that would be really impactful. And then that's a New York Times headline, Brex, the company that pays for 10 unbelievably talented children who wouldn't go to the well, the idea, sorry, that was totally random and unfair of me to impart on you. You said there about the best quality product winning. So many of your investors told me what a brilliant product mind you are as bluntly as possible and as grand here as possible.

29:23How do you do road maps? And what's been the biggest lessons here on what was and what doesn't? Gosh, I would say we got a lot of pages from the from Brian explain book at every and beat. The realization here is so there was this feeling that I had probably in like I hadn't over the years many times mean 2020, 2021, even 2019, I think with others is something we were investing almost a hundred million dollars a year in product. And then you go use the product every year. And the experience is like not that much better. It's getting marginally better, but there's nothing tremendously different.

29:57And that feeling bothered me because it was like, what are we doing here? Why isn't this yielding to big things changing that actually makes the experience dramatically better? And one of the things that we did as part of Brack's Freak .0 is that we have a single road map now for the whole company. There's no more pro teams don't have their own roadmaps. We have a single road map. I choose where the roadmap is and there's a single editor and most importantly we do very few things in that roadmap and Typically the way it works today is we ship three times a year each release has Three to four big themes I choose what they are and there's a process in which people in certain side of company and pro -wet teams can pitch What it gets added to the roadmap and the interesting thing is we cast the roadmap and we understand exactly what is going to be for the next release the resources and the engineers and the designers and the PMs that work on things.

30:50They're not married to the work structure. So what it allows you to do is to marshal a lot of resources on doing very few things really well. And the interesting thing is a lot of these like dramas they do get as the company grows and like, oh, I have all these cross -functional dependencies. I have all these other orgs that I need to align to get something done. They all go away because everyone works for the roadmap. Everyone works in service of the the road map and every manager works in service of the road map. So things like, oh, I need to shift resources for my team to this other initiative are very natural because the goal is one for everyone.

31:25And I think what it does is from a more like quality standpoint is it creates a very clear rubric of what you're trying to accomplish. And most importantly, what is the story for the customer, not just internally, but you ultimately, you start by saying, what are we actually shipping in this release? What is the narrative of this release? How do we help the storage of customers? And then you rewind that back and you work backwards into what do we have to go and build today? And how do we align everyone to do that? So to the degree of cohesion on like, you as an entire company are working towards a single thing in a single milestone creates a much higher quality and focus output in my opinion.

32:02Do you agree with the notion of disagreeing commit? I don't think that it's possible for people to disagree and commit fully. I agree. I think when you truly change the way people think and you really put one Brexit and like the collective of the company above their teams and you put the mechanism which is really important. You put the mechanism that makes that happen every day. I think people in fullness of time they converge and they start seeing well I've only got funded today but this next idea or this next big thing we'll get funded in the next release or the release after. What was the hardest thing you said no to in the service of focus?

32:37Gosh, I mean, there was a lot of like new products that we could build, right? I mean, and you know, I was one thing. So like specifically say, 20 sport. Some of the world's largest athletes wanted to do a fund with me. Super 25 million dollar fund. I would have a lot of fun with loads of famous sport stars. Fun, but a distraction. We said no to a lot of customers that came to us say, hey, no solution to market works for us. No one can solve this problem besides what you all have done. but I need you three or four things and we said no to them. And if you're pretty painful once, what do you think needs to change within the brightest business for you to be a public company?

33:13People always say bullshit, there's no such thing as an IPO window, great companies can go out at any time. Well, like being a public company is very easy. Like it's remarkably easy. You're like you hire a banker, you fund raise and you're done. The question is how to be a low volatility public company? That's the hard part. The only way that you can do that is heavy, very high degree of predictability in the business model. And I think for us, that has been the hardest part. So like last year, we were behind plan in two quarters. This year, we'll weigh ahead of the plan. You know, we did our best to forecast it.

