Pedro Franceschi: What Brex Needs to do to be a Public Company | E1178

1. 0:00 – 0:49

   Intro

   1. PFPedro Franceschi0:00

      If I were to write a book about how to build a company, there would be two parts, 50% importance of each. Part one takes six months, part two takes 10 years. And the part one is just finding what you're gonna do, and, and with who you're gonna do it with. I think the initial conditions are, like, highly underestimated. There's this belief that I can just pivot my way around to, into an idea that works. It's really hard to pivot a way into something else. And I think people just don't anticipate how much of just finding a good idea is still really damn important.

   2. HSHarry Stebbings0:27

      Ready to go? (upbeat music) Pedro, I am so excited for this, dude. I have heard so many good things, especially from Neil Mehta. So first, thank you so much for joining me.

   3. PFPedro Franceschi0:48

      Of course. Thanks for having

2. 0:49 – 6:19

   What Are People Underestimating?

   1. PFPedro Franceschi0:49

      me.

   2. HSHarry Stebbings0:49

      So Pedro, I know this is an unorthodox way to start the show, but I wanna start with the question of what do you think many people underestimate or don't think enough about that they should maybe spend more time on?

   3. PFPedro Franceschi1:02

      I think people underestimate the importance of mental health to a very high degree. Um, that's a very big learning over the past seven years.

   4. HSHarry Stebbings1:09

      Did you underestimate the importance of mental health?

   5. PFPedro Franceschi1:12

      Oh, yeah. Oh, yeah. I mean, it's, uh, 50% of the challenge is in here. It's not outside.

   6. HSHarry Stebbings1:17

      Was there ever a time when you were really depressed?

   7. PFPedro Franceschi1:20

      N- not depressed. I think my issue was more anxiety. Um, like, paralyzing anxiety. Yeah, in 2021, many times.

   8. HSHarry Stebbings1:28

      How does that manifest itself for you?

   9. PFPedro Franceschi1:30

      It's this, like, feeling where it's like, I remember this feeling vividly. You know, in 2021, uh, where I was... I mean, there was a lot of things happening in my life outside of work too, uh, but at work was pretty, pretty intense. And I remember being in my house in, in LA during the pandemic and feeling so anxious and so stressed. And I was like, "I'm, like, 25 years old, 24 or 25 years old," I don't remember. "Like, I'm perfectly healthy, and I can't work because I'm so fucking stressed that I just, I just can't function like a human being right now." Um, and, uh, and it's not great. It's, uh, it's paralyzing to sit in front of your computer, start to, you know, cold sweat, and, and it's not fun. Not fun at all.

   10. HSHarry Stebbings2:14

       What are you so stressed about? I mean this in the nicest way. You're, in the one, most wonderful American term, you're post economic. You know, investments work, some don't. Life is long.

   11. PFPedro Franceschi2:28

       I always say this to people that, you know, I think when people are harsh with us externally, I'm like, it doesn't affect me that much because I- I'm way harsher internally, uh, with myself and with the company. I think there's a degree to which you have to learn how to be kind to yourself. And, um, y- you know, again, the battle is won here, and, and I think I wasn't. Uh, and I, I, I think I'm, it's a journey. I don't think I'm, like, there yet, but I'm definitely better than what I used to be.

   12. HSHarry Stebbings2:56

       Do you think founders can be this open with investors?

   13. PFPedro Franceschi3:00

       With the right ones, yes, I think so, because I think, I think there's something about, like, it's not about hiding these things, because these things are true, and most founders go through them. I think it's about enduring them, and I think that's the point which is, you know, Brex went through a lot the past three years, and the reality is, it, it takes a, a level of fortitude and, and sort of a, a, you know, like, you, you have to design your life in many ways, especially outside of work, to endure the things that you go through at work. And I think, you know, you just hear the stories of how the great companies are built. There are moments that are hard, and, and they're not ideal. And, you know, the thing that matters is, like, people not quitting. And, and I think, you know, I, I look at a lot of founders that are really successful, and, and probably the second or third largest reason why startups don't work, after product-market fit of course, is, um, founders just burning out. Uh, so, so I think the question is, like, how do you design your life in a way where you can compound the thing you're doing for 10, 20 years? Because it's not gonna be all up and to the right, and, and I think if you believe that, then you will burn out, because the moment that shit hits the fan, and you are in a tough situation with no support systems around you, and, uh, and you feel alone, and you're anxious and stressed, um, life's gonna suck, and, and you're gonna leave.

   14. HSHarry Stebbings4:32

       In terms of that going long, you know, you and Enrique, I think quite reportedly took out a decent chunk of secondary. I'm always in favor of it, for the-

   15. PFPedro Franceschi4:41

       Yeah.

   16. HSHarry Stebbings4:41

       ... long term (...) How do you think and advise others when you get asked about secondaries?

   17. PFPedro Franceschi4:47

       Yeah. I, I, I think we're very pro doing it. We do it for our team whenever we have an opportunity. Um, and, and the reason is because I think if, if money is gonna take someone out of the game, it, it just better do it early. (laughs) Like, because the reality is, um, I think I have... There, there's a saying in Portuguese which is, "You only learn who people truly are when they make money," right? Because before then, it's all shits and giggles, right? It's like, oh yeah, like, everyone can say what they, what they, what they're excited about, what they're interested in, um, a- a- and, and, and they can, they can very well be. But the moment they make money, and the moment you see how their life changes after they made money, then you know who they really are. Uh, and I think there's some- something to that which is, um, I, you know, we've made, we've made, like, probably three tender offers since we started the company, and, like, nothing changed. Like, the people are the same, they're working as hard as they did before, um, and, and I think you, you have to treat liquidity as a part of life and not as this, like, point in time in an IPO where, you know, there's this one day where everything changes and people get rich. And then before that day, people were poor, after they, they were rich, and they're gonna change how they see the world and change the company, because we don't see an IPO as, like...... as, like, the goal. We see it as, like, the milestone in the journey, um, and- and- and I think as you, like, remove the taboo around liquidity, I think people start to conceptualize and incorporate it into their lives earlier. And- and I think very little has changed as

3. 6:19 – 8:23

   Learning Work Ethic and Mindset

   1. PFPedro Franceschi6:19

      we've done that.

