Brex co-CEO: Fintech got ‘reputation’ after dropping customers
After deciding earlier this year to drop its small business clients, corporate expense management company Brex suffered “a major reputational drain”, said co-managing director and co-founder Henry Dubug grass.
It would be “very difficult for us to go back to that segment if we wanted to again,” he admitted during a Nov. 1 interview. However, despite missteps in execution, it was “the right move” for fintech, he said.
In June, San Francisco-based Brex notified tens of thousands of small business customers it would no longer serve them because the company instead chose to focus on larger, venture-backed startups. Citing the vastly different needs of small businesses and larger tech startups, Brex called the move a “difficult decision” in an online post.
In the days that followed, Brex became co-founder and co-CEO Pedro Franceschi offered a mea culpa for the way the company handled the announcement. “We did not clearly communicate who qualifies as a Brex customer going forward, which created confusion about which companies Brex would still serve,” Franceschi wrote in June on the company’s website.
Dubugras, 26, called that miscommunication one of the notable lessons he and Franceschi, 25, learned during the experience. The two customer segments were distinctly different from Brex executives, but “for the majority of the market, startups are small businesses, small businesses are startups, right?” he said. – I think it was very confusing.
That led Brex to share specific eligibility criteria regarding which clients it would serve, specifically those that have received an equity investment, generate more than $1 million in annual revenue, have more than 50 employees, have more than $500,000 in cash, or are “technology startups that are on track to meet the above criteria and are referred by an existing customer or partner,” the company said. Brex counts DoorDash, Airbnb and Coinbase among its customers.
Focus on startup
As Brex acquired those customers in the years after its founding in 2017 and tried to serve smaller businesses as well, it went from bringing in hundreds to bringing in thousands of much smaller customers, Dubugras said. That resulted in more resources and attention to small business customers, at the expense of Brex’s larger customers, he said.
The fast-growing startup customers were looking for more tools, he said. “As they started to grow, they started to have all these new needs, and they basically said to us, ‘Look, if you don’t address these new needs that we have, we’re going to have to go somewhere else,'” Dubugras said.
It reached a point where Brex executives realized it was impossible for a company Brex’s size to serve so many segments at once, so the company needed to zero in on a client set, Dubugras said.
Brex executives chose to focus on their larger startup customers, the segment responsible for the vast majority of the company’s business. Total revenues from all businesses fell by less than 2%, Dubugras said. “Although there were a large number of companies [that fell away]those were very small companies,” he said.
The remaining customers “initially had a bit of a shocked reaction, but now understand why we did what we did and see the fruits of the focus we have in the organization,” he said.
Narrower focus part of employee cuts
Brex’s narrower customer focus was part of the reason for recent staff cuts. The fintech laid off 136 employees – about 11% of its workforce – in October. IN his web post that addresses the cutsFranceschi cited the new focus as well as a more challenging economic environment.
The Brex move mirrors similar recent hires at peer payments partners, including fintech Stripe and buy-now-pay-later provider Klarna, as well as at more established players, such as payments technology giant Fiserv.
The current economic climate differs from Brex’s early years and calls for more fiscal discipline, Franceschi said. He acknowledged that the company grew “very quickly” over the past two years as it targeted multiple customer segments. The cuts “will put us on a path to sustainable profitability over the next several years,” he wrote.
Brex now has around 1,150 employees, a spokesperson said. Asked if he expects further staff cuts, Dubugras said, “I learned during COVID to never say never, but we tried to do this so we don’t have to do it again.”
Brex raised nearly $1 billion last year, “and we basically still have that on our balance sheet,” Dubugras said. the company, which has raised $1.2 billiondoesn’t plan to raise money in the next 12 months, he said.
Dubugras refused to comment on Brex’s earnings or whether the company is profitable. In terms of payment volume, he said Brex processes tens of billions of dollars for companies annually. A spokesperson declined to provide a more detailed figure.
Although Dubugras regrets the company’s handling of the customer shift, narrowing its focus on startups “definitely allowed us to execute and do a lot more,” he said.
It includes rolling out Brex’s expense management platform, which was launched widely in October. Changes in the workplace prompted by the COVID-19 pandemic mean more workers are interacting with expense software, to get reimbursed for telecommuting purchases or for travel to meet with colleagues, Dubugras noted.
Given these new payment streams, Brex aims to improve the expense management process by combining functions and using modern technology.
Brex counts American Express and Concur as top rivals in the corporate expense and expense management arena. It also faces competition from smaller rivals Ramp and Bill.
Brex also plans to sharpen its global capabilities, in light of its customers’ worldwide workforce. The company is focused on “how do we build everything in many different currencies, and be able to reimburse people everywhere, and make the card work anywhere?” said Dubugras.