33:49And there's a lot of levers in what happened in terms of customer spending, in terms of where a lot of these things come to mind. But I think we're not yet at a level that we can say, Oh, we know for sure where revenue, where income is going to be in two or three quarters. And I think it's really hard to go public unless you have that. And that's probably the biggest bottleneck for us into doing it. You should lower predictability that we want to have. Do you think you have good enough unity to come to public? Yes, for sure. I mean, one thing about us that we do very differently than most point our space, I have this belief that we need to look at metrics the most punitive way possible.

34:24So a lot of times like for example, CACs, I love this topic because I love people coming well like what is in your CAC and for like well, it's like sales and marketing cost and I'm like well Is like the office overhead in your CAC is the brand spend in your CAC is the management overhead in your CAC and And people can like you know you can dance around these numbers and say no, no, they're not and you know But who cares about that? No one does that right and I think one of the things that I learned from for Neil and Greenokes and you know a lot of our investors but I think Neil was very adamant on that is like understanding the economic engine of the business In a very deliberate way from the perspective of like ultimately you wanting to be a great business Not like you know investors will look at the cack and the Unicronics that way and anything for us a lot of what we did over the years is How do we become ruthless in looking at the numbers in a way best like where is the cash flow coming from?

35:17Yeah, traditionally your business is viewed as a beautiful business for many reasons, but one reason is LTV's along People don't turn or change much when they're in you know with such a Avander is that changing in the face of increasing competition more options better products? When you look at the card at face value like just the actual card I think cards are like not that sticky right because the reality is like you can just start swiping another card You can say, hey, I got more cash back. You know, we talked about some of our competitors that offer the same product for cheaper, right? Essentially higher cash back.

35:52And you see that dynamic playing out a lot in the market. We have a channel that will talk about like new competitors and a new competitor comes in and they say, hey, I'm launching a car to higher cash back. And if you think about it like conceptually, right? As like the sort of like economy book, the world like the rational thing is, oh, customers are all switching away because they're getting more dollars back. But I think something different from please I'm practice, which is a lot of the value they get from the platform and the software and the automation starts to play a bigger role where, you know, customers like, well, I actually run my whole closing process on top of this.

36:26So the cost is higher than what I gain as cash back. Is that not why Eric comes on my show and says we're like a workflow platform? Brex is not, I don't think Brex is a workflow platform. I think that's a part of Brex. There is this way of looking at this business that says, oh, all that matters is software. And financial services are commoditized. I strongly disagree with that view, because I think when you're serving small companies, even some mid -market companies, that is true for sure. I think you can say most of the values in the software, but when you're going to do really complex enterprise use cases, that's not true at all.

36:59You know, we go to like a lot of public companies, and the way we patient a public company, is we show them the software, they get value from it, that's great. Or really moves a needle is our global card. customers come in and say, hey, I have this problem in 25 countries. And I need a card that works locally in all these countries that I can spend in local currency like if the car was issued by a local bank. I need to settle in local currency. I need to not pay FX fees. I need to not book inner company transfers across all these different entities. And I need to move the money locally in all these different markets.

37:29Brex can do that. And today there's three companies on the planet that can do that. Number one is Brex, number two, CD bank, number three is American Express. That's it. And that's how we patient all these customers. So I think the degree to each financial service is underlie is a lot of what we do is like highly underestimated and undervalued Which is why we spend so much time in the early years building our whole financial infrastructure from the ground up Like down to the way we talk to mastercard down to the way we move money on a CH down to the way we do you know global money movements settlements effects we built all that in house and reason vendors for any of that and for a good reason because it just give us all the degrees of freedom to build all the way to the metal.

38:06Is this an Uber and Lyft market? Is this a market where you have companies of comparable size? How does the market play out in a 10 -year perspective? Look, this business is not new. Banks have been around for a long time building cards. And in card companies, if you even look at the ones that were the banks that were, you know, before 2008, more card -heavy, it's not a winner -takes -all market. And again, I think it's too big and dynamics are too different from a marketplace where there's a benefit of like the incremental unit making the product inherently better. I always see the best businesses have pricing power, which is why I'm bold in saying, I don't think Stripe is a good business because you compete against Adian and checkout and your biggest customers will compete.