   2. HSHarry Stebbings6:19

      I mean, speaking of very little changing, I think it's so important to never forget where you came from. I think family's just really helpful in really rooting us in our past. And the relationships we have with our family are some of the most important that we could have. And I've heard from many of your friends and investors, Pedro, how close you are to your mother. I think the best are always mother's boys, so it makes me very happy to hear. But also, what an important role she's played in your, obviously, early life, but also your upbringing and how you think. I'd love to start with that and what are your biggest lessons from being so close to your mother, seeing her work multiple jobs, and how that instilled a work ethic and a mindset on you?

   3. PFPedro Franceschi6:57

      So it- it's funny because, um, I- I grew up in Brazil and, you know, born and raised there. And, um, I started coding as a kid, uh, when I was eight or nine, originally hacking iPhones, uh, back in the day when they were not sold in Brazil. And, uh, and as you can imagine, um, I spent a lot of time on the computer. I remember there was this article that came out probably in, like, I don't know, 2007, 2008 or something, uh, saying that, like, Bill Gates's daughter could only spend 45 minutes a day on the computer. And then my mom read that and she was like, "Well, you're spending like 12 hours in front of the computer every day." And, uh, (laughs) and- and she- and there- and she- and there was this point in time where she was like, "Well, I can either ignore what you're doing and say, 'You know what? This is not healthy, fuck it,' like, you're not gonna spend that much time, or I can understand what's happening.'" And I think she- she was wise to see that I was actually trying to build something productive and- and- and build something, right? And learning how to code took a lot of time, uh, so she let me do that. And- and, you know, I think there's these, like, decisions that, you know, your parents make early on that, y- you know, they sound small but they completely change the course of your life. And, uh- and that was one of them. And then I think over the years, you know, I- I started working when I was 12. And I told that to my mom and she was like, "You're not gonna work. There's no way you're going to go do that." And then she came interviewing with me, uh, into this company back in 2008, um, and, uh, y- you know, I think overall she's just been very supportive of the journey since the

4. 8:23 – 10:47

   Is Early Money-Making a Sign of a Great Entrepreneur?

   1. PFPedro Franceschi8:23

      beginning.

   2. HSHarry Stebbings8:24

      So I have this weird thesis where-

   3. PFPedro Franceschi8:26

      Yeah.

   4. HSHarry Stebbings8:26

      ... I literally don't back founders who haven't made money early. I find the greatest entrepreneurs always make money early, whether it's-

   5. PFPedro Franceschi8:33

      Yeah.

   6. HSHarry Stebbings8:33

      ... Daniel Ek making websites or Tobi with Shopify, the best start early. Do you agree with me?

   7. PFPedro Franceschi8:39

      I think so. I think there's something about, um, a- a- and it's funny because I- I think there's been two experiences for me that were, uh, similar to what you're describing. First one is I built this thing online, um, and- and the first thing I actually made, like, real money, I guess, was there was this... I was selling this app on the Cydia store. Cydia store was the- the- the- the- the jailbreak, the unofficial app store for- for the iOS back in the day. And, uh, and I made like, I don't know, like, 200K in like... when I was 14. And my mom was looking at that and she was like, "Oh, what is this money? Like, what are you doing online?" And then I explained to her and I think she got it. But it wasn't her tax return because I couldn't, like, file tax returns on my own when you're 14. You can only file them, I think, when you're 16 and above in Brazil. Uh, so that was a fun one. I guess the other one that was interesting for us is we built our first company in Brazil, um, to probably- probably the first, you know, four or five years of the company, we went from zero to, you know, processing, you know, a few billion dollars a year in GMV. And all the money we raised was 300K. So we had to make the company work with 300K. And the interesting thing is you just build this wiring in your brain around how do I create value on everything you do, right? Because you- you can't afford to ship a feature if it's not gonna drive, you know, more value to the customer and you can capture a percentage of that value back to you. So, I think your wiring in your brain changes in this sense of like, you know, at the end of the day, you know, yeah, everyone can have MAUs, everyone can have all these metrics and numbers and growth and fuzzy numbers, but where is the money (laughs) ? Where is the revenue? And it can only get revenue if you generate value for someone. So I think it wires your brain around value in a really interesting way.

   8. HSHarry Stebbings10:25

      Do you think that approach would have been possible with Brex?

   9. PFPedro Franceschi10:29

      Not at all (laughs) . Brex took a lot, Brex took a lot of different permutations of- of, uh, and- and- and, you know, just honestly, a lot of different things falling in place in a very specific way to exist. And, uh, and, you know, uh, a lot of funding was one of them, so.

5. 10:47 – 12:37

   The Impact of Raising Too Much Capital

   1. PFPedro Franceschi10:47

   2. HSHarry Stebbings10:47

      Do you regret raising as much as you did? I- I chatted to Mood before the show and he mentioned this wonderful hustle and scrappiness in the company. And then mentioned, I can't remember, I think end of '21, '22, he was like, "It got really corporate, I think."

   3. PFPedro Franceschi11:02

      Mm-hmm.

   4. HSHarry Stebbings11:02

      Do you regret that? And was money the reason behind that?

   5. PFPedro Franceschi11:05

      In- in hindsight, as we look back, I think as time passed, like, we... you- you know, in some ways, I think, um, Brex had this, like, interesting journey of, like, we- we thought we were a big company, and then you start behaving like a big company, and you do, like, a lot of things that big companies do. Um, and I think, like, probably the biggest learning over the past six or seven years is the sort of way of scaling a company is you have to become a larger business but keep the mentality of a small company, right? So, how do you keep a lot of the leaders closer to the ground? How do you keep a lot of the ears close to the customer and understanding exactly what's happening? How do you understand how they make decisions and- and why they choose to go with Brex over- over oth- over others? There's something about, like, scale that, like, scale naturally pulls you away from thinking like a small company, right? Because you have all these layers, these people, these management systems, and all that in place. And- and I think, you know, a- a lot of the- the work, especially over the past, like, 18 months, was like how do we just unlearn (laughs) a lot of that a- and go back to the basics? And- and- and I think, like, fundraising was...... was, like, you know, one of the, one of the offenders. But there's definitely, you know, hiring a lot of people is also another one. And, and perhaps some of those are enabled by the fundraising. But, but I think it's more the mindset of, like, you know, like w- like what is, what is the core and then, like, what is the thing that you're actually, you know, scaling? And, and, and, and, and I think at the end of the day, it's, like, the mentality has to be this very scrappy and very early, especially as you get bigger because

6. 12:37 – 16:37

   The Moment Pedro Became a CEO

   1. PFPedro Franceschi12:37

      it's, like, harder.

   2. HSHarry Stebbings12:38

      You have a moment with Enrique recently where you decide that you're gonna be the CEO. Can you take me to that moment?

   3. PFPedro Franceschi12:44

      I think for us was, was, was two things. Uh, one is, like, I think, you know, we ma- we made a pretty big change, uh, early this year called Brex 3.0 where we really r- r- we basically changed the operating, you know, rhythm of the company, uh, in a pretty material way. Um, and, and I think one of the big principles is that we're just gonna simplify how we run the company at every layer. And the first thing was, like, we sh- we should ... if we're clarifying how roles and how people operate at every level, we should do this at our level too. Um, so that, that, that's, like, the sort of impetus. And the second thing is, you know, as a company matures more, uh, as we start thinking about, you know, an IPO, uh, eventually, um, you know, public markets, it's an easier transition if you have, like, a traditional C structure that every company has, which is a chairman and CEO structure. So, you know, we looked at both and we were like, you know, we're not gonna go public anytime in the next year. Uh, it's something coming in the future. But getting ready for this, uh, and having the structure in place sooner, um, probably just acclimates everyone to the way we actually run the company day-to-day. Um, and so it felt like a very natural point to, to make the transition.

   4. HSHarry Stebbings13:51

      Okay. So, a natural point to make the transition (laughs) . Uh, I, I think one of your ambassadors, I can't remember who it was, I'm not deliberately showing-

   5. PFPedro Franceschi13:59

      (laughs)

   6. HSHarry Stebbings13:59

      ... but they said about many of your brilliant skills, but they said one of your weaknesses, you struggle to find your voice. Do you think that's fair?

   7. PFPedro Franceschi14:06

      I heard this thing from Brian Chesky once that really stuck with me, which is, like, you know, for many years, um, I, I think founders become, like, apologetic in the way they went around the company because th- the company starts scaling, right? You have something that's working. And then the business starts growing and then you have, like, all these people from the outside that have seen a version of something working, but not your version of something working, right? So, and then they start telling you, like, "Oh, like, the CEO is supposed to do this, right? Like, your product team is supposed to operate this way. Like, your sales team is supposed to sell in that way." And then, and then I think there was this moment last year that, that we just said, "Hey, like, I, I ... there's just a way in which I believe we should run the company and it's not very traditional and I think a lot of people will probably, you know... it, it doesn't follow all the playbooks of Silicon Valley and, and how people have done it and, and that's okay." That's just authentic to, to what I believe and, and, and the way I think we should do it. And, and I think as you stop being apologetic and, and you embrace something that feels authentic to you, I think a lot more things fall into place because just the company becomes a reflection of the way you think. I think a lot of the people around you naturally gravitate and think similarly because there's a reason why they got hired in the first place.

   8. HSHarry Stebbings15:22

      What do you think are the most BS elements of traditional thinking around great CEO-ship?

   9. PFPedro Franceschi15:28

      (laughs) I, I think, like, I think there is this belief which, like, "Oh, the job of the CEO is, like, you know, you, you hire a team and then you manage that team and the team do ... does everything." A- and I think that's true to some degree, but, but I think the job of the CEO is to make the company successful. And, and I think there's very few things that matter. And I think there's this ... what I see in the best CEOs that I, I, I was fortunate to spend a lot of time with is they just have this, like, unbelievably high degree of understanding of what matters. Like, there's very few things that make a business work. And, and there's a lot of things that it can be average, there's a lot of things that it can suck at. But if you're really good at these very few things, like, amazing things happen and, and they take care of everything else. And, and, and I think there's just this degree of, like, how do you, uh, understand, like, what are the bottlenecks in the business, right? And, and, and, and what are these, like, structural points of leverage that if you make those very few things better, the whole outcome becomes just bigger, larger with less friction, faster.

7. 16:37 – 20:59

   Bottleneck Strategies for Founders

   1. PFPedro Franceschi16:37

   2. HSHarry Stebbings16:37

      So, I, I spoke to Anu before the show and she said a very specific quote, which was, "Find the one bottleneck that's throttling speed and unlock it."

   3. PFPedro Franceschi16:45

      Yeah.

   4. HSHarry Stebbings16:47

      W- w- how would you advise other founders when it comes to this statement?

   5. PFPedro Franceschi16:50

      Yeah. So, so I think it's, like, very simple. Um, I think it all starts by asking, "Hey, what's limiting your rate of growth right now?" And people say, "Oh, there's many things." There's not. Like, there, by d- definition, there's only, there's one thing, like, in any system that, like, th- throw, you know, limits the rate of progress for the whole system. It's called a bottleneck. Uh, and, and, and by the way, like, um, people should read Toyota Production Systems. It's, like, the best book on all this, like, lean manufacturing. I love these, these things. Um, and, and once you find that bottleneck, the highest leverage thing you can do is increase the throughput of the bottleneck. More than anything else in the system you could change, if you could change only one thing, it's changing the rate of progress in the bottleneck.

   6. HSHarry Stebbings17:31

      What does that, what does that mean, the rate of progress in the bottleneck? Just so I understand.

   7. PFPedro Franceschi17:34

      So, like ... So, so for example, like, you can ask yourself, "Well, like, hey, w- what is, what is my bottleneck right now?" And my bottleneck could be, well, I don't have ... For example, Brex in 2021, our bottleneck was we didn't have an enterprise product, right? So, so we were limited in the kinds of customers we could serve because the reality is as customers matured and got to a certain scale, Brex, the product that we had back then, didn't scale for them anymore. So, so when you look into the numbers and you look into where the growth of the business would come from and you look at, like, how we retain customers throughout their whole lifetime, um, that was, like, a really big pain point. As time passed, um, you're like, what is that one thing that can change the trajectory of the business? And the one thing is building...... uh, a pr- an enterprise product because if you don't have an enterprise product, there's nothing you can do. You can have the best sales team, you can have the best, uh, marketing, you can have the best everything, but if the product is not truly great, you can't, uh, unlock the next growth phases of the company. So what I did back then is I just said, "Hey, I'm gonna spend 70% of my time building that product." And I just, like, delegated everything else of, like, day-to-day management of the company to my team. And I just spend like, you know, 60, 70% of my time writing APIs with the engineers o- on like how would the enterprise product work, how would the platform that we're building would work, uh, how would all that come to place. And it took us, you know, eigh- a year to, to get something that, that worked. And, and that's how, you know, ultimately we closed customers like DoorDash, like Coinbase, like Robinhood, you know, like, all these large enterprise customers that would not have traditionally come to Brex. But th- because we were so obsessed over, like, making the bottleneck faster and making the bottleneck, like, just not be a bottleneck anymore. And, and I think the, the, the reason this is meaningful is because as you do that, you can allocate and marshal a disproportionate amount of resources into that bottleneck. So I can say, well, like, I know that the highest leverage use of my time as the founder and the CEO is to spend time (laughs) making that one thing go faster. And, and I think there is this thing where a, a lot of anxiety building a company comes from, like, what truly matters. Like, what is the one thing that if I spend time on and not hedging, not, like, spreading across, like, four or five different priorities, what is the one thing that really, really move, will move the needle? And I think when you identify this thing and you just put a lot of time there, um, there's this almost zen state, very liberating, where you can just focus entirely on one thing.

   8. HSHarry Stebbings20:04

      Have you ever identified a bottleneck and it not been the right bottleneck?

   9. PFPedro Franceschi20:08

      I've spoke about other founders of this, which is, like, I think when you're s- deep in the weeds in a problem, you're in this tr- state, which I call, like, high stress, low anxiety, which is like, you know, you, you, you're working on a problem, it's really complicated, you don't know, quite know the solution, but there's no anxiety because, like, you know that this is the thing that matters, right? The flip side is when you don't really know what it is, you're in a state where it's, like, it's relatively low stress because you're not deep in any problem, like, you're, you know, 24 hours a day. But you're, like, higher anxiety because, like, you don't know what the highest leverage point is. Um, and, and, and I think, I, I think you have to learn how to be in both ends of the spectrum.

   10. HSHarry Stebbings20:45

       What is the rate limiting bottleneck today?

   11. PFPedro Franceschi20:48

       Overall, it's probably demand generation, uh, in the mid-market, if I had to guess. And actually, no, I'm not guessing. This is the bottleneck right now.

8. 20:59 – 24:54

   What Pedro Regrets Doing and Not Doing

   1. PFPedro Franceschi20:59

      (laughs)

   2. HSHarry Stebbings20:59

      The best podcasts, honestly, dude, are when people will talk about mistakes and talk about lessons learned. Fewer things better. What did you not do that with the benefit of hindsight you wish you'd done? And on the flip side, what did you do that with the benefit of hindsight you wish you hadn't done?

   3. PFPedro Franceschi21:16

      I think there was this point in 2019, 2020 where we thought we could do it all. Like, we thought we could be... we're gonna be great at serving small businesses, we're gonna be great at serving enterprise customers, great at serving startups. And all these different customers are gonna come to Brex and be, like, totally happy with, uh, with w- what we're offering. And, and, and I think w- we tried to build it all. Like, we, we had a small business offering, we had, like, a startup offering, we had a mid-market offering, an enterprise offering. And I think the learning is the, the, the, the, the limiting factor in how many things it can do is not the head count, not the team. It's the leadership bandwidth. It's, like, how much time your best people spend, you know, doing, building things that are really high quality and really high craft. That's just really hard to scale. Like, you can't... i- it's not just a matter of adding more folks. It's, like, their attention being divided. Um, and you don't trust that many people around, you know, a completely new business or, or, or, or a new thing off the ground. And, and I think that just took us... we just completely underestimated how much head count is not the bottleneck, uh, for, for just doing more things. Um, and, a- and i think, you know, a lot of the themes and mistakes that we've made over the years were around that, I would say, like, just like believing that we could do more than we could actually do. Um, so, so I think focus was like a, a forced learning (laughs) that we had to do over the years that I think, um, the degree to which it's true and the degree to which it needs to continue being true as the company grows is something that, you know, you always think, "Oh, I have 100 people. I wanna have 1,000 people and do gen- 10X more." And it's like, no. You're gonna do maybe tw- 30% more, uh, because now you have a lot more scale and you have problems with scale and you have a lot more... you can't just, like, build something and ship it. You have to, like, you know, measure, roll it out, you know, over time. You have to have, like, A/B testing and a lot of things. Like, so, so all these things when you, when you look at the complexities of doing it at larger scales, where your leadership bandwidth goes, I think it's more... way more of a bottleneck than people anticipate.

   4. HSHarry Stebbings23:23

      Did you hire a good leadership team?

   5. PFPedro Franceschi23:25

      Oh, yeah. I mean, absolutely. I mean, we made a lot of mistakes at Brex. Uh, one thing we didn't get wr- get wrong (laughs) and we got pretty right in my opinion was, was the people.

   6. HSHarry Stebbings23:33

      (laughs)

   7. PFPedro Franceschi23:34

      Uh, we... and, you know, and I think honestly, like, it's, it, it's... I think it's not an accident. Uh, we just spent a lot of time on it, like, a ridiculous amount of time that most people would find, like, borderline obsessive.

   8. HSHarry Stebbings23:46

      What did you not do that with the benefit of hindsight, you're like, "Fuck, we should've done that"?

   9. PFPedro Franceschi23:51

      We spent a lot of time early on focusing the founder. Um, and, and I think the founder is, uh, uh, absolutely important to Brex and that's been, like, the, the, the cornerstone in which we built the company, right? We started a company to serve founders and, and, and we still serve founders exceptionally well. Uh, we launched, uh, a new banking product today, just focused on founders. But, but I think over time, it probably took us longer than it should have to focus on the finance team.... which is like once you start scaling, you hire a finance leader. And that finance leader comes in and they have their own priorities. And, um, and, and I think probably I wish we were doing more for them in 2019 and 2020. And I think we, in 2021, we basically said, "We're gonna do that really well, so we're gonna go to the most complex use case, which is like how do we serve a 10,000-person company and their finance team and scale that down?" Which, uh, which was an interesting- (laughs) pivot, I would say, from, from where we were. But, but I, I just, I just wish we had done more of that earlier.

9. 24:54 – 37:19

   Assessing Criticisms of Ramp's Marketing Strategy

   1. PFPedro Franceschi24:54

   2. HSHarry Stebbings24:54

      I think one of the reasons this show's been successful more recently is 'cause I've kind of got more direct in my question-asking.

   3. PFPedro Franceschi25:00

      Mm-hmm.

   4. HSHarry Stebbings25:00

      When you look at Ramp's product marketing, it's always been tailored towards the finance teams and towards saving.

   5. PFPedro Franceschi25:06

      Yeah.

   6. HSHarry Stebbings25:06

      And I think people will criticize you as saying it's more towards free, uh, things, coupons, vouchers, incentive mechanisms, and not saving. Do you think that's a fair criticism?

   7. PFPedro Franceschi25:17

      I think it is, and I actually like ... and I actually love the contrast because I, I just don't think any great company was built on savings. If you go ask, like, a CFO, if you go talk to, like, any great CEOs and you say, like, "Hey, what moves the needle in your business? Like what truly made a difference in the finance scene?" And what they're gonna tell you is that what made a difference was this ability of making sure every dollar counted, like how do you make sure the dollars are going to the right place and that in these places that really make a difference, that you're truly doubling down, right? You're saying, "I, I, I wanna understand what are the levers of growth? What are the levers of cost-savings? What are the levers of where to hire? Where are the levers of vendors that make a difference in your business?" And, and it's less about cutting; it's more about shifting. That insight for us has been really remarkable because when we go talk to our customers, they ... and, and, and we start to show them the product, how that happens on the ground, especially a com- a complex use cases, right? Um, and, and, you know, we go to, like, an enterprise company and we just show how they operate with Brex, how they would operate with Brex. And, for example, we have this feature called Live Budgets, right? And, and what it allows you to do is to have a real-time view into where your budget will land at the end of the quarter. And surprisingly enough, you'd be surprised, but if you go to any large public company and you go to the CMO and you say, "Hey, CMO, where are you in your budget right now?" they don't have an answer, right? And the reality is, if they knew that information, what they would do is they would say, "Well, I'm actually, you know, I'm a little bit ahead on this campaign. I'm spending a little bit more than I thought. But there's this other place that I'm not, and I probably should spend more here." So this ability to reallocate funds and say, "Well, I'm actually gonna put dollars where they convert the most," um, is truly ... it, it truly changes the way this person thinks and operates. Because at the end of the day, you don't wanna be under-budget, because you're leaving money on the table as a CMO. But if you go over-budget, it is also horrible. So when you see the, the sort of the degree to which you build the product around this idea of how to make sure the dollars are going to the place where they have the highest impact and highest ROI versus just thinking about cutting, uh, that's just a very different design decision that would build the whole company around and the whole product around. And I think customers are seeing a difference.

   8. HSHarry Stebbings27:34

      Why does, why does it resonate so well, then?

   9. PFPedro Franceschi27:36

      I think it's an easy pitch, right? Who, who doesn't like savings? But I think, like, 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 no to savings. But when you say, "He- hey, let me just tell you what we think actually matters. Let me show you when ... Le- le- le- let's talk to, like, a few customers here." Like, call them and ask them how they run their business differently based on the kinds of things that you can do. Like, when you bring all your global spend in one place and you're starting to see the difference of, you know, having this level of control in the software that allows you to push the dollars to the places that it matters the most, uh, and, and, and, and do this globally, right? And, and you start to add in the, the, the layers in which we do that. And, and I think the answers just become different in savings. And, and, and, you know, d- don't get me wrong, I think there is a place for that. And, and, and I think, you know, offering free software and offering, um, you know, a product that helps you save money, I think, you know, I, I c- I can see why that works and I would be really surprised if we didn't see competitors in a $30 billion market, to be quite honest. But I just, I don't see a different reality speaking to customers.

   10. HSHarry Stebbings28:40

       Can I stretch your thinking on marketing and ask you a question that I ask myself every day? What would MrBeast do if he were running Brex?

   11. PFPedro Franceschi28:49

       (laughs) I, I love that question. Uh, you know, I, I, I think, I think the thing that I believe about brands is w- we talk a lot about this idea of, like, left side of the brain and right side of the brain, right? And, and I think, you know, a lot of the times, like, you know, I, I, I was, I was talking to the team and I actually wrote an essay about this for the team, where, you know, we had this campaign and, you know, we ran the metrics and we were like, "Hey, what is the value that Brex generates for our customer?" And, and we learned a few things that were really interesting. So, uh, we learned that, you know, over $50 billion, um, uh, went through Brex and that was automatically on budget and in policy, which is 99.9% of the spend. We also learned, um, 11 million hours were saved by our customers using Brex, so when you look into the data and you understand, you know, what were they doing before, what they were doing after. And, and I think the thing is like how do you, how do you ... like, so what? Like what, what ... like what, what does that mean, right?

   12. HSHarry Stebbings29:48

       Well, that, that's my point is that you know what the Brex campaign should be then? It should be a mother picking up her child at 4:00 PM.

   13. PFPedro Franceschi29:55

       Yeah.

   14. HSHarry Stebbings29:55

       Why? Because she has that time because Brex-

   15. PFPedro Franceschi29:59

       Exactly.

   16. HSHarry Stebbings29:59

       ... saved her the time. I don't care-

   17. PFPedro Franceschi30:02

       Exactly.

   18. HSHarry Stebbings30:02

       ... about No, if I ... I'm being so blunt here, Pedro. (laughs)

   19. PFPedro Franceschi30:04

       Totally.

   20. HSHarry Stebbings30:04

       Maybe it's my painkillers. But I don't care about those big numbers

   21. NANarrator30:08

       (music plays)

   22. PFPedro Franceschi30:08

       No one cares about the 11 million hours. But my point is how do you-

   23. HSHarry Stebbings30:11

       I, I, I think that-

   24. PFPedro Franceschi30:11

       ... how do you make it relatable, right? How do you make it, how do you make it touch people? And, and, and-

   25. HSHarry Stebbings30:14

       How do you tell, how do you tell a story?

   26. PFPedro Franceschi30:17

       A- a- and I think the story is like, obviously, we're appealing ultimately to the finance team and, you know, with this campaign- (laughs) Which is like, finance got the day off, right? Which is, like, exactly what you just said. It's like, you know, you got a day off and because Brex automated a lot of the work that you were doing manually before. And, and, you know, another one that we, we were, we're learning about during this, during this work is, you know, it took seven million hours to build the Empire State Building. Uh, Brex saved 11 million hours. Like, what are you gonna do with that time? Uh, and, and what our customers gonna do is they're gonna build something great. They're gonna use that time to back into their missions and to serving 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, the end, and you know, m- m- 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, 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, right? When you ha- when you're using the product, you're seeing the way the product gets designed, the way you use the features, the way you get the benefit from it. The way we say, "Hey, you know, we realize you were doing this by hand 10 times. We're gonna create a rule and automate it for you because our AI detected that this is something you do every day." Like, and when you see those things together, I think that's how the brand gets, gets built.

   27. HSHarry Stebbings31:40

       Do you know what I'd do? 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 make with their Brex card.

   28. PFPedro Franceschi31:57

       I love that.

   29. HSHarry Stebbings31:58

       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.

   30. PFPedro Franceschi32:11

       I love that.
10. 37:19 – 39:45

    Steps Brex Needs to Take for a Successful IPO

    1. PFPedro Franceschi37:19

    2. HSHarry Stebbings37:19

       What do you think needs to change within the Brex business for you to be a public company? People always say, "Bullshit, there's no such thing as an IPO window. Great companies can go out at any time."

    3. PFPedro Franceschi37:30

       Like, being a public company is very easy. (laughs) Like, it's remarkably easy. You- you, like, you hire a banker, you fundraise, and you're done. The question is how to be a low volatility public company. (laughs) That's the hard part. And- and I think, you know, the only way that you can do that is having a very high degree of predictability in the business model. And I think, for us, um, that has been the hardest part. So, like, last year, we were behind plan, uh, in two quarters. This year, we're way ahead of the plan. And- and the point is, like, you know, we did our best to forecast it, and there's a lot of levers in- in what happened in terms of customer spending, in terms of where- 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, you know, where income is gonna be in two or three quarters." And I think it's really hard to go public unless you have that. Um, and- and that's probably the biggest bottleneck for us in- into doing, is just the level of predictability that we wanna have.

    4. HSHarry Stebbings38:30

       Do you think you have good enough unit e-com to go public?

    5. PFPedro Franceschi38:32

       For sure. I mean, one thing about us that we do very differently than most people in our space is, uh, we... I- I have this belief that we need to look at metrics the most punitive way possible. So, a lot of the times, like for example, CAC. I love this topic because a lot of people (laughs) come like, "Well, like, what is in your CAC?" And people are like, "Well, it's, like, sales and marketing costs." 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- and- and people can, like, you know, y- you can dance around these numbers and say, "No, no, they're not," and- and, you know, uh, "But who cares about that? No one does that," right? And- and- and I think one of the things that I learned from Neil and Greenoaks and- and- and, you know, a lot of our investors, but I think Neil was very adamant on that, is, like, the, like, understanding the economic engine of the business, uh, in a very deliberate way and- and- and- and- and- and from the perspective of like, ultimately, you want it (laughs) to be a great business. Not, like, you know, investors will look at the CAC and, you know, economics that way. And- and I think, for us, a lot of what we did over the years is how do we become very sort of ruthless in looking at the numbers in a way that's like, where is the cash flow coming from at the end?

11. 39:45 – 44:59

    Evolving Customer Loyalty Amid Rising Competition

    1. PFPedro Franceschi39:45

    2. HSHarry Stebbings39:45

       Traditionally, your business is viewed as a- a beautiful business for many reasons, but one reason is LTVs are long. People don't churn or change much when they're in, you know, with such a- a vendor. Um, is that changing in the face of increasing competition, more options, better products?

    3. PFPedro Franceschi40:03

       When you look at the card at face value, like, just the actual card, I- 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." Uh, you know, we talked about some of our competitors that offer the same product for cheaper, right? Essentially higher cash back. And you see the dynamic playing out a lot in the market of, like, someone comes in and- and, uh, we always... We have a channel that we talk about, like, uh, uh, new competitors. And a new competitor comes in and they say, "Hey, I'm launching a card with higher cash back." And- and if you think about it, like, conceptually, right? As, like, uh, the- the sort of, like, uh, uh, economic book, (laughs) economy book view of the world, like, the- the rational thing is, oh, customers are all switching away because they're getting more dollars back. But- but I think something different plays out in 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, customer's like, "Well, I actually run my whole closing process on top of this. So, the cost is higher than what I gain as cash back."

    4. HSHarry Stebbings41:05

       Isn't that why Erik comes on my show and says, "We're like a workflow platform"?

    5. PFPedro Franceschi41:09

       Uh, Brex is not... I don't think Brex is a workflow platform. I- I think that's a part of Brex. But I- I- I think the- the very, the very misconceived notion that I think people... There is this way of looking at this business that says, "Oh, all that matters is software, and financial services are commoditized." I- I strongly disagree with that view, because I think when you're serving small companies, uh, and you're serving, you know, even some mid-market companies, that- that is true for sure. I think you- you can save most of the values in the software. But when you go into the really complex enterprise use cases, that's not true at all. Um, so for example, you know, we go to, like, a lot of public companies, and the way we pitch in a public company is we show them the software. They get value from it, that's great. What really moves the needle is our global card. Customers come in and they 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 card 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 inter-company transfers across all these different entities, uh, and I need to move the money locally in all these different markets." And Brex can do that. And today, there's three companies on the planet that can do that. Number one is Brex, number two is Citibank, number three is American Express. That's it. And that's how we pitch in all these customers. So, I think the degree to which financial services underlies a lot of what we do is, like, highly underestimated and undervalued. Um, which is why we spent 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 ACH, down to the way we do, you know, global money movements, settlements, FX. We built all that in-house. We don't use any vendors for any of that, uh, and, and, and for a good reason, because it just gives us all the degrees of freedom to build all the way to the metal.

    6. HSHarry Stebbings42:56

       Is this a Uber and Lyft market? Is this is a market where you have companies of comparable size? How does the market play out in a 10-year perspective?

    7. PFPedro Franceschi43:04

       Look, this business is not new, right? Banks have been around for a long time building cards. Um, and, and, and 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, 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.

    8. HSHarry Stebbings43:26

       I always think the best businesses have pricing power, which is why I'm bold in saying-

    9. PFPedro Franceschi43:30

       100%.

    10. HSHarry Stebbings43:30

        ... that I don't think Stripe is a good business because you compete against Adyen and Checkout and your biggest customers will compete-

    11. PFPedro Franceschi43:37

        100%.

    12. HSHarry Stebbings43:39

        ... directly. Do you have pricing power?

    13. PFPedro Franceschi43:40

        I mean, I think, I think just the reality today is like, if you think about our product, right, we, we don't win on cashback, we don't win on rebates, we don't win on 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." So in some ways, I think that's the definition of pricing power, whereas we're offering the same product, more expensive, and customers are coming and staying and being happy with it. And the other thing is, when you go into an enterprise customer and they say... they come to Brex and they say, "Hey, like I... like, I am paying..." A lot of our competitors come and say, "Oh, we don't charge for the software." And our customers come in and say, "How are you not charging for the software? Like, h- you know, I wanna pay for the software because I want a level of support. I want like a premiums- a premium solution that someone I can pick up the phone, call someone, someone can come in here and help make me successful." I think pricing is- is kind of an advantage for us and has been for many years, where, um, the way you- the way we position Brex is like, we wanna be the best solution, not the cheapest. And that just creates a- a- a different, a different mentality in the company, in the servicing model, in the way you sell, and the way customers engage and, and ultimately find value in, in the solution beyond, you know, the initial use case they have, because they know there's, there's a servicing model that will deliver more value for them over time.

12. 44:59 – 46:19

    Pinpointing the Low Point in Company Culture

    1. PFPedro Franceschi44:59

    2. HSHarry Stebbings44:59

       Pedro, I, I wanna ask one final question, then I wanna move into a quick fire. Over a company life, culture gets hit. When was the culture the worst?

    3. PFPedro Franceschi45:08

       I would probably say, um, in 2021 when we pivoted very aggressively towards the enterprise-

    4. HSHarry Stebbings45:15

       Mm-hmm.

    5. PFPedro Franceschi45:15

       ... because we were serving small businesses and it was like a full, almost a 180. Um, that was pretty hard. And, and I think the learning was, as you prioritize, um, focus on serving your own customer really well before like trying to like, you know, serve the whole planet. And we had our own customers that were startups that were growing, they were becoming bigger, and they had these needs, um, of larger companies because they became larger companies themselves. We didn't have something that could serve them as well as we wanted. And then, we just had to make this really aggressive pivot to, to solve for that. And, 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. Um, so, so in some ways it was like this very, um, sobering and, and, and in hindsight, special moment of like learning how to really focus on your customer. And, uh, it was really painful, but totally worth

13. 46:19 – 53:23

    Quick-Fire Round

    1. PFPedro Franceschi46:19

       it.

    2. HSHarry Stebbings46:19

       I wanna move into a quick fire. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

    3. PFPedro Franceschi46:25

       Yeah.

    4. HSHarry Stebbings46:26

       So what do you believe today that most around you disbelieve?

    5. PFPedro Franceschi46:30

       That you should look for individual contributor skills in very senior letter- levels of leadership.

    6. HSHarry Stebbings46:35

       What board member would you most like to have that you don't have?

    7. PFPedro Franceschi46:39

       Gosh. I don't know. Elon would be cool. (laughs)

    8. HSHarry Stebbings46:43

       Why?

    9. PFPedro Franceschi46:45

       Just this... just pushing us more to be really, really aggressive and really intense.

    10. HSHarry Stebbings46:51

        What's the most memorable first investor meeting?

    11. PFPedro Franceschi46:54

        I think when we met the YC guys back in like 2017. They were like, "Hey, we like you guys, but we hate your idea." Because we were doing VR before. Uh, that was sort of funny. And they, they still invested in us, but... thank God. But, uh, it was sort of funny to like, "I don't like what you're doing, but I like you guys."

    12. HSHarry Stebbings47:12

        What's the most contrarian or unorthodox advice that you'd have for founders listening?

    13. PFPedro Franceschi47:17

        Don't be apologetic in how you want to run 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 a certain way, do it.

    14. HSHarry Stebbings47:33

        What have you changed your mind on most in the last 12 months?

    15. PFPedro Franceschi47:36

        How much more similar the founder role is when you are big or small than I anticipated.

    16. HSHarry Stebbings47:45

        Does it get easier?

    17. PFPedro Franceschi47:46

        No. I think you have more help, right? There's more people helping you do stuff. You're like... I think in the beginning you're playing two-dimensional chess. As you get a little larger, you're playing three-dimensional chess. And probably at some point, it starts to be four-dimensional chess. And there's just like a lot more pieces of the puzzle to keep in your head.

    18. HSHarry Stebbings48:03

        Do you really want to be a public company CEO? It looks like an awful life.

    19. PFPedro Franceschi48:08

        I definitely want to go through the journey. Uh, and, and I think to, to, to realize the potential of Brex, uh, I think that's the best path. Uh, it's, uh... I think it, there's pros and cons, for sure. Um, but, um, I'm just excited about how do we take what we're building to the next level, and I think that's part of the journey, so...

    20. HSHarry Stebbings48:27

        Which competitor do you most respect?

    21. PFPedro Franceschi48:30

        American Express. They're pretty good, and, uh, they've built a very impressive franchise over-... decades. And they're hard to be very big and have the degree of customer focus they have. Um, I think they have a lot of issues. Don't get me wrong. As you look into the history and how the company endured for that long, um, the way they've done, I think it's really, really impressive.

    22. HSHarry Stebbings48:57

        What's the single biggest issue AmEx have?

    23. PFPedro Franceschi49:00

        (laughs) I, I think the product is, is pretty outdated, to be quite honest. Um, and, uh, I mean, it's just literally a card. Um, they have a, a great points system, but, um, but it's just a card. There's no software, there's no controls, there's no nothing, especially as it got larger. But I think the franchise, the brand, and, and just the way the company was designed, I think, uh, uh, over the past 30, 40 years... I love studying business history, and, and AmEx is a company I studied quite a bit. Um, I think it's, it's pretty fascinating.

    24. HSHarry Stebbings49:30

        If you were to advise me to study another company, if you study business history, as you say, which should I study? I love it too.

    25. PFPedro Franceschi49:38

        I, I think there's still a lot more to be disrupted in FinTech 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. And yeah, maybe Brex is the, uh, there's this, there's this investor that, you know, didn't invest in Brex but I, I actually know quite well that says that Brex is the last good FinTech idea. And I'm like, "I don't think that's true." (laughs) I think it's the last sexy good one, but (laughs) , but, uh, but I think there's a lot there. But, but I, I, I think one thing I changed my mind a lot about company building, I think, like, if I were to write a book about how to build a company, um, there would be two parts. Um, part one takes six months, part two takes 10 years. And they're 50%, i- i- e- 50% importance of each. And the part one is just finding what you're gonna do, and, and with who you're gonna do it with. And, and I think the initial conditions are, like, highly underestimated. There's this belief that I can just pivot my way around to, 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 a way into something else. Um, and I think people just don't anticipate how much of just finding a good idea is still really damn important, and Brex was a really good idea. I mean, a lot of the credit is just the idea. Like, we... Yes, I think we actually did it well in some ways, but, but, but I think the idea was just that good. Um, and, and if I were to start something again, I would certainly spend a lot of time getting that part right. And if that is in a good place, then the other 50% is the, the 10-year journey, uh, of, like, leveraging those, like, tailwinds, so to speak.

    26. HSHarry Stebbings51:26

        Pedro, final one. What question are you never asked that you really think you should be asked?

    27. PFPedro Franceschi51:33

        The battle inside you, not the one outside you. Like, how do you, how do you, how do you stay motivated and energized and excited when things get harder? And I don't see people talking enough about that, because...

    28. HSHarry Stebbings51:48

        Do you feel you can show that level of vulnerability when you have a thousand people?

    29. PFPedro Franceschi51:52

        I do. I mean, I, I talk about this shit a lot with my team. Um, and, and I wrote about it. I mean, we did this mental health series called Catharsis where we have, like, founders talking about 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 openly. But I just, I just talk to founders, you know, day in and day out, uh, and customers day in and day out, and that's the same thing everyone's going through. You need to find ways, um, o- of how do you frame your mind and how do you frame the work you're 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, you, you don't enjoy the process, the math doesn't add up. Like, it just does not make any sense. And, and I think a lot of the point about, like, not being apologetic in 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, uh, and the process is not rewarding on its own and you're just focused on the outcome, it's gonna, it's gonna suck. Uh, it's 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 to be enjoyable.

    30. HSHarry Stebbings53:07

        Pedro, I've loved doing this. I, I know I send you schedules and your team goes through them diligently, and I just don't stick to them. But thank you so much for being so open, and I've really so enjoyed having you on.

Episode duration: 53:23