38:46100%. Do you have pricing power? I mean, I think just the reality today is like, if you think about our product, right? We don't win on cash back, we don't win on rebates, we don't win in credit limits, we win on customers look at everything we do together collectively. And they say, I'm getting more value from this than these other solutions in the market. I think there's a definition of pricing power, where it is offering the same product, more expensive, and customers are coming and staying and being happy with it. The other thing is when you go into an enterprise customer, they come to Bracks and they say, hey, like, I am paying a lot of our competitors come and say, oh, we don't charge for the software.

39:19And our customers come and say, how are not charging for the software? Like, you know, I want to pay for the software because I want a level of support. I want to get premiums, a premium solution that someone, I can pick up the phone, call someone, something coming here and help make me successful. And so this is what I think, I think pricing is kind of an advantage for us and has been for many years where the way we put this from Brexit is like, we want to be the best solution, not the cheapest. And that just creates a different mentality in the company, the servicing model in the way you sell and the way customers engage and ultimately find value in the solution beyond being introduced to the case they have because they know there's a servicing model that and we'll live a more valid for them over time.

39:59Patrick, I wanna ask one final question than I wanna move into a quick fire. Over a company life, culture gets hit. When was the culture the worst? I would probably say in 2021, one with pivoted very aggressively towards the enterprise, because we were serving small businesses. And it was like a full, almost a 180. That was pretty hard. And I think the learning was, as you prioritize, focus and serve in your own customer really well before trying to serve the whole planet. We had our own customers that were startups that were growing, they were becoming bigger, and they had these needs of larger companies because they became larger companies themselves.

40:36We didn't have it, something that could serve them as well as we wanted, and then we just had to make this really aggressive pivot to solve for that. And in some ways, the most customer -focused thing we could do was to serve enterprise customers well because our own customers were becoming that. And startups that are successful become that. So in some ways it was like this sobering and in hindsight, a special moment of like learning how to really focus on your customer. And it was really painful, but totally worth it. I want to move into a quick fight. So I say a short statement, you give me your immediate thoughts, does that sound okay?

41:09Yeah. So what do you believe today that most around you disbelieve? That you should look for individual contributor skills in very senior levels of leadership. What poor member would you most like to have? you don't have. I don't know, Elon would be cool. Just pushing us more to be really, really aggressive and really intense. What's the most memorable first investor meeting? I think when we met the I .C. guys back in my 2017, they were like, hey, we like you guys, but we hate your idea. Because we were doing VR before. That was sort of funny. And they invested in us, but thank God, it was sort of funny.

41:46So like, I don't like what you're doing, but I like you guys. What's the most It's contrarian or un -walsed -ox advice that you'd have to found as listening. Don't be apologetic in how you went around the company because all the people around you don't have the same visibility and the same context as you have. So if you believe in running the company in a certain way, do it. What if you changed your mind on most in the last 12 months? How much more similar to founder role is when you are big or small than I anticipated? Does it get easier? No. It gets different. I think you have more help, right?

42:20There's more people helping you do stuff. I think in the beginning you're playing two dimensional chests. As you get a little larger, you're playing through dimensional chests. And probably at some point it starts to be four dimensional chests. And there's just like a lot more pieces of the puzzles keeping your head. Do you really want to be a public company CEO? It looks like a awful life. I definitely want to go through the journey. It's to realize the potential of Brex. I think that's the best path. There's pros and cons for sure. But I'm just excited about how do we take what we grow into the next level?

42:47when I think that's part of the journey. Which compassed humorous respect? American Express, you're pretty good. And they build a very impressive franchise over decades and very hard to be very big and have the degree of customer focus they have. I think you have a lot of issues, but I'm going to be wrong. But I think as you look into the history and how the company endured for that long, the way they've done, I think is really, really impressive. What's the single biggest issue I might as have? I think the product is pretty outdated to be quite honest. I mean, it's just literally a card. They have a great point system, but it's just a card.

43:24There's no software, there's no controls, there's no nothing, especially as it got larger. But I think the franchise, the brand, and just the way the company was designed over the past 30, 40 years, I love studying business history. And Emma's company studied quite a bit. I think it's pretty fascinating. If you would advise me to study another company, if you study business history as you say, which should I study? I love it too. I think there's still a lot more to me to disrupt an infant tech than people give credit to it because I think people looked at all the sexy things in FinTech. But if you look at the underlying plumbing of how money moves in the world and you look into like, there's a lot of things that haven't been touched yet.

44:02And yeah, maybe Rex is the, there is this investor that, been investing Rex but I actually know quite well that says that Rex is the last good FinTech idea and I'm like, I don't think that's true. I think it's the last sexy good one, but I think there's a lot there. But one thing I changed my mind a lot about company building is I think if I were to write a book about how to build a company, there would be two parts. Part one takes six months, part two takes 10 years, and there are 50 % importance of each. And the part one is just finding what you're going to do and who you're going to do it with.

44:35And I think the initial conditions are like highly underestimated. There's this belief that I can just pivot my way around into an idea that works and sure that's true to some degree. But once you start something that has a little bit of traction, it's really hard to pivot away into something else and I think that Boy just don't anticipate how much of just finding a good idea is still really damn important. And Brax was a really good idea. I mean a lot of the credit is just the idea. Yes, I think Brax could get it well in some ways but I think the idea was just that good. And if I were to start something again, I would certainly spend a lot of time getting that part right.

45:08And if that isn't a good place, then the other 50 % is the 10 year journey of like leveraging those like tailwinds, so to speak. Peter, final one. What question do you never asked that you really think you should be asked? I think it's all the stuff that we talked about, the battle inside you, not the one outside you. How do you stay motivated and energized and excited when things get harder? and I don't seem to be talking enough about that because do you feel you can show that level of vulnerability when you have a thousand people? I do, I mean, I talk about this shit all over my team and I wrote about it.

45:45I mean, we did this mental health series called Patharesis where we have like founders talking out their own mental health journeys, which is really hard to convince people to do, by the way. Most people don't like talking about it only. I just talk to founders, you know, day in and day out and customers day in and day out and that's the same thing everyone's going through. And I think you need to find ways of how do you frame your mind and how do you frame the worker doing around something that gives you purpose and gives you joy because if you are focused on the outcome, if you're just focused on it and you don't enjoy the process, the math doesn't add up, it just does not make any sense.

46:23And I think a lot of the point about like not being apologetic and how you run the company. Honestly, 50 % of the value is just doing it in a way that you get energy from the process. Because if you don't get energy from the process and the process is not rewarding on its own and you're just focusing the outcome You're just gonna suck. I just gonna take a lot of time and a lot of energy and more energy than you think Because you need the energy that comes from the actual process being enjoyable Pedro, I've loved doing this I know I send you schedules and your team goes through them diligently and I just don't expect to them But thank you so much for being so open and I've really so enjoyed having you on Likewise, I really appreciate it, Harry.

47:00Great, happy Webby here and really appreciate a time you're a great interviewer. Listen, I think one of the great joys and luxuries of doing what I do is being able to direct attention or shine a spotlight on really important topics. The topic there of Founder, Mental Health, and Mental Health more broadly, I think is so, so important. I want to say huge thank you to Padre for being so open about that. You can watch the full episode on YouTube by searching for 20VC. We always love to see you there. But before we leave you today, All of you listening use tons of software every day. Sometimes it fills us with rage.

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50:08As always, I so appreciate all your support and stay tuned for a fantastic 20VC coming this Monday